THE RISING TIDE OF ARBITRATION CLAUSES CLAIMS MARITIME INSURANCE AS ITS NEXT VICTIM.
TABLE OF CONTENTS I. Introduction 79 II. The McCarran-Ferguson Act 80 A. Legislative History Leading to the McCarran-Ferguson Act 80 1. Paul v. Virginia 80 2. South-Eastern Underwriters Association 81 B. The Inception of the McCarran-Ferguson Act 81 C. The Impact of Willburn Boat Co 82 D. The Circuit Split Between the Ninth Circuit and the Fifth Circuit 83 1. The Ninth Circuit: Certain Underwriters at Lloyds v. Intel Fisheries Inc 84 2. The Fifth Circuit: Albany Ins. Co. v. Anh Thi Kieu 85 III. The Federal Arbitration Act 87 A. Arbitration Defined 87 B. Before the Federal Arbitration Act 87 C. The Federal Arbitration Act Today 88 D. State Statutes Working with and Against the FAA 89 IV. The Battle Between the McCarran-Ferguson Act and the FAA 90 V. Galilea, LLC u. AGCS Marine Ins. Co., a Ninth Circuit Case 92 A. The Facts and Procedural History 92 B. An Analysis of the Court's Reasoning in Galilea 95 1. The Court Correctly Reasoned that the Application is Not a Contract 95 2. While the Insurance Policy is a Contract, the Policy Should Not Have Been Subject to the FAA 96 3. The FAA Should Not Constitute Established Federal Maritime Law for "Maritime Transactions" 96 4. The FAA Should Have Been Precluded by Montana Law under the McCarran-Ferguson Act 99 5. Federal Maritime Law is not Precluded by Montana Law under The Bremen 103 (1) The Bremen discussed forum selection clauses, but not federal maritime law rules about choice-of-law clauses 104 (2) "The Bremen considered whether the public policy of the forum where suit was brought--there, federal public policy as supplied by federal maritime law--outweighed the application of the law of other countries".105 6. The Kittlers Should Not Be Classified as a Sophisticated Party 106 VI. An Alternative Analysis Available to the Ninth Circuit in Galileo, 108 VII. Conclusion 109
The tide of arbitration clauses is rising in contracts and insurance policies across virtually every area of law. Arbitration was designed as an alternative mechanism for litigation between individuals in contract disputes. However, arbitration clauses have become entrenched within almost every employment and consumer contract and is used as a vehicle to resolve a vast variety of tort law ranging from personal injury to sexual harassment and discrimination in the work place. Today, arbitration has engulfed insurance policies and general maritime law. A lofty concern facing courts today is whether there is an established principle of maritime law respecting arbitration clauses in policies of marine insurance. Marine insurance is defined as insurance against "the losses incident to the marine adventure." (1) Marine insurance is generally comprised of three elements: (1) a contract of indemnity against loss; (2) the indemnity is triggered by an accident or fortuitv; and (3) the 'adventure' or peril insured against must be specifically maritime in character. (2)
A recent decision from the Ninth Circuit, Galilea, L.L.C. v. AGCS Marine Ins. Co., has determined an arbitration provision in an insurance policy constitutes "established maritime law" under the Federal Arbitration Act ("FAA"). Galilea could have a chilling effect on future cases as it seeks to establish the FAA as established federal maritime law. This case signals a trend among courts that applies both to marine insurance disputes and to every dispute nationwide. While the McCarran-Ferguson Act has come under fire over several decades, the McCarran-Ferguson Act has been one of the last lines of defense against arbitration provisions in insurance contracts. However, the McCarran-Ferguson Act failed to preempt the arbitration provision in the insurance policy in Galilea. The Ninth Circuit's reasoning for rejecting the McCarran-Ferguson Act by favoring the application of the FAA as established federal maritime law is flawed and will have devastating consequences if upheld. This comment will analyze why the FAA should not be considered established federal maritime law and why the McCarran-Ferguson Act should have been upheld in Galilea.
II. THE MCCARRAN-FERGUSON ACT
A. Legislative History Leading to the McCarran-Ferguson Act
1. Paul v. Virginia
In 1868, the Supreme Court decided Paul v. Virginia. The Court held that insurance is not interstate commerce and that "issuing a policy of insurance is not a transaction of commerce." (3) As a result, Paul was cited for seventy-five years stipulating that the insurance industry was to be regulated by the states and the "legislative power that the interstate commerce clause grants to Congress could not be used to enact a comprehensive scheme of federal insurance regulation." (4) States developed the system for insurance that exists today such as "licensing of insurers and agents, filing of periodic reports by insurers, establishment of capital and other financial standards for insurers, prior approval of policy forms and property/casualty rates and prohibitions against unfair insurance practices." (5) Congress enacted statutes which govern specific aspects of the insurance industry. (6) However, the federal government did not have authority over the business of insurance under the Commerce Clause. (7)
2. South-Eastern Underwriters Association
In 1944, the Supreme Court overruled Paul v. Virginia by deciding United States v. South-Eastern Underwriters Association ("SEUA"). (8) The Supreme Court in SEUA held that insurance is to be considered interstate commerce, which "implied that the collective setting of property/casualty rates, which was required by insurance laws of most states, would violate the federal antitrust laws." (9) The decision upset many in the insurance business, as "the Court held both that the insurance industry was subject to federal regulation under the Commerce Clause, and that the Sherman Act applied to insurance transactions because [both] were 'commerce' as contemplated in Article I of the Constitution." (10) Insurance companies decided whether to "[incur] criminal penalties for violating the federal antitrust laws or ignoring the provisions of the state insurance laws." (11) Essentially, the decision placed insurance companies in the impossible position of having to choose which laws to follow and which to violate. (12)
B. The Inception of the McCarran-Ferguson Act
The McCarran-Ferguson Act was enacted in 1945 with its goal being the "preservation of the state insurance regulatory system and contains not a single substantive rule concerning the conduct of the business of insurance." (13) The McCarran-Ferguson Act also "provides that the regulation of insurance generally is a matter to be governed by state law." (14) The McCarran-Ferguson Act states in relevant part:
[section]1011. Declaration of policy
The Congress hereby declares that the continued regulation and taxation bv the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to iniDose anv barrier to the regulation or taxation of such business by the several States. (15)
[section]1012. Regulation by State law; Federal law relating specifically to insurance
(a) State regulation. The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.
(b) Federal regulation. 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, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance. (16)
However, if a conflict between state and federal authority over insurance exists, which law applies? The Fifth Circuit answers this question in, Munich Am. Reinsurance Co. v. Crawford, which states, "folrdinarily, federal law pre-empts conflicting state law by virtue of the Supremacy Clause. (17) "The McCarran-Ferguson Act reverses that effect in the narrow range of cases involving state regulation of the insurance industry." (18) The McCarran-Ferguson Act "assure[s] the primacy of the states in the area of insurance regulation . by means of a series of provisions that favor state insurance law in the event of a conflict with federal law." (19)
C. The Impact of Willburn Boat Co.
In Wilburn Boat Co. v. Fireman's Fund Insurance Co., the plaintiff secured an insurance policy to cover fire loss of a houseboat used for commercial carriage of passengers. (20) The insurance company denied the plaintiffs claim after the boat caught fire, because the title of the boat was transferred without the insurer's permission, voiding the warranty. (21) The trial court held and appellate court affirmed that federal admiralty law applied and that the plaintiff was barred from recovery for breach of warranty. (22) The Supreme Court held that while states cannot override federal admiralty law, states have a great deal of regulatory power and control in the absence of a federal admiralty rule. (23) When congressional statutes and judicial rules are not present in the field of marine insurance, the state is free to adjudicate the marine insurance dispute. (24) However, the court did not create a judicial rule regarding marine contracts where it was best left to Congress to determine. (20) The central questions in Wilburn Boat Co. that courts apply to cases today are: "(1) Is there a judicially established federal admiralty rule governing these warranties? (2) If not, should [the court] fashion one?" (26)
After the Supreme Court decision in Wilburn Boat Co. u. Fireman's Fund Insurance Co., substantive state laws and insurance regulations apply to maritime insurance contracts in the absence of an established federal maritime rule. (2)'
D. The Circuit Split Between the Ninth Circuit and the Fifth Circuit
There is a circuit split between the Ninth Circuit and the Fifth Circuit concerning how Wilburn Boat Co. applies in determining which law, state or federal, controls a marine insurance policy. The Ninth Circuit requires the rule be sufficiently longstanding and accepted within admiralty law that it can be said to be "established." (28) However, the Fifth Circuit differs by requiring an admiralty rule be "entrenched federal precedent," (29) and tends to favor the application of state law.
