Filed 11/22/17

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

CITIZENS OF HUMANITY et al.,

Plaintiffs and Respondents,

v.

APPLIED UNDERWRITERS, INC., 

et al.,

Defendants and Appellants.

B276601

(Los Angeles County

Super. Ct. No. BC571913)

APPEAL from an order of the Superior Court of Los 

Angeles County. Allan Goodman, Judge. Affirmed.

Hinshaw & Culbertson, Spencer Y. Kook, Misty A. Murray, 

and James C. Castle for Defendants and Appellants.

Browne George Ross, Eric M. George, Peter W. Ross, and 

Corbin K. Barthold for Plaintiffs and Respondents.
2

Defendants and appellants Applied Underwriters, Inc.

(Applied Underwriters), California Insurance Company (CIC), 

Continental Indemnity Company (CNI), Applied Risk Services, 

Inc., Joan Sheppard, Westin Fredrick Penfield, and Michael Scott 

Wichman (collectively, defendants) appeal from an order denying 

their petition to compel arbitration of a dispute with plaintiffs 

and respondents Citizens of Humanity, LLC and CM Laundry, 

LLC (collectively, plaintiffs). We affirm the trial court’s order.

BACKGROUND

The RPA

In 2012, plaintiffs purchased from defendants a workers’

compensation insurance package known as the EquityComp 

program. As part of that program, plaintiffs entered into a 

Reinsurance Participation Agreement (RPA) with Applied 

Underwriters Captive Risk Assurance Company, Inc. (AUCRA), a 

company affiliated with defendants. The RPA contains an 

arbitration provision that provides in relevant part:

“13. Nothing in this section shall be deemed to 

amend or alter the due date of any obligation under 

this Agreement. Rather, this section is only intended 

to provide a mechanism for resolving accounting 

disputes in good faith.”

“(A) It is the express intention of the parties to 

resolve any disputes arising under this Agreement 

without resort to litigation in order to protect the 

confidentiality of their relationship and their 

respective businesses and affairs. Any dispute or 

controversy that is not resolved informally pursuant 

to sub-paragraph (B) of Paragraph 13 arising out of 

or related to this Agreement shall be fully 

determined in the British Virgin Islands under the 

provisions of the American Arbitration Association.
3

“(B) All disputes between the parties relating 

in any way to (1) the execution and delivery, 

construction or enforceability of this Agreement, (2) 

the management or operation of the Company, or (3) 

any other breach or claimed breach of this Agreement 

or the transactions contemplated herein shall be 

settled amicably by good faith discussion among all of 

the parties hereto, and, failing such amicable 

settlement, finally determined exclusively by binding 

arbitration in accordance with the procedures 

provided herein. The reference to this arbitration 

clause in any specific provision of this Agreement is 

for emphasis only, and is not intended to limit the 

scope, extent or intent of this arbitration clause or to 

mean that any other provision of this Agreement 

shall not be fully subject to the terms of this 

arbitration clause. All disputes arising with respect 

to any provision of this Agreement shall be fully 

subject to the terms of this arbitration clause.”

None of the other agreements between the parties contains 

an arbitration provision.

The RPA also contains a choice of law provision that 

states:

“16. This Agreement shall be exclusively governed by 

and construed in accordance with the laws of 

Nebraska and any matter concerning this Agreement 

that is not subject to the dispute resolution provisions 

of Paragraph 13 hereof shall be resolved exclusively 

by the courts of Nebraska without reference to its 

conflict of laws.”

The instant action

In February 2015, plaintiffs filed a complaint against 

defendants and AUCRA alleging causes of action against AUCRA 

for fraudulent inducement in entering into the arbitration 

agreement, breach of contract, and breach of the covenant of good 
4

faith and fair dealing; and against all of the defendants for fraud, 

false advertising, breach of fiduciary duty, professional 

negligence, and declaratory relief. 

