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Mandatory Arbitration Provisions -- not in my State -- McCarran-Ferguson, the FAA, and Reverse Preemption

June 23, 2011, John E. James, Michael B. Rush

There is a well-established public policy recognized in both the federal and state court systems that arbitration, rather than litigation, is a procedure that, in many cases, is the most economical, efficient, and fair method for the resolution of disputes. However, in the world of insurance coverage litigation, from complex commercial to personal lines disputes, there is a view, especially among policyholders, that mandatory arbitration is not necessarily the most effective or fair way to resolve such disputes. Indeed, there are instances, such as reinsurance disputes, in which insurers themselves have embraced that position. The ambivalence concerning the merits of arbitration as an insurance coverage dispute resolution mechanism has led some states to enact laws that preclude the enforcement of arbitration clauses that are included in insurance policies.

The focus of this article is how the courts have handled litigation concerning the enforceability of such statutes in a number of different contexts. In many instances, the enforceability of such statutes depends upon the resolution of the clash between two federal statutes—the McCarran-Ferguson Act, enacted in 1945 and the Federal Arbitration Act, a part of federal law since 1925.

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