McDermott Inernational, Inc. v. Lloyds Underwriters of London

United States Court of Appeals,

Fifth Circuit.

No. 96-30676.

McDERMOTT INTERNATIONAL, INC., Plaintiff-Appellant,

v.

LLOYDS UNDERWRITERS OF LONDON, John Richard Ludbrooke Youell, as
rep of those certain underwriters Subscribing to memorandum of
insurance no. 104207, Defendant-Appellee.

McDermott International, Inc., Plaintiff,

v.

The Orion Insurance Company PLC T A/C; et al., Defendants.

Sept. 2, 1997.

Appeal from the United States District Court for the Eastern
District of Louisiana.

Before JONES, STEWART and DENNIS, Circuit Judges.

CARL E. STEWART, Circuit Judge:

This case—on appeal before us a third time1—presents the

questions of whether enforcement of an arbitration clause in an

insurance contract was error, and if not, whether the district

court had the authority to confirm the arbitration decision

rendered in favor of Certain Underwriters at Lloyds (Lloyds).

Pursuant to an arbitration clause in an all-risks installation

floater policy issued to McDermott International, Inc. (McDermott)

by Lloyds, the district court ordered McDermott to submit to

1
See McDermott Int'l, Inc. v. Lloyds Underwriters, 981 F.2d
744 (5th Cir.), cert. denied, 508 U.S. 951, 113 S.Ct. 2442, 124
L.Ed.2d 660 (1993) (McDermott II); McDermott Int'l, Inc. v. Lloyds
Underwriters of London, 944 F.2d 1199 (5th Cir.1991) (McDermott I).

1
arbitration. The arbitration panel concluded that there was no

coverage under the policy. The district court confirmed the

panel's decision, rejected McDermott's argument that the

arbitration clause was void under Louisiana law (La.R.S. 22:629

(West 1995)), and concluded that the Convention on the Recognition

and Enforcement of Foreign Arbitral Awards (9 U.S.C. § 9 et seq.)

(the Convention) rendered the arbitration clause enforceable.

McDermott appeals. We affirm, but for slightly different reasons

than those articulated by the district court.

BACKGROUND AND PROCEDURAL HISTORY2

The Facts That Spawned This Nine-Year-Old Litigation

McDermott is a Panamanian corporation with headquarters in New

Orleans, Louisiana. McDermott purchased an all-risks installation

floater policy from Lloyds that covered losses suffered by

McDermott's subsidiary Babcock & Wilcox Company (Babcock). A

London insurance broker negotiated the policy terms in London on

behalf of McDermott, and the original policy was delivered to

McDermott's broker in London; the original of the policy remained

in London and photocopies of the policy were sent to McDermott's

Canadian broker and McDermott headquarters in New Orleans.

McDermott's policy covered risks of physical loss or damage to

Babcock's "property ... during the course of installation,

erection, or whilst being dismantled ... including transits." The

policy also contained an arbitration clause which provided in part

2
We rely in part on the statement of facts set forth in
McDermott I, 944 F.2d at 1201 and McDermott II, 981 F.2d at 746.

2
that "[a]ll differences arising out of this contract" must be

resolved through arbitration.

Babcock supplies utilities with equipment that generates

electrical power. In 1989, Babcock was installing two air-heat

exchangers for Baltimore Gas & Electric Company (Baltimore) when a

chemical reaction irreparably damaged the exchangers. McDermott

tendered coverage under the policy. Lloyds denied coverage, thus

triggering this litigation.

McDermott I

McDermott first filed suit in Louisiana state court, seeking

$39,247,000 in damages under the policy. Citing the arbitration

clause, Lloyds demanded that McDermott submit to arbitration to

resolve the issues raised in the state-court suit. McDermott

promptly filed a declaratory judgment action in Louisiana state

court seeking a declaration that it need not submit to arbitration.

