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.1The court noted the following in its discussion:

Louisiana law generally prohibits arbitration clauses. See La. Stat. Ann. § 22:868 (‘No insurance contract delivered or issued for delivery in this state and covering subjects located, resident, or to be performed in this state . . . shall contain any condition, stipulation, or agreement . . . [d]epriving the courts of this state of the jurisdiction or venue of action against the insurer’). Nonetheless, the Contract governing the set of policies issued by Defendants to the City of Kenner includes an arbitration clause that nominally submits ‘[a]ll matters in difference between the Insured and the Companies . . . in relation to this insurance, including its formation and validity . . . to an Arbitration Tribunal in the manner hereinafter set out.’….The Contract also provides that the arbitration “shall be in New York and the Arbitration Tribunal shall apply the law of New York as the proper law of this instance.

Because Louisiana law would prohibit enforcement of this arbitration clause, Defendants must rely on some preemptory law if this motion is to be granted. They find that law in a treaty known as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (‘Convention’)….The Convention…requires this Court to enforce an arbitration clause if four criteria are met: ‘(1) there is a written agreement to arbitrate the matter; (2) the agreement provides for arbitration in a Convention signatory nation; (3) the agreement arises out of a commercial legal relationship; and (4) a party to the agreement is not an American citizen.’…There is no dispute that there is a written agreement to arbitrate, that the arbitration agreement provides for arbitration in a signatory nation, and that the agreement arises out of a commercial legal relationship. Nor is there any dispute that two of the ten Defendants – namely, HDI Global Specialty SE and Certain Underwriters at Lloyd’s, London – are not American citizens. The remaining eight Defendants are American citizens.

The court upheld the provision and indicated the entire controversy with all the insurers would go to arbitration. I have warned about this before in Choice of Law and Arbitration Provisions in Texas—Beware of These Provisions Which May Apply Laws of Another State:

As a warning to policyholders, public adjusters, and contractors involved with insurance policies with these provisions, please get legal advice. You may find yourself thinking these provisions cannot be enforceable and find out they are enforceable, and you lost your rights to collect otherwise available coverage benefits.

While I did not think about it when we opened offices in New York and New Jersey following Superstorm Sandy, my New York law license and familiarity with New York insurance claims law becomes relevant even with losses in other states because many of these provisions require New York law to be applied.

Insurance agents selling policies with these arbitration clauses should warn their policyholders of these provisions before selling the product. New York insurance law generally has fewer consumer protections for policyholders, and it is certainly far more expensive to arbitrate a matter in New York rather than where the policyholder’s loss occurred.

Thought For The Day

If the Department of Education is serious about fighting for students and protecting taxpayers, a full ban of mandatory arbitration clauses is a no-brainer.
—Dick Durbin
1 City of Kenner v. Cerftain Underwriters at Lloyd’s, London, No. 21-2064 (E.D. La. Feb. 2, 2022).