U.S. Court of Appeals for the Second Circuit, Certain Underwriters at Lloyds, London, v. 3131 Veterans Blvd LLC; MPIRE Properties LLC, Docket Nos. 23-1268-cv, 23-7613-cv

Insurance Law

 

Surplus Lines Insurers

 

Arbitration

 

Convention on the Recognition and Enforcement of Foreign Arbitral Awards

 

Supremacy Clause of the United States Constitution

 

McCarran-Ferguson Act (“MFA”), 15 U.S.C. § 1012(b)

 

Self-Executing Treaty Provisions

 

Reverse Preemption

 

Assignation of Rights

 

Louisiana Law

 

 

 

 

 

This opinion addresses two cases, each of which involves an insurance policy issued by certain surplus lines insurers at Lloyd’s, London (“the Insurers”). Both policies contain an identical arbitration clause, which the Insurers argue is enforceable under Article II Section 3 of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), adopted June 10, 1958, 21 U.S.T. 2517. The defendants-appellees argue that the clauses are unenforceable because (1) Louisiana law prohibits arbitration clauses in insurance contracts, (2) the McCarren Ferguson Act (“MFA”), 15 U.S.C. § 1012(b), allows state insurance laws to “reverse preempt” any treaty provisions that are not “self-executing,” and (3) we previously held that Article II Section 3 of the New York Convention was not “self-executing” in Stephens v. American International Insurance (“Stephens I”), 66 F.3d 41, 45 (2d Cir.1995). We conclude, however, that our reasoning in Stephens I has been fatally undermined by the Supreme Court’s subsequent decision in Medellín v. Texas, 552 U.S. 491 (2008). Medellín established an entirely different test for determining whether a treaty provision should be considered “self-executing” than the one we applied in Stephens I, and under the new Medellín test, Article II Section 3 is clearly self-executing. As a result, we abrogate Stephens I to the extent that it holds that Article II Section 3 of the New York Convention is not self-executing, reverse the underlying district court decisions to the extent they relied on that holding in Stephens I, and remand the matters to their respective district courts for further proceedings consistent with this opinion.

 

 

(…) Surplus lines insurers “fill an important niche in the insurance market by covering otherwise uninsurable risks.” James River Ins. Co. v. Blue Ox Dance Hall, LLC, No. 16 Civ. 151, 2017 WL 5195877, at *3 (N.D. Okla. Nov. 9, 2017). One common use for their policies is to insure against the cost of hurricane damage in high-risk zones, including areas of Louisiana.

 

 

(…) The sellers, who were the named insureds under the policies, assigned their rights under the policies to 3131 Veterans and Mpire.

 

 

Louisiana state insurance law is unfriendly to arbitration clauses. It provides that “no insurance contract delivered or issued for delivery in this state . . . shall contain any condition, stipulation, or agreement . . . depriving the courts of this state of the jurisdiction or venue of action against the insurer.” La. R.S. § 22:868(A)(2). In 2015, the Louisiana Supreme Court observed that this provision “effectively prohibits the enforcement of arbitration provisions in the context of insurance disputes.” Courville v. Allied Professionals Ins. Co., 174 So.3d 659, 666. (La. Ct. App. 2015).

 

 

In contrast with Louisiana law, arbitration clauses are generally enforceable under federal law, because the FAA puts arbitration clauses “on an equal footing with other contracts.” Coinbase, Inc. v. Suski, 602 U.S. 143, 148 (2024); see also 9 U.S.C. § 2. Ordinarily under the Supremacy Clause of the United States Constitution, a federal statute like the FAA would “preempt a state law that withdraws the power to enforce arbitration agreements.” Southland Corp. v. Keating, 465 U.S. 1,16 n.10 (1984). Thus, an arbitration clause could generally be expected to prevail even in the face of state laws – like Louisiana’s – that purport to prohibit or void such clauses. See Stephens I, 66 F.3d at 43. “However, Congress created an exception to the usual rules of preemption when it enacted the McCarran–Ferguson Act.” Id. Under the MFA, state laws enacted “for the purpose of regulating the business of insurance” are generally exempt from preemption. Id. Specifically, the MFA provides that 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. 5 U.S.C. § 1012(b). Under the MFA, the normal rules of preemption apply to a state insurance law only when an incompatible federal law exists that also relates to insurance. Humana Inc. v. Forsyth, 525 U.S. 299, 307–08 (1999).

 

 

Because the MFA’s reverse-preemption rule applies not to federal policies generally but to “Acts of Congress” specifically, 15 U.S.C. § 1012(b), we have held that state law can reverse-preempt a treaty provision under the MFA only when that treaty provision relies on an “Act of Congress” to take effect – in other words, when the provision is not “self-executing.” Stephens I, 66 F.3d at 45. Where a treaty provision is self-executing and requires no implementing Act of Congress, the MFA by its own terms does not apply. Accordingly, the principal disagreement in this case is whether Article II Section 3 of the New York Convention is “self-executing,” making it exempt from reverse-preemption under the MFA, or whether it relies on an Act of Congress for its effect, such that it can be reverse-preempted by Louisiana law.