1. The Ninth Circuit: Certain Underwriters at Lloyds v. Intel Fisheries Inc.
In Certain Underwriters at Lloyds v. Intel Fisheries Inc., the Ninth Circuit analyzed Wilburn Boat Co. to determine whether uberrimae fidei constituted established federal admiralty law. The doctrine of uberrimae fidei held all parties to the highest standard of good faith within a transaction, and is a principle generally applied to all insurance contracts historically. (30) This doctrine of uberrimae fidei is significant in Certain Underwriters at Lloyds as it "imposes a duty of utmost good faith", (31) and "requires that an insured fully and voluntarily disclose to the insurer all facts material to a calculation of the insurance risk." (32) Lloyds asserted that Inlet did not disclose material information, while Inlet argued that Lloyds never asked for the information. (33) However, under uberrimae fidei, Inlet would have been required to disclose all material information, regardless of whether Lloyds requested it. (34)
After Wilburn Boat, "if extant federal admiralty law does not contain an applicable rule, courts look to state law, rather than fashioning a new federal admiralty rule or adopting one from British law." (35) The Supreme Court acknowledges that states possess a leading role in governing marine insurance policies. (36) However, Wilburn Boat Co. left gaps for courts to fill in.
Wilburn Boat itself provides limited direction on how [the circuit isl to determine whether a rule is "iudicially established." In Bohemia, [the Ninth Circuit! fleshed [thel approach, explaining that "state law will control the interpretation of a marine insurance policy only in the absence of a federal statute, a iudicially fashioned admiralty rule, or a need for uniformity in admiralty practice." 725 F.2d at 510. PTIhe Ninth Circuit require[sl that the rule be sufficiently longstanding and accepted within admiralty law that it can be said to be "established." Putting a slightly different spin on Wilburn Boat, the Fifth Circuit reauires an admiralty rule be "entrenched federal precedent." (37)
The court further demonstrated how uberrimae fidei judicially established admiralty law because uberrimae fidei is deeply embedded into American law given its two hundred years in existence and its repeated acknowledgment in admiralty law by the Ninth Circuit.
Following Wilburn Boat, we have never directly addressed whether uberrimae fidei or state insurance law applies in marine insurance cases. Nonetheless, we have repeatedly acknowledged uberrimae fidei as part of admiralty law. Indeed, because uberrimae fidei has been incorporated into the laws of several of the states within this circuit, whether to apply federal or state law often makes no difference. (38)
The Ninth Circuit ultimately held that uberrimae fidei applies as longstanding federal maritime rule by the circuit's repeated acknowledgment of uberrimae fidei as part of admiralty law. (39) Therefore, state law does not apply. (40)
2. The Fifth Circuit: Albany Ins. Co. v. Anh Thi Kieu
The Fifth Circuit has identified three factors for determining if a federal maritime rule controls a contract of marine insurance:
(1) whether the federal maritime rule... constitutes 'entrenched federal precedent,'; (2) whether the state has a substantial and legitimate interest in the application of its law; [andl (3) whether the state's rule is materially different from the federal maritime rule. (41)
In Albany Ins. Co. v. Anh Thi Kieu, the Fifth Circuit reached a different opinion from that of the Ninth Circuit concerning whether uberrimae fidei is considered federal precedent of maritime law. The Fifth Circuit critiques past supreme court cases by determining that even though the doctrine has a long history, only three have examined the applicability of the doctrine in the Fifth Circuit. (42) While each of the three cases assert that uberrimae fidei is "well recognized" in federal law and entrenched in maritime law, they fail to "enforce the strict uberrimae fidei rule as the basis for the invalidation of a marine insurance policy." (43)
The Fifth Circuit in Anh Thi Kieu concluded that the uberrimae fidei doctrine is not entrenched federal precedent because the doctrine may have been 'entrenched federal precedent' in past circuit decisions, but the uberrimae fidei doctrine "is a rule which this Court has recognized, but never applied." (44)
In addition to the Fifth Circuit's finding that the uberrimae fidei doctrine is not entrenched federal precedent, the court utilizes Wilburn Boat Co. to determine whether state law should govern marine insurance. As advanced in Anh Thi Kieu "[regulation of insurance relationships, including marine insurance relationships, has historically been a matter of state concern. From their experience, states are far better equipped to balance the risks that each party to an insurance contract endures." (45)
The Fifth Circuit in Anh Thi Kieu examined whether local state interest is substantial and legitimate. (46) Utmost good faith is a widely accepted principle in the state of Texas. (47) Texas further held that, "the burden of unintentional misrepresentations should fall on the insurance underwriter." (48) The Court held that, "Texas has a material interest in ensuring that marine insurance underwriters do not invalidate the insurance protection of Texas citizens on the basis of misrepresentations that were neither willfully or intentionally asserted." (49)
In summation, the Fifth Circuit in Anh Thi Kieu ultimately held that state law applies because the uberrimae fidei doctrine is not entrenched federal precedent and the state of Texas's material interest in regulating marine insurance.