The parties filed competing motions to compel and to stay 

arbitration of their dispute. In their motion to stay the 

arbitration, plaintiffs argued that Nebraska law applied 

pursuant to the choice of law provision in the RPA and that the 

arbitration provision of the RPA was void under section 25-

2602.01(f)(4) of the Nebraska Uniform Arbitration Act (NUAA), 

which prohibits arbitration of “any agreement concerning or 

relating to an insurance policy.” Plaintiffs further argued that 

the Federal Arbitration Act (9 U.S.C. §§ 1-16) (FAA) did not 

preempt the NUAA because another federal statute, the 

McCarran-Ferguson Act (15 U.S.C. §§ 1011-1015) mandates that 

state laws “regulating the business of insurance” preempt any 

federal statute not specifically related to the business of 

insurance and that impairs state insurance laws. Defendants 

argued that the FAA governs and preempts the NUAA, and that 

under the RPA’s broad delegation clause, any issue concerning 

arbitrability should be resolved by the arbitrator.

Before the hearing on defendants’ motion to compel 

arbitration, plaintiffs dismissed AUCRA as a defendant.

Plaintiffs then argued that the motion to compel arbitration 

should be denied because the only defendant that had signed the 

RPA had been dismissed. At the hearing on defendants’ motion, 

the trial court requested supplemental briefing from the parties 

on a number of issues, including whether California or Nebraska 

law should be applied to determine whether defendants have the 

right to enforce the RPA’s arbitration provision, whether 

Nebraska law bars arbitration of the parties’ dispute, and 

whether the FAA or the McCarran-Ferguson Act applies.
5

In their supplemental brief, plaintiffs argued, among other 

things, that the McCarran-Ferguson Act displaced the FAA, that 

both California and Nebraska law applied to bar arbitration, and 

that the court, not the arbitrator, should determine the 

consequences of applying the McCarran-Ferguson Act. 

Defendants argued that the RPA’s delegation clause required all 

questions concerning construction and enforceability of that

agreement, including applicability of the NUAA, to be decided by 

the arbitrator, and that the FAA governed the arbitration 

provision, which was not displaced by the general choice of law 

provision.

Following a July 8, 2016 hearing, the trial court denied the 

motion to compel arbitration. In its written order denying the 

motion, the trial court first addressed the threshold question of 

who should decide -- the court or the arbitrator -- the arbitrability 

of the parties’ dispute. The court noted that defendants’ sole 

basis for arguing that the arbitrator rather than the court should 

decide this issue was the FAA and cases decided thereunder. The 

trial court then noted that a potential conflict existed between 

the FAA and the McCarran-Ferguson Act, which allows state 

laws enacted for the purpose of regulating the business of 

insurance to reverse preempt the FAA. After analyzing 

applicable federal case law on the reverse preemption issue, the 

trial court concluded that reverse preemption applied under the 

McCarran-Ferguson Act and that Nebraska law applied to 

invalidate the arbitration clause in the RPA. The trial court 

denied the motion to compel arbitration and this appeal followed.

DISCUSSION

I. Standard of review

We ordinarily review an order denying a petition to compel 

arbitration for abuse of discretion. However, where, as is the 

case here, the trial court’s denial of a petition to compel 
6

arbitration presents a pure question of law, we review the order 

de novo. (Gorlach v. Sports Club Co. (2012) 209 Cal.App.4th

1497, 1505.)

II. Applicable legal framework

The instant case involves the intersection of three different 

statutory schemes: the FAA, the McCarran-Ferguson Act, and 

the NUAA. 

A. The NUAA

Section 25-2602.01(b) of the NUAA provides that a written 

agreement to arbitrate disputes between the contracting parties 

“is valid, enforceable, and irrevocable, except upon such grounds 

as exist at law or in equity for the revocation of a contract, if the 

provision is entered into voluntarily and willingly.” (Neb. Rev. 

Stats., § 25-2602.01(b).) Subsection (f) of that statute, however, 

excepts from this provision “any agreement concerning or 

relating to an insurance policy,” thereby prohibiting agreements 

to arbitrate certain insurance-related disputes.1

B. The FAA

The FAA reflects the fundamental principle that 

arbitration is “a matter of contract.” (Rent-A-Center, West, Inc. v. 

