Monarch Consulting, Inc. v. National Union Fire Insurance Company Of Pittsburg, Pa.

47 N.E.3d 463 (2016)

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Nature of the Case

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Facts

Insurers that provide workers' compensation coverage to employers are regulated by the California Department of Insurance (the Department), its Commissioner, and the Workers' Compensation Insurance Rating Bureau of California (WCIRB). Under California Insurance Code § 11658 (a), workers' compensation insurers must file copies of their policies, endorsements, and forms with the WCIRB prior to issuing the policies; after performing an initial review, the WCIRB sends the policies to the Department for the Commissioner's review. California regulations also provide that 'no collateral agreements modifying the obligation of either the insured or the insurer shall be made unless attached to and made a part of the policy.' The California Legislature enacted California Insurance Code § 11658.5 requiring that arbitration provisions in workers' compensation policies or endorsements must be disclosed to each potential insured contemporaneously with any quote for insurance coverage, together with a notice that choice of law or venue and forum-selection clauses in the policies may dictate a jurisdiction other than California and that such terms are negotiable. Prior to the enactment of section 11658.5, the Code and regulations were silent with respect to arbitration provisions in workers' compensation insurance policies and endorsements. P is an insurance company licensed in Pennsylvania, with its principal place of business in New York. P issued workers' compensation policies to Ds. The policies had been approved by the WCIRB and the Commissioner of Insurance without objection. Ds then entered into various 'Payment Agreements (PA).' P would extend credit to Ds by deferring payments due under the policies in return for the provision of collateral on behalf of Ps. The PAs set forth the particulars of that arrangement and what would occur in the event of a default. The PAs were never filed with the State of California. The parties operated under the Agreements for several years. The PAs contained arbitration clauses. Disputes arose between D and each of the insureds under the PAs. Three separate proceedings were initiated where D sought to compel arbitration in each case, and a petition by Ps to stay arbitration. In the Monarch Consulting (D) and Priority Business (D) the Supreme Court granted P's petitions to compel arbitration and denied Monarch Consulting's (D) petition to stay arbitration. In Source One (D) matter, the Supreme Court denied P's petition to compel arbitration, and held that the PAs were unenforceable. P, Monarch Consulting (D), and Priority Business (D) appealed. The Appellate Division reversed the orders compelling Monarch Consulting (D) and Priority Business (D) to arbitrate and affirmed the order denying arbitration in the Source One (D) matter. It held that P was required to file the Payment Agreements with the State and that the appropriate penalty for its failure to do so was to decline to enforce the arbitration provisions. the McCarran-Ferguson Act precluded the application of the FAA inasmuch as requiring arbitration would impair and undermine the goals of California Insurance Code § 11658. P argues that the McCarran-Ferguson Act does not reverse preempt the FAA. Ds argue that the PAs and the arbitration clauses are illegal and unenforceable because P failed to file them in accordance with California Insurance Code § 11658.