McDonnel Group, L.L.C. v. Great Lakes Insurance SE, UK Branch, Lloyd’s Syndicates, CNP 4444 and CNP 958, Inter Hannover

At a glance

Parties

McDonnel Group, L.L.C. (plaintiff-appellant) v. Great Lakes Insurance SE, UK Branch; Lloyd's Syndicates CNP 4444 and CNP 958; Inter Hannover (defendants-appellees, improperly named as Certain Underwriters at Lloyd's, London)

Case no.

U.S. Court of Appeals, Fifth Circuit, No. 18-30817 (on appeal from USDC No. 2:18-CV-2804, Eastern District of Louisiana)

Court

United States Court of Appeals for the Fifth Circuit

Forum and rules

Court proceeding under the New York Convention (Articles II(1), II(3)) and Chapter 2 of the Federal Arbitration Act; the arbitration clause provides for AAA International Arbitration Rules, seat New York

Treaty

Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)

Tribunal

Circuit Judges Jolly, Jones and Dennis; opinion by E. Grady Jolly

Sector

Builder's risk insurance; construction

Outcome

Affirmed the district court's dismissal in favour of arbitration (13 May 2019).

Amount

No amount stated. Costs on appeal awarded against the plaintiff-appellant.

The dispute

In fall 2015 McDonnel Group bought a builder's risk insurance policy from the Insurers for a construction project in New Orleans, Louisiana. McDonnel says the property suffered significant water damage two years later. The Insurers refused to pay the claim, and McDonnel sued in federal court for declaratory relief, breach of contract and breach of the duty of good faith and fair dealing. The Insurers moved to dismiss under the policy's arbitration clause (AAA International Arbitration Rules, seat New York). McDonnel argued that the policy's "conformity to statute" clause had removed the arbitration clause, because La. Rev. Stat. Ann. § 22:868(A)(2) bars arbitration agreements in insurance contracts covering property in Louisiana. The district court held that the Convention preempts that statute and dismissed the case in favour of arbitration.

Key holdings

1. The Convention's four requirements are met. There is a written agreement to arbitrate; it provides for arbitration in a signatory country, the United States; it arises from a commercial relationship, an insurance contract; and the Insurers are not American citizens. p. 8, n. 8
2. The McCarran–Ferguson Act does not allow La. Rev. Stat. Ann. § 22:868 to reverse-preempt the Convention. A treaty is not an "Act of Congress", and it is the Convention itself that supersedes Louisiana law. This follows the Fifth Circuit's en banc decision in Safety National. pp. 6–7
3. Because the Convention preempts § 22:868, the statute does not apply to the policy. There is therefore no conflict between the policy and state law, and the conformity clause is not triggered. The arbitration clause survives, undiminished by state law. pp. 8–9
4. This holding is consistent with Fifth Circuit precedent that conformity clauses in insurance contracts are not triggered by state laws preempted by ERISA. p. 9, n. 9
5. The dismissal in favour of arbitration is affirmed, and the plaintiff-appellant pays the costs on appeal. p. 9; Clerk's memorandum

Procedural history

1. Fall 2015McDonnel obtains the builder's risk policy for the New Orleans project.
2. After the Insurers deny the water-damage claim, McDonnel sues in the U.S. District Court for the Eastern District of Louisiana (No. 2:18-CV-2804). The district court dismisses the action in favour of arbitration.
3. 13 May 2019The Fifth Circuit affirms the dismissal in favour of arbitration and awards costs on appeal to the Insurers.

Tribunal, counsel and experts

Decided by

• E. Grady Jolly Judge, U.S. Court of Appeals for the Fifth Circuit (author of the opinion)

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Keywords

• New York Convention Article II(3)
• conformity to statute clause
• McCarran–Ferguson Act
• reverse preemption
• La. Rev. Stat. § 22:868
• insurance arbitration clause
• builder's risk insurance
• Lloyd's underwriters
• Safety National v. Certain Underwriters
• Supremacy Clause
• treaty preemption
• motion to dismiss in favour of arbitration
• Federal Arbitration Act Chapter 2
• Louisiana
• AAA International Arbitration Rules

Summary generated with AI from the published documents — refer to the award for the authoritative text.