III. THE FEDERAL ARBITRATION ACT
A. Arbitration Defined
Arbitration is "a private and informal trial procedure for the adjudication of disputes, . an extrajudicial process,... [and] functions as an alternative to conventional litigation." (00) Parties in controversy "confer upon the arbitrators full legal authority to adjudicate their disputes, i.e., to render a final disposition on the matters submitted that can be enforced through coercive legal means." (01) An arbitration agreement manifests in two forms, through submission or an arbitral clause. (52) Parties can either agree to submit an existing dispute to arbitration by executing an arbitration agreement or the parties can create a contract in which the parties agree to submit a future dispute to arbitration. (53)
B. Before the Federal Arbitration Act
Prior to the enactment of the Federal Arbitration Act, arbitration disputes were considered unenforceable and against public policy. (54) Historically, legislators and those in the legal community viewed arbitration with hostility and legislators saw arbitration as an infringement on judges' livelihood and jurisdiction. (55) As industrialization progressed, an increase in the number of business disputes resulted in decreased hostility towards arbitration. (56) In 1925, the Federal Arbitration Act ("FAA") was enacted "to ensure the validity and enforcement of arbitration agreements in any 'maritime transaction or... contract evidencing a transaction involving commerce'" (57) The new act "declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration." (58) Although Congress's intent in forming the FAA was to protect arbitration agreements made by contracting parties, the FAA also postulated potential benefits such as reducing the cost and length of litigation. (59)
C. The Federal Arbitration Act Today
Courts today interpret arbitration agreements very liberally. (60) The FAA contains three chapters. (61) The first chapter consists of sixteen provisions and is the U.S. domestic law of arbitration. (62) Chapter two and three have been ratified by the United States: the New York Arbitration Convention and the Inter-American Arbitration Convention. (63) Congress originally devised the FAA as a way for commercial parties to access private adjudicatory remedies through contract by "authorizing] the federal courts to give effect to arbitration agreements. (64) The Supreme Court modified the language and content of the FAA statute considerably by extending beyond adjudication of commercial claims. (60) Section 2 of the FAA states:
[a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (66)
As several cases demonstrated when applying state-law principles concerning contracts to an arbitration agreement within the parameters of the FAA, "due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration." (67)
D. State Statutes Working with and Against the FAA
States actively regulated arbitration agreements and institute statutes which operate with the FAA. (68) The Supreme Court emphasized that Section 2 of the FAA "limits the grounds for denying enforcement of 'written provision[s] in... contract[s]' providing for arbitration." (69) Courts often determine that the FAA preempts state laws or judicial rules that impede contracts. (70) Some states made efforts to invalidate mandatory arbitration agreements in circumstances where there is a belief that requiring parties to resolve their dispute through arbitration would be unfair, against public policy, or would not protect the interest of a vulnerable party.' (1) When there is a question of whether the FAA preempts a state law, courts usually determine that the FAA overrides state requirements that limit the enforceability of mandatory arbitration agreements. (72) The Supreme Court held that pursuant to the implied preemption principles:
the FAA supersedes state laws that 'undermine the goals and policies of [the Act].' (7,3) As the Court noted, the FAA 'was designed 'to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate,' and '[t]he overarching purpose of [the FAA]. is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings' (74)
Section 2 of the FAA moved courts to "place arbitration agreements 'on equal footing with all other contracts'" when conducting the FAA preemption analysis. (75)
State legislatures and courts made efforts to restrict the enforcement of mandatory arbitration clauses, especially in circumstances where there may be unequal bargaining power between contracting parties. (76) According to citizen.org, twenty-four states had no statute or regulation prohibiting or restricting the use of arbitration in insurance contracts. (77) There are sixteen states that had statutes that appear to "prohibit any enforcement of arbitration clauses by insurers." (78) In thirteen of these sixteen states, courts upheld the statute, or the statute has not been challenged as pre-empted by FAA. (79)
IV. THE BATTLE BETWEEN THE MCCARRAN-FERGUSON ACT AND THE FAA
While it is true that the FAA generally overrides state requirements limiting the enforceability of mandatory arbitration agreements, (80) the FAA has a competitor--the McCarran-Ferguson Act. While the FAA can apply to arbitration clauses within insurance contracts, the FAA does not apply when a state statute preempting arbitration agreements in insurance contracts is in place as a matter of public policy pursuant to the McCarran-Ferguson Act. (81) The McCarran-Ferguson Act in conjunction with states' right to regulate the business of insurance prevailed over the federal policy favoring arbitration agreements. (82) This is largely the case due to the McCarran-Ferguson Act's express language which grants states the power to protect the interests of policyholders by regulating the business of insurance. (83)
Smith v. PacifiCare Behavioral Health of Cal. Inc., from a California state court of appeal, is an example of when the McCarran-Ferguson Act prevented the FAA from preempting a state statute. In Smith, the plaintiff sought damages as a result of alleged malpractice against a health maintenance organization ("HMO"). (84) The HMO sought the enforcement of an arbitration clause in the insurance plan. (80) However, the plaintiff asserted that the HMO violated a state statute which regulated the business of insurance. (86) The court found that a state statute which regulated the conduct of parties and disclosures involved the business of insurance by concluding,
... that PacifiCare is engaged in the business of insurance and section 1363.1 clearly purports to regulate an important aspect of that business relating to the performance and enforcement of the policy. Thus, section 1363.1 does regulate the business of insurance within the meaning of McCarran-Ferguson. Therefore, the FAA, a federal statute of general application, which does not "specifically relate" to insurance, is foreclosed from application to prevent the operation of section 1363.1. (87)
Thus, the court held that state law regulating the business of insurance is outside the scope of the FAA. (88)
Although Smith v. PacifiCare Behavioral Health of Cal. Inc. is a lower state court case, it is imperative to note that this court believes the FAA does not "specifically relate" to insurance. The Ninth Circuit case of Galilea, LLC v. AGCS Marine Ins. Co. presents great concerns as it places great weight on the FAA and its influence on marine insurance.
V. GALILEA, LLC V. AGCS MARINE INS. CO., A NINTH CIRCUIT CASE
The main question presented in Galilea, LLC v. AGCS Marine Ins. Co. is whether ". an arbitration provision in a maritime insurance policy is enforceable despite law in the forum state assuredly precluding its application?" (89) The United States Court of Appeals for the Ninth Circuit in Galilea answered this question through an analysis under the McCarran-Ferguson Act (90), and the FAA, reaching a conclusion that the arbitration clause is effective and state law does not apply. (91)
A. The Facts and Procedural History
The respondents in this case are Taunia and Chris Kittler ("the Kittlers"), residents of the state of Montana and individual members of Galilea L.L.C. ("Galilea"), a Nevada limited liability company. After Galilea purchased a sixty-foot Yacht in 2014, the Kittlers sought to purchase Yacht insurance a year later and requested an insurance quote from Pantaenius American Ltd. ("Pantaenius"), an insurance company that specialized in insuring Yachts and acts as an agent for insurance underwriters. (92)
Pantaenius requested a hand-signed application from the Kittlers. They sailed in the Caribbean at the time and docked in Puerto Rico to complete the application. The company listed three underwriters in the application, including: AGCS Marine Insurance Company, Liberty Mutual Insurance Company, and Torus National Insurance Company ("Underwriters"). (93) The application included an arbitration and choice of law terms, stating:
Any dispute arising out of or relating to the relationship between Pantaenius America Ltd and/or our participating underwriters and the insured shall be settled by arbitration administered by the American Arbitration Association ["AAA"] in accordance with its Commercial Arbitration Rules ....The dispute shall be submitted to one arbitrator. ....The place of arbitration shall be New York, New York. (94)
New York law governed the "relationship" and Agreement. (95)
Pantaenius issued a formal insurance policy to Galilea and signed the policy on behalf of the Underwriters. (96) The formal insurance policy provided, "a coverage limit of $1,566,500, based on the 'total agreed fixed value' of the Yacht;... named the three Underwriters as the issuing insurance companies; incorporated the forthcoming policy's terms and conditions; and attached a document with those anticipated terms." (97) Additionally, the policy specified it would be "effective only when the insured Vessel(s) are within the 'cruising area'" that extended south 30.5 degrees' north latitude. (98)
The choice-of-law and forum selection provisions in the application differed from the policy's terms and conditions. (99) The policy stated,
This insurance policy shall be governed by and construed in accordance with well-established and entrenched principles and precedents of substantive United States Federal Maritime Law, but where no such established and entrenched principles and precedents exist, the policy shall be governed and construed in accordance with the substantive laws of the State of New York, without giving effect to its conflict of laws principles, and the parties hereto agree that any and all disputes arising under this policy shall be resolved exclusively by binding arbitration to take place within New York County, in the State of New York, and to be conducted pursuant to the Rules of the American Arbitration Association. (100)
About a month after the policy was issued, the Yacht ran ashore close to Colon, Panama. Galilea was refused insurance coverage by the underwriters after submitting a claim. The underwriters denied coverage on the basis that the vessel violated the navigation warranty by traveling south of the cruising area specified in the application and the policy.
