Policyholder Pulse
The Second Circuit Court of Appeals has weighed in (again) on a still unsettled issue in the realm of insurance law: whether arbitration provisions in insurance policies issued by foreign insurers are enforceable notwithstanding states’ anti-arbitration statutes? If they are, coverage disputes between policyholders and insurers are likely to be relegated to arbitral decision under insurer-favored arbitration clauses; if not, policyholders may pursue their rights in a more favorable forum. In Certain Underwriters at Lloyds, London v. 3131 Veterans Blvd LLC, the Second Circuit abrogated its previous decision in Stephens v. American International Insurance and answered this question in the affirmative, finding such provisions enforceable under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the “New York Convention”).
The unsettled state of the law can tie policyholders up in knots. Below, we recap the history that led to the 3131 Veterans Blvd ruling, including several conflicting decisions from different jurisdictions. We also discuss the potential impact this ruling may have on policyholders’ ability to rely on state laws that void arbitration provisions in insurance policies and what steps policyholders should take to avoid this potential dilemma altogether.
States’ “Anti-Arbitration” Insurance Statutes
Insurance laws and regulations have historically been reserved to the states. To protect policyholders, many states have passed laws providing that mandatory arbitration provisions in insurance policies are void and unenforceable. For example, Missouri’s Uniform Arbitration Act provides, in relevant part, that:
A written agreement to submit any existing controversy to arbitration or a provision in a written contract, except contracts of insurance and contracts of adhesion, to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. (emphasis added.)
Other states have passed similar legislation.
The McCarran-Ferguson Act and the New York Convention
While state law is typically preempted by federal law under the Supremacy Clause, Congress provided an exception to that general rule of preemption in the McCarran-Ferguson Act (MFA). The MFA provides in relevant part, “No Act of Congress shall be construed to invalidate, impair or supersede any law enacted by any State for the purpose of regulating the business of insurance … unless such Act specifically relates to the business of insurance.”
Courts applying states’ anti-arbitration statutes to arbitration provisions in insurance policies issued by domestic insurers have held the Federal Arbitration Act (FAA) (which generally requires enforcement of arbitration agreements) is “reverse-preempted” by the MFA, reasoning that (1) the FAA does not specifically relate to the business of insurance; (2) the FAA would impair states’ anti-arbitration statutes; and (3) states’ anti-arbitration statutes were enacted for the purpose of regulating the business of insurance.
However, the analysis differs when the arbitration agreement is between a policyholder and a foreign insurer. This is because policies issued by foreign insurers implicate the New York Convention and its implementing legislation, known as the “Convention Act.” The New York Convention is a multinational treaty to which the U.S. is a signatory. Article II, Section 3 of the New York Convention provides, in relevant part, that when a party before a contracting nation’s court seeks to enforce an arbitration agreement made in a different nation, that court “shall … refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”
Accordingly, when determining whether an arbitration agreement in a policy issued by a foreign insurer is enforceable under relevant state law, courts evaluate the interplay between the New York Convention, the Convention Act, and the MFA.
The Second Circuit’s Decision in Stephens
In 1995, in deciding Stephens, the Second Circuit Court of Appeals held that Kentucky’s anti-arbitration statute reverse-preempted the Convention Act. In reaching its conclusion, the Second Circuit determined the New York Convention was not a “self-executing” treaty because it “relies upon an Act of Congress for its implementation” (i.e., the Convention Act).
Accordingly, the Stephens court reasoned that the New York Convention itself could not provide a basis for preempting Kentucky’s anti-arbitration statute and, instead, the relevant source of federal law was the Convention Act itself. Because the Convention Act is an “Act of Congress” under the MFA, the Second Circuit determined it was reverse-preempted by Kentucky’s anti-arbitration statute, and found the international arbitration provision unenforceable.
The U.S. Supreme Court’s Decision in Medellín
In Medellín v. Texas, the U.S. Supreme Court established a test for determining whether a treaty was “self-executing.” The Court identified several factors that indicated a treaty was self-executing, including that:
- The treaty provides “a directive to domestic courts” of the contracting nation;
- The treaty provides “that the United States ‘shall’ or ‘must’” take a particular action;
- The “text, background, negotiating and drafting history” regarding the provision indicate the President and/or Senate’s intention that the treaty be self-executing; and
- The ratified treaty takes “immediate legal effect in domestic courts.”
As shown below, the U.S. Supreme Court’s decision in Medellín impacted certain courts’ determinations concerning whether Article II, Section 3 of the New York Convention was self-executing post-Stephens.
The “Gordian Knot” Left by Stephens and Medellín
Post-Stephens and Medellín, various federal courts diverged in their analysis of whether the MFA reverse-preempted the New York Convention and/or the Convention Act, creating what one court deemed “the Gordian knot.”
