The Honorable Richard A. Jones 1
6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 7 AT SEATTLE 8 WASHINGTON CITIES INSURANCE 9 AUTHORITY, 10 No. 2:19-cv-0054-RAJ
11 Plaintiff, 12 v. ORDER DENYING MOTION TO COMPEL ARBITRATION 13 AND ESTABLISHING CHOICE IRONSHORE INDEMNITY, INC., OF LAW AND ARBITRATION 14 PROVISIONS AS VOID 15 Defendant.
16 17 This matter is before the Court on Defendant’s motion to compel arbitration (Dkt. 18 # 20) and Plaintiff’s motion to establish the choice of law and arbitration provisions as 19 void. (Dkt. # 17). For the following reasons, Defendant’s motion to compel is DENIED. 20 Dkt # 20. Plaintiff’s motion is GRANTED. Dkt. # 17. 21 I. BACKGROUND 22 Plaintiff Washington Cities Insurance Authority (“WCIA”), is “an association of 23 Washington public entities organized under and authorized by RCW § 48.62 for the 24 purpose of jointly self-insuring risks, jointly purchasing insurance or reinsurance, and 25 contracting for joint risk management, claims and administrative services.” Dkt. # 1 at ¶ 26 1.1. WCIA alleges that it entered into a contract with Defendant Ironshore Indemnity 1 (“Ironshore”), whereby Ironshore agreed to provide reinsurance up to $10 million “per 2 occurrence” for losses exceeding WCIA’s $4 million self-insured layer limit. Dkt. # 1 at 3 ¶ 3.3. The Agreement includes an arbitration provision which states, in part: “Any and 4 all disputes or differences arising out of this Agreement, including its formation and 5 validity, shall be submitted to binding arbitration.” Dkt. # 19 at 9. The Agreement also 6 includes a New York choice of law provision. Id. 7 The underlying claim at issue in this case arises from a 2018 settlement related to 8 a separate police misconduct lawsuit. Dkt. # 17 at 3. According to WCIA, the 9 settlement fell within Ironshore’s reinsurance policy but Ironshore refused to pay. Id. 10 Ironshore’s denial of coverage is the basis for Plaintiff’s suit. Dkt. # 1. The parties also dispute the applicability of the arbitration and choice of law provisions in the 11 Agreement. WCIA moves to void the provisions as prohibited under Washington law. 12 Dkt. # 17. Ironshore separately moves to compel arbitration. Dkt. # 20.1 13 II. LEGAL STANDARD 14 Because the Federal Arbitration Act (“FAA”) requires courts to “direct the 15 parties to proceed to arbitration on issues as to which an arbitration agreement has been 16 signed, the FAA limits court involvement to determining (1) whether a valid agreement 17 to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at 18 issue.” Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (internal 19 quotations omitted). The party opposing arbitration bears the burden of showing that the 20 agreement is not enforceable. See Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 91- 21 22 23
24 1 Ironshore also moves to strike three exhibits that it argues were improperly filed with 25 WCIA’s reply brief (Dkt. # 25). Dkt. # 28. Ironshore’s motion to strike is GRANTED. Nautilus Grp., Inc. v. Icon Health & Fitness, Inc., 308 F. Supp. 2d 1208, 1214 (W.D. 26 Wash. 2003), aff'd, 372 F.3d 1330 (Fed. Cir. 2004) (striking new evidence submitted for 1 92 (2000); Rodriguez de Quijas v. Shearson/American Exp., Inc., 490 U.S. 477, 483 2 (1989). 3 “The FAA limits the district court’s role to determining whether a valid 4 arbitration agreement exists, and whether the agreement encompasses the disputes at 5 issue.” Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014) (internal 6 citation omitted). To determine “whether a valid arbitration agreement exists, federal 7 courts ‘apply ordinary state-law principles that govern the formation of contracts.’ ” Id. 8 (quoting First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). In 9 determining whether an arbitration agreement encompasses the dispute at issue, district 10 courts must be mindful that “arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” 11 AT&T Technologies, Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 648, 106 S. Ct. 12 1415, 89 L.Ed.2d 648 (1986). Any doubts as to the scope of an arbitration agreement 13 should be resolved in favor of arbitrability. Simula v. Autoliv, 175 F.3d 716, 721 (9th 14 Cir. 1999). 