Galilea filed suit in Montana seeking to recover damages sustained when the Yacht ran ashore and contended that "the application and the policy did not reflect the parties' actual agreement, and that Panteanius and the underwriters misrepresented the scope of the written policy." (101)
After the underwriters began arbitration proceedings in New York, Galilea filed crossclaims and objections and in the New York proceedings.
Galilea filed separately for declaratory judgment in federal court in the District of Montana to invalidate the arbitration provision in the policy. The Kittlers filed in Montana because as they are residents of Montana and Montana has a state law preempting arbitration provisions in insurance contracts under the McCarran-Ferguson Act. The trial court held the following:
(1) the arbitration provision in Galilea's original insurance application was not relevant, because it was not included in the Underwriters' demand for arbitration; (2) claims arising under the insurance policy come within admiralty jurisdiction, and under relevant choice-of-law principles, federal maritime law governs the contract; (3) the FAA applies and requires enforcing the policy's arbitration provision; (4) questions relating to the enforceability and scope of the arbitration provision are properly determined by the court, not an arbitrator; and (5) the scope of the policy's arbitration clause did not extend to cover ten of Galilea's twelve claims. The district court thus granted the Underwriters' motion to compel arbitration as to two of Galilea's claims but denied it as to the others. (102)
B. An Analysis of the Court's Reasoning in Galilea
1. The Court Correctly Reasoned that the Application is Not a Contract
In reviewing the district court's decision, the Ninth Circuit determined that "the parties' insurance policy is the governing contract and falls within the Federal Arbitration Act's scope." (103) The Ninth Circuit found that the validity of arbitration clauses are to be determined by an arbitrator, while challenges to the existence of a contract are to be determine by the court. (104) The Ninth Circuit held that the FAA applies to the policy, but not the application because the application is not a contract. (105)
Although Galilea signed the application for insurance, the court agrees with Galilea's argument "that the application does not evidence mutual assent to a contract or to arbitration" because the application is not a contract. (106) As there is no established federal law rule on this issue, New York state law is applicable in regards to the application and under the policy's choice-of-law provision. (107) According to New York law "language from an application may be incorporated into an insurance policy only if the application was attached to the policy at the time of delivery." (108) Additionally, "[t]he insurance policy 'shall contain the entire contract between the parties,' and no document may be incorporated by reference into the insurance contract unless a true copy is 'endorsed upon or attached to the policy or contract when issued.'" (109) The application in this case was not attached to the policy when it was issued. (110) While some information was reprinted in the policy, the forum selection and choice-of-law provision were not physically attached to the policy. Since the federal law of arbitration only applied to contracts, the arbitration clause in the application is not effective since the application is not a contract under New York law. (111)
The court's reasoning that the insurance application was not a contract is sound, as it would not be reasonable for a party to be bound by provisions in an application where no agreement has been made. The application was merely a request by the Kittlers to obtain a policy from Pantaenius. The formal policy executed by Pantaenius and the Kittlers meet the elements of a contract: mutual assent, expressed by a valid offer and acceptance, consideration, capacity, and legality. (112) Had the court determined otherwise, it would violate the basic principles of forming a contract, as vou cannot have a valid contract without both offer and acceptance. (11,1)
2. While the Insurance Policy is a Contract, the Policy
Should Not Have Been Subject to the FAA
The Ninth Circuit determined that the insurance policy is a contract subject to the FAA because the policy is a maritime insurance contract. The court stated that "[pjolicies that insure maritime interests against maritime risks are contracts subject to admiralty jurisdiction and to federal maritime law." (114) The court held that the policy is subject to the FAA as it is established federal maritime law. However, the court comes to this conclusion by misinterpreting Wilburn Boat Co. v. Fireman's Fund Ins. Co. and by conflating a provision in the FAA as established maritime law.
3. The FAA Should Not Constitute Established Federal Maritime Law for "Maritime Transactions"
In Galilea, the court stated, "as insurance is traditionally an area of state regulation, federal maritime law leaves room for state insurance regulation if there is no established federal maritime law rule or need for federal uniformity." (115) Post Wilburn Boat, courts considered,
the initial inquiry of the courts in interpreting a policy of marine insurance [is] to determine whether there is an established federal maritime law rule. If so, 'federal admiralty law [will] govern....''[S]tate law will control... only in the absence of a federal statute, a judicially fashioned admiralty rule, or a need for uniformity in admiralty practice.' (116)
In Galilea, the court determined that the FAA is an established federal maritime law rule because it specifically applies to maritime transactions. (117) Maritime transactions as defined by the FAA include agreements relating to "... repairs to vessels, collisions, or any other matters in foreign commerce which, if the subject of controversy, would be embraced within admiralty jurisdiction." (118) The insurance policy in this Galilea encompassed collisions and repairs to the Yacht, and is "a dispute concerning a maritime insurance policy comes within federal admiralty jurisdiction." (119) The Ninth Circuit determined that since the dispute fell within the scope of the FAA and included an applicable, federal maritime rule, Montana state law was not appropriate for determining the validity of the arbitration provision. (120) However, the court's reasoning under Wilburn Boat Co. is flawed as the FAA is not an established federal maritime rule.
The central question in Wilburn Boat Co. is "(1) Is there a judicially established federal admiralty rule governing these warranties? (2) If not, should [the court] fashion one?" (121) In regard to part one of the Wilburn Boat Co. question, for the Ninth Circuit to proclaim the FAA as an established federal maritime rule races beyond the scope of what Wilburn Boat Co. comprised. While the Ninth Circuit comports to be applying the FAA as "established" maritime rule, it has never been equated as such. Instead, it appears that the court is essentially fashioning an admiralty rule by finding the FAA to be established maritime law.
While the FAA should be applied to maritime contracts containing arbitration provisions, the FAA is not itself federal maritime law. The court has taken the term "maritime transaction" in the FAA provision to be directly related to the business of marine insurance. Under [section] 1. "Maritime transactions" and "commerce" defined; exceptions to operation of title, the FAA states:
"Maritime transactions", as herein defined, means charter parties, bills of lading of water carriers, agreements relating to wharf age, supplies furnished vessels or repairs to vessels, collisions, or any other matters in foreign commerce which, if the subject of controversy, would be embraced within admiralty jurisdiction;. (122)
The Ninth Circuit chose to focus on the language, "repairs to vessels, collisions,... would be embraced within admiralty jurisdiction" (123) and links the terms "repairs" and "collisions" to meaning that this provision governs the business of insurance. While the court's analysis may be reasonable in assuming that the terms "repairs" and "collisions" related to the policy of insuring the Yacht, the language in this provisions of the FAA is not specifically intended to govern marine insurance contracts. In fact, there is no provision in the FAA that governs insurance. The Fifth Circuit states that "there is no question that the FAA does not relate specifically to the business of insurance." (124) As was the case in Smith v. PacifiCare Behavioral Health of Cal. Inc., the FAA "is a federal statute of general application, which does not 'specifically relate' to insurance." (125) Since the FAA does not apply to insurance, it is not reasonable for the court to stretch the terms in the Maritime transactions provision of the FAA as a convenient mechanism to override state statutes preempting arbitration clauses in insurance contracts.