Lloyds removed both suits to federal court pursuant to the

Convention. After consolidating the two suits, the district court

remanded the cases to state court, holding that the service-of-suit

clause in the policy entitled McDermott to resolve its claim in the

forum of its choosing. Lloyds appealed the remand order and we

reversed. McDermott I, 944 F.2d 1199. We concluded in McDermott

I that the insurance contract, Congress's intent with regard to the

scope of the Convention, and Fifth Circuit precedent compelled the

conclusion that the service-of-suit clause did not extinguish

Lloyds's removal rights.

McDermott II

3
 Back to federal district court the parties went. In addition

to the two suits that were the subject of McDermott I, three other

suits were also pending in federal court.3 These additional suits

were consolidated with the two prior suits. Lloyds moved to compel

arbitration and stay all related litigation pending the outcome of

the arbitration. The district court granted Lloyds's motion in

February 1992. McDermott once again appealed to this court, and in

the alternative, asked us to review the district court's order

compelling arbitration under the rubric of a writ of mandamus. We

dismissed the appeal and declined to issue a writ of mandamus,

holding that the district court's order was interlocutory (and not

final) and that McDermott failed to meet the rigorous standard

governing issuance of a writ of mandamus. In so holding, we

stopped short of addressing the correctness of the decision to

compel McDermott to submit to arbitration.

The Instant Appeal

A panel of three arbitrators ultimately heard the McDermott-

Lloyds dispute. One arbitrator was picked by Lloyds; one by the

district court; and one by McDermott. After the panel of

arbitrators was convened, McDermott and Lloyds spent some time

exchanging information and agreeing on arbitration procedures.

After an approximately four-week hearing (occurring in two

3
Suit 1: McDermott versus an insurance broker (removed on the
basis of diversity jurisdiction), in which McDermott alleged that
an unauthorized coverage letter bound the adjuster contractually to
pay for McDermott's loss. Suits 2 and 3: Lloyds versus the same
broker (diversity jurisdiction), in which Lloyds sought
indemnification from the adjuster for any damages awarded for
McDermott against Lloyds.

4
sessions), the arbitration panel decided by a 2-1 vote4 that the

Lloyds policy did not cover the damage to the air-heat exchangers.

Lloyds thereafter moved the district court to confirm the

arbitration decision. McDermott opposed the motion, arguing that

because the arbitration provision did not contain a

consent-to-confirmation clause, the district court had no

jurisdiction to confirm the arbitration panel's decision. The

district court rejected McDermott's position and confirmed the

award. This timely appeal followed.

DISCUSSION

McDermott makes three arguments in this appeal.5 First, it

claims that La.R.S. 22:629—which, if triggered, renders arbitration

clauses in insurance policies null and void—is not preempted by the

Convention because the McCarran-Ferguson Act (15 U.S.C. § 1101 et

seq.) insulates state regulation of insurance from federal

preemption. Second, McDermott argues that the facts surrounding

the negotiation, purchase, and delivery of the Lloyds policy bring

this case within the ambit of La.R.S. 22:629. Third, McDermott

contends that the district court did not have jurisdiction to

confirm the arbitrators' decision. Although we ultimately reject

4
The arbitrators chosen by Lloyds and the district court sided
with Lloyds, and the arbitrator selected by McDermott sided with
McDermott.
5
We do not address McDermott's fourth argument because it was
disposed of in McDermott I. McDermott once again claims that the
service-of-suit clause in the Lloyds policy operated as a waiver of
Lloyds's right to remove this suit to federal court. We rejected
that claim in McDermott I, 944 F.2d at 1209-13, and we shall not
disturb that finding because it is the law of the case.

5
McDermott's position, we first address a few preliminary matters

that narrow considerably the scope of this appeal.

In McDermott II, we left open the question of whether

McDermott was properly ordered to submit to arbitration. We now

field the McDermott II pitch and conclude that the arbitration

clause in the Lloyds policy is enforceable. In reaching this

conclusion, we decline to address McDermott's first

contention—whether the Convention preempts La.R.S. 22:629—because

resolving that question is not necessary to the disposition of this

case. Rather, we shall assume, without deciding, that the

Convention does not preempt La.R.S. 22:629.6 Accordingly, this

appeal presents the questions of whether La.R.S. 22:629 renders the

arbitration clause in the Lloyds policy nugatory, and if not,

whether the district court had the authority to confirm the

arbitration decision. We turn to these questions now.

