Not In My Backyard by Lionel M. Schooler, FCIArb Jackson Walker LLP1

INTRODUCTION. In Town of Vinton v. Indian Harbor Ins. Co., 161 F.4th 282 (5th Cir. 2025), the United States Court of Appeals for the Fifth Circuit addressed a significant question about the scope and breadth of equitable estoppel in determining arbitrability, including the potential impact upon applicable law of the involvement of parties potentially covered by the New York Convention.

BACKGROUND. The town of Vinton is part of the Calcasieu Parish in Louisiana. It purchased a “surplus lines insurance” policy from several insurers, that is, specialized insurance coverage for high-risk, unique, or hard-to-place risks that standard insurers refuse to cover. In order to diminish the impact of any particular claim, such as those triggered by hurricane damage, a common occurrence in Gulf Coast states such as Louisiana, this policy was spread among numerous insurance companies, both foreign and domestic.

Each of the policies in question contained a common, broadly-worded arbitration clause, requiring submission of any dispute to arbitration. Each policy further provided that it was to be structured as a separate contract between the Town of Vinton and each underwriter.
Vinton later submitted a claim under the policy against all of the insurers (domestic and foreign), which triggered a controversy about coverage. In the wake of this development, Vinton filed a lawsuit for breach of contract against all the insurers in Louisiana state court. It then dismissed with prejudice all of the claims against the foreign insurers.

ATTEMPTED INITIATION OF ARBITRATION PROCEEDINGS. The remaining insurers, all American owned and operated, removed the case to the Western District of Louisiana, and moved to compel arbitration of all claims under both the New York Convention and the Federal Arbitration Act. Simultaneously, the insurers sought to stay the lawsuit pending arbitration.

The District Court denied the motion to compel. It noted, first, that the insurance coverage in question was in fact a series of separate contracts between each insurer and Vinton. It noted, second, that the foreign insurers had been dismissed from the lawsuit with prejudice, and thus concluded that their departure meant that the Convention did not apply. It noted, third, that the Convention would not support compelling arbitration on a theory of equitable estoppel.

Simultaneously, in a related case, the District Court certified several questions about Louisiana law regarding arbitration and insurance coverage to the Louisiana Supreme Court. The Louisiana Supreme Court concluded that Louisiana statutory law prohibited including arbitration clauses in insurance agreements, and further concluded that this prohibition applied to municipalities like Vinton. It also concluded that the doctrine of equitable estoppel did not apply.

ISSUE PRESENTED. The Vinton case proceeded to the Fifth Circuit for it to evaluate whether the American insurance companies could compel arbitration of the claims filed against them by the insured. The Fifth Circuit considered three issues: (a) Should arbitration be compelled under the Convention?; (b) Should arbitration be compelled through equitable estoppel (on the basis that Vinton had contracted to arbitrate insurance claims, upon which the American insurers had relied)?; and (c) Did the delegation clause in the arbitration agreement(s) require compelling arbitration of the existing disputes for review by the arbitrator?

JUDICIAL ANALYSIS: APPLICABILITY OF NEW YORK CONVENTION. Turning to the first question, the Fifth Circuit determined that the contracts in question did not constitute one agreement, but rather separate agreements between the Insured and each Underwriter. It therefore rejected the contention that the arbitration clause overrode the severable nature of each insurance policy. From that, the Fifth Circuit concluded that with the absence of any foreign parties from the case, the New York Convention did not apply.

JUDICIAL ANALYSIS: EQUITABLE ESTOPPEL. As for the second question, the Court preliminarily noted that the doctrine of equitable estoppel is determined by the applicable contract law of the State in question. It then noted that the insurers were invoking a recent Fifth Circuit decision, Bufkin Enterprises LLC v. Indian Harbor Insurance Company, 96 F.4th 726 (2024), that had approved compelling arbitration of claims by both American and foreign underwriters through use of equitable estoppel based upon Louisiana law. Acknowledging this decision, the Court explained that the subsequent pronouncement by the Louisiana Supreme Court prohibiting the use of arbitration clauses in Louisiana-based insurance policies narrowed the reach of the Bufkin decision, precluding the application of equitable estoppel in this case as a matter of state law.

JUDICIAL ANALYSIS: PRE-EMINENT DETERMINATION OF ARBITRABILITY. Finally, as to the third question, the Fifth Circuit declined to “put the cart before the horse.” That is, the Court refused to reach the issue of who was to decide arbitrability, noting that it was first obliged to determine whether the parties had a valid arbitration agreement. It grounded this conclusion upon the wording of Louisiana law that in this case explicitly prevented the valid formation of an agreement to arbitrate.

CONCLUSION. The Town of Vinson decision highlights the ongoing vitality of state law as the pre-eminent pronouncement in determining arbitrability.

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1 Mr. Schooler is a former member of the Board of the CIArb North American Branch, and the Immediate Past Chair of the Texas Chapter.