The Washington Supreme Court held that the arbitration provision in James Rivers' policy was unenforceable. State of Washington, Department of Transportation v. James River Ins. Co., 2013 Wash. LEXIS 66 (Wash. Jan. 17, 2013).
The Washington State Department of Transportation (WSDOT) was an additional insured on a policy issued by James River. When the WSDOT was sued for alleged negligence in causing traffic fatalities, it tendered to James River. The tender was accepted pursuant to a reservation of all rights under the policy.
James River attempted to initiate arbitration pursuant to the policy provision. WSDOT objected and flied a declaratory judgment action, seeking a declaration that the arbitration clause was void. The trial court granted WSDOT''s motion for summary judgment. The arbitration clause was barred by RCW 48.18.200, which prohibited insurance contracts from "depriving the courts of this state of the jurisdiction of action against the insurer." The trial court also found that the state statute was not preempted by the Federal Arbitration Act (FAA).
The Washington Supreme Court affirmed. The state statute demonstrated the legislature's intent to protect the right of policy holders to bring an original action against the insurer in the state courts. Assuring the right to review disputes between insurers and insured helped assure the protection of Washington law to Washington insureds as provided in the statute. Therefore, the statute was properly interpreted as a prohibition on binding arbitration agreements.
Because the statute prohibited binding arbitration agreements in insurance contracts, the court considered whether the McCarran-Ferguson Act shielded the statute from preemption by the FAA. The McCarran-Ferguson Act provided,in part, "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 . . . ." The Washington state statute prohibited binding arbitration agreements in insurance contracts. Therefore, the provision regulated the "business of insurance" because it was aimed at protecting the performance of an insurance contract by ensuring the right of the policyholder to bring an action in state court to enforce the contract. Consequently, the statute was shielded from preemption by the FAA under the McCarran-Ferguson Act.
The trial court was affirmed.
This case may have legs in Hawaii because Haw. Rev. Stat. 431:10-221 is identical to the statute that was at issue here before the Washington Supreme Court.