However, regarding the second question of Wilburn Boat Co., the court stretches the intended meaning of the terms within the "Maritime transactions" provision of the FAA to circumvent the application of the McCarran-Ferguson Act by declaring the FAA to be a judicially fashioned admiralty rule. In Wilburn Boat Co., the court went out of its way to avoid fashioning an admiralty rule, stating,
... there are several other possible rules from which this Court could fashion one for admiralty. But such a choice involves varied policy considerations and is obviously one which Congress is peculiarly suited to make. And we decline to undertake the task... We, like Congress, leave the regulation of marine insurance where it has been--with the States. (126)
The court in Wilburn Boat Co. realized that an effort to unify insurance law on a nationwide basis would be an arduous task as it would be difficult for the court to devise a rule that would be fair to both the policyholder and insurance company. (127) The Ninth Circuit's reasoning is absurd and arbitrary to judicially fashion the FAA as established maritime law, as it created unequal bargaining power in favor of the insurance company while completely disregarding state statutes designed to preempt the application of arbitration provisions in insurance contracts as a matter of public policy. The Ninth Circuit's attempt at judicially fashioning the FAA as established maritime law should not be endorsed as it is in direct conflict with the McCarran-Ferguson Act and Wilburn Boat Co.
4. The FAA Should Have Been Precluded by Montana Law under the McCarran-Ferguson Act
Galilea argues that the Montana law applies pursuant to the McCarran-Ferguson Act, (128) which precludes the application of federal statutes if (1) a state law is 'enacted... for the purpose of regulating the business of insurance;' (2) the federal law does not 'specifically relat[e] to the business of insurance;' and (3) the federal statute's application would 'invalidate, impair, or supersede' state insurance law. (129)
The purpose of the McCarran-Ferguson Act is to provide states with greater regulatory power over the business of insurance. Montana's Uniform Arbitration Act states:
(2) A written agreement to submit to arbitration any controversy arising between the parties after the agreement is made is valid and enforceable except upon grounds that exist at law or in equity for the revocation of a contract. Except as permitted under subsection (3), this subsection does not apply to:
(c) any agreement concerning or relating to insurance policies or annuity contracts except for those contracts between insurance companies (130)
The Kittlers asserted that the McCarran-Ferguson Act requires that, notwithstanding Wilburn Boat Co., the Montana rule precluding arbitration of consumer insurance disputes applies here." (131)
However, the court found Montana state law was not an appropriate application in comparison to the FAA. (132) The court determined that the policy at issue fell within federal admiralty jurisdiction and by "[a]pplying an established federal maritime law rule--such as the provision of the FAA directly mandating the enforcement of arbitration clauses in maritime transactions--thus does not 'invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance.'" (133) The court found that, "any applicable maritime law rule is primary, and state law applied only if maritime law does not. Given the interstitial, contingent nature of state law in this setting, state insurance law is not 'invalidate[d], impair[ed], or supersede[d],' by applying a maritime law rule when, as here, there is one." (134)
Maritime transactions do not specifically cover insurance in the FAA. The court's word play has led to a misleading interpretation of the intended meaning of this provision of the FAA. The Ninth Circuit appears to ignore the purpose and application of the McCarran-Ferguson Act, as this case specifically involves a marine insurance policy, not a marine transaction. The language in the maritime transaction provision does not specifically state whether insurance falls under the umbrella of FAA. McCarran-Ferguson Act would have been the more appropriate application in Galilea, as the FAA does not specifically speak to or reference the business of insurance while the McCarran-Ferguson Act is entirely dedicated to the regulation of insurance by the states. Additionally, Montana had a statute which preempted arbitration clauses in insurance contracts as a matter of public policy. Since Montana invalidates arbitration agreements concerning or relating to insurance policies or annuity contracts, application of the FAA would directly supersede the Montana state law regulating the business of insurance.
Further, contracts of marine insurance fall within the admiralty jurisdiction of federal courts. Wilburn Boats Co. explains that,
Since the insurance policy here sued on is a maritime contract the Admiralty Clause of the Constitution brings it within federal jurisdiction. But it does not follow... that every term in every maritime contract can only be controlled by some federally defined admiralty rule. In the field of maritime contracts as in that of maritime torts, the National Government has left much regulatory power in the States . [T]his state regulatory power, exercised with federal consent or acquiescence, has always been particularly broad in relation to insurance companies and the contracts they make. (130)
Thus, substantive maritime law applied and insurance policies for vessels are generally subject to state law.
The Ninth Circuit reached the same result if applying "established maritime choice-of-law principles to the insurance policy's choice-of-law provision." (136) The parties in this case agreed that the terms in the insurance policy would be subject to federal maritime law and New York law to supplement any holes. (137)
'[W]here the parties specify in their contractual agreement which law will apply, admiralty courts will generally give effect to that choice', absent, as relevant here, 'a state which has a materially greater interest than the chosen state... and which... would be the state of the applicable law in the absence of an effective choice of law.' (138)
The court determined that Montana had little interest in federal maritime law or had little to do with this particular dispute. (139) Other than the fact that Galilea's members were residents of Montana, they were in other states and at sea when the contract was formed. (140) The fact that Montana is landlocked further supports that this state has little interest in maritime insurance law as opposed to a coastal states like New York with more developed maritime insurance law. (141) The FAA is the applicable maritime rule in this case and the arbitration provision is enforceable. (142)
The court's reasoning concerning this choice-of-law analysis is flawed. While New York does not have a statute preempting arbitration clause in insurance policies, Montana does. (143) To say Montana had little interest in this case is misguided, as Montana had a general interest in protecting its residence from arbitration clauses in insurance contracts. States like Montana have made efforts in their legislation to protect citizens from predatory arbitration clauses in insurance contracts. There is an argument that Montana has a greater interest in this dispute as it concerns the protection of its citizens as a matter of public policy. Since the Kittlers are not residents of New York, it follows that New York's interest in this dispute is not as grave as Montana's interest from a policy standpoint. This argument drills to the core of what the McCarran-Ferguson Act is all about: states' interest in protecting its citizens.
The court even goes as far as to suggest that Montana should not adjudicate maritime disputes. Since Montana is land locked, the incident did not take place in Montana, and the Yacht was never in Montana, the court assumes that Montana has no interest in this dispute. However, if this line of reasoning is followed then virtually all landlocked states would not be suited to adjudicate maritime disputes because it is unlikely the vessel would be in the landlocked state and that the incident would take place on water. The court's reasoning is prejudicial to all insured residents of landlocked states who seek damages pursuant to a maritime insurance policy in their home state. The court's reasoning concerning the application of Montana law to this case further exemplifies the Ninth Circuit's irreverence towards the McCarran-Ferguson Act and state's power to regulate insurance.
5. Federal Maritime Law is not Precluded by Montana Law under The Bremen
The Ninth Circuit found that the policy's choice-of-law provision is enforceable despite a forum selection clause grants contracting parties to "agree in advance to submit to the jurisdiction of a given court, to permit notice to be served by the opposing party, or even to waive notice altogether." (144) Galilea's relies on the Supreme Court case, The Bremen, which held that, "if enforcement [of a forum-selection clause] would contravene a strong public policy of the forum in which a suit is brought, whether declared by statute or by judicial decision," then that forum selection clause is unenforceable. (140) The insurance policy stated the following provision:
This insurance policy shall be governed by and construed in accordance with well-established and entrenched principles and precedents of substantive United States Federal Maritime Law, but where no such established and entrenched principles and precedents exist, the policy shall be governed and construed in accordance with the substantive laws of the State of New York, without giving effect to its conflict of laws principles, and the parties hereto agree that any and all disputes arising under this policy shall be resolved exclusively by binding arbitration to take place within New York County, in the State of New York, and to be conducted pursuant to the Rules of the American Arbitration Association. (146)
The Ninth Circuit found that Galilea could not rely on The Bremen for the following two reasons.
(1) The Bremen discussed forum selection clauses, but not federal maritime law rules about choice-of-law clauses (147)
The parties in Galilea agreed to arbitration for the policy's forum selection provision. Additionally, the parties agreed to a separate federal maritime law choice-of-law provision with New York law to fill in any gaps. The Ninth Circuit determined that there were no gaps to fill by maritime law in the choice-of-law clause because "the FAA supplie[d] the governing arbitration law for maritime transactions."
