Brendan Gooley | Carlton Fields
The U.S. District Court for the Eastern District of Louisiana rejected an effort to avoid arbitration based on Louisiana law. The court held that federal law applied and required arbitration of claims against both domestic and foreign insurers because the issues related to each group of insurers were intertwined.
The plaintiffs alleged that their properties were damaged by Hurricane Ida. They sued the defendants, a group of domestic and foreign insurers, seeking coverage under policies the defendants issued to the plaintiffs. The defendants removed the action and then filed a motion to compel arbitration and stay judicial proceedings pursuant to arbitration clauses in the policies.
The district court granted the defendants’ motion to compel arbitration and stay judicial proceedings. The plaintiffs subsequently moved to lift the stay as to the domestic insurers based on a recent Louisiana Supreme Court decision, Police Jury of Calcasieu Parish v. Indian Harbor Insurance Co., holding that the arbitration clauses in the policies were invalid as to domestic insurers. The defendants responded that federal law superseded state law in cases governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and required arbitration of claims against both foreign and domestic insurers because concerted and interdependent conduct was alleged.
The district court agreed with the defendants, though it noted that courts are divided on this issue. The court noted that the Louisiana Supreme Court’s decision in Police Jury conflicted with the Fifth Circuit’s decision in Bufkin Enterprises LLC. v. Indian Harbor Insurance Co. that if “‘the signatory to the arbitration agreement … raises allegations of substantially interdependent and concerted misconduct by both a non-signatory (the domestic insurers) and one or more signatories to the contract (the foreign ones),’ equitable estoppel should apply to the domestic insurers, allowing them to compel arbitration.” The district court therefore determined that it had to decide “whether the Louisiana Supreme Court or Fifth Circuit’s rule controls.” The court concluded that the Fifth Circuit’s law governed. It applied the U.S. Supreme Court’s test in Boyle v. United Technologies Corp., 487 U.S. 500 (1988), which requires the court to first “determine if a case presents a uniquely federal interest necessitating application of federal common law, and second, … whether the application of state law conflicts with or frustrates specific objectives of federal legislation.” The court concluded that test was satisfied. It explained that “[l]itigation between domestic insurers and plaintiffs could influence the arbitration between foreign insurers and plaintiffs, and vice versa” and that applying Louisiana law to ban arbitration would “frustrate the purposes of the Convention.”
The district court therefore denied the plaintiffs’ motion.
Olsen Securities Corp. v. Certain Underwriters at Lloyd’s London, No. 2:22-cv-03120 (E.D. La. May 12, 2025).
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