Jackson (2010) 561 U.S. 63, 67 (Rent-A-Center).) Section 2 of the 

FAA makes arbitration agreements in contracts “involving 

commerce . . . valid irrevocable, and enforceable” (9 U.S.C. § 2), 

 

1 Section 25-2602.01 of the NUAA provides in relevant part: 

“(b) A provision in a written contract to submit to arbitration any 

controversy thereafter arising between the parties is valid, 

enforceable, and irrevocable, except upon such grounds as exist at 

law or in equity for the revocation of any contract, if the provision 

is entered into voluntarily and willingly. [¶] . . . [¶] (f) 

Subsection (b) of this section does not apply to: [¶] . . . [¶] . . . any 

agreement concerning or relating to an insurance policy other 

than a contract between insurance companies including a 

reinsurance contract.” (Neb. Rev. Stats., § 25-2602.01.)
7

and section 4 of the FAA provides for federal district court 

enforcement of such agreements. The “body of federal 

substantive law” created by the FAA is applicable, however, in 

both state and federal courts. (Southland Corp. v. Keating (1984) 

465 U.S. 1, 12.) State law therefore cannot bar enforcement of 

the FAA, even in the context of state law claims brought in state 

court. (Buckeye Check Cashing, Inc. v. Cardegna (2006) 546 U.S. 

440, 445.) The FAA thus ordinarily preempts conflicting state 

laws that prohibit arbitration of particular types of claims. 

(AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 341.)

C. McCarran-Ferguson Act

The federal McCarran-Ferguson Act provides a narrow 

exception to federal preemption of conflicting state laws that 

regulate the business of insurance. Section 1012(b) of the 

McCarran-Ferguson Act provides: “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.” (15 U.S.C. § 1012(b).) “The McCarran-Ferguson Act

thus allows state law to reverse-preempt an otherwise applicable 

federal statute, because the McCarran-Ferguson Act does not 

permit an ‘Act of Congress’ to be ‘construed to invalidate, impair, 

or supersede’ state law unless the Act of Congress ‘specifically 

relates to the business of insurance.’” (Safety Nat’l Cas. Corp. v. 

Certain Underwriters (5th Cir. 2009) 587 F.3d 714, 720.)

The principal issues presented here are (1) whether the 

McCarran-Ferguson Act causes the NUAA to reverse preempt the 

FAA, thereby rendering the arbitration provisions of the RPA 

unenforceable; and (2) who -- a court or an arbitrator -- should 

decide the preemption/enforceability issue. We address the latter

of these issues first.
8

III. Who decides arbitrability

“The question whether the parties have submitted a 

particular dispute to arbitration, i.e., the ‘question of 

arbitrability,’ is ‘an issue for judicial determination [u]nless the 

parties clearly and unmistakably provide otherwise.’ [Citations.]” 

(Howsam v. Dean Witter Reynolds (2002) 537 U.S. 79, 83.) 

“Courts should not assume that the parties agreed to arbitrate 

arbitrability unless there is ‘clea[r] and unmistakabl[e]’ evidence 

that they did so.” (First Options of Chicago, Inc. v. Kaplan (1995) 

514 U.S. 938, 944, quoting AT&T Techs. v. Communs. Workers of 

Am. (1986) 475 U.S. 643, 649.)

Defendants argue that paragraph 13(B) of the RPA, which 

requires “[a]ll disputes between the parties relating in any way to

. . . the execution and delivery, construction or enforceability of 

this Agreement” and “[a]ll disputes arising with respect to any 

provision of this Agreement” to be “finally determined exclusively 

by binding arbitration” expresses a clear and unmistakable 

intent to arbitrate the question of arbitrability.

2 That provision 

must be considered, however, in the context of the agreement as a 

whole (see Ruble v. Reich (Neb. 2000) 611 N.W.2d 844, 850 [when 

interpreting an agreement, court views contract as a whole]), 

including the provision that requires the RPA to “be exclusively 

governed by and construed in accordance with the laws of 

Nebraska.” Under Nebraska law, the entire arbitration clause, 

including the delegation provision, is potentially unenforceable.

Paragraph 13(B), including the delegation provision, must 

also be considered in the context of the applicable statutory 

framework. (Bickford v. Board of Education (Neb. 1983) 336 

N.W.2d 73, 74 [“it is the general rule that contracts include 

applicable statutory provisions, whether specifically mentioned or 

 

2 Defendants refer to this contract language as the 

“delegation provision.”
9

not”].) Here, the conflicting preemptive effects of the FAA, the 

McCarran-Ferguson Act, and the NUAA impact the parties’ 

agreement to arbitrate. Viewed in context, the language of 

paragraph 13(B) of the RPA is not clear and unmistakable

evidence of the parties’ agreement to arbitrate disputes arising 

under that agreement, including disputes concerning 

arbitrability.