 

 

In Medellín, the Supreme Court did not confine its analysis to the narrow question of whether Congress enacted legislation purporting to implement the treaty at issue (there, the United Nations Charter). 552 U.S. at 508. Instead, the Court identified several hallmarks of a “self-executing” treaty provision within a larger treaty – namely: (1) that it provides “a directive to domestic courts” of the contracting nation, id.; (2) that it “provides that the United States ‘shall’ or ‘must’” take a particular action, id., and (3) that the “text, background, negotiating and drafting history” regarding the provision indicate the Senate and/or the President’s intention, id. at 523, that the ratified treaty take “immediate legal effect in domestic courts,” id. at 508. A non-self-executing treaty provision, in contrast, would merely “call upon [member] governments to take certain action.” Id. (quotation marks omitted). Because Article 94 of the U.N. Charter, the specific provision at issue, lacked those hallmarks of a “self-executing” treaty provision, the court held that it was not self-executing. Id. at 508–09.

 

 

Since Medellín, other circuits addressing the New York Convention have reasoned persuasively that under the test announced in that case, Article II Section 3 of the Convention is in fact self-executing. The First Circuit held that “the text of that provision manifests precisely the type of directive to United States courts that is a hallmark of a self-executing treaty provision.” Green Enterprises, LLC v. Hiscox Syndicates Ltd. at Lloyd’s of London, 68 F.4th 662, 668 (1^st Cir. 2023).

 

 

Under the Medellín factors, Article II Section 3 of the New York Convention is self-executing. As the First and Ninth Circuits have observed, the text of Article II Section 3 readily appears “self-executing” under the first two Medellín factors. CLMS Mgmt. Servs., 8 F.4th at 1013; Green Enterprises, 68 F.4th at 667-68. The text expressly provides that when a party before a contracting nation’s court seeks to enforce the type of arbitration agreement contemplated by the New York Convention, that court “shall . . . refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” New York Convention, art. II § 3. That instruction serves as “a directive to domestic courts” of the member state, and it “provides that the United States ‘shall’ or ‘must’” take a particular action. Medellín, 552 U.S. at 508. Thus, both the first and second factors strongly suggest that the provision is self-executing.

 

 

(…) Under the Medellín test, Article II Section 3 of the New York Convention is self-executing, with the result that it cannot be reverse preempted by Louisiana law under the MFA.

 

 

For the foregoing reasons, we ABROGATE Stephens v. American International Insurance, 66 F.3d 41 (2d Cir. 1995) to the extent that it holds that Article II Section 3 of the New York Convention is not self-executing, REVERSE the district courts’ decisions to the extent that they relied on that holding in Stephens I, and REMAND the matters to their respective district courts for further proceedings consistent with this opinion.

 

 

 

 

(U.S. Court of Appeals for the Second Circuit, May 8, 2025, Certain Underwriters at Lloyds, London, v. 3131 Veterans Blvd LLC; MPIRE Properties LLC, Docket Nos. 23-1268-cv, 23-7613-cv)

 

 

Sixth Circuit Court of Appeals, Century Aluminum Company v. Certain Underwriters at Lloyd’s, London, Docket No. 23-5543

Maritime Cargo Insurance Policy

 

Unanticipated Shipping Expenses

 

Extra Expense Clause

 

Physical Loss

 

Purely Economic Loss

 

Consequential Loss

 

Loss of Profitability

 

Trade Disruption Policy

 

Arrests, Detainment and Restraint

 

American Institute Cargo Clauses

 

Duty to Mitigate (Sue and Labour Clause)

 

Insurance Law

 

Transportation Law

 

 

 

Appeal from the United States District Court for the Western District of Kentucky at Owensboro. No. 4:18-cv-00118.

 

 

 

Century Aluminum relies on river barges to obtain alumina ore and other materials that it smelts into aluminum. When the Army Corps of Engineers closed key locks on the Ohio River in 2017 due to low water levels and mechanical breakdowns, Century scrambled to secure other transportation. Century filed a claim with the underwriters of its maritime cargo insurance policy, referred to collectively as Lloyd’s of London, for these unanticipated shipping expenses. Lloyd’s paid the company $1 million under the policy’s Extra Expense Clause but denied coverage for the rest of the claim. The district court granted summary judgment to Lloyd’s. We affirm.

