From the Desk of Kyle Riley: This case is important because, unless the legislature provides otherwise, binding arbitration agreements in insurance contracts are not enforceable under RCW 48.18.200(1)(b).
Claims Pointer: RCW 48.18.200(1)(b) provides that “[n]o insurance contract delivered or issued for delivery in this state and covering subjects located, resident, or to be performed in this state, shall contain any condition, stipulation, or agreement…depriving the courts of this state of the jurisdiction of action against the insurer.” The Washington Supreme Court held that this statutory provision prohibits binding arbitration agreements in insurance contracts and makes them unenforceable. Additionally, under the McCarron-Ferguson Act, 15 U.S.C. § 1012, RCW 48.18.200(1)(b) is not preempted by the Federal Arbitration Act, 9 U.S.C. § 1-14.
State of Washington Dept. of Transportation v. James River Insurance Co., in the Supreme Court of the State of Washington, No. 87644-4, — P3d —-, (January 17, 2013).
James River Insurance Company (“James River”) issued two insurance policies to Scarsella Brothers Inc. (“Scarsella”) that provided coverage for certain liability related to Scarsella’s work on a highway project for State of Washington Department of Transportation (“WSDOT”). At the request of Scarsella, WSDOT was added as an insured under the policies. In 2009, a traffic accident occurred at or near Scarsella’s highway project. The representatives for those killed or injured in the accident filed suit against WSDOT in King County Superior Court. WSDOT thereafter tendered its defense to Scarsella, who forwarded the tender to James River. James River accepted WSDOT’s tender under a reservation of rights and also informed WSDOT that the policies contained mandatory arbitration provisions and therefore the parties’ disputes must be arbitrated. WSDOT objected to James River’s arbitration requests and filed a declaratory judgment action against James River, seeking a declaration that the arbitration clauses were void. James River thereafter asserted a counterclaim for declaratory judgment arguing that the arbitration clauses were valid. The trial court agreed with WSDOT finding that RCW 48.18.200 and RCW 48.15.150 barred the arbitration clause and further that these statutes were not preempted by the Federal Arbitration Act based upon the applicability of the McCarran-Ferguson Act. James River appealed and the Washington Supreme Court granted review.
The Washington Supreme Court affirmed. The Court first determined that RCW 48.18.200(1)(b), which prohibits any agreement in insurance contracts “depriving the courts of this state of the jurisdiction of action against the insurer,” prohibited binding arbitration agreements in insurance contracts. After reviewing the statutory construction, legislative history and relevant case law surrounding the statute, the Court found that the legislature’s intent in drafting this statute was to protect the rights of policyholders to bring an original action against the insurer in the courts of the state. Therefore, since the arbitration agreements in James River’s policies were predispute binding arbitration agreements, they were unenforceable. Because RCW 48.18.200 was found to prohibit James River’s binding arbitration agreement, the Court did not reach the issue of whether RCW 48.15.150 also prohibited arbitration agreements. The Court then addressed the issue of whether the Federal Arbitration Act served to preempt RCW 48.18.200. The Court held that RCW 48.18.200 was not preempted by the Federal Arbitration Act because the McCarran-Ferguson Act shielded the statue from preemption. The McCarran-Ferguson Act provides that “[n]o act of Congress shall be construed to invalidate, impair, or supercede any law enacted by any State for the purpose of regulating the business of insurance.” The Court found that RCW 48.18.200(1)(b) expressly related to the prohibition of binding arbitration agreements in insurance contracts and therefore was shielded from preemption by the Federal Arbitration Act under the McCarron-Ferguson Act.
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