Defendants contend the Supreme Court’s decision in RentA-Center precludes judicial determination of arbitrability in this 

case. In Rent-A-Center, the Supreme Court explained that a 

“delegation provision is an agreement to arbitrate . . . ‘gateway’

‘questions of arbitrability,’ such as whether the parties have 

agreed to arbitrate or whether their agreement covers a 

particular controversy” and that such “[a]n agreement to 

arbitrate a gateway issue is simply an additional, antecedent 

agreement the party seeking arbitration asks the . . . court to 

enforce.” (Rent-A-Center, supra, 561 U.S. at pp. 68-70.) The 

court in Rent-A-Center further explained that under substantive 

federal law, an arbitration provision, including a delegation 

provision, “‘is severable from the remainder of the contract’” (id. 

at pp. 70-71), and that a party must challenge the validity of “the 

precise agreement to arbitrate at issue” before a court will 

intervene to consider the challenge. (Id. at p. 71.)

The provision at issue in Rent-A-Center was a delegation 

provision “that gave the arbitrator ‘exclusive authority to resolve 

any dispute relating to the . . . enforceability . . . of this 

Agreement.’” (Rent-A-Center, supra, 561 U.S. at p. 74.) The 

party resisting enforcement in Rent-A-Center challenged the 

validity of the arbitration agreement as a whole on the ground

that it was unconscionable but did not make any arguments 

specific to the delegation provision. (Ibid.) Given the absence of 

any challenge to the delegation provision, the court in Rent-A-
10

Center concluded that it must treat that provision as valid and 

enforceable under the FAA, leaving any challenge to the validity 

of the arbitration agreement as a whole to the arbitrator. (Id. at 

pp. 73-75.)

Rent-A-Center did not involve application of the McCarranFerguson Act or the NUAA and is therefore distinguishable from 

the instant case. Rent-A-Center is also distinguishable because 

plaintiffs’ challenge, based on the preemptive effect of the 

McCarran-Ferguson Act and the NUAA, is directed to the 

delegation provision as well as the arbitration provision as a 

whole. (See Minnieland Private Day Sch., Inc. v. Applied 

Underwriters Captive Risk Assur. Co. (4th Cir. 2017) 867 F.3d 

449, 455-456 [insured’s argument that Virginia statute rendered 

void “any” arbitration provision in RPA necessarily included 

challenge to enforceability of delegation provision].) Resolution of 

those issues are accordingly for the court, and not the arbitrator, 

to decide. (Rent-A-Center, supra, 561 U.S. at p. 71.)

There is also an issue as to whether plaintiffs’ challenge to 

the arbitration provision, premised on preemption of the FAA by 

the McCarran-Ferguson Act and the NUAA, raises a “question of 

arbitrability” that can legally be delegated to an arbitrator. We 

find the Ninth Circuit’s analysis in Van Dusen v. United States 

Dist. Court for the Dist. of Ariz. (9th Cir. 2011) 654 F.3d 838 (Van 

Dusen) to be instructive on this issue.

At issue in Van Dusen was whether arbitration agreements 

entered into by the defendant employers and the plaintiff 

interstate truck drivers came within an exemption under section 

1 of the FAA for “‘contracts of employment of seamen, railroad 

employees, or any other class of workers engaged in foreign or 

interstate commerce.’” (Van Dusen, supra, 654 F.3d at p. 840.) 

The federal district court declined to rule on the applicability of 

the exemption, concluding that the question of whether the 
11

drivers were employees of the defendants was a question for the 

arbitrator to decide. (Ibid.) The drivers sought mandamus relief 

from the Ninth Circuit, arguing that the district court’s failure to 

address the exemption issue constituted clear error. (Id. at p. 

842.)

On appeal, the drivers argued that the issue of whether the 

FAA section 1 exemption applied was not a “question of 

arbitrability” the parties could legally delegate to an arbitral 

forum. (Van Dusen, supra, 654 F.3d at p. 842.) The Ninth 

Circuit found that argument to be persuasive, noting that “a 

district court has no authority to compel arbitration under 

Section 4 [of the FAA] where Section 1 exempts the underlying 

contract from the FAA’s provisions. [Citation.]” (Id. at p. 843.) 

