As I’ve noted in prior posts regarding the U.S. Supreme Court’s decision in AT&T Mobility, LLC v. Concepcion (see, for example, my August 22, 2011 post), the insurance industry is in a somewhat unique position with respect to the use of arbitration clauses as a mechanism of avoiding class action exposure.  One reason for this is that under the McCarran-Ferguson Act some courts have concluded that a state law barring or restricting the use of arbitration in insurance policies may override the Federal Arbitration Act (this is called “reverse preemption”).  This result has now come to pass post-Concepcion in a recent decision by the Arkansas Supreme Court.

In Southern Pioneer Life Insurance Co. v. Thomas, 2011 Ark. 490, 2011 Ark. LEXIS 573 (Ark. Nov. 17, 2011), the plaintiffs purchased a vehicle (it was a 2006 PT Cruiser for readers curious about such details) under a finance contract.  At the time of sale, they also bought a credit life insurance policy that would pay off the loan if one of them died before it was paid off.  The plaintiffs paid off the loan early, but were not refunded any of the premium.  They then filed a putative class action seeking refunds of unearned premiums under these policies.  Id. at *2-3.  The loan application on which the plaintiffs purchased the life insurance included an arbitration provision, and the insurer sought to compel arbitration of the named plaintiffs’ claims in defending the suit.  (As I’ve explained before, this is a common tactic in defending class actions – if the named plaintiffs’ claim must go to arbitration, once the arbitration is resolved, regardless of the outcome they should not be able to pursue a class action.)

The Arkansas Supreme Court held that the arbitration agreement was unenforceable under an Arkansas statute that provides generally for the validity and enforceability of arbitration agreements, but states that it “shall have no application  . . . to any insured or beneficiary under any insurance policy or annuity contract.”  Ark. Code Ann. § 16-108-201(b).  The court explained that:

Under the McCarran-Ferguson Act, reverse preemption occurs if (1) the federal statute at issue does not specifically relate to the business of insurance; (2) the state law was enacted for the purpose of regulating the business of insurance; and (3) application of the federal statute will invalidate, impair, or supersede the state law.

Id. at *5.  The court found reverse preemption appropriate because: (1) the Federal Arbitration Act is not specific to insurance; (2) the portion of the state law at issue regulated insurance, although it also applied to other contexts; and (3) enforcement of the arbitration provision under the Federal Arbitration Act would effectively invalidate the Arkansas statute.  The court therefore affirmed the lower court’s ruling denying the motion to compel arbitration.

This result is not surprising.  Absent some creative avenue around the McCarran-Ferguson Act, which I haven’t looked into extensively (and may be a case-by-case determination in each applicable state), it seems to me that the options insurers have, to the extent they want to take advantage of the Concepcion decision, are:  (1) expanding the use of arbitration provisions only in states where the applicable law does not prohibit or limit the use of arbitration in insurance policies; (2) lobbying state legislatures to allow arbitration in states that currently prohibit or restrict it; and (3) lobbying Congress to fix this on a national basis by enacting a statute that allows the use of arbitration provisions in insurance contracts.   A national “fix” would be possible without amending the McCarran-Ferguson Act because it has an express exception where another federal statute specifically relates to insurance.  Whether the political option is viable at the national level I will leave to others who know more about that.  But I would think a viable argument could be made that in the case of large disasters, for example, people who have smaller disputes with their insurance companies are better off with a quick, easy and fair arbitration process than a lengthy and expensive court proceeding.  The devil is probably in the details of how such a process would function.

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.