 

 

Century lost some production when it purchased lower-grade alumina as a hedge. And the alternative modes of transportation cost more than shipment by barge. Century estimated that, by the end of 2017, it had incurred over $5 million in excess costs. Century sought to recover the costs under its marine cargo insurance policy, which Lloyd’s of London underwrote. Lloyd’s agreed that the policy’s Extra Expense Clause covered up to $1million of Century’s extra transportation expenses, but it claimed that the policy otherwise excluded losses due to delay. After paying its deductible, Century accepted $975,000 for its extra transportation costs and continued to seek coverage for the other costs.

 

 

The policy says that the “applicable state law” applies to disputes over its meaning, and the parties agree that the relevant law is Kentucky’s. R.100-2 at 29. Kentucky respects the language of insurance contracts, reads their provisions in context, and enforces them as written. Foreman v. Auto Club Prop.-Cas. Ins. Co., 617 S.W. 3d 345, 349–50 (Ky. 2021). The marine cargo insurance policy extends coverage to Century’s goods, merchandise, and cargo, “including but not limited to Coke, Alumina, Alumina products and related materials.” R.100-2 at 3. It also covers “Consequential loss” such as Century’s lost profits. Id. At issue in this appeal is whether the policy, namely the “Conditions” on obtaining coverage, requires Lloyd’s to provide Century with more than the $1 million of the Extra Expense Clause. Id. at 4.

 

 

Out of the forty-odd pages of this policy, the parties have identified four potentially material clauses. We consider each in turn.

 

 

All Risks Clause. 

Start with the policy’s initial “Condition”—that it provides coverage “against all risks of physical loss of or damage to the subject-matter insured from any external cause.” Id. Such clauses commonly appear in maritime insurance to clarify that the policyholder will receive compensation for fortuitous losses, meaning those that do not result from inherent defects, ordinary wear and tear, or intentional misconduct by the insured. See Goodman v. Fireman’s Fund Ins. Co., 600 F.2d 1040, 1042 (4th Cir. 1979). Although the policy does not define “physical loss,” Kentucky law says that the phrase means “that a property owner has been tangibly deprived of the property,” such as by theft, “or that the property has been tangibly destroyed,” such as by fire. Estes v. Cincinnati Ins. Co., 23 F.4th 695, 700 (6th Cir. 2022); see Varanese Fusion, LLC v. Erie Ins. Exch., Member Erie Ins. Grp., No. 2022-CA-0822, 2023 WL 4982587, at *2 (Ky. Ct. App. Aug. 4, 2023) (accepting this definition from federal cases as state law). “Loss” standing by itself may be ambiguous. But a “physical loss” conveys that some property has been “tangibly destroyed, whether in part or in full.” Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398, 401 (6th Cir. 2021). The pairing of “physical loss” with “damage” reinforces the emphasis on destruction of the goods. R.100-2 at 4. Hence, the policy excludes “loss or damage” to aluminum coils that result from “rust, oxidisation, bending or twisting”—material changes to the nature of the goods themselves. Id.

 

 

Kentucky also understands physical loss to exclude purely economic losses. If someone suffers only “‘detrimental economic impact’ without a tangible destruction or deprivation of property,” the Commonwealth would not say that a “physical” loss has occurred. Estes, 23 F.4th at 700 (quoting 10A Steve Plitt, et al., Couch on Insurance §148:46 (3d ed.)). Profits or income streams recorded in ledger books and electronic bank accounts lack the physical existence that could suffer loss or damage. Veneman v. Travelers Cas. Ins. Co. of Am., 2022-CA-0021, 2023 WL 3261555, at *6 (Ky. Ct. App. May 5, 2023). Reinforcing this understanding, the insurance policy distinguishes Century’s financial harms from physical loss. The Extra Expense Clause covers up to $1 million for “each and every loss” due to delays in obtaining physical possession of the alumina, as distinct from physical loss or damage. R.100-2 at 10, 14. And the Interests Clause guards against “Consequential loss,” which a subsequent clause defines as certain lost profits or increased debts resulting from “loss of or damage to or delay in the delivery of the property.” Id. at 3, 14.

 

 

Under the All Risks provision, Century’s alumina did not suffer any physical loss or damage. The temporary delay never threatened to deprive Century of its ownership or control of the alumina. The company, on the contrary, retained sufficient control over the alumina to deliver it by other transportation means. Nor has Century alleged any damage. All of the alumina arrived at Century’s facilities no worse for the wear. Century, it is true, suffered a loss of profitability. But the insurance policy addressed this intangible claim under the Extra ExpenseClause, not the All Risks provision. A “Trade Disruption policy,” for what it is worth, could have provided additional “coverage for any event which disrupts service and causes aproduction loss,” but Century declined to purchase that insurance from a different underwriter. R.100-17 at 1.