The court in Van Dusen further noted that the defendants’ 

“position that contracting parties may invoke the authority of the 

FAA to decide the question of whether the parties can invoke the 

authority of the FAA . . . puts the cart before the horse: Section 4 

has simply no applicability where Section 1 exempts a contract 

from the FAA, and private contracting parties cannot, through 

the insertion of a delegation clause, confer authority upon a 

district court that Congress chose to withhold.” (Id. at p. 844.) 

The Ninth Circuit observed that the United States Supreme 

Court defines “‘questions of arbitrability’ as questions of ‘whether 

parties have submitted a particular dispute to arbitration’ 

[citation]” and that the question of whether the FAA confers 

authority on the court to compel arbitration “does not fit within 

that definition.” (Ibid.)

3

 

3 Although the Ninth Circuit determined that “the best 

reading of the law requires the district court to assess whether a 

Section 1 exemption applies before ordering arbitration” the 

absence of controlling precedent, along with the FAA’s policy 

favoring arbitration, made the question a “relatively close” one 
12

The First Circuit, in Oliveira v. New Prime, Inc. (1st Cir. 

2017) 857 F.3d 7 (Oliveira) addressed the same issue presented in 

Van Dusen in a similar dispute involving a motion to compel 

arbitration where the parties had delegated questions of 

arbitrability to the arbitrator. (Oliveira, at p. 9.) Applying the 

court’s reasoning in Van Dusen, the First Circuit held that 

whether the FAA confers authority on a district court to compel 

arbitration is not a question of arbitrability: “[T]he question of 

the court’s authority to act under the FAA is an ‘antecedent 

determination’ for the district court to make before it can compel 

arbitration under the [FAA].” (Oliveira, at p. 14.)

Here, as in Van Dusen and Oliveira, the threshold issue is 

whether the FAA applies, thereby authorizing the court to compel 

arbitration of the dispute, or whether such authority is lacking 

because the FAA is preempted by the McCarran-Ferguson Act 

and the NUAA. We agree with the Van Dusen court’s reasoning 

that defendants’ reliance on the FAA as the basis for compelling 

arbitration of this threshold issue “puts the cart before the 

horse.” (Van Dusen, supra, 654 F.3d at p. 844.) We therefore 

conclude that the trial court did not err by denying defendants’ 

motion to compel arbitration of the preemption issue and the 

validity of the arbitration agreement, including the delegation 

provision.

IV. Validity of the agreement to arbitrate

The validity of the parties’ arbitration agreement turns on 

whether the McCarran-Ferguson Act applies, whether section 25-

2602.01(f) of the NUAA applies, and whether those two statutes 

together preempt the FAA.

 

and that it could not find the district court’s ruling to be “‘clearly 

erroneous’” under the applicable standard for mandamus relief. 

(Van Dusen, supra, 654 F.3d at p. 846.)
13

A. Applicability of the McCarran-Ferguson Act

Courts apply a three-part test for determining whether the 

McCarran-Ferguson Act causes a state law to reverse preempt a 

federal statute: (1) whether the federal statute to be preempted 

specifically relates to the business of insurance, (2) whether the 

state law was enacted for regulating the business of insurance, 

and (3) whether application of the federal statute operates to 

invalidate, impair, or supersede the state law. (Am. Bankers Ins. 

Co. v. Inman (5th Cir. 2006) 436 F.3d 490, 493 (Am. Bankers); 

Std. Sec. Life Ins. Co. v. West (8th Cir. 2001) 267 F.3d 821 (Std. 

Sec.); Kremer v. Rural Comty. Ins. Co. (Neb. 2010) 788 N.W.2d 

538, 551 (Kremer).)

It is undisputed that the FAA does not regulate the 

business of insurance, and that application of the FAA in this 

case would invalidate section 25-2602.01(f) of the NUAA. The 

determinative inquiry is whether section 25-2602.01(f) of the 

NUAA was enacted for the purpose of regulating the business of 

insurance within the meaning of the McCarran-Ferguson Act. 

That inquiry is guided by principles articulated by the United 

States Supreme Court in United States Dep’t of Treasury v. Fabe 

(1993) 508 U.S. 491, 500-503 (Fabe).

