The Louisiana Supreme Court ruled that insurance companies cannot compel insured parties in Louisiana into arbitration, even if policies contain arbitration provisions, according to BestWire.
The underlying case, “Policy Jury of Calcasieu Parish v. Indian Harbor Insurance Co., et al” stems from damage caused to roughly 300 properties by 2020 hurricanes Laura and Delta.
The eight domestic insurers involved in the claims attempted to force the parish into arbitration in New York, according to the Louisiana Supreme Court. A parish is considered a political subdivision in the eyes of state law.
The insurers attempted to force arbitration in New York, but the court clarified that the Parish, as a political subdivision, cannot be subject to arbitration outside Louisiana.
The court addressed three legal questions related to the validity of arbitration clauses in insurance contracts:
- Did the 2020 amendment to La. R.S. § 22:868 implicitly repeal the prohibition on arbitration clauses in insurance contracts?
The court concluded that the 2020 amendment did not repeal the existing prohibition. The amendment allowed forum and venue selection clauses in certain policies but did not extend this allowance to arbitration provisions. The court emphasized that arbitration clauses deprive Louisiana courts of jurisdiction, which remains prohibited under state law.
- Does La. R.S. 9:2778, which bars arbitration clauses in contracts with the state or its political subdivisions, apply to all public contracts, including insurance policies?
The court affirmed that La. R.S. 9:2778 applies to all public contracts, including insurance policies issued to the state and its political subdivisions. This statute renders any agreement requiring arbitration or foreign law in a contract with a political subdivision null and void.
- Can a domestic insurer use equitable estoppel to enforce an arbitration provision in another insurer’s policy against a political subdivision?
The court held that equitable estoppel cannot be invoked to circumvent the prohibition of arbitration clauses under La. R.S. 22:868. It noted that equitable estoppel is disfavored under Louisiana law and cannot prevail when in conflict with the state’s positive written law.
This ruling reinforces Louisiana’s strong public policy against arbitration clauses in insurance contracts, particularly those involving public entities. It ensures that disputes involving the state or its political subdivisions remain within Louisiana’s judicial system, upholding the jurisdiction of state courts over such matters.
Our answer to the first certified question informs the answer to the third certified question, the court wrote, noting state laws are anti-arbitration in nature and that was unaffected by the 2020 amendment.
State law disfavors arbitration as it deprives courts of their jurisdiction over actions against insurers, the Supreme Court said.
“For the foregoing reasons, we answer the third certified question in the negative: Since ‘arbitration continues to be prohibited in all insurance policies delivered or issued for delivery in Louisiana,’ a domestic insurer may not resort to equitable estoppel under state law to enforce an arbitration clause in another insurer’s policy in contravention of the positive law prohibiting arbitration,” the court wrote.
