McCarran-Ferguson Reverse Pre-Empts Federal Arbitration Act, Says South Carolina Federal District Court
When a group of physicians ended up in a dispute with their malpractice insurer, the insurer claimed that it must go to arbitration. The physicians argued otherwise, contending that, under applicable South Carolina law, the McCarran-Ferguson Act, 15 U.S.C. Sections 1101 t0 1015, reverse pre-empts laws, such as those in South Carolina, that govern the business of insurance – and that the South Carolina law prohibits enforcement of arbitration clauses in insurance policies. In a decision issued earlier this year, the United States District Court for the District of South Carolina agreed with the physicians and ruled against the insurer, Emergency Physicians Ins. Co., C.A. (“EPIC”). Here is the key portion of the short opinion in Blue Ridge Emergency Physicians, P.A. v. Emergency Physicians Ins. Co., C.A., No. 6:10-cv-00428-JMC (D.S.C. Mar. 15, 2011):
EPIC argues the arbitration agreement is governed by the Federal Arbitration Act (“FAA”). The undersigned disagrees. The South Carolina Uniform Arbitration Act, S.C.Code Ann. 15-48-10 (1976) (“SCUAA”) reverse preempts the FAA in this context under the McCarran-Ferguson Act, 15 U.S.C.A. §§ 1011-1015 (West 2009). The McCarran-Ferguson Act declares that “[n]o 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, … unless such Act specifically relates to the business of insurance.” 15 U.S.C. § 1012(b). “The McCarran-Ferguson Act thus precludes application of a federal statute in face of state law ‘enacted … for the purpose of regulating the business of insurance,’ if the federal measure does not ‘specifically relat[e] to the business of insurance,’ and would ‘invalidate, impair, or supersede’ the State’s law.” Gross v. Weingarten, 217 F.3d 208, 222 (4th Cir.2000) (quoting Humana, Inc. v. Forsyth, 525 U.S. 299, 307, 119 S.Ct. 710, 142 L.Ed.2d 753 (1999)).
The state law at issue is the SCUAA’s provision that “[t]his chapter however shall not apply to … any insured or beneficiary under any insurance policy or annuity contract.” S.C.Code Ann. § 15-48-10(b)(4) (West 2005). In order to reverse preempt, S.C.Code Ann. § 15-48-10(b)(4) must have been “enacted for the purpose of regulating the business of insurance.” 15 U.S.C. § 1012(b). The South Carolina Court of Appeals has addressed this precise question and concluded that S.C.Code Ann. § 15-48-10(b)(4) was a state law enacted for the purpose of regulating the business of insurance and therefore “reverse preempts” the FAA through application of the McCarran-Ferguson Act. Cox v. Woodmen of the World Ins. Co., 347 S.C. 460, 463, 556 S.E.2d 397, 399-402 (Ct.App.2001); see also Am. Health and Life Ins. Co. v. Heyward, 272 F.Supp.2d 578, 581-583 (D.S.C.2003). The decision in Cox makes it clear that S.C.Code Ann. § 15-48-10(b)(4) was enacted for the purpose of regulating insurance, and therefore, reverse preempts the FAA. Thus, absent some exception,3 S.C.Code Ann. § 15-48-10(b) (4) prohibits the enforcement of arbitration clauses in insurance policies under South Carolina law.
Accordingly, the court denied the insurer’s motion to compel arbitration. Another report about the opinion (also stating that an appeal was filed, but the case was later settled).