by Lionel M. Schooler, FCIArb
Jackson Walker LLP1

Introduction. In Certain Underwriters of Lloyds, London v. 3131 Veterans Blvd LLC, _____ F.4th _____, 2025 WL 1335829 (2d Cir. 2025), the United States Court of Appeals for the Second Circuit confronted the question of the interplay between state laws barring arbitration of insurance claims and the New York Convention’s provisions promoting arbitration. The Court confronted this issue against the backdrop of a prior case which had made clear that state law prevailed in such a situation.

Background. This latest ruling addressed two cases involving insurance policies which contained the same clause requiring arbitration of disputes. The policies had been issued to protect against the cost of hurricane damage in high-risk zones. They both covered damage claims to commercial properties in Louisiana following a hurricane in 2021. The policies provided that disputes between the insureds and the insurers over coverage had to be referred to arbitration before a panel seated in New York, applying New York law.

The insureds were unsatisfied with the insurers’ proposed settlements, and sued in state court in Louisiana as to some of the insurers. The insurers countersued in the United States District Court for the Southern District of New York, contending that the Federal Arbitration Act (“FAA”) and the New York Convention required arbitration of the disputes in New York.

Legal Questions Presented. In response to this contention, the insureds asserted that under the McCarren Ferguson Act, 15 U.S.C. §1012 (“MFA”), arbitration was “reversepreempted” because of the state insurance laws involved. The Court noted that the MFA did not specifically address insurance issues, and also did not address any treaty provisions that are “self-executing,” but did note that it had previously held that the applicable portion of the New York Convention, Article II, Section 3, was not self-executing. See Stephens v. American International Insurance, 66 F.3d 41 (2d Cir. 1995).

The Veterans Boulevard Court further noted that the Supreme Court had decided Medellin v. Texas, 552 U.S. 491 (2008), which it characterized as establishing an entirely different test for determining “self-executing” treaties than it had recognized in Stephens.

Issue Presented. Whether a state law prohibiting arbitration of insurance disputes pursuant to the terms of the MFA overrides the arbitration clauses of the New York Convention.

Appellate Review. The lower courts relied upon the Second Circuit’s prior decision in Stephens and determined that the “reverse-preemption” of insurance arbitration clauses under Louisiana law precluded compelling the insureds’ claims to arbitration.

The Second Circuit initially recognized that regardless of the primacy ascribed to the FAA to preempt state law to the contrary, the thrust of the MFA was to create an exception to this rule of preemption within the context of the applicability and coverage of state insurance law.

It then turned to the insurers’ principal argument, that the New York Convention barred the insureds’ efforts to evade arbitration of their disputes. The Court recognized that the MFA only addressed reserve-preemption within the context of the MFA’s reliance upon an act of Congress to take effect, that is, when the action or treaty in question is not “self-executing” but for an act of Congress.

However, in light of the Medellin decision, the Court determined that Article II, Section 3 of the New York Convention was self-executing when it stated that the request by a party from another country to enforce the coverage of the New York Convention in the context of enforcing an arbitration agreement required that a court shall refer the parties to arbitration unless the agreement in question is found to be null, or incapable of being performed.

The Second Circuit accordingly granted the insurers’ motion to compel arbitration.

Conclusion. This recent decision by the Second Circuit highlights the force of Article II, Section 3 to provide access to an arbitral panel to resolve a dispute, even where state law explicitly prohibits such a referral, and reminds once again of the capacity of the New York Convention to support arbitration as a means of dispute resolution.

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