While the Ninth Circuit is correct that The Bremen did not discuss choice-of-law clauses, the argument still stands that the FAA is not and should not be treated at established federal maritime law, nor should the FAA govern marine insurance policies.
(2) "The Bremen considered whether the public policy of the forum where suit was brought--there, federal public policy as supplied by federal maritime law--outweighed the application of the law of other countries" (148)
As in other courts, the Ninth Circuit looks to the "application of the laws of otherwise equally situated fora in light of the '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.'" (149) In the event there is an unequal relationship between state law and federal maritime law, '[s]tate law governs disputes arising under marine insurance contracts only 'in the absence of a federal statute, a judicially fashioned admiralty rule, or a need for uniformity in admiralty practice.'" (150) Conflicting state policy cannot abrogate federal maritime law within federal admiralty jurisdiction. (101) The Ninth Circuit found that,
[i]t does not make sense to apply the federal maritime choice-of-forum rule of The Bremen to invalidate another established federal maritime rule specifically addressing the appropriate forum--here, arbitration--because of a conflict with a forum state's public policy. Within federal admiralty jurisdiction, conflicting state policy cannot override squarely applicable federal maritime law. (152)
Therefore, the Ninth Circuit held Montana law does not apply to the parties' dispute because the FAA is the established federal maritime rule. (153)
There should be no competition between state law and federal law in Galilea due to the sound argument against the FAA being classified as established federal maritime law. In Wilburn Boat Co., the Supreme Court found "[t]he whole judicial and legislative history of insurance regulation in the United States warns us against the judicial creation of admiralty rules to govern marine policy terms." (104) Additionally, the Supreme Court, "like Congress, leave the regulation of marine insurance where it has been--with the States," and "the requirement of a uniform federal maritime law 'still leaves the states a wide scope.'" (155) As previously discussed, the FAA should never have been subject to the judicial creation of admiralty rules pursuant to the caveats illustrated in Wilburn Boat Co. Since the FAA is arguably not established federal maritime law, state law should govern the marine insurance policy in Galilea.
Galilea argued that Montana state law is embedded with public policy against arbitration agreements in insurance policies, and the enforcement of the arbitration provision in the policy would contravene the policy of the state of Montana in which the suit was brought.
Since the lawsuit was brought in Montana, the Kittlers are residents of Montana, and Montana has a statute preempting arbitration provision in insurance contracts, Montana has a stronger interest in this dispute and is an appropriate forum.
Galilea should have prevailed because the FAA should not be considered established maritime law, and state law should have governed the dispute over marine insurance policy due to the absence of a federal statute, a judicially fashioned admiralty rule, or a need for uniformity in admiralty practice.
6. The Kittlers Should Not Be Classified as a Sophisticated Party
"The usual presumption that exists in favor of the arbitrability of merits-based disputes is replaced by a presumption against the arbitrability of arbitrability." (156) The court possesses jurisdiction over arbitrability questions, "unless there is
'clear and unmistakable' evidence that the parties intended to delegate the arbitrability question to an arbitrator." (157)
When interpreting a contract between sophisticated parties the "incorporation of the American Arbitration Association rules [into an arbitration agreement] constitutes clear and unmistakable evidence that contracting parties agreed to arbitrate arbitrability." (108) The American Arbitration Association's rules state that "[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim." (159) The Ninth Circuit held that since both Galilea and the Underwriters are sophisticated, "the agreement to arbitrate according to American Arbitration Association's rules is sufficient to show clear and unmistakable intent to resolve arbitrability questions in arbitration, rather than federal court." (160)
Galilea's insurance policy arbitration provision states that "the parties hereto agree that any and all disputes arising under this policy shall be resolved exclusively by binding arbitration... conducted pursuant to the Rules of the American Arbitration Association." (161) While this provision is similar to the language in Brennan, a separate Ninth Circuit court case concerning one or more unsophisticated parties held that Brennan did not apply as both parties are sophisticated.
The Ninth Circuit was too quick to find the Kittlers are sophisticated parties. While it is true that the Kittlers own and operate a financial services company, and formed a limited liability company (Galilea) to own and maintain a million dollar Yacht, these facts may not be indicative of a sophisticated party. (162) In Brennan, the Ninth Circuit determined that Brennan is sophisticated because he is an experienced attorney and businessman and executed an executive-level employment contract with Opus Bank, who is also a sophisticated party as a regional financial institution. (163) Brennan is sophisticated because he is a lawyer and businessman executing an executive-level employment contract. As a businessman, Brennan likely has prior experience and knowledge of employment contracts. The party is also a lawyer and arguably had extensive knowledge of the binding legal effects of the contract. Because Brennan has a specific expertise in business and law in relation to the employment contract, he was a sophisticated party. While the Kittlers formed a limited liability company, it is more likely than not that they hired an attorney to execute the formation of Galilea L.L.C. The fact that the Kittlers are business owners who happen to be affluent enough to purchase a million-dollar Yacht does not establish them as sophisticated in relations to an insurance contract. Unlike Brennan who possessed special knowledge and had a background specific to the employment contract he executed, the Kittlers have no relevant expertise specific to insurance policies.
Since the Kittlers are arguably unsophisticated parties as they lacked a specialized knowledge or background relevant to the insurance policy, the Ninth Circuit should have applied Brennan.
VI. AN ALTERNATIVE ANALYSIS AVAILABLE TO THE NINTH CIRCUIT IN GALILEA
The Ninth Circuit did not have to address the conflict between the McCarran-Ferguson Act and the FAA to reach their conclusion. The same result would have been reached by applying New York law as specified in the policy's choice-of-law clause. If the court applied New York law, instead of making the attenuated analysis favoring the FAA as established maritime law, the arbitration provision in the insurance policy would still be enforceable. An analysis applying New York law would not have conflicted with the McCarran-Ferguson Act, as New York does not have a state law preempting arbitration agreement in insurance contracts. If the Ninth Circuit had primarily focused on the choice of law provision in the policy, the court could have avoided forming a judicially fashioned admiralty rule as Wilburn Boat Co. cautioned against. As a result of not taking this path, the Ninth Circuit offended the McCarran-Ferguson Act by rejecting
Montana's interest in protecting state citizens (the Kittlers) from arbitration agreements in insurance contracts.
If the FAA establishes federal maritime law, this could have a chilling effect on how marine insurance policies are written in years to come. Insurance companies would have the ability to arbitrate every dispute by writing arbitration clauses in their policies. Parties carrying marine insurance for their vessels would be at the mercy of arbitration and would be denied relief from the court. This decision could ultimately close the courthouse doors to those who carry marine insurance if arbitration agreements become common practice.
The Ninth Circuit traverses a dangerous path by extending the meaning of terms in the Maritime Transaction provision of the FAA. As previously discussed, the FAA does not specifically relate to the business of insurance. For the court to state that the McCarran-Ferguson Act is not a competitor to the FAA does not comport with jurisprudence, specifically in the Fifth Circuit. Unless an act specifically relates to the business of insurance, as the FAA does not, state law is the regulating power. The Ninth Circuit has gone a roundabout way of enforcing the arbitration provision in Galilea by creating their own warped formula: The FAA contains a "maritime transaction" provision + a "maritime transaction" provision references the terms "collisions" and "repairs" = terms specifically relate to maritime insurance. Maritime insurance must be equal to the FAA and therefore is established maritime law.