 

 

Risks Covered Clause:

In addition to the All Risks Clause, the policy contains a second statement of general coverage in a section entitled “Risks Covered.” R.100-2 at 25; see also Opera Boats, Inc. v. La Reunion Francaise, 893 F.2d 103, 104 (5th Cir. 1990) (observing that this clause is also known as the “named perils” provision). The clause has been a staple of maritime insurance contracts for centuries. See McCall v. Marine Ins. Co., 12 U.S. 59, 66 (1814). Its language, as the reader will soon see, reflects that heritage, (…): Touching the adventures and perils which the Underwriters are contented to bear and do take upon themselves in this voyage, they are of the seas and inland waters, men-of-war, fire, enemies, pirates, rovers, thieves, jettison, letters of mart and countermart, surprisals, takings at sea, arrests, restraints and detainments of all Kings, Princes and People of what nation, condition or quality soever, barratry of master and mariners, and of all other like perils, losses or misfortunes that have or shall have come to the hurt, detriment or damage of the said goods and merchandises and ship, or any part thereof. R.100-2 at 25. In the aftermath of British blockades of Atlanti ports during the War of 1812, the Supreme Court explained that arrests and detainment occur when a government authority takes possession of the vessel or its cargo. Olivera v. Union Ins. Co., 16 U.S. 183, 189 (1818); see also 9A Couch on Insurance §137:53 (defining an arrest as a “temporary detention”). It distinguished those contingencies from a restraint, which arises from “the forcible confinement of a vessel in port, and the forcible prevention of her proceeding on her voyage,” such as when a blockade prevents a ship from leaving port. Olivera, 16 U.S. at 194; see also Calmar S.S. Corp. v. Scott, 345 U.S. 427, 441, 442 n.11 (1953) (describing “Allied restraints” and “restraint of princes” under analogous conditions during World War II). The Court also considered the situation of a vessel that changes course after learning that its intended destination faces a blockade. It explained that the vessel has not suffered a restraint because the government has not “directly” forced the vessel to halt its journey. Olivera, 16 U.S. at 192–93; see Smith v. Universal Ins. Co., 19 U.S. 176, 186–87 (1821). The Risks Covered Clause does not cover Century’s situation. The government never took control of the barges or impounded the alumina, ruling out arrest and detainment. Olivera, 16 U.S. at 189. Nor did Century suffer a restraint. Once it learned of the Corps’s closures, it diverted its barges down the Ohio River for unloading on the Mississippi River. The barges never found themselves trapped within the locks, unable to escape. Cf. id. at 193–94. Century also did not suffer any “other like perils, losses or misfortunes” under the general clause found at the end of the Risks Covered provision. R.100-2 at 25. Not only does that clause go on to require “the hurt, detriment or damage of the said goods and merchandises and ship,” id., but its limitation to perils, like those already listed, limits its scope to risks akin to piracy, fire, and similarly destructive harms, 9A Couch on Insurance §137.9. The cargo and its barges did not face any such threats.

 

 

Shipping Expenses Clause.

Century turns to the policy’s Shipping Expenses Clause. This provision covers “reasonable direct charges incidental to shipping” when “the subject matter insured is not delivered to the destination contemplated due to circumstances beyond the control of the Insured.” R.100-2 at 25–26. But it covers the risk of a failed delivery, not an untimely delivery. Cf. Glennborough Homeowners Ass’n. v. U.S. Postal Serv., 21 F.4th 410, 412 (6th Cir. 2021) (contrasting mail that “was not delivered” with the successful delivery of mail). Century does not dispute that its alumina eventually arrived at its facilities.

 

 

Sue and Labour Clause. 

Last of all comes the Sue and Labour Clause. This provision imposes an obligation on the insured to exercise a duty of care to prevent losses to the insurer and, if need be, to minimize them. See Ope Shipping v. Allstate Ins. Co., 687 F.2d 639, 643 (2d Cir. 1982). The clause promises that, “in case of actual or imminent, loss, damage, cost or expense,” Lloyd’s will reimburse Century for its expenditures in protecting the “interests insured” and in “reducing... any potential loss or liability under this Contract.” R.100-2 at 26. This provision, as Century reads it, requires Lloyd’s to pay for the additional shipping expenses that prevented the physical loss of its aluminum and reduced the possibility of an imminent pot-line freeze and any consequential losses. The Sue and Labour Clause does not assist Century. The Sue and Labor Clause promises to reimburse Century for fulfilling its duty to mitigate Lloyd’s exposure under the policy, but it does not obligate Lloyd’s to pay anything for reducing losses that fall outside the policy. See Continental Food Prods., Inc. v. Ins. Co. of N. Am., 544 F.2d 834, 837 (5th Cir. 1977). While the interests insured under this contract include both the alumina and certain profits, the contract conditions that coverage on “risks of physical loss of or damage to the subject-matter insured.” R.100-2 at 4. Had Century faced a risk of physical loss or destruction, such as if the delay resulted in the cargo rotting or the barges capsizing, the Sue and Labour Clause would have obligated Lloyd’s to compensate Century for reasonable efforts to secure delivery by other means. See St. Paul Fire & Marine Ins. Co. v. Pac. Cold Storage Co., 157 F. 625, 629–31 (9th Cir. 1907); see also Homes Ins. Co. v. Ciconett, 179 F.2d 892, 895–96 (6th Cir. 1950) (observing that a Sue and Labour Clause may operate as a separate contract requiring payment beyond the limits stated elsewhere in the insurance policy). But because Century did not face an actual or imminent risk of physical loss or destruction to its alumina, the Sue and Labour Clause did not require Lloyd’s to compensate Century for these expenses. Cf. GTE Corp. v. Allendale Mut. Ins. Co., 372 F.3d 598, 618 (3d Cir. 2004).

