Doug Ommen and Dan Watkins v. MilliMan, Inc., Kimberley Hiemenz, and Michael Strum

IN THE SUPREME COURT OF IOWA
No. 18–0335

Filed April 3, 2020

DOUG OMMEN, in His Capacity as Liquidator of CoOportunity Health, and
DAN WATKINS, in His Capacity as Special Deputy Liquidator of
CoOportunity Health,

Appellees,

vs.

STEPHEN RINGLEE, DAVID LYONS, and CLIFFORD GOLD,

Defendants,

and

MILLIMAN, INC., KIMBERLEY HIEMENZ, and MICHAEL STRUM,

Appellants.

Appeal from the Iowa District Court for Polk County, Jeanie K.

Vaudt, Judge.

The defendants appeal the district court’s denial of their motion to

dismiss and compel arbitration. REVERSED AND REMANDED WITH
DIRECTIONS.

Stephen H. Locher of Belin McCormick, P.C., Des Moines, Reid L.

Ashinoff and Justin N. Kattan of Dentons US LLP, New York, New York,

Stephen R. Eckley (until withdrawal), Matthew C. McDermott, and

Christopher J. Jessen of Belin McCormick, P.C., Des Moines, for

appellants.
 2

Kirsten A. Byrd of Husch Blackwell LLP, Kansas City, Missouri, and

Kevin J. Driscoll and John David Hilmes of Finley Law Firm, P.C., Des

Moines, for appellees.
 3

CHRISTENSEN, Chief Justice.

In 2014, a multimillion dollar Iowa-based health-insurance provider

collapsed. The question we must answer is whether a court