I. DO THE FACTS OF THIS CASE TRIGGER LA.R.S. 22:629?

Compulsory arbitration clauses in certain insurance contracts

are unenforceable in Louisiana because of La.R.S. 22:629, which

provides in part as follows:

A. No insurance contract delivered or issued for delivery in
this state and covering subjects located, resident, or to be
performed in this state or any group health and accident
policy insuring a resident of this state, regardless of where
made or delivered shall contain any condition, stipulation, or
agreement:

* * * * * *

6
As such, we express no opinion on the correctness of the
district court's conclusion that this case is governed by the
Convention.

6
 (2) Depriving the courts of this state of the
jurisdiction of action against the insurer; ...

* * * * * *

B. Any such condition, stipulation, or agreement in violation
of this Section shall be void, ...

(emphasis added); see West of England Ship Owners Mut. Ins. Ass'n

(Luxembourg) v. American Marine Corp., 981 F.2d 749, 750 n. 5 (5th

Cir.1993) (interpreting La.R.S. 22:629); Doucet v. Dental Health

Plans Management Corp., 412 So.2d 1383, 1384 (La.1982). The

threshold question we face is whether the Lloyds policy was

"delivered or issued for delivery" in Louisiana. We conclude that

it was not.

Shortly before the enactment of the predecessor to La.R.S.

22:629, the Louisiana Supreme Court interpreted the meaning of

"delivery" as it had been used in insurance contracts. In Pruitt

v. Great Southern Life Ins. Co., 202 La. 527, 12 So.2d 261 (1942),

the supreme court held that whether an insurance policy has been

delivered depends upon the intentions of the parties; delivery can

be actual or constructive. Id. at 531. There are three

requirements for delivery: (1) "whether the company or its agent

intentionally parts with control or dominion of the policy"; (2)

whether the company or its agent "places [the policy] in the

control or dominion of the insured or some person acting for him";

and (3) the underlying purpose of the delivery is to make "valid

and binding [a] contract of insurance." Id. at 531-32. Although

Pruitt did not specifically interpret 22:629(A), the Pruitt

approach to discerning the meaning of "delivery" has been the law

7
in Louisiana since 1942. The court's interpretation of the word

"delivery" in insurance contracts is helpful to our Erie guess

about how the Louisiana Supreme Court would interpret delivery in

22:629(A). See Mistich v. United Ben. Life Ins. Co., 199 So.2d 14,

16 (La.Ct.App. 4th Cir.1967); see also Auster Oil & Gas, Inc. v.

Stream, 891 F.2d 570, 574 (5th Cir.1990) (interpreting Louisiana

law). And it is also well-settled that delivery orchestrated to

avoid the application of Louisiana law will not be sanctioned. See

Grubbs v. Gulf Int'l Marine, Inc., 13 F.3d 168, 171-72 (5th

Cir.1994); Schexnider v. McDermott Int'l, Inc., 688 F.Supp. 234,

237-38 (W.D.La.1988).

The parties do not dispute the applicability of the first and

third prongs of the Pruitt test—Lloyds parted with control of the

policy (by giving it to McDermott's agent) for the purpose of

entering into a contract of insurance with McDermott. The question

we must answer is whether under prong two of Pruitt, placing the

policy in the control of "some person acting for [McDermott]"

amounts to delivery in Louisiana.

Lloyds argues that because the policy was delivered to

McDermott's agent in London, the policy was "delivered or issued

for delivery" in London. Specifically, Lloyds asserts that just

because a photocopy was sent to McDermott's agent in Canada and

later sent to McDermott headquarters in New Orleans does not mean

that the policy was delivered or issued for delivery in Louisiana.

"The invention of the photocopy machine," Lloyds says, "did not

result in worldwide expansion of Louisiana jurisdiction."

8
Conversely, McDermott contends that the policy was constructively

delivered in Louisiana because a photocopy of the policy was

eventually received at McDermott in New Orleans. McDermott

exaggerates what will happen if we agreed with Lloyds's position:

"[T]his court would allow foreign insurers to avoid Louisiana state

regulation simply by sending the original policy to an out-of-state

broker."

