Check For Arbitration Provisions In Surplus Lines Policies
Arbitration provisions are becoming more common in surplus lines policies. These provisions affect how disputes will be resolved and where they will be resolved and can impact the legal rights of property insurance policyholders. These clauses are becoming so prevalent that I wrote a blog asking, Will Arbitration Be the New Appraisal?
An Order issued last week1 sent a Hurricane Laura claim to arbitration despite Louisiana having a Code that prohibits arbitration. The surplus lines insurers made the following argument:
This suit arises from a commercial property insurance claim made by Zagis USA, LLC (‘Zagis’), a company operating at 21095 South Frontage Road in Lacassine, Louisiana, based on damage it sustained in Hurricane Laura on August 27, 2020 and Hurricane Delta on October 9, 2020. At the time of the loss, Zagis’ property was insured… under a surplus lines commercial property insurance policy.
This Policy includes a broad arbitration agreement mandating that ‘[a]ll matters in difference’ between the Insured and the Insurers ‘in relationship to this insurance’ be submitted to arbitration.
Pursuant to 9 U.S.C. § 202, the Arbitration Agreement falls under the Convention because it arises out of a commercial relationship and it is not entirely between citizens of the United States. Therefore, pursuant to 9 U.S.C. §§201, 206, Defendants seek an order from the Court referring all of the claims asserted in this matter by Zagis against Defendants to the arbitration process as provided for in the Arbitration Agreement. In the alternative, the Arbitration Agreement is enforceable under the Federal Arbitration Act (FAA) because the Policy is a contract evidencing a transaction involving commerce to settle by arbitration a controversy arising out of such contract, including the refusal to perform the whole or any part of the contract. Therefore, pursuant to 9 U.S.C. §4, Defendants seek an order from the Court directing Zagis submit all claims to the arbitration process as provided for in the Arbitration Agreement.
The trial court agreed. This is not the first time a Louisiana federal court has done so this year, as noted in Check For Arbitration Provisions—Especially When Dealing With Foreign Insurers:
Read the full policy after the loss—RTFP. When doing so, it is also important to check for the manner in which disputes are to be resolved and the applicable rules, including the time frames to invoke them. This is especially true with foreign insurers where an arbitration provision will apply.
A Louisiana case involving a Louisiana City decided last week upheld an arbitration agreement and the application of New York law even though Louisiana has a statute prohibiting this.
The lesson is that arbitration is becoming more prevalent as a substitute for litigation or appraisal. These clauses change how, where, and sometimes what law applies to resolve disputes.
Thought For The Day
Progress is impossible without change, and those who cannot change their minds cannot change anything.
—George Bernard Shaw
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1 Zagis USA v. Certain Underwriters at Lloyd’s, London, No. 2:22-cv-02189 (W.D. Lou. Aug. 26, 2022).
