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Arbitration Agreements in Foreign Insurer’s Surplus Line Policies

June 25, 2024 - Deutsch Kerrigan

Talbot M. Quinn

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Arbitration Agreements in Foreign Insurer’s Surplus Line Policies

Due to the significant volume of homeowner’s insurance lawsuits filed in the aftermath of Hurricane Ida, a critical legal issue has surfaced in Louisiana federal district courts and the U.S. Fifth Circuit Court of Appeals. The question is whether these homeowners’ lawsuits must be subject to mandatory arbitration pursuant to the arbitration agreements in homeowner’s surplus line insurance policies issued by foreign insurers. This requirement is grounded in federal law, particularly the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention").

This has been a highly litigated issue in the Louisiana federal district courts.  Two recent U.S. Fifth Circuit decisions have provided guidance on how the arbitration agreements should be interpreted and applied.  Most insureds in these cases argue that La. R.S. 22:868 renders the arbitration clause unenforceable. Further, two New York Southern District Court cases applying Louisiana law stated that the arbitration agreements are unenforceable based on La. R.S. 22:868 states that no insurance contract delivered in Louisiana shall contain a condition depriving the courts of Louisiana of the jurisdiction or venue of action against the insurer.

The Bufkin[1] case essentially concerned an identical policy form and arbitration clause as in the New York Southern District cases. Judge James D. Cain, Jr. in the United States District Court for the Western District of Louisiana denied Defendants’ Motion to Compel Arbitration and Stay the Proceedings in that matter. The U.S. Fifth Circuit Court of Appeals reversed Judge Cain’s decision, holding that “The Convention is an exception to Louisiana’s general bar on policy terms that deprive its state courts of jurisdiction and venue in actions against insurers. See La. Rev. Stat. § 22:868. The Fifth Circuit had held in Bufkin that § 22:868 does not reverse preempt the Convention because the McCarran-Ferguson Act does not apply to treaties.” Coincidentally, the court further held that “while Bufkin was certainly free to name and then dismiss the foreign insurers, the district court was not free to disregard them in considering the domestic insurers’ motion to compel arbitration.”[2] Instead, the appellate court ruled that the arbitration provision in the surplus lines policies was subject to the Convention through equitable estoppel, including the alleged “interdependent and misconduct as it pertains to all of the insurers.”[3] The U.S. Fifth Circuit was specifically critical of the plaintiff’s tactic: “The upshot is that indulging Bufkin’s pleading-and-then-dismissing gamesmanship by denying arbitration turns on its head the axiom that “[t]he linchpin for equitable estoppel is equity – fairness.” Id.

Following Bufkin, the U.S. Fifth Circuit held in Belmont Commons, involving another almost identical form policy as the New York cases, “Given that the Louisiana Supreme Court has characterized arbitration clauses as a type of venue selection clause, we conclude that the carve-out contained in LA. R.S. § 22:868(D) unambiguously includes arbitration clauses. Moreover, including arbitration clauses in the carve-out does not lead to absurd consequences; LA. R.S. § 22:868(D) provides a measure of flexibility to surplus lines insurers—who - by definition - are willing to ensure risks and provide coverage for consumers who cannot get coverage in the standard market—by exempting them from the strictures of LA. R.S. § 22:868(A).”[4]

In short, the recent Fifth Circuit decisions in Bufkin and Bellmont Commons make clear that arbitration agreements in foreign surplus line insurance policies are enforceable, and the insureds must have their claims resolved by arbitration rather than by Louisiana courts.


[1] See Bufkin, citing Safety Nat’l Cas. Corp. v. Certain Underwriters at Lloyd’s London, 587 F.3d 714, 718 (5 Cir. 2009).

[2] See Bufkin, p. 10.

[3] See Bufkin, citing Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 528 (5 Cir. 2000).

[4] See Indian Harbor Insurance Company, et al. v. Belmont Commons, LLC, et al, No. 23-30246 (U.S. 5th Cir. March 6, 2024).

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