Lloyds has the better argument under the facts of this case.

The circumstances surrounding the negotiation and agreement to

enter into the insurance contract clearly indicate to us that the

Lloyds policy was not delivered or issued for delivery in

Louisiana, but rather in London. A number of facts compel this

conclusion: McDermott's agent negotiated in London with Lloyds's

representative; the parties did not comply with Louisiana

standards for issuing insurance; Lloyds is not licensed to

transact insurance business in Louisiana;7 Lloyds gave the policy

to McDermott's agent in London; the policy was marked "Dated in

LONDON"; after the heading "POLICY IN THE NAME OF" was listed

7
See, e.g., Bonura v. United Bankers Life Ins. Co., 552 So.2d
1248, 1251 (La.Ct.App. 1st Cir.1989) ("Together, [La.R.S. 22:629]
and cases announce the unequivocal policy of this state that no
foreign insurer may enjoy the benefits of a source of business in
this state without being prepared to answer any claims based on
that business by a Louisiana resident in the Louisiana courts.
This policy comports with due process requirements and the insurer
suffers no undue hardship thereby."), writ denied, 558 So.2d 1125
(La.1990); Krueger v. Tabor, 546 So.2d 1317, 1321 (La.Ct.App.3d
Cir.1989) (same); Velez v. Sentry Ins. Co., 446 So.2d 408, 410-11
(La.Ct.App. 4th Cir.1984) (same).

9
McDermott's agent-broker, J.H. Minet & Company;8 and the original

of the policy remains in London.9 Taken together, these facts

convince us that the policy was "delivered or issued for delivery"

in London.10 La.R.S. 22:629, therefore, was not triggered, and the

arbitration clause in the Lloyds policy is enforceable.11

We cannot accept McDermott's position that the policy was not

delivered in London because its agent allegedly did not have the

authority to accept delivery of the policy and that foreign

insurers would be able to evade Louisiana law through creative

agent-broker arrangements. McDermott claims that its agent only

8
Compare Casey v. Prudential Ins. Co. of Am., 360 So.2d 1386,
1390-91 (La.Ct.App.3d Cir.1978) (holding that La.R.S. 22:629
applied to policy which expressly stated that the insurance
certificate was "issued" to the insured and its employee; employee
lived and employer was located in Louisiana); see also Johnson v.
Nationwide Life Ins. Co., 388 So.2d 464, 466-67 (La.Ct.App.2d
Cir.1980) (same).
9
By pointing out that the original policy is located in
London, we by no means suggest that delivery for purposes of
La.R.S. 22:629 turns solely on the location of the original
insurance policy. Instead, we note the location of the policy
because it reinforces our conclusion that, under the totality of
the circumstances, the Lloyds policy was not delivered or issued
for delivery in Louisiana.
10
Accordingly, we need not address Lloyds's additional argument
that the policy does not cover subjects (i.e., the air-heat
exchangers) located, resident, or to be performed in Louisiana.
And we do not decide the question of whether Louisiana courts would
find a "delivery" had Lloyds delivered a certificate of insurance
or a copy of the policy to McDermott in Louisiana.
11
In 1992, the Louisiana Department of Insurance filed a
declaratory judgment action in federal district court, asserting
that the district court's decision to compel arbitration was error.
The Department, however, later dismissed its case with prejudice,
concluding that La.R.S. 22:629 did not apply to the Lloyds policy.
Although we do not ground our conclusion in this case on deference
to state agency decisionmaking, we simply point out the
Department's conclusion because it is consistent with our own.

10
had the authority to prepare and negotiate the terms of the Lloyds

policy, not to accept delivery of that policy. McDermott's

position does not square with prong two of Pruitt, which states

that delivery has occurred if the insurer "places [the policy] in

the control or dominion of ... some person acting for [the

insured]." Pruitt, 12 So.2d at 531-32 (emphasis added). Here,

there can be no doubt that McDermott's agent was "acting" for

McDermott when the agent accepted the Lloyds policy, otherwise we

would be forced to conclude (contrary to our understanding of the

level of sophistication McDermott and Lloyds possess in the

international insurance market) that Lloyds's act of turning over

the policy to McDermott's agent amounted to a meaningless gesture.

