Court Gives States Say Over Arbitration Clauses In Policies
By Allison Bell
A new federal court ruling could invalidate mandatory arbitration clauses in some Midwestern insurance policies.
The 8th Circuit Appeals Court recently held that the McCarran-Ferguson Act, the federal law that gives states the authority to regulate insurance, also gives states the authority to exempt insurance contracts from the Federal Arbitration Act.
What Your Peers Are Reading
In Missouri, the Missouri Arbitration Act, Mo. Rev. Stat. 435.350, states that contracts requiring arbitration, “except contracts of insurance and contracts of adhesion,” are valid.
The law appears to deal with many types of contracts, not just insurance contracts. But courts should treat the reference to insurance contracts in the Missouri statute as a law that is “limited to entities within the insurance industry” because “insurance is the only industry singled out,” the appellate court writes in an opinion explaining its ruling on the case, Devin West vs. Standard Security Life Insurance Company of New York.
Circuit Judges Pasco Bowman II and David Hansen supported both the ruling and the opinion.
Circuit Judge James Loken concurred only in the ruling. He did not provide an opinion of his own.
The ruling deals only with procedural issues, not with the merits of the case.
The 8th Circuit handles appeals for Arkansas, Iowa, Minnesota, Nebraska, North Dakota and South Dakota as well as Missouri.
Standard Security, the defendant, can ask all judges sitting on the 8th Circuit to review the decision of the three-judge panel, and it can also appeal to the U.S. Supreme Court.
If the ruling stands without undergoing Supreme Court review, it will have the force of law in the 8th Circuit, according to legal experts.
A representative for Standard Security, a subsidiary of Independence Holding Company, New York, declined to comment.
Christian Faiella, a Moberly, Mo., lawyer who represented the plaintiff, Devin West, welcomed the ruling.
If the ruling stands, “in the state of Missouri, mandatory arbitration laws in insurance policies are no longer valid,” Faiella says.