15 III. DISCUSSION 16 At issue in this case is Washington’s prohibition on the use of arbitration and 17 choice of law provisions in insurance contracts. Washington law bars the enforcement 18 of binding arbitration clauses in insurance contracts. See State, Dep’t of Transp. v. 19 James River Ins. Co., 176 Wash. 2d 390, 399 (2013) (interpreting RCW 20 48.18.200(1)(b)). Although the FAA would normally preempt a conflicting state law 21 under the Supremacy Clause, the McCarran-Ferguson Act creates a system of “reverse- 22 preemption” for insurance law. See United States Dep’t of Treasury v. Fabe, 508 U.S. 23 491, 501 (1993). Under McCarran-Ferguson, “No Act of Congress shall be construed to 24 invalidate, impair, or supersede any law enacted by any State for the purpose of 25 regulating the business of insurance ... unless such Act specifically relates to the business 26 1 appear to dispute, that under the McCarran-Ferguson Act, RCW 48.18.200 preempts 2 Chapter I of the FAA. See James River, 176 Wash. 2d at 402; Landmark Am. Ins. Co. v. 3 QBE Ins. Corp., No. C15-1444 RSM, 2015 WL 12631550, at *6 (W.D. Wash. Dec. 9, 4 2015). 5 WCIA argues that the arbitration and choice of law provisions in the Agreement 6 violate Washington’s arbitration exclusion, rendering them void. Ironshore contends 7 that the Agreement is not an “insurance” agreement under RCW § 48.01.040 and thus 8 not subject to the anti-arbitration provision. In addition, Ironshore argues that a separate 9 provision regulating the purchase of coverage by joint self-insurance programs, preempts 10 the anti-arbitration prohibition, rendering the parties’ arbitration and choice of law provisions permissible. Dkt. # 20 at 11-12. 11 There are two key questions that the Court must answer in this case: (1) does 12 “reinsurance” qualify as “insurance” and (2) does the anti-arbitration provision in RCW 13 § 48.18.200 apply to reinsurance agreements where the reinsurance coverage is 14 purchased by a joint self-insurance program. The answer to both questions is yes. 15 A. Reinsurance is Insurance under RCW § 48.01.040
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The Honorable Richard A. Jones 1
6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 7 AT SEATTLE 8 WASHINGTON CITIES INSURANCE 9 AUTHORITY, 10 No. 2:19-cv-0054-RAJ
11 Plaintiff, 12 v. ORDER DENYING MOTION TO COMPEL ARBITRATION 13 AND ESTABLISHING CHOICE IRONSHORE INDEMNITY, INC., OF LAW AND ARBITRATION 14 PROVISIONS AS VOID 15 Defendant.
16 17 This matter is before the Court on Defendant’s motion to compel arbitration (Dkt. 18 # 20) and Plaintiff’s motion to establish the choice of law and arbitration provisions as 19 void. (Dkt. # 17). For the following reasons, Defendant’s motion to compel is DENIED. 20 Dkt # 20. Plaintiff’s motion is GRANTED. Dkt. # 17. 21 I. BACKGROUND 22 Plaintiff Washington Cities Insurance Authority (“WCIA”), is “an association of 23 Washington public entities organized under and authorized by RCW § 48.62 for the 24 purpose of jointly self-insuring risks, jointly purchasing insurance or reinsurance, and 25 contracting for joint risk management, claims and administrative services.” Dkt. # 1 at ¶ 26 1.1. WCIA alleges that it entered into a contract with Defendant Ironshore Indemnity 1 (“Ironshore”), whereby Ironshore agreed to provide reinsurance up to $10 million “per 2 occurrence” for losses exceeding WCIA’s $4 million self-insured layer limit. Dkt. # 1 at 3 ¶ 3.3. The Agreement includes an arbitration provision which states, in part: “Any and 4 all disputes or differences arising out of this Agreement, including its formation and 5 validity, shall be submitted to binding arbitration.” Dkt. # 19 at 9. The Agreement also 6 includes a New York choice of law provision. Id. 7 The underlying claim at issue in this case arises from a 2018 settlement related to 8 a separate police misconduct lawsuit. Dkt. # 17 at 3. According to WCIA, the 9 settlement fell within Ironshore’s reinsurance policy but Ironshore refused to pay. Id. 10 Ironshore’s denial of coverage is the basis for Plaintiff’s suit. Dkt. # 1. The parties also dispute the applicability of the arbitration and choice of law provisions in the 11 Agreement. WCIA moves to void the provisions as prohibited under Washington law. 12 Dkt. # 17. Ironshore separately moves to compel arbitration. Dkt. # 20.1 13 II. LEGAL STANDARD 14 Because the Federal Arbitration Act (“FAA”) requires courts to “direct the 15 parties to proceed to arbitration on issues as to which an arbitration agreement has been 16 signed, the FAA limits court involvement to determining (1) whether a valid agreement 17 to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at 18 issue.” Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (internal 19 quotations omitted). The party opposing arbitration bears the burden of showing that the 20 agreement is not enforceable. See Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 91- 21 22 23
