Missouri Court Upholds Arbitration Despite Anti-Arbitration Statute When Foreign Insurers Are Involved

Policyholders must be aware of arbitration clauses found in property insurance policies. Even if a state has an anti-arbitration law, most courts send the disputes to arbitration and possibly apply another state’s laws if the insurers are not based in the United States. For example, yesterday, a federal court ruled:1  

An increasing majority of district and circuit courts have concluded that state anti-arbitration statutes do not reverse-preempt the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Though rationales diverge, the Supreme Court appears to endorse the end result. The Court is thus compelled to join the majority view that the MUAA does not reverse-preempt the Convention. Consequently, Plaintiff must arbitrate its claims against the Arbitration Defendants pursuant to their respective agreements.

The federal court made this ruling despite Missouri’s longstanding public policy preventing insurance disputes from being subject to arbitration:

The MUAA recognizes the validity and enforceability of arbitration agreements except in contracts of insurance and adhesion. Mo. Rev. Stat. § 435.350. Missouri appellate precedent is clear that arbitration clauses in insurance contracts are voidable as against public policy notwithstanding choice of law provisions in the contract. Sturgeon v. Allied Professionals Ins. Co., 344 S.W.3d 205, 210 (Mo. App. E.D. 2011) (holding that Missouri’s public policy overrode California choice of law). Accord, Milburn v. Zurich Am. Ins. Co., 478 F. Supp. 3d 789, 792 (E.D. Mo. 2020) (‘[P]ublic policy is a matter above and beyond a choice-of-law analysis and can act to override it entirely.’).

I have previously warned about arbitration clauses, as noted in Check For Arbitration Provisions—Especially When Dealing With Foreign Insurers. Insurance agents should carefully check for these clauses when selling surplus lines policies and warn their clients before selling them a policy that often requires arbitration in a far-away jurisdiction and with unfavorable law.  

An Afternoon Quote

Domestic policy can only defeat us; foreign policy can kill us.

—John F. Kennedy

1 Foresight Energy v. Ace American Ins. Co., No 4:22-cv-00887 (E.D. Mo. Mar. 21, 2023).