Mid-Continent Casualty Co. v. General Reinsurance Corp.

Issue Discussed: Arbitrability/Scope of Arbitration

Submitted by Mary Kay Vyskocil, Patricia Taylor Fox

Date Promulgated: February 15, 2007

Issue Decided: Whether the Oklahoma Uniform Arbitration Act, which arguably makes arbitration clauses in insurance contracts unenforceable, reverse pre-empts the Federal Arbitration Act because of the McCarran-Ferguson Act.

The Uniform Arbitration Act (“UAA”), Okla. Stat., tit. 12 § 1855(D), adopted by Oklahoma in 2006, exempts from its scope “contracts which reference insurance,” apparently making an agreement to arbitrate in an insurance (or reinsurance) contract unenforceable. In Mid-Continent Casualty Co. v. General Reinsurance Corp., an Oklahoma federal district court addressed the question of whether the Federal Arbitration Act was reverse pre-empted by this provision of the Oklahoma UAA under the McCarran-Ferguson Act. Mid-Continent Casualty Co. v. General Reinsurance Corp., 2007 WL 539217 (N.D. Okla. Feb. 15, 2007).

Mid-Continent involved a dispute between Mid-Continent (the cedent) and General Re (the reinsurer), over coverage for losses paid by Mid-Continent under its policies. Mid-Continent sued General Re in the Oklahoma federal court for breach of contract, and General Re moved to dismiss and to compel arbitration pursuant to an arbitration clause in the reinsurance agreement and the Federal Arbitration Act. 2007 WL 539217, at *1. Mid-Continent argued that the agreement to arbitrate was unenforceable under the Oklahoma UAA, which it urged is a statute regulating the business of insurance and thus saved from federal pre-emption under the McCarran-Ferguson Act.

The federal court looked to an earlier decision in Mutual Reinsurance Bureau v. Great Plains Mutual Insurance Co., 969 F.2d 931 (10th Cir. 1992), in which the Tenth Circuit Court of Appeals had held that Kansas’ version of the UAA (which was largely the same as the Oklahoma UAA) was a law regulating the business of insurance, which under McCarran-Ferguson, precluded invocation of an arbitration agreement pursuant to the FAA. See Mid-Continent, 2007 WL 539217, at *3. Concluding that there was an insufficient basis to distinguish Mutual Reinsurance, the Mid-Continent court likewise held that the Oklahoma UAA was also a law regulating the business of insurance. Mid-Continent, 2007 WL 539217, at *4. The court also rejected General Re’s argument that the arbitration provisions could be enforced under the Oklahoma common law even if they were invalid under the UAA, finding that arbitration agreements were unenforceable on public policy grounds under Oklahoma common law. Id. Accordingly, the court denied General Re’s motion to dismiss the federal lawsuit and declined to compel arbitration. General Re filed a notice of appeal in March 2007 to the United States Court of Appeals for the Tenth Circuit.

* Mary Kay Vyskocil is a partner at Simpson Thacher & Bartlett LLP. She has handled a number of leading insurance cases, including several jury trials (most recently the Silverstein WTC trial) and argued several precedentially important reinsurance cases. She is the co-author of Modern Reinsurance Law & Practice, and is listed in Chambers Guide to America’s Leading Business Lawyers, Euromoney’s Guide to the World’s Leading Insurance and Reinsurance Lawyers (as one of Top 10 Lawyers in U.S.), and NLJ’s America’s Top 50 Women Litigators.

** Patricia Taylor Fox is a litigation associate in the New York office of Simpson Thacher & Bartlett. She concentrates her practice in the areas of insurance coverage and reinsurance litigation and arbitration.