24 1 Ironshore also moves to strike three exhibits that it argues were improperly filed with 25 WCIA’s reply brief (Dkt. # 25). Dkt. # 28. Ironshore’s motion to strike is GRANTED. Nautilus Grp., Inc. v. Icon Health & Fitness, Inc., 308 F. Supp. 2d 1208, 1214 (W.D. 26 Wash. 2003), aff'd, 372 F.3d 1330 (Fed. Cir. 2004) (striking new evidence submitted for 1 92 (2000); Rodriguez de Quijas v. Shearson/American Exp., Inc., 490 U.S. 477, 483 2 (1989). 3 “The FAA limits the district court’s role to determining whether a valid 4 arbitration agreement exists, and whether the agreement encompasses the disputes at 5 issue.” Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014) (internal 6 citation omitted). To determine “whether a valid arbitration agreement exists, federal 7 courts ‘apply ordinary state-law principles that govern the formation of contracts.’ ” Id. 8 (quoting First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). In 9 determining whether an arbitration agreement encompasses the dispute at issue, district 10 courts must be mindful that “arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” 11 AT&T Technologies, Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 648, 106 S. Ct. 12 1415, 89 L.Ed.2d 648 (1986). Any doubts as to the scope of an arbitration agreement 13 should be resolved in favor of arbitrability. Simula v. Autoliv, 175 F.3d 716, 721 (9th 14 Cir. 1999). 15 III. DISCUSSION 16 At issue in this case is Washington’s prohibition on the use of arbitration and 17 choice of law provisions in insurance contracts. Washington law bars the enforcement 18 of binding arbitration clauses in insurance contracts. See State, Dep’t of Transp. v. 19 James River Ins. Co., 176 Wash. 2d 390, 399 (2013) (interpreting RCW 20 48.18.200(1)(b)). Although the FAA would normally preempt a conflicting state law 21 under the Supremacy Clause, the McCarran-Ferguson Act creates a system of “reverse- 22 preemption” for insurance law. See United States Dep’t of Treasury v. Fabe, 508 U.S. 23 491, 501 (1993). Under McCarran-Ferguson, “No Act of Congress shall be construed to 24 invalidate, impair, or supersede any law enacted by any State for the purpose of 25 regulating the business of insurance ... unless such Act specifically relates to the business 26 1 appear to dispute, that under the McCarran-Ferguson Act, RCW 48.18.200 preempts 2 Chapter I of the FAA. See James River, 176 Wash. 2d at 402; Landmark Am. Ins. Co. v. 3 QBE Ins. Corp., No. C15-1444 RSM, 2015 WL 12631550, at *6 (W.D. Wash. Dec. 9, 4 2015). 5 WCIA argues that the arbitration and choice of law provisions in the Agreement 6 violate Washington’s arbitration exclusion, rendering them void. Ironshore contends 7 that the Agreement is not an “insurance” agreement under RCW § 48.01.040 and thus 8 not subject to the anti-arbitration provision. In addition, Ironshore argues that a separate 9 provision regulating the purchase of coverage by joint self-insurance programs, preempts 10 the anti-arbitration prohibition, rendering the parties’ arbitration and choice of law provisions permissible. Dkt. # 20 at 11-12. 11 There are two key questions that the Court must answer in this case: (1) does 12 “reinsurance” qualify as “insurance” and (2) does the anti-arbitration provision in RCW 13 § 48.18.200 apply to reinsurance agreements where the reinsurance coverage is 14 purchased by a joint self-insurance program. The answer to both questions is yes. 15 A. Reinsurance is Insurance under RCW § 48.01.040 16 Ironshore argues that Washington’s arbitration exclusion does not apply to 17 reinsurance contracts because reinsurance is not insurance as defined under Washington 18 law. The Court is unpersuaded. RCW § 48.01.040 defines insurance as “a contract 19 whereby one undertakes to indemnify another or pay a specified amount upon 20 determinable contingencies.” This is consistent with the Agreement’s description of 21 coverage which provides, in relevant part: “The Reinsurer agrees to indemnify the 22 Company, on an excess of loss basis, for Ultimate Net Loss paid by the Company as a 23 result of losses occurring under the Company’s Coverage Forms underwritten by the 24 Company and covered by this Agreement.” Dkt. # 19 at 7. The Court finds no basis to 25 26 1 support Ironshore’s claim that the Agreement does not fall within the RCW § 48.01.040 2 definition of insurance.2 3 In addition, nothing in the plain text of the statute expressly excludes reinsurance. 4 RCW § 48.18.200 provides, in relevant part: 5 (1) No insurance contract delivered or issued for delivery in this state and covering subjects located, resident, or to be performed in this state, shall 6 contain any condition, stipulation, or agreement 7 (a) requiring it to be construed according to the laws of any other state or country except as necessary to meet the requirements of the motor vehicle 8 financial responsibility laws of such other state or country; or 9 (b) depriving the courts of this state of the jurisdiction of action against the 10 insurer; . . . 11 (2) Any such condition, stipulation, or agreement in violation of this section 12 shall be void, but such voiding shall not affect the validity of the other provisions of the contract. 