Moreover, McDermott's fears about foreign insurance companies

evading Louisiana law is somewhat overblown, for as we have pointed

out, it is well-established that if insurance companies purposely

skew their delivery procedure to avoid the application of Louisiana

law, such a maneuver shall not receive judicial approval. There is

no evidence that Lloyds purposely sought to evade Louisiana law by

delivering the policy to McDermott's agent in London.

II. DID THE DISTRICT COURT HAVE THE AUTHORITY TO ENTER JUDGMENT ON AND CONFIRM
THE ARBITRATION DECISION?

We now turn to the final question presented in this

appeal—whether the district court had the authority to confirm the

favorable arbitration decision rendered in Lloyds's favor. The rub

here is whether § 9 of the FAA (which requires consent of both

parties before an arbitration award can be confirmed (9 U.S.C. §

9)) preempts the Convention (which does not require

11
consent-to-confirmation (9 U.S.C. § 207)). We hold that § 9 does

not preempt the Convention and conclude that the district court had

jurisdiction to confirm the arbitration decision.

Rather than reinvent the proverbial wheel, we extract four

principles from McDermott I, 944 F.2d 1199, that compel our

conclusion today. First, because "this suit concerns an

arbitration agreement and is not entirely between United States

citizens,.. the Convention Act governs this case." Id. at 1208.

Second, the FAA "is the approximate domestic equivalent of the

Convention ... [such that] [t]he Convention Act incorporates the

FAA except where the FAA conflicts with the Convention Act's few

specific provisions." Id. (citing SENATE COMM. ON FOREIGN RELATIONS,

FOREIGN ARBITRAL AWARDS, S.REP. NO. 702, 91st Cong., 2d Sess. 5 (1970))

(original emphasis). Third, we recognized that " "[t]he goal of

the Convention, and the principal purpose underlying American

adoption and implementation of it, was to ... unify the standards

by which agreements to arbitrate are observed and arbitral awards

are enforced in the signatory countries.' " Id. at 1212 (quoting

Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n. 15, 94 S.Ct.

2449, 2457 n. 15, 41 L.Ed.2d 270 (1974)). Fourth, consistent with

the strong federal policy favoring arbitration, we concluded that

"judicial enforcement of arbitration agreements and awards ought to

be "summary and speedy' out of respect for the parties' bargain to

keep their disputes out of court." Id. at 1213.

Because we have held that the Convention applies to this case,

the enforcement provision of the Convention necessarily applies

12
unless § 9 of the FAA does not conflict with the Convention.

Section 9 clearly does so conflict,12 so we decline to apply § 9's

consent-to-confirmation provision to the arbitration agreement

between McDermott and Lloyds. In addition, the twin goals of

uniformity and "summary and speedy" judicial enforcement of the

arbitration decision are plainly furthered by the district court's

action confirming the award.

Accordingly, our only task is to determine whether Lloyds

complied with the three-year time limitation for requesting

confirmation.13 Lloyds did so. The district court therefore had

the authority to confirm the arbitration decision.

CONCLUSION

Finding that neither Louisiana law nor § 9 of the FAA provide

McDermott a safe haven from enforcement of the arbitration clause

in the Lloyds policy, the arbitration clause in the Lloyds policy

is enforceable, and the district court had the authority to enter

judgment on and confirm the arbitration decision in favor of

Lloyds. The decision of the district court is thereby AFFIRMED.

12
Section 9 of the FAA contains a consent-to-confirmation
provision, whereas section 207 of the Convention Act specifically
provides that "any party to the arbitration may apply to any court
having jurisdiction under this chapter ... for an order confirming
the award ... unless it finds ... grounds for refusal or deferral
... in the said Convention." 9 U.S.C. § 207.
13
Article V of the Convention sets forth certain conditions
which would preclude recognition and confirmation of an arbitration
decision. None of those conditions compels a different result in
this case.

13