Louisiana Record

Wednesday, January 22, 2020

Appeals court orders McDonnel Group back to arbitration in dispute with insurer


By Charmaine Little | May 24, 2019

Insurance 06

NEW ORLEANS – The U.S. Court of Appeals for the Fifth Circuit affirmed on May 13 that an arbitration amendment is irrelevant, ordering a company suing its insurance provider to take the arbitration route.

Circuit Judge E. Grady Jolly wrote the opinion. Justices Edith H. Jones and James L. Dennis concurred.

McDonnel Group, LLC sued Great Lakes Insurance SE after Great Lakes refused to pay for water damage the plaintiff’s building allegedly suffered. The lawsuit was not in compliance with the agreement McDonnel and Great Lakes signed when Great Lakes began insuring the company. A portion of the agreement said that should a dispute arise, the parties would settle it in arbitration. 

5th Circuit Judge James L. Dennis

McDonnel filed a lawsuit against Great Lakes in the U.S. District Court for the Eastern District of Louisiana. That court granted Great Lakes its motion to dismiss, agreeing that McDonnel had previously agreed to pursue arbitration for any disputes.

While McDonnel said the arbitration clause was “amended out” of the agreement “through the contract’s conformity to statute provision because arbitration conflicted with a Louisiana statute,” both the district court and the appeals court said the conformity provision does not cancel out the agreement to arbitrate. Specifically, the Louisiana statute that McDonnel said Great Lakes was infringing upon, was already preempted.

The appeals court pointed out that while a conformity provision is included in the agreement at issue, the “provision only applies in the event any terms of [the] policy are in conflict with the statutes of the jurisdiction where the insured property is located."

While this policy's arbitration provision does not comply with a statute that bans arbitration agreements, the key is that the statute in question was already preempted. For that reason, it does not work for McDonnel’s argument in this case.

“With that premise established, the conformity provision is not triggered; its inapplicability leads only to the conclusion that the arbitration provision survives, undiminished by state law,” said the appeals court as it affirmed the lower court’s ruling and ordered arbitration.

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