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The Fifth Circuit Court of Appeals held that international treaties, whether self-executing or not, do not constitute an "Act of Congress" within the meaning of the McCarran-Ferguson Act. Accordingly, the McCarran-Ferguson Act did not cause a Louisiana statute to reverse preempt the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
In Safety National Casualty Corp. v. Certain Underwriters at Lloyd's London, No. 06-30262, 2008 WL 4378515 (5th Cir. Sept. 29, 2008), the Louisiana Safety Association of Timbermen-Self Insurers Fund (the Fund) entered into reinsurance contracts with Certain Underwriters at Lloyd's London (the Underwriters), and each contract contained an arbitration agreement. The Fund assigned its rights under the reinsurance contracts to Safety National Casualty Corporation (SNCC), but the Underwriters refused to recognize the assignment, so SNCC sued the Underwriters.
The district court granted the Underwriters' motion to compel arbitration with both SNCC and the Fund. However, when the parties could not agree upon how to select the arbitrators, the Fund moved to intervene in SNCC's lawsuit and quash the arbitration, asserting that the arbitration agreements were unenforceable under Louisiana law. The district court granted the Fund's motion, holding that although the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention) would otherwise require arbitration, La. Rev. Stat. § 22:629 prohibits arbitration agreements in insurance contracts, and the state statute reverse preempted the Convention because the statute had the "purpose of regulating the business of insurance" within the meaning of the McCarran-Ferguson Act. The Underwriters appealed.
On appeal, the Court had to determine if the Convention was an "Act of Congress" within the meaning of the McCarran-Ferguson Act. The McCarran-Ferguson Act provides that no "Act of Congress" can invalidate or supersede any state law enacted for the purpose of regulating the business of insurance. Thus, if the Convention was an "Act of Congress," Louisiana's law prohibiting arbitration agreements in insurance contracts would "reverse-preempt" the Convention through the McCarran-Ferguson Act.
The Fund argued that the Convention was not self-executing and only took effect in the U.S. when Congress passed enabling legislation, which the Fund contended was an "Act of Congress" within the meaning of the McCarran-Ferguson Act. The Court rejected the Fund's argument and held that the Convention was not an "Act of Congress" within the meaning of the McCarran-Ferguson Act.
The Court held that a treaty is "something more than an act of Congress. "It is an international agreement . . . negotiated by the Executive Branch and ratified by the Senate, not Congress." Furthermore, the mere fact that Congress had to pass enabling legislation for the treaty to take effect did not transform the treaty into an "Act of Congress" within the meaning of the McCarran-Ferguson Act. The Court held that it is undisputed that a self-executing treaty is not an act of Congress, and there is no reason why Congress would have chosen to distinguish between self-executing treaties and non-self-executing treaties in the McCarran-Ferguson Act.
Furthermore, the Court held that case law has established that if a federal law is to preempt an international treaty such as the Convention, there must be an "express direction by Congress" that the treaty is preempted to the extent that if conflicts with the federal law. Since the McCarran-Ferguson Act contains no such express congressional direction, the Court ruled that the Convention was not preempted here. Accordingly, the Court reversed the district court's decision to quash the arbitration.
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