 

 

Before concluding, it is worth noting that the policy also incorporates by reference the “American Institute Cargo Clauses.” R.100-2 at 4. The thirteenth and final clause excludes the risks of “arrest, restraint, [and] detainment” and “loss, damage or deterioration arising from delay” except where the policy affirmatively includes them. Am. Inst. Marine Underwriters, American Institute Cargo Clauses 32B-10 §13(A), (C) (Apr. 1, 1966), https://www.aimu.org/forms/32B-10.pdf. 

These exclusions may have denied Century coverage beyond the Extra Expense Clause even had it been able to identify a covered risk. Cf. Blaine Richards & Co., Inc. v. Marine Indem. Ins. Co. of Am., 635 F.2d 1051, 1056 (2d Cir. 1980).

 

 

 

 

(Sixth Circuit Court of Appeals, April 4, 2024, Century Aluminum Company v. Certain Underwriters at Lloyd’s, London, Docket No. 23-5543, Recommended for Publication)

 

U.S. Court of Appeals for the First Circuit, Green Enterprises, LLC v. Hiscox Syndicates Limited at Lloyd’s of London; XL Catlin Lloyd’s Syndicate 2003; Amlin Lloyd’s Syndicate 2001; Canopius Lloyd’s Syndicate 4444; Noa Lloyd’s Syndicate 3902; Blenheim Lloyd’s Syndicate 5886; Brit Lloyd’s Syndicate 2987/2988, Docket No. 21-1542

Insurance Law

 

Motion to Compel Arbitration

 

Question of First Impression (First Circuit)

 

Conflicts Between State Laws Regulating Insurance and Acts of Congress

 

Preemption

 

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. (A Self-Executing Treaty)

 

Comity

 

 

 

 

Green Enterprises, LLC ("Green"), a Puerto Rican recycling company, filed an insurance claim after a fire destroyed one of its plants. The underwriters of Green's insurance policy, all syndicates at Lloyd's of London ("Underwriters"), denied the claim, prompting Green to initiate this lawsuit. Pointing to an arbitration clause in the insurance policy, the district court declined to decide the parties' coverage dispute and granted Underwriters' motion to compel arbitration. Green then timely filed this appeal. As we will explain, this appeal presents a question of first impression in this circuit that turns on the interactions among Puerto Rico law, two federal statutes, and a multilateral treaty to which the United States is a party. For the following reasons, we affirm the judgment of the district court granting Underwriters' motion to compel arbitration and dismissing Green's claims without prejudice.

 

 

The arbitration clause provides: If the Insured and the Underwriters fail to agree in whole or in part regarding any aspect of this Policy, each party shall, within ten (10) days after the demand in writing by either party, appoint a competent and disinterested arbitrator and the two chosen shall before commencing the arbitration select a competent and disinterested umpire. The arbitrators together shall determine such matters in which the Insured and the Underwriters shall so fail to agree and shall make an award thereon, and if they fail to agree, they will submit their differences to the umpire and the award in writing of any two, duly verified, shall determine the same. The Parties to such arbitration shall pay the arbitrators respectively appointed by them and bear equally the expenses of the arbitration and the charges of the umpire.

 

 

Our analysis begins with the McCarran-Ferguson Act, Pub. L. No. 79-15, 59 Stat. 33 (1945) (codified at 15 U.S.C. §§1011–1015). Generally, a federal statute preempts any state law with which the federal statute directly conflicts. See PLIVA, Inc. v. Mensing, 564 U.S. 604, 617–18 (2011). The McCarran-Ferguson Act largely flips this general rule on its head as applied to conflicts between state laws regulating insurance and most acts of Congress. It states: "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 specifically defines "State" to include Puerto Rico. 15 U.S.C. §1015. (Fn. 2).

 

 

The Supreme Court "has long recognized the distinction between self-executing treaties that automatically have effect as domestic law, and non-self-executing treaties that--while they constitute international law commitments--do not by themselves function as binding federal law." Medellín, 552 U.S. at 504.