The court seems to ignore that the act must specifically relate to insurance. The FAA does not even use the word insurance in the maritime transaction provision or any other provision. The Ninth Circuit should make the following inquiry: how can a federal act be specifically related to insurance if the act never even references the word "insurance"? It is not reasonable to determine that one provision in the FAA that utilizes ambiguous terminology, can spontaneously be classified established maritime law. How can a single provision in the FAA designed to be applied to maritime contracts and that is not repeatedly acknowledged in maritime insurance disputes constitute a governing body of federal admiralty jurisdiction overnight?
The world of maritime law is not the only area of law to be plagued by courts liberal enforcement of the FAA to contracts. Professor Imre Szalai, a law professor from Loyola University New Orleans College of Law, comes to the same conclusion in his book entitled Outsourcing Justice: The Rise of Modern Arbitration Laws in America. Professor Szalai states that, "the Supreme Court of the United States has been erroneously interpreting the Federal Arbitration Act and unjustifiably binding millions of Americans to arbitration agreements." (164) While arbitration was originally designed for commercial parties to access private adjudicatory remedies through contract, it has evolved into a tool companies and organizations use to avoid litigation in the employment and consumer context. (165)
By expanding the scope of the FAA to govern employment, consumer and now maritime insurance contracts, the courts have created dangerous territory for contracting individuals. Such strong deference by courts to arbitration clauses have done a great disservice to consumers, employees, and now marine insured individuals who are not well versed in the law and do not understand the consequences of signing a contract containing an arbitration provision. More disturbing than the courts liberal interpretation of the FAA to these contracts is the Ninth Circuit's attack of the McCarran-Ferguson Act in efforts to uphold the FAA. Arbitration has and will continue to plague contracts unless courts support and uphold federal acts, such as the McCarran-Ferguson Act, which protect state interests and public policy.
Callan J. Johns (*)
(*) J.D. Candidate 2019, Loyola Maritime Law Journal Member 2018, Loyola University New Orleans College of Law; B.A. 2015, University of New Orleans.
(1) Certain Underwriters at Lloyds v. Inlet Fisheries Inc., 518 F.3d 645, 654 (9th Cir. 2008) (quoting THOMAS J. SCHOENBAUM, ADMIRALTY AND MARITIME LAW [section] 17-1 (4th ed. 2004)); see also Ins. Co. v. Dunham, 78 U.S. 1, 30 (1870).
(2) Inlet Fisheries, Inc., 518 F.3d at 654 (quoting THOMAS J. SCHOENBAUM, ADMIRALTY AND MARITIME LAW [section] 17-2 (4th ed. 2004)).
(3) RAYMOND A. GUENTER & ELISABETH DITOMASSI, FUNDAMENTALS OF INSURANCE REGULATIONS: THE RULES AND THE RATIONALE, 467 (2017); Paul v. Virginia. 75 U.S. 168, 183 (1868).
(4) Guenter and Ditomassi, supra note 3, at 467.
(5) Id. at 468.
(7) J. Logan Murphy, Note, Law Triangle: Arbitrating International Reinsurance Disputes Under The New York Convention, The McCarran-Ferguson Act, and Antagonistic State Law, 41 VAND. J. TRANSNAT'L L. 1535, 1544, n.4 (2008).
(8) Guenter and Ditomassi, supra note 3. at 468.
(9) Guenter and Ditomassi, supra note 3, at 468.
(10) Murphy, supra note 7, at n.55.
(11) Guenter and Ditomassi, supra note 3, at 468.
(12) Guenter and Ditomassi, supra note 3, at 468.
(13) Guenter and Ditomassi, supra note 3, at 468.
(14) Guenter and Ditomassi, supra note 3, at n.3; see also ROBERT FORCE, ADMIRALTY AND MARITIME LAW, 191-192 (2013).
(15) 15 U.S.C. [section] 1011 (emphasis added).
(16) Id. [section] 1012 (emphasis added).
(17) Munich Am. Reinsurance Co. v. Crawford, 141 F.3d 585, 590 (5th Cir. 1998).
(19) Guenter and Ditomassi, supra note 3, at 467.
(20) Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 312 (1955).
(22) Id. at 324.
(25) Wilburn Boat Co., 348 U.S. at 324. 26 Id. at 314.
(27) FORCE, supra note 14.
(28) Inlet Fisheries Inc., 518 F.3d at 650.
(29) Id.; see also Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882, 886 (5th Cir. 1991).
(30) Inlet Fisheries Inc., 518 F.3d at 650.
(31) Id. (citing THOMAS J. SCHOENBAUM, ADMIRALTY AND MARITIME LAW [section] 17-14 (4th ed. 2004)).
(32) HIH Marine Servs., Inc. v. Fraser, 211 F.3d 1359. 1362 (11th Cir. 2000).
(33) Inlet Fisheries Inc., 518 F.3d at 648.
(34) Id. (citing THOMAS J. SCHOENBAUM, ADMIRALTY AND MARITIME LAW [section] 17-14 (4th ed. 2004)).
(35) Id. at 649.
(37) Id. at 650; see also Anh Thi Kieu, 927 F.2d at 886.
(38) Inlet Fisheries Inc., 518 F.3d at 651.
(39) Id. at 654.
(41) Id. at 652.
(42) See Anh Thi Kieu, 927 F.2d at 888.
(44) Id. at 889.
(45) Id. at 887.
(47) Anh Thi Kieu, 927 F.2d at 887.
(49) Id. at 887-888.
(50) THOMAS CARBONNEAU, ARBITRATION: IN A NUTSHELL, 10 (2007).
(52) Id. at 11.
(54) Nicholas Healy, An Introduction to the Federal Arbitration Act, 12 J. Mar. L. & Com. 223 (1982).
(55) JON O. SHIMABUKURO AND JENNIFER A. STAMAN, CONG. RESEARCH SERV., R44960, MANDATORY ARBITRATION AND THE FEDERAL ARBITRATION ACT 2 (2017).
(60) Healy, supra note 54.
(61) CARBONNEAU, supra note 50, at 55.
(64) Id. at 55-56.
(65) Id. at 56.
(66) SHIMABUKURO ET AL., supra note 55 (citing 9 U.S.C. [section] 2).
(67) Volt Info. Scis. v. Bd. of Trs., 489 U.S. 468, 475-76 (1989); see Perry v. Thomas, 482 U.S. 483, 495, at n.9 (1987).
(68) SHIMABUKURO ET AL., supra note 55, at 5; see Kristen M. Blankley, Impact Preemption: A New Theory of Federal Arbitration Preemption, 67 FLA. L. REV. 711, 728 (2016).
(69) SHIMABUKURO ET AL., supra note 55, at 5; Coventry Health Care of Mo., Inc. v. Nevils, 137 S. Ct. 1190, 1199 (2017).
(70) SHIMABUKURO ET AL., supra note 55, at 5; Nevils, 137 S. Ct. at 1199.
(71) SHIMABUKURO ET AL., supra note 55, at 5; see Salvatore U. Bonaccorso, Note, State Court Resistance of Federal Arbitration Law, 67 STAN. L. REV. 1145 (2015).
(72) SHIMABUKURO ET AL., supra note 55, at 5.
(73) SHIMABUKURO ET AL., supra note 55, at 5; see Volt Info. Scis., 489 U.S. at 477.
(74) SHIMABUKURO ET AL., supra note 55, at 6; see Volt Info. Scis., 489 U.S. at 478.
(75) SHIMABUKURO ET AL., supra note 55, at 6.
(76) See SHIMABUKURO ET AL., supra note 55, at 5; see generally Brian Farkus, The Continuing Voice of Dissent: Justice Thomas and the Federal Arbitration Act. 22 HARV. NEGOTIATION L. REV. 33, 41-43 (2016).