In Fabe, the Supreme Court held that an Ohio statute 

governing the priority of claims against an insolvent insurer is a 

“law enacted for the purpose of regulating the business of 

insurance” within the meaning of the McCarran-Ferguson Act

and rejected the argument that the Ohio statute was a 

bankruptcy law rather than a law “regulating the business of 

insurance.” (Fabe, supra, 508 U.S. at pp. 498-499, 505-506.) The 

court reasoned that although “the Ohio statute does not directly 

regulate the ‘business of insurance’ by prescribing the terms of 

the insurance contract or by setting the rate charged by the 

insurance company,” the business of insurance is not “confined 
14

entirely to the writing of insurance contracts, as opposed to their 

performance.” (Id. at pp. 502-503.)

The court in Fabe emphasized that the focus of the 

McCarran-Ferguson Act is the relationship between insurer and 

insured and that “‘[s]tatutes aimed at protecting or regulating 

this relationship [between insurer and insured], directly or 

indirectly, are laws regulating the “business of insurance.”’” 

(Fabe, supra, 508 U.S. at p. 501, quoting SEC v. National Sec., 

Inc. (1969) 393 U.S. 453, 460.) The Supreme Court concluded 

that “[t]he broad category of laws enacted ‘for the purpose of 

regulating the business of insurance’ consists of laws that possess 

the ‘end, intention, or aim’ of adjusting, managing, or controlling 

the business of insurance. [Citation.]” (Fabe, at p. 505.)

Applying the principles articulated in Fabe, the Nebraska 

Supreme Court in Kremer, supra, 788 N.W.2d 538, addressed the 

precise issue presented here -- whether section 25-2602.01(f) of 

the NUAA is a state law enacted for the purpose of regulating the 

business of insurance within the meaning of the McCarranFerguson Act. The court in Kremer held that it was, and that 

section 25-2602.01(f) accordingly reverse preempts the FAA 

through application of the McCarran-Ferguson Act. (Kremer, at 

p. 553.) The Nebraska Supreme Court reaffirmed this principle 

in Speece v. Allied Professionals Ins. Co. (Neb. 2014) 853 N.W.2d 

169, 175.

Federal courts applying Fabe have likewise concluded that 

the FAA is reverse preempted under state laws similar to the 

Nebraska statute at issue here. (See, e.g., Am. Bankers, supra, 

436 F.3d 490 [FAA reverse preempted under McCarran-Ferguson 

Act by Mississippi statute prohibiting arbitration of disputes 

regarding uninsured and underinsured motorist coverage of 

personal automobile insurance policies]; McKnight v. Chicago 

Title Ins. Co. (11th Cir. 2004) 358 F.3d 854, 858-859 [FAA reverse
15

preempted by Georgia law prohibiting arbitration clauses in 

insurance contracts]; Std. Sec., supra, 267 F.3d 821 [FAA reverse 

preempted by Missouri Arbitration Act’s prohibition on 

arbitration clauses in insurance contracts]; Mutual Reinsurance 

Bureau v. Great Plains Mut. Ins. Co. (10th Cir. 1992) 969 F.2d 

931, 934-935 [FAA reverse preempted by Kansas statute barring 

arbitration provision in insurance contracts].)

Consistent with the principles articulated in Fabe, supra, 

508 U.S. 491, as applied by federal appellate courts and the 

Nebraska Supreme Court, we agree with the trial court’s 

conclusion in the instant case that section 25-2602.01(f) of the 

NUAA is a state law enacted for the purpose of regulating the 

business of insurance. If the NUAA applies in the instant case, 

by operation of the McCarran-Ferguson Act, it reverse preempts 

the FAA.

B. Applicability of the NUAA

Defendants argue that even if section 25-2602.01(f) is a 

state law that regulates the business of insurance, the statute 

does not apply. They argue that the general choice of law 

provision in the RPA requiring the RPA to “be exclusively 

governed by and construed in accordance with the laws of 

Nebraska” constitutes an agreement to apply Nebraska law to 

resolve the parties’ substantive claims only, and not to 

incorporate state law rules limiting arbitration. Defendants cite 

Mastrobuono v. Shearson Lehman Hutton (1995) 514 U.S. 52 

(Mastrobuono) as support for their position. In that case, the 

Supreme Court considered two seemingly conflicting contractual 

provisions regarding punitive damages -- an arbitration provision 

that required “any controversy” arising out of the transactions 

between the parties to be arbitrated in accordance with the rules 

of the National Association of Securities Dealers (NASD), which 

authorized punitive damages awards; and a choice of law 
16

provision incorporating “the laws of the state of New York.” 

