Battles persist concerning the enforceability of insurance policy arbitration clauses due to the conflict between (a) the U.S. Constitution’s Supremacy Clause (Art. VI, cl. 2), which gives federal laws and international treaties preemptive authority over conflicting State law, and (b) the McCarran-Ferguson Act, which gives State insurance laws reverse-preemptive authority over federal statutes that interfere with State regulation of the insurance business. A recent federal District Court decision in the Ninth Circuit offers support for the proposition that a key provision of an important arbitration-related treaty -- the New York Convention -- is self-executing, is not reverse-preempted by McCarran-Ferguson, and thus may be a basis, where applicable, for compelling arbitration of insurance coverage disputes. See CLMS Mgmt. Servs. L.P. v. Amwins Brokerage of Ga., LLC, No. 3:19-cv-05785, 2019 U.S. Dist. LEXIS 221122 (W.D. Wa. Dec. 26, 2019).
State laws that regulate the insurance business are, subject to certain criteria, shielded from federal preemption by McCarran-Ferguson. See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 48-49 (1987). Thus, a narrowly framed state statute that in effect prohibits arbitration of insurance coverage disputes would generally reverse-preempt a conflicting federal statute by reason of McCarran-Ferguson.
For example, when a state insurance law provision conflicts with ch. 1 of the Federal Arbitration Act (“FAA”), the state insurance regulatory law will prevail. (Plainly, the FAA does not specifically relate to the business of insurance.) Several federal courts, including the Fifth, Eighth, Tenth, and Eleventh Circuit Courts of Appeals, have held that McCarran-Ferguson enables pertinent state law to reverse-preempt the provisions of FAA ch. 1.
However, while McCarran-Ferguson may reverse-preempt an Act of Congress, it does not affect the preemptive authority of a U.S. treaty. Thus, a treaty that is self-executing -- i.e., one that does not require implementing legislation in order to have effect in the American judicial system -- could not be reverse-preempted by McCarran-Ferguson.
Furthermore, the Federal Courts of Appeals are apparently split regarding whether the implementing legislation for an arguably non-self-executing arbitration-related treaty -- the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) -- is reversed-preempted pursuant to McCarran-Ferguson. There ought be no disagreement that, in principle, the New York Convention itself cannot be reverse-preempted, but if it is not self-executing, that “immunity” from reverse-preemption would be insignificant. On the other hand, there is considerable disagreement regarding whether its implementing legislation (FAA ch. 2, 9 U.S.C. §§ 201, et seq.) can be reverse-preempted. Moreover, there is significant case-wise disagreement regarding whether the terms of the treaty or the terms of the implementing legislation are being invoked and addressed in any particular case.
The Fifth Circuit has opined that the provisions of the New York Convention and of its implementing legislation are not reverse-preempted by state law by reason of McCarran-Ferguson. See McDonnel Group LLC v. Great Lakes Ins., SE, 2019 U.S. App. LEXIS 14177 (5th Cir. May 13, 2019). Insofar as the implementing legislation (FAA ch. 2) is concerned, that was consistent with the view in the Fourth Circuit, and inconsistent with that in the Second and Eighth Circuits.
The CLMS Decision
In CLMS, an insurance coverage dispute arose between the plaintiff and certain insurance companies and brokers. Two defendants, including “Certain Underwriters at Lloyd’s,” moved to compel arbitration based on an arbitration clause in the pertinent policy’s “Conditions” section. See 2019 U.S. District LEXIS 221122 at *5. The New York Convention was found to apply. See id. at *15.
Art. II § 3 of the New York Convention “commands” that
“[t]he court of a Contracting State, when seized of an action in a matter in respect of which parties have made an agreement within the meaning of this Article, shall, at the request of one of the parties, refer the parties to arbitration.”
See id. at *5-*6, *11-*12, (emphasis added).
The CLMS court concluded that Art. II § 3 was “self-executing,” and so no Act of Congress, including FAA ch. 2, was required for it to be enforceable. Hence, McCarran-Ferguson did not apply, and the arbitration clause at issue could be enforced notwithstanding a Washington state law (RCW 48.18.200) that “bars mandatory arbitration clauses in insurance contracts.” Id. at *2.
The Washington federal court paid note of authority for the proposition that Art. II § 3 is self-executing because its use of the word “shall” expressly directs courts to enforce qualifying arbitration agreements. Id. at *9, citing Martin v. Certain Underwriters of Lloyd’s, 2011 U.S. Dist. LEXIS 165352 (C.D. Cal. Sept. 2, 2011). The District Court in Washington agreed. See id. at *9-*10.
The CLMS court further opined that a treaty may contain both self-executing and non-self-executing provisions. Id. at *11. A treaty is not self-executing “when either of the [treaty] parties [merely] engages to perform a particular act.” Id. at *10, citing Foster v. Nielson, 27 U.S 253, 314 (1829). In contrast, in the Court’s view, the use of the word “shall” in Art. II § 3 of the New York Convention is a “directive to domestic courts” that leaves no discretion to the legislative or judicial branches to determine a degree of enforcement; thus, that treaty provision is self-executing. (Indeed, the Court speculated that Art. II § 3 of the New York Convention “may very well be [its] only self-executing provision.” See id. *12-*13.)
The Washington federal court acknowledged that SCOTUS had previously listed FAA ch. 2 as “an example of Congress implementing a non-self-executing treaty.” Id. at *12, citing Medellin v. Texas, 552 U.S. 491, 521-22 (2008). But the District Court discounted the significance of that point because (i) SCOTUS’s “brief observation” was made in dictum and was not binding, and (ii) it was unclear whether SCOTUS was referring with that characterization to the entire New York Convention or only part of it. See id. at *12.
While California law is often maligned for its seemingly reflexive antipathy toward arbitration of consumer and employment disputes, federal district courts in the Ninth Circuit do not appear to be burdened by such an arguable prejudice as they sort through complex interactions of state and federal law concerning the use of ADR.
 The McCarran-Ferguson Act provides that
“[n]o 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 Fourth Circuit relied in part on an observation by SCOTUS that McCarran-Ferguson applied only to “domestic commerce legislation”, see American Ins. Ass’n v. Garamendi, 539 U.S. 396, 428 (2003), and on other examples of federal legislation that was not reverse-preempted by McCarran-Ferguson. See 2019 U.S. Dist. LEXIS 221122 at *9.
 The Second Circuit also concluded that the entire New York Convention is not self-executing. Id. at *8.