No Arbitration for Insurers Under Louisiana Law: Louisiana Supreme Court Prohibits Enforcement of Insurance Policy Arbitration Provisions

Since Hurricanes Laura and Delta made landfall in 2020, Louisiana has seen a flurry of litigation over whether insurers can enforce arbitration provisions in policies issued in Louisiana. The Louisiana Supreme Court gave insurers and policyholders clarity on these issues in its latest ruling.

In answering three certified questions on the topic from the U.S. District Court for the Western District of Louisiana, the Louisiana Supreme Court’s recent opinion in Police Jury of Calcasieu Parish v. Indian Harbor Insurance Co. demonstrates that except in limited circumstances, insurers cannot force policyholders to arbitrate disputes pursuant to policy arbitration provisions.

The Louisiana Supreme Court ruled that:

1) A 2020 amendment to La. R.S. § 22:868(D) did not implicitly repeal La. R.S. 22:868(A)’s prohibition of arbitration clauses in insurance contracts.

La. R.S. § 22:868(A)(2) provides that:

1. No insurance contract delivered or issued for delivery in this state and covering subjects located, resident, or to be performed in this state, or any group health and accident policy insuring a resident of this state regardless of where made or delivered, shall contain any condition, stipulation, or agreement either:

* * * *

(2) Depriving the courts of this state of the jurisdiction or venue of action against the insurer.

Subsection D of La. R.S. § 22:868, added in 2020, provides an exception:

1. The provisions of Subsection A of this Section shall not prohibit a forum or venue selection clause in a policy form that is not subject to approval by the Department of Insurance.

Surplus lines insurers have argued and several courts held that the 2020 addition of Subsection D provided an exception to Subsection A’s prohibition of arbitration clauses. The Louisiana Supreme Court disagreed, noting that Subsection D was added for a limited purpose: to allow forum or venue selection clauses in policies not subject to approval by the Department of Insurance. The Court declined to extend the definition of “venue” or “forum” for the Subsection D exception to also include “jurisdiction” and thereby permit arbitration clauses.

2) La. R.S. 9:2778––which bars arbitration clauses in contracts with the state or other political subdivisions of the state––applies to all public contracts, including insurance contracts.

The Court further found that Louisiana law bars enforcement of arbitration provisions in insurance policies issued to the State of Louisiana and its political subdivisions.

La. R.S. 9:2778, in pertinent part, states:

1. The [L]egislature finds that with respect to public contracts involving the state or a political subdivision of the state, provisions in such agreements requiring disputes arising thereunder to be resolved in a forum outside of this state or requiring their interpretation to be governed by the laws of another jurisdiction are inequitable and against the public policy of this state.
2. The [L]egislature hereby declares null, void, unenforceable, and against public policy, any provision in a contract, subcontract, or purchase order, as described in Subsection A, which either:

(1) Requires a suit or arbitration proceeding to be brought in a forum or jurisdiction outside of this state.

(2) Requires interpretation of the agreement according to the laws of another jurisdiction.

1. The provisions of this Section shall apply to public contracts, as described in this Section, entered into on or after June 30, 1992.

According to the Court, La. R.S. 9:2778 demonstrates strong public policy against forum selection and arbitration clauses in public contracts, and there is no basis for making an exception for insurance policies. The Court reasoned that La. R.S. 22:868(D), which allows forum selection clauses in insurance policies not subject to approval by the Department of Insurance, does not make any cross reference to La. R.S. 9:2778 or provide that it supersedes other statutes on the subject. The legislature likewise did not simultaneously amend La. R.S. 9:2778 when it enacted La. R.S. 22:868(D). As such, the Court found that La. R.S. 9:2778’s prohibition on arbitration clauses (and forum selection and choice of law clauses) applies to insurance policies issued to the state and political subdivisions, notwithstanding any exception in La. R.S. 22:868(D).

3) The doctrine of equitable estoppel cannot be invoked to circumvent the prohibition of arbitration clauses under La. R.S. 22:868.

The Court noted that equitable estoppel is disfavored under Louisiana law and cannot prevail when in conflict with the state's positive written law.  As it concluded that La. R.S. 22:868 plainly prohibits arbitration provisions in insurance policies, the Court found that equitable estoppel cannot be invoked to violate the statute’s prohibition.

The Court noted its disagreement with the United States Fifth Circuit Court of Appeals’ recent per curiam decision in Bufkin Enterprises, L.L.C. v. Indian Harbor Ins. Co. The Court rejected the Fifth Circuit’s determination that non-signatory domestic insurers may use equitable estoppel to compel arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards through the policies of foreign insurers.

What does this mean for insurers and policyholders?

The Louisiana Supreme Court’s decision resolves a conflict that arose in the Fifth Circuit over the application La. R.S. La. R.S. § 22:868(D) and whether surplus lines insurance policies can have enforceable arbitration provisions. Moving forward, policyholders and insurers can expect that arbitration provisions in insurance policies are generally prohibited under Louisiana law, regardless of whether the policy was issued on a surplus lines basis.

Likewise, the decision makes clear that insurance policies issued to the State of Louisiana or Louisiana political subdivisions will be treated as public contracts under La. R.S. 9:2778. Any provisions contained in such policies that meet either of the following will be considered null and void:

• • Require a suit or arbitration proceeding to be brought in a forum or jurisdiction outside of Louisiana
  • Require interpretation of the agreement according to the laws of another jurisdiction

It is worth noting that the Louisiana Supreme Court’s decision does not supersede the right to force arbitration pursuant to insurance policies that are subject to the convention. The Fifth Circuit held that the convention preempts state law and requires enforcement of arbitration agreements arising under the treaty. Insurers seeking to force arbitration pursuant to an insurance policy issued in Louisiana should carefully analyze whether the criteria set forth under the convention might be satisfied.

Please contact Caroline Crosby, Jay Knighton or any member of Phelps’ insurance team if you have any questions or need advice or guidance.