Under New York case law, the power to award punitive damages

was limited to judicial tribunals. (Id. at pp. 55, 61.) The court in 

Mastrobuono concluded that the “best way to harmonize” the two 

provisions was to read the choice of law provision “to encompass 

substantive principles that New York courts would apply, but not 

to include [New York’s] special rules limiting the authority of 

arbitrators.” (Id. at pp. 63-64.)

Mastrobuono is distinguishable because it involved two 

provisions that on their face pointed to different bodies of law 

with conflicting rules regarding the availability of punitive 

damages. The Supreme Court drew the distinction between 

“substantive principles” of law and “special rules limiting the 

authority of arbitrators” solely as a means of “giv[ing] effect” to 

both provisions. (Mastrobuono, supra, 514 U.S. at p. 64.) Here, 

however, the RPA has a single provision that unambiguously 

provides that the RPA “shall be exclusively governed by and 

construed in accordance with the laws of Nebraska.” Although 

the RPA does refer to the AAA rules, those rules -- unlike the 

competing arbitration rules in Mastrobuono -- do not conflict with 

Nebraska law. Because there is no need to give effect to any 

competing provision, there is no basis not to give effect to its 

plain language incorporating all of the laws of Nebraska, 

including its substantive law prohibiting the arbitration of 

insurance-related disputes. (See Bickford, supra, 336 N.W.2d at 

p. 74.)4

 

4 During oral argument, both parties discussed Mastick v. 

TD Ameritrade, Inc. (2012) 209 Cal.App.4th 1258, in which the 

court concluded that a general choice of law provision applying 

California law operates to invoke the specific provisions of the 

California Arbitration Act. (Id. at pp. 1264-1265.) We do not 
17

Defendants next contend the RPA falls outside the scope of 

section 25-2602.01(f) and cite South Jersey Sanitation Co. v. 

Applied Underwriters Captive Risk Assur. Co. (3d Cir. 2016) 840 

F.3d 138 (South Jersey) as support for that argument. In South 

Jersey, the Third Circuit concluded that section 25-2602.01(f) did 

not invalidate an arbitration provision in a similar RPA because 

the statute applied only to insurance policies. Disregarding the 

broad language of the statute prohibiting enforcement of an 

arbitration provision in “any agreement concerning or relating to 

an insurance policy,” the court in South Jersey instead relied on 

dicta by the Nebraska Supreme Court in Kremer, supra, 788 

N.W.2d at page 552 stating that “‘a statute precluding the parties 

to an insurance contract from including an arbitration agreement 

for future controversies regulates the insurer-insured 

relationship.’” (South Jersey, at p. 146.) The court in South 

Jersey stated: “This language, while dicta, strongly suggests that 

Subsection (f)(4) of the Nebraska Statute applies only to 

insurance policies themselves, and that ‘any agreement’ must be 

read as an arbitration agreement or provision within such a 

policy, rather than a derivative investment contract.” (Ibid., fn. 

omitted.)

We decline to apply the South Jersey court’s advisory 

interpretation of section 25-2602.01(f)(4) because it is 

inconsistent with the plain language of the statute, which broadly 

covers “any agreement concerning or relating to an insurance 

policy.” The South Jersey court’s interpretation nullifies that 

statutory language, and violates fundamental principles of 

statutory interpretation that “courts should give meaning to 

every word of a statute and should avoid constructions that 

would render any word or provision surplusage,” and that “‘[a]n 

 

address the parties’ arguments concerning Mastick, as California 

law does not govern the instant dispute.
18

interpretation that renders statutory language a nullity is 

obviously to be avoided.’ [Citation.]” (Tuolumne Jobs & Small 

Business Alliance v. Superior Court (2014) 59 Cal.4th 1029, 1038-

1039.) The South Jersey court’s interpretation is also 

inconsistent with the principles set forth in Fabe that laws 

regulating the “business of insurance” are not “confined entirely 

to the writing of insurance contracts” (Fabe, supra, 508 U.S. at p. 

503), but include “laws that possess the ‘end, intention, or aim’ of 

adjusting, managing, or controlling the business of insurance.” 

(Id. at p. 505.)