 

 

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3 (the "Convention")—the multilateral treaty that Chapter II of the FAA "implements." See GE Energy Power Conversion Fr. SAS, Corp. v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637, 1644 (2020); 9 U.S.C. §201 ("The Convention shall be enforced in United States courts in accordance with this chapter.").

 

 

The text of the Convention makes plain that Article II (3) provides a clear "directive to domestic courts." Medellín, 552 U.S. at 508. Article II (3) by its express terms directly commands courts to channel arbitrable disputes to arbitration: "The court... shall... refer the parties to arbitration...."As the Ninth Circuit described, "This provision is addressed directly to domestic courts, mandates that domestic courts 'shall' enforce arbitration agreements, and 'leaves no discretion to the political branches of the federal government whether to make enforceable the agreement-enforcing rule it prescribes.'" CLMS Mgmt. Servs. Ltd. P'shipv. Amwins Brokerage of Ga., LLC, 8 F.4th 1007, 1013 (9th Cir. 2021) (quoting Safety Nat'l Cas. Corp. v. Certain Underwriters at Lloyd's, London, 587 F.3d 714, 735 (5th Cir. 2009) (en banc) (Clement, J., concurring)), cert. denied, 142 S.Ct. 862 (2022). Based on this characterization, that court then concluded, "A straightforward application of the textual analysis outlined in Medellín compels the conclusion that Article II, Section 3 is self-executing...." Id.

 

 

(…) Green does not argue that insurance disputes generally constitute a subject that is not "capable of settlement by arbitration" under the Convention, and any such argument would be meritless. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 639 n. 21 (1985) ("Congress may specify categories of claims it wishes to reserve for decision by our own courts without contravening this Nation's obligations under the Convention. But we decline to subvert the spirit of the United States' accession to the Convention by recognizing subject-matter exceptions where Congress has not expressly directed the courts to do so."). (Fn. 7).

 

 

In sum, none of Green's arguments can overcome the self-executing nature of the plain text of Article II (3). That article, which is not an act of Congress, has the force of law and applies directly to preempt Puerto Rico law. We need not address whether Puerto Rico insurance law would reverse-preempt Chapter II of the FAA were Article II (3) non-self-executing.

 

 

The McCarran-Ferguson Act calls for reverse-preemption only of "Acts of Congress"; any policy preference expressed within it regarding state regulation of insurance does not bear on the relationship between state law and a self-executing treaty provision. And the policy considerations weigh strongly in favor of enforcement here, as "the emphatic federal policy in favor of arbitral dispute resolution... applies with special force in the field of international commerce." Mitsubishi Motors Corp., 473 U.S. at 631; see also id. at 629 ("Concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that we enforce the parties' arbitration agreement, even assuming that a contrary result would be forthcoming in a domestic context.").

 

 

For the foregoing reasons, the judgment of the district court is affirmed.

 

 

 

 

(U.S. Court of Appeals for the First Circuit, May 19, 2023, Green Enterprises, LLC v. Hiscox Syndicates Limited at Lloyd’s of London; XL Catlin Lloyd’s Syndicate 2003; Amlin Lloyd’s Syndicate 2001; Canopius Lloyd’s Syndicate 4444; Noa Lloyd’s Syndicate 3902; Blenheim Lloyd’s Syndicate 5886; Brit Lloyd’s Syndicate 2987/2988, Docket No. 21-1542)

 

U.S. Court of Appeals for the Fifth Circuit, Noble House, L.L.C. v. Certain Underwriters at Lloyd’s, London, Subscribing to Policy MS-S 5722 (Marine Package), Docket No. 22-20281

Insurance Law

 

Forum Non Conveniens

 

Statute of Limitations (In the Foreign Forum)

 

Return-Jurisdiction Clause

 

Lloyd’s

 

 

 

 

Appeal from the United States District Court for the Southern District of Texas USDC No. 4:21-CV-3585

 

 

 

Plaintiff-appellant Noble House, L.L.C. (“Noble House”) appeals a judgment of dismissal, without prejudice, based on forum non conveniens, granted in favor of defendant-appellee Certain Underwriters at Lloyd’s, London (“Underwriters”). The district court ruled that the parties’ insurance policy contained an enforceable forum-selection clause requiring litigation in the courts of England and Wales and that a return-jurisdiction clause was not required. We affirm.

