You Can’t Make Me Arbitrate

The Louisiana Supreme Court recently found that an insurer could not force its municipal policyholder to arbitrate its insurance coverage claims. In this case, the policyholder, the Police Jury of Calcasieu Parish (“Parish”) suffered damages to about 300 owned properties from Hurricanes Laura and Delta. The US District Court for the Western District of Louisiana certified three questions, and the Louisiana Supreme Court accepted them for review. All three questions had to do with whether domestic insurers, who were part of a subscription policy, could force Parish to arbitrate its claims in New York and have New York law apply.

In denying the insurers’ arguments that the case ought to be resolved through arbitration in New York, the Court first reviewed Louisiana law that, although recently amended, prohibits the use of arbitration clauses in insurance policies. This prohibition is rooted in public policy noted the Court, as compulsory arbitration clauses operate to deprive courts of jurisdiction over actions against insurers and deny Louisiana citizens free access to its courts. The Court found in favor of the Parish. Second, the Court reviewed the issue of whether an insurance policy with a political subdivision is a “public contract” within the meaning of a Louisiana statute. The statute forbids suits and arbitrations of public contracts involving the state or a political subdivision from being resolved outside of the state or in accordance with the laws of another jurisdiction. The Court, again, found in favor of the Parish. Finally, the Court reviewed the issue of whether the domestic subscription insurers could enforce an arbitration provision, by way of an equitable estoppel argument, in two foreign insurers’ policies – insurers who were dismissed from the litigation. Again, the Court found in favor of the Parish and in so doing noted that estoppel is not favored in Louisiana and further, that equitable considerations and estoppel cannot prevail when they conflict with Louisiana’s positive law. The positive law in Louisiana is the prohibition of the use of arbitration clauses in Louisiana-issued insurance policies. The Louisiana Supreme Court therefore issued a ruling denying the insurers the opportunity to arbitrate their coverage dispute with the Parish. It is pretty clear from the Court’s ruling that it would protect Louisiana entities, particularly its municipalities, from being subjected to forced arbitration rather than having their day in court.

The case is Police Jury of Calcasieu Parish v. Indian Harbor Insurance Co., et al. No. 2024-CQ-00449