South Jersey is also distinguishable. The district court in 

that case “never found that the RPA falls within the ambit of the 

Nebraska Statute,” (South Jersey, supra, 840 F.3d at p. 146) 

whereas the trial court in the instant case did. There is 

substantial evidence in the record to support the trial court’s 

finding. The RPA itself allows plaintiffs to participate in an 

underlying Reinsurance Treaty between AUCRA and CIC, and 

section 25-2602.01 applies to “any agreement concerning or 

relating to an insurance policy . . . including a reinsurance 

contract.” (Neb. Rev. Stats., § 25-2602.01.) There was also 

substantial evidence that the RPA was an integral part of a

workers’ compensation insurance program defendants sold to 

plaintiffs and others. A consent order entered into by Applied 

Underwriters and the California Department of Insurance on 

September 6, 2016,

5 is further support that the RPA concerns or 

 

5 The consent order prohibits CIC and AUCRA from issuing 

new RPAs or renewing existing RPAs with respect to any 

California policy until the RPA is submitted to the Workers’ 

Compensation Insurance Ratings Bureau and the California 

Department of Insurance for approval in compliance with 

Insurance Code sections 11658 and 11735. We granted plaintiffs’ 

request that we take judicial notice of the consent order.
19

relates to the workers’ compensation insurance policies issued as 

part of defendants’ EquityComp program. For example, the

consent order defines the term “RPA” as “ancillary or collateral to 

a guaranteed cost workers’ compensation insurance policy that 

covers claims by California workers” and the terms “policy” or 

“policies” as “a Guaranteed Cost Policy or Policies for which an 

RPA is in force as of July 1, 2016.” The consent order states that 

it “applies to policies and RPAs covering loss exposures in 

California” and that it “is not intended to impact policies or RPAs 

relating to risks covered outside of California.” There is 

substantial evidence in the record that the RPA is an “agreement 

concerning or relating to an insurance policy” within the meaning 

of section 25-2602.01(f) of the NUAA.

Defendants argue that Nebraska law should not be applied 

to the instant dispute, because to do so would result in 

impermissible “extraterritorial” regulation by a state, prohibited 

by the Supreme Court in Federal Trade Comm’n v. Travelers 

Health Ass’n (1960) 362 U.S. 293 (Travelers Health). That case, 

however, is inapposite.

At issue in Travelers Health was a Nebraska statute that 

prohibited Nebraska insurance companies from engaging in 

unfair trade practices “‘in any other state.’” (Travelers Health, 

supra, 362 U.S. at p. 296.) A Nebraska insurance company 

argued that the Nebraska statute, by operation of the McCarranFerguson Act, precluded the Federal Trade Commission from 

regulating the insurance company’s conduct outside Nebraska. 

The Supreme Court rejected that argument, concluding that the 

McCarran-Ferguson Act was not intended to allow a state to 

“regulate activities carried on beyond its own borders.” (Id. at p. 

300.)

The Nebraska statute at issue in Travelers Health sought, 

by its express terms, to regulate the conduct of an insurer in 
20

another jurisdiction. The NUAA by its terms does not seek to 

regulate activities carried on outside Nebraska. The NUAA

applies in the instant case because the parties contractually 

agreed to its application.

CONCLUSIONS

The threshold issue of whether the FAA applies or is 

preempted by the McCarran-Ferguson Act and section 25-

2602.01(f) of the NUAA was for the court, and not the arbitrator, 

to decide. The trial court did not err by adjudicating this gateway 

issue.

The trial court did not err by concluding that section 25-

2602.01(f) of the NUAA is a statute that regulates the business of 

insurance within the meaning of the McCarran-Ferguson Act. 

Application of the FAA would operate to invalidate or 

impair section 25-2602.01(f) of the NUAA. The trial court did not 

err by concluding that the McCarran-Ferguson Act applies and 

reverse preempts the FAA.

Section 25-2602.01(f) of the NUAA applies to the RPA and 

renders the arbitration provision contained in the RPA 

unenforceable. The trial court accordingly did not err by denying 

the petition to compel arbitration.

DISPOSITION

The order denying the petition to compel arbitration is 

affirmed. Plaintiffs are awarded their costs on appeal.

CERTIFIED FOR PUBLICATION

________________________, J.

We concur: CHAVEZ

_______________________, Acting P. J.

ASHMANN-GERST

_______________________, J.

HOFFSTADT