 

 

On August 20, 2018, Noble House’s yacht lost its port-side rudder while entering a channel in the Bahamas. The following day, Noble House advised Underwriters, its insurer, of the casualty, which was allegedly covered by its marine-insurance policy. Noble House purchased the policy from Underwriters by way of a Texas-based insurance broker on February 1, 2018. The policy contained a forum-selection clause that selected the courts of England and Wales. Attached to the policy was a cover note with its own forum-selection clause that selected any court of competent jurisdiction within the United States. Allegedly, the cover note was not prepared by Underwriters, but by Noble House’s own insurance broker. Approximately two months after the casualty, on October 19, 2018, Underwriters issued a letter advising that coverage “may not exist.” Underwriters has not yet denied coverage. Noble House sued to recover its damages, first in the United States District Court for the Southern District of Florida on October 12, 2020. Months later, on March 2, 2021, that district court granted Underwriters’ motion to dismiss for lack of personal jurisdiction and dismissed the case without prejudice. Then, Noble House filed the instant suit in the United States District Court for the Southern District of Texas on November 1, 2021. Underwriters moved to dismiss on forum non conveniens grounds. On March 23, 2022, after hearing argument, the district court granted Underwriters’ motion and dismissed all claims without prejudice. Noble House filed a motion for reconsideration, which the court denied. This appeal followed.

 

 

As Underwriters correctly explains, the presence of a mandatory, enforceable forum-selection clause simplifies the “usual” analysis in two ways. Barnett, 831 F.3d at 300. “First, the plaintiff’s choice of forum merits no weight” because, by contracting for a specific forum, “the plaintiff has effectively exercised its ‘venue privilege’ before a dispute arises.” Atl. Marine, 571 U.S. at 63. Second, the private-interest factors “weigh entirely in favor of the preselected forum”; so, the “district court may consider arguments about public-interest factors only.” Id. at 64. “Hence, a valid forum-selection clause controls the forum non conveniens inquiry ‘in all but the most unusual cases.’” Barnett, 831 F.3d at 300 (quoting Atl. Marine, 571 U.S. at 66). “This harmonizes with the Supreme Court’s guidance that contractually selected forums often ‘figure centrally in the parties’ negotiations’ and become part of those parties’ ‘settled expectations’ –so if a plaintiff disregards such a contractual commitment, ‘dismissal works no injustice.’” Id. (quoting Atl. Marine, 571 U.S. at 66 & n.8).

 

 

We apply a “strong presumption” in favor of enforcing mandatory forum-selection clauses. Weber, 811 F.3d at 773 (citing Haynsworth,121 F.3d at 962-63). “The presumption of enforceability may be overcome, however, by a clear showing that the clause is ‘unreasonable’ under the circumstances.” Weber, 811 F.3d at 773 (quoting Haynsworth, 121 F.3d at 963). We’ve stated: Unreasonableness potentially exists where (1) the incorporation of the forum selection clause into the agreement was the product of fraud or overreaching; (2) the party seeking to escape enforcement will for all practical purposes be deprived of his day in court because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the chosen law will deprive the plaintiff of a remedy; or (4) enforcement of the forum selection clause would contravene a strong public policy of the forum state. Haynsworth, 121 F.3d at 963 (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991), and M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12-13, 15, 18 (1972)).

 

 

If the forum-selection clause is both mandatory and enforceable, the court must decide whether, under Atlantic Marine’s balancing test, the case “is one of the rare cases in which the public-interest forum non conveniens factors favor keeping a case despite the existence of a valid and enforceable forum-selection clause.” Weber, 811 F.3d at 775-76.

 

 

Noble House’s insurance policy details that: “This Insurance shall be governed by and construed in accordance with the law of England and Wales and each party agrees to submit to the exclusive jurisdiction of the courts of England and Wales.” The attached cover note provides: “It is agreed that in the event of the failure of the Underwriters hereon to pay any amount claimed to be due hereunder, the Underwriters hereon, at the request of the Assured (or Reinsured), will submit to the jurisdiction of a Court of competent jurisdiction within the United States.” Importantly, the cover note states that it “is intended for use as evidence that insurance described herein has been effected against which a policy(ies) will be issued and that in the event of any inconsistency therewith the terms and conditions and provisions of the policy(ies) prevail.” (Fn. 2).

 

 

Even if this Court were to rely on the “available and adequate” standard, as Noble House suggests, Noble House’s argument that the courts of England and Wales are not “available and adequate” fails. By contracting for those courts’ exclusive jurisdiction, it necessarily agreed that such courts are available and adequate. See Atl. Marine, 571 U.S. at 63 (noting that a forum-selection clause “represents the parties’ agreement as to the most proper forum”) (quoting Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 31 (1988)). (Fn. 4).

 

 

Noble House’s fear that its claims would be time-barred under the foreign fora’s statutes of limitations is not novel. Both the Supreme Court and this Court have acknowledged the risk of time-barred claims in the forum-selection-clause context. Unfortunately for Noble House, controlling caselaw affords it no sympathy. It is no secret that dismissal under forum non conveniens “makes it possible for plaintiffs to lose out completely through the running of the statute of limitations in the forum finally deemed appropriate.” Atl. Marine, 571 U.S. at 66 n.8. But dismissal of a suit “when the plaintiff has violated a contractual obligation by filing suit in a forum other than the one specified in a valid forum-selection clause ... works no injustice on the plaintiff.” Id. That is why we have said: “That an action may be time-barred in the chosen forum does not make a forum-selection clause unreasonable.” Barnett, 831 F.3d at 309 n.14.

