Opinion ID: 864563
Heading Depth: 3
Heading Rank: 1

Heading: Controlling Law: Federal Arbitration Act and

Text: the McCarran-Ferguson Act. ¶22. The parties dispute whether the Federal Arbitration Act (“FAA”) is controlling or whether, pursuant to the McCarran-Ferguson Act, state law “reverse-preempts” the FAA. 11 Gulf argues that the arbitration provision is enforceable under the FAA. See Federal Arbitration Act, 9 U.S.C. § 1 et seq. Citing § 2 of the FAA, Gulf notes that a written arbitration provision in a contract evidencing a transaction affecting commerce shall be “valid, irrevocable, and enforceable,” unless recognized grounds exist to revoke the contract. Neel-Schaffer argues 9 Deputy Harrell stated that the MDI disagreed with any construction of the provision that effectuates a waiver of punitive damages in direct actions by the insured against the insurer. 10 Gulf argues that it acted at all times in good faith. There is no indication that when MDI reiterated its position regarding a mandatory arbitration provision, it was in response to or related to the specific insurance policy form at issue. 11 The federal cases have utilized the doctrine of “reverse-preemption.” See Orr, 294 F.3d at 708. In today’s case, this simply means that the allegation is that the later-enacted McCarran-Ferguson Act preempted the earlier-enacted Federal Arbitration Act because of an alleged invalidation of Mississippi law if the FAA were applied. Stated differently, the issue here is whether existing Mississippi law “reversepreempts” federal law. 11 that the arbitration provision is unenforceable based on the fact that it is contrary to “state law as enacted by the State of Mississippi through the Mississippi Department of Insurance.” ¶23. We briefly discuss the McCarran-Ferguson Act. The primary intent of Congress in enacting McCarran-Ferguson was to ensure that the states would continue to have the ability to tax and regulate the business of insurance. Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 217-19, 99 S.Ct. 1067, 1076-77, 59 L.Ed.2d 261 (1979). The Act provides in relevant part: (a) State regulation. The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business. (b) Federal regulation. 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, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance[.]... 15 U.S.C. § 1012 (emphasis added). Neel-Schaffer’s argument requires that this Court find that the MDI policy is the legal equivalent to state law as discussed under the Act. The local federal district and circuit courts have rejected this arguments, and we do so as well. ¶24. In so holding, we note that Neel-Schaffer’s argument is not altogether unreasonable. Neel-Schaffer argues that in instances where a legislative branch has delegated its authority to regulate to an administrative agency and where that agency is considered the final regulatory authority, the agency’s regulations should be considered the legal equivalent to statutes. Nevertheless, Neel-Schaffer presents no compelling argument as to why this Court should not adopt the view held by the local federal courts. Further reasoning to reject Neel-Schaffer’s 12 argument is the fact that the Act incorporates the term “enact.” The use of this term seemingly denotes a legislative enterprise.12 ¶25. In American Heritage Life Ins., Co. v. Harmon, 147 F. Supp. 2d 511 (N.D. Miss. 2001), Chief Judge Davidson discussed the appropriate application of the McCarran-Ferguson Act to arbitration cases: The McCarran-Ferguson Act is designed to clear the way for state laws regulating the business of insurance, by displacing any federal law that conflicts with such state laws. But McCarran-Ferguson applies only in the narrow range of cases involving state regulation of the insurance industry, [and] permits a state law to reverse preempt a federal statute only if: (I) the federal statute does not specifically relate to the business of insurance; (ii) the state law was enacted for the purpose of regulating the business of insurance; and (iii) the federal statute operates to invalidate, impair, or supersede the state law. Munich Am. Reinsurance Co. v. Crawford, 141 F.3d 585, 590 (5th Cir.1998). The Defendant's reverse preemption argument fails because the Defendant has failed to point to a single Mississippi state law that the FAA has purportedly invalidated, impaired, or superseded. Instead, the Defendant appears to argue that because Mississippi's Commissioner of Insurance is seemingly opposed to approving insurance policies that contain binding arbitration clauses, McCarran-Ferguson reverse preempts the FAA. The Fifth Circuit has made clear, however, that McCarran-Ferguson only permits state laws or statutes to reverse preempt federal statutes; informal policies of state officials may not do so. Munich Am. Reinsurance Co., 141 F.3d at 590. As such, the Defendant's claim of reverse-preemption fails and the McCarran-Ferguson Insurance Regulation Act is inapplicable. 147 F. Supp. 2d at 515. See also Group Life, 440 U.S. at 210, 99 S.Ct. at 1073. (defining the “business of insurance” as considered in the McCarran-Ferguson Act). In the end, Judge Davidson held that the defendant’s claims should be referred to arbitration. 147 F. Supp. 2d at 517. 12 “Enact” is defined as follows: “To establish by law; to perform or effect; to decree. The common introductory formula in making statutory laws i s , `Be it enacted.’ See Enacting clause.”Black’s Law Dictionary (5th ed. 472). 13 ¶26. Subsequent to Judge Davidson’s decision in Harmon, the Fifth Circuit addressed this issue. In Orr, the Fifth Circuit affirmed the district court’s decision to grant American Heritage’s motion to compel arbitration. The appellate court found that the McCarranFerguson Act did not reverse-preempt the FAA and rejected the argument that an attorney general’s opinion or administrative policy was the functional equivalent of a state statute relating to insurance. 294 F.3d at 708-09. “The Act bars application of the FAA to insurance contracts only in the context of a state statute evincing the same, not mere policy statements of state officials or administrative rule interpretations of governmental entities.” Id. at 708 (emphasis within)(citations omitted). 13 ¶27. We today adopt the sound reasoning set out in Harmon and Orr. Accordingly, we hold that the McCarran-Ferguson Act is inapplicable in today’s case and that the FAA is not reversepreempted by the MDI’s policy.