The First Diverging Rationale: Safety National
In Safety Nat’l Cas. Corp. v. Certain Underwriters At Lloyd’s London, the Fifth Circuit Court of Appeals presumed the New York Convention was not self-executing. However, the majority opinion diverged from Stephens, finding the “implemented treaty provisions, self-executing or not,” preempted Louisiana’s anti-arbitration statute. The majority opined that, in passing the MFA, Congress did not intend for state insurance laws to reverse-preempt “federal law that has as its source an implemented non-self-executing treaty.” Accordingly, the majority held that the MFA did not apply because the New York Convention is a treaty, not an “Act of Congress.” Three judges vigorously dissented, reasoning that the New York Convention, as a non-self-executing treaty, “cannot itself provide a rule of decision in U.S. courts[.]”
A concurring judge agreed with the majority’s ultimate decision, but opined that Article II, Section 3 of the New York Convention is self-executing under the Supreme Court’s decision in Medellín. Specifically, the text of Article II provided a “directive to domestic courts,” stating courts “shall” refer parties to arbitration that have agreed to arbitrate, thus indicating Article II is self-executing. As a self-executing treaty, the New York Convention was not subject to the MFA.
The Second Diverging Rationale: ESAB Group
In ESAB Grp., Inc. v. Zurich Ins. PLC, the Fourth Circuit Court of Appeals similarly presumed the New York Convention was not self-executing. However, the Fourth Circuit—diverging from both Stephens and Safety National—held that considerations of international comity precluded reverse preemption. The Fourth Circuit reasoned that refusing to enforce international arbitration agreements would “frustrate” the purpose of the New York Convention.
The Third Diverging Rationale: CLMS Management
In CLMS Mgmt. Servs. Ltd. P’ship v. Amwins Brokerage of Ga., LLC, the Ninth Circuit Court of Appeals, citing the Safety National concurrence, concluded the New York Convention was “self-executing.” According to the court, a “straightforward application of the textual analysis outlined in Medellín compels the conclusion that Article II, Section 3 is self-executing[.]” Because the New York Convention “is not an ‘Act of Congress’ subject to reverse pre-emption by the” MFA, the international arbitration provision was enforceable.
The Knot Tightens: Other Courts Diverge in Their Analyses and Conclusions
Courts continue to diverge in their analysis and ultimate conclusions concerning the interplay between the New York Convention, the Convention Act, the MFA, and states’ anti-arbitration statutes. Some courts have concluded the New York Convention is self-executing and thus not subject to pre-emption by the MFA. Other courts have disagreed that the New York Convention is self-executing, but diverged in their conclusions concerning whether states’ anti-arbitration statutes reverse preempt the Convention Act.
The Second Circuit Changes Course in 3131 Veterans Blvd.
On May 8, 2025, the Second Circuit Court of Appeals confronted the same issue it was faced with nearly 30 years ago in Stephens—whether arbitration provisions in insurance policies issued by foreign insurers are enforceable notwithstanding states’ anti-arbitration statutes? This time, the Second Circuit held in the affirmative, concluding that its reasoning in Stephens was “fatally undermined by the Supreme Court’s subsequent decision in [Medellín],” which “established an entirely different test for determining whether a treaty provision should be considered ‘self-executing’[.]”
The Second Circuit found its analysis in Stephens erroneously focused “solely on the existence of implementing legislation for the New York Convention as a whole, and it considered none of the factors identified as controlling in Medellín.” Applying the Medellín factors, the Second Circuit held the New York Convention provided a “directive to domestic courts” that the U.S. “shall” take a particular action, namely, referral of parties to arbitration that have agreed to arbitrate. Accordingly, the Second Circuit abrogated Stephens and concluded the New York Convention “cannot be reverse preempted” by state insurance laws under the MFA.
Potential Ramifications of 3131 Veterans Blvd.
Despite the ruling in 3131 Veterans Blvd., the legal landscape concerning enforcement of international arbitration provisions in insurance policies remains far from settled. As discussed herein, several courts continue to reject the conclusion that the New York Convention is self-executing, leading to disparate results concerning the applicability of states’ anti-arbitration statutes to arbitration provisions in insurance policies issued by foreign insurers.
Given these skewed results in various jurisdictions, policyholders should consider the potential pitfalls of inclusion of arbitration provisions in insurance policies issued by foreign insurers, such as undesirable and expensive forum battles in the event of coverage litigation. To avoid this dilemma—especially in multi-layered programs with participating excess and surplus lines insurance carriers—policyholders should pay close attention to foreign insurance companies’ attempts to insert arbitration provisions into their policies. Experienced insurance recovery lawyers can assist policyholders in evaluating such provisions when purchasing insurance coverage, advise on potential risks, and cut through the Gordian knot.