 

 

(…) There is an express clause stating that the provisions in the policy supersede that in the cover note.

 

When parties agree to a forum-selection clause, they waive the right to challenge the preselected forum as inconvenient or less convenient for themselves or their witnesses, or for their pursuit of the litigation.” Atl. Marine, 571 U.S. at 64. Any grave inconvenience or unfairness of the selected forum Noble House “would suffer by being forced to litigate in the contractual forum as it agreed to do was clearly foreseeable at the time of contracting.” Bremen, 407 U.S. at 17-18. Because the applicable foreign statutes of limitations were certainly foreseeable at the time the parties executed the policy, their enforcement is not unfair.

 

 

(…) Courts enforce a forum-selection clause unless the contracted forum accords the plaintiff no remedies whatsoever. Id. at 774 & n.24; see also Barnett, 831 F.3d at 308 n.14. That’s because “it is the availability of a remedy that matters, not predictions of the likelihood of a win on the merits.” Weber, 811 F.3d at 774 (emphasis in original). Noble House’s failure to point to a substantive law that bars its claim for relief is fatal.

 

 

(…) “A return jurisdiction clause remedies the concern that the identified forum will remain available or that defendants will submit to its jurisdiction by permitting parties to return to the dismissing court should the lawsuit become impossible in the foreign forum.” Vasquez, 325 F.3d at 675. “The ‘failure to include a return jurisdiction clause in an f.n.c. i.e., forum non conveniens dismissal constitutes a per se abuse of discretion.’” Vasquez, 325 F.3d at 675 (quoting Robinson v. TCI/US West Communications, Inc.,117 F.3d 900, 907-08 (5th Cir. 1997)). “This is because, as this Court has repeatedly made clear, ‘courts must take measures, as part of their dismissals in forum non conveniens cases, to ensure that defendants will not attempt to evade the jurisdiction of the foreign courts.’” Rajet Aeroservicios S.A. de C.V. v. Castillo Cervantes, 801 F. App’x 239, 244 (5th Cir. 2020) (unpublished) (per curiam) (quoting Baris v. Sulpicio Lines, Inc., 932 F.2d 1540, 1551 (5th Cir. 1991)). “Such measures often include agreements between the parties to litigate in another forum, to submit to service of process in that jurisdiction, to waive the assertion of any limitations defenses, to agree to discovery, and to agree to the enforceability of the foreign judgment.” Baris, 932 F.2d at 1551. “A return-jurisdiction clause assists in preventing defendants from circumventing these measures and ensures plaintiffs have the opportunity to proceed with the action in one of the forums.” Rajet Aeroservicios, 801 F. App’x at 244. The existence of a mandatory, enforceable forum-selection clause swallows the purpose of a return-jurisdiction clause whole. See Baris, 932 F.2d at 1551. As noted, an agreement is one of the express “measures” to ensure that defendants will not attempt to evade the jurisdiction of the foreign courts. See Baris, 932 F.2d at 1551. By agreement, Noble House and Underwriters are contractually bound to litigate their dispute in the courts of England and Wales. Accordingly, there is no concern that Underwriters will “attempt to evade jurisdiction of the foreign courts” or flout the litigation procedure and outcome. The clause ensures that Noble House will have the opportunity to proceed with the action in the foreign fora. See Rajet Aeroservicios, 801 F. App’x at 244. Moreover, should Underwriters evade the jurisdiction of the foreign courts, Noble House has a remedy in a breach-of-contract action, a protection which does not exist in the forum non conveniens context where there is no forum-selection clause. The parties’ agreement to proceed with the action in the selected fora obviates the need for a return-jurisdiction clause. See Baris, 932 F.2d at 1551.

 

 

A “total waiver of any statute of limitations defense” or laches defenses is similarly unnecessary. First, while such a waiver is one of the many “measures” provided to “ensure” that defendants will not evade the jurisdiction of foreign courts, none of those measures is mandatory. See id. (listing examples of protective measures that a court may often –but not “must” –utilize). Again, the primary concern that a defendant will evade jurisdiction is not present where the parties willingly submitted to foreign fora by agreement. So, waiver as a protective measure is redundant, gratuitous, and serves no purpose. Although not required, the district court confirmed that Underwriters’ statute-of-limitations defense did not encompass the time period including “the duration of the pendency of this action.” This exceeds what was expected of the court to ensure Underwriters would not “evade” jurisdiction. Accordingly, the district court did not err.

 

 

 

 

(U.S. Court of Appeals for the Fifth Circuit, May 1, 2023, Noble House, L.L.C. v. Certain Underwriters at Lloyd’s, London, Subscribing to Policy MS-S 5722 (Marine Package), Docket No. 22-20281)