13 Instead, the only types of insurance explicitly exempted from this chapter are “ocean 14 marine and foreign trade insurances.” RCW 48.18.010 (“This chapter applies to 15 insurances other than ocean marine and foreign trade insurance.”). 16 This is particularly relevant because in other chapters the legislature did expressly 17 carve out reinsurance. See, e.g., RCW 48.20.002 (“Nothing in this chapter shall apply to 18 or affect . . . any policy or contract of reinsurance”); RCW 48.23.420 (“RCW 48.23.420 19 through 48.23.520 do not apply to any reinsurance . . .”); RCW 48.19.010 (“Except as is 20 otherwise expressly provided the provisions of this chapter apply to all insurances . . . 21 except . . . Reinsurance . . .”). When interpreting a statutory provision, courts must give 22 effect to the plain meaning of the statute within the context of the act as a whole. 23
24 2 Ironshore relies heavily on a non-binding Missouri Court of Appeals decision to support 25 its claim that reinsurance is not insurance under RCW § 48.18.200. See Dkt. # 20 at 15 (citing Leonberger v. Mo. Unified Sch. Ins. Council, 501 S.W.3d 1 (2016)). The Court 26 does not find this decision persuasive in light of the plain language of the Washington 1 Jametsky v. Olsen, 179 Wash.2d 756, 762 (2014) (quoting Dep’t of Ecology v. Campbell 2 & Gwinn, LLC, 146 Wash.2d 1, 11 (2002)). Within this framework, the Court concludes 3 that reinsurance is not excluded under RCW 48.18.200. 4 B. The Agreement’s Arbitration and Choice of Law Provisions 5 Ironshore next argues that even if RCW 48.18.200 does apply to reinsurance 6 contracts, the parties’ Agreement is still explicitly carved out in Chapter 48.62, a 7 separate, more specific, chapter governing the purchase of reinsurance coverage by local 8 government joint insurance programs. Dkt. # 20 at 11-12. RCW 48.62.011 provides, in 9 relevant part: 10 This chapter is intended to provide the exclusive source of local government entity authority to individually or jointly self-insure risks, 11 jointly purchase insurance or reinsurance, and to contract for risk 12 management, claims, and administrative services. This chapter shall be liberally construed to grant local government entities maximum flexibility 13 in self-insuring to the extent the self-insurance programs are operated in a safe and sound manner. 14 15 Under RCW 48.62.031(4)(d), a joint self-insurance program may also “[j]ointly 16 purchase … reinsurance coverage in such form … as the program’s participants agree by 17 contract.” 18 Ironshore interprets these provisions as authorizing the use of arbitration 19 provisions in such agreements. Thus, under RCW 48.01.150, Ironshore contends that 20 these more specific provisions prevail over the arbitration provision in RCW 48.18.200. 21 See RCW 48.01.150 (“Provisions of this code relating to a particular kind of insurance or 22 a particular type of insurer or to a particular matter prevail over provisions relating to 23 insurance in general or insurers in general or to such matter in general.”). 24 The Court does not find Ironshore’s interpretation of RCW 48.62.031(4) 25 persuasive. A plain reading of the text of the statute suggests that the legislature is 26 authorizing joint self-insurance programs to purchase their own insurance or reinsurance 1 coverage. The statute does not reference arbitration provisions or authorize the inclusion 2 of arbitration provisions in contracts to purchase coverage subject to this provision. And 3 as discussed above, where the legislature wanted to exclude particular types of 4 insurance, including reinsurance, it did so. See supra at 5. The Court cannot read into 5 the statute that which the legislature omitted. Auto. Drivers & Demonstrators Union 6 Local No. 882 v. Dep’t of Ret. Sys., 92 Wash. 2d 415, 421 (1979) (“This court cannot 7 read into a statute that which it may believe the legislature has omitted, be it an 8 intentional or inadvertent omission.”). 9 In sum, there is nothing in the language of the statute or relevant case law to 10 support Ironshore’s interpretation. The Court does not interpret the provision granting joint self-insurance programs the authority to purchase insurance or reinsurance 11 coverage to be in conflict with the overarching arbitration exclusion. Accordingly, the 12 arbitration and choice of law provisions in the Agreement are void under RCW 13 48.18.200. 14 IV. CONCLUSION 15 For the reasons stated above, the Court DENIES Ironshore’s motion to compel. 16 Dkt # 20. WCIA’s motion to establish the choice of law and arbitration provisions as 17 void is GRANTED. Dkt. # 17. 18
19 DATED this 6th day of March, 2020. 20
21 A
22 23 The Honorable Richard A. Jones United States District Judge 24 25 26