(77) State Laws Regulating Arbitration in Insurance Contracts, ClTlZEN.ORG, https://www.citizen.org/article/state-laws-regulating-arbitration-insurance-contracts-0 (last visited Nov. 5, 2018) (noting states to include AZ, AK, CO, CT, FL, ID, IN, IA, ME, Ml, MN, NV, NH, NJ, NM, NY, NC, ND, OH, OR, TN. TX. WI, WV).
(79) Id. (noting states to include AR, HI, KS, KY, LA, MO, NE, OK, SC, SD, WA. VA).
(80) See SHIMABUKURO ET AL., supra note 55, at 5.
(81) CARBONNEAU, supra note 50, at 135.
(84) Smith v. PacifiCare Behav. Health of Cal., Inc., 93 Cal. App. 4th 139, 144 (2001).
(85) Id. at 148.
(86) Id. at 162.
(89) Galilea, LLC v. AGCS Marine Ins. Co., 879 F.3d 1052, 1054 (9th Cir. 2018).
(90) 15 U.S.C. [section] 1012 (2018).
(91) Galilea, 879 F.3d at 1053.
(94) Id. at 1054-55.
(95) Id. at 1055.
(96) Galilea, 879 F.3d at 1055.
(98) Id. at 1056.
(99) Id. at 1055.
(100) Galilea, 879 F.3d at 1055.
(102) Id. at 1057.
(103) Id. at 1056.
(104) Galilea, 879 F.3d at 1056; Kum Tat Ltd. v. Linden Ox Pasture, LLC, 845 F.3d 979, 983 (9th Cir. 2017).
(105) Galilea, 879 F.3d at 1056-57.
(106) Id. at 1057.
(108) Galilea, 879 F.3d 1052; see Smith v. Pruco Life Ins. Co. of N.J., 710 F.3d 476, 479-80 (2d Cir. 2013) (per curiam) (citing N.Y. Ins. Law [section] 3204(a)); Cutler v. Hartford Life Ins. Co., 22 N.Y.2d 245, 250-52, 239 N.E.2d 361, 292 N.Y.S.2d 430 (1968); Berkshire Life Ins. Co. v. Weinig, 290 N.Y. 6, 10, 47 N.E.2d 418 (1943); see also 16 Williston on Contracts at [section] 49:41 (4th ed. 2017); 2 Couch on Insurance [section] 18:6 (3d ed. 2017).
(109) Galilea, 879 F.3d at 1057.
(112) Jonathan J. Kim, Contract, https://www.law.cornoll.edu/wex/contract. (last visited Nov. 5, 2018).
(114) Galilea, 879 F.3d at 1057; see La Reunion Francaise SA v. Barnes, 247 F.3d 1022, 1025 (9th Cir. 2001).
(115) Galilea, 879 F.3d at 1058 (quoting Wilburn Boat Co. v. Fireman's Fund1 Ins. Co., 348 U.S. 310, 316, 321 (1955)).
(116) Galilea, 879 F.3d at 1058.
(117) Galilea, 879 F.3d at 1052.
(118) 9 U.S.C. [section] 1; 9 U.S.C.A. [section] 2; Galilea, 879 F.3d at 1058.
(119) Wilburn. 348 U.S. at 313; Galilea, 879 F.3d at 1052.
(120) Galilea, 879 F.3d at 1052.
(121) Wilburn, 348 U.S. at 314.
(122) 9 U.S.C. [section] 1 (LexisNexis, Lexis Advance through PL 115-140, approved 3/20/18) (emphasis added).
(123) 9 U.S.C.[section] 1; 9 U.S.C. [section] 2; Galileo, 879 F.3d at 1058.
(124) Munich Am. Reinsurance Co. v. Crawford. 141 F.3d 585, 590 (9th Cir. 2018); Am. Bankers Ins. Co. v. Inman, 436 F.3d 490, 493 (5th Cir. 2006).
(125) Pacificare, 93 Cal. App. 4th at 162.
(126) Wilburn, 348 U.S. at 320-21; See Halcyon Lines v. Haenn Ship Corp., 342
U.S. 282, 285 (1952).
(127) Wilburn, 348 U.S. at 319.
(128) 15U.S.C. [section] 1011 etseq.
(129) Humana Inc. v. Forsyth, 525 U.S. 299, 307 (1999) (internal quotation marks omitted) (emphasis added).
(130) Mont. Code Ann. [section] 27-5-114 (emphasis added).
(131) See Inman, 436 F.3d at 492; McKnight v. Chicago Title Ins. Co., 358 F.3d 854, 855 (11th Cir. 2004) (per curiam); Standard Sec. Life Ins. Co. of N.Y. v. West, 267 F.3d 821, 823-24 (8th Cir. 2001); Mut. Reinsurance Bureau v. Great Plains Mut. Ins. Co., 969 F.2d 931, 931-32 (10th Cir. 1992); Galileo, 879 F.3d at 1052.
(132) Galileo, 879 F.3d at 1052.
(135) Wilburn. 348 U.S. at 313-14.
(136) Galileo, 879 F.3d at 1059.
(138) Id. at 1059.
(139) Id. at 1058.
(141) Galileo, 879 F.3d at 1052.
(143) State Laws Regulating Arbitration in Insurance Contracts, PUBLIC CITIZEN, https://www.citizen.org/article/state-laws-regulating-arbitration-insurance-contracts-O.
(144) The Bremen v. Zapata Off-Shore Co. 407 U.S. 1, 2 (1972) [hereinafter The Bremen].
(145) The Bremen, 407 U.S. at 15.
(146) Galilea, 879 F.3d at 1055.
(147) Id. at 1060; see also The Bremen, 407 U.S. at 17.
(148) Galilea, 879 F.3d at 1060; see The Bremen, 407 U.S. at 2, 17-19.
(149) Galilea, 879 F.3d at 1060 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. 473 U.S. 614, 629 (1985)).
(150) Id. (quoting Kiernan v. Zurich Cos., 150 F.3d 1120, 1121 (9th Cir. 1998)).
(153) Id. at 1061.
(154) 1998 AMC 2533. 2534-2535, 150 F.3d 1120 (9th Cir. Cal. July 28, 1998); Wilburn, 348 U.S. at 316, 1955 AMC 473.
(155) Kiernan, 150 F.3d at 1122 (quoting Bank of San Pedro v. Forbes Westar, Inc., 53 F.3d 273, 275 (9th Cir. 1995)).
(156) Cape Flattery Ltd. v. Titan Maritime, LLC, 647 F.3d 914, 920 (9th Cir. 2011) (citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938. 944 (1995)); see also BG Group PLC v. Republic of Argentina, 52 U.S. 25, 34 (2014) (summarizing the presumptions that guide "'threshold' questions about arbitration"); Galilea, 879 F.3dat 1061.
(157) Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015); Galilea, LLC, 879 F.3d at 1061.
(158) Brennan, 796 F.3d at 1130.
(159) Rule R-17(a). AAA Commercial Arbitration Rules and Meditation Procedures (2013); accord Rule R-14, AAA Consumer Arbitration Rules (2014); Galilea, 879 F.3d at 1061.
(160) Galilea, 879 F.3d at 1062.
(163) Brennan, 796 F.3d at 1131.
(164) IMRE SZALAI, OUTSOURCING JUSTICE: THE RISE OF MODERN ARBITRATION LAWS IN AMERICA 187 (Carolina Academic Press eds., 2013). 165 Id.
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|Author:||Johns, Callan J.|
|Publication:||Loyola Maritime Law Journal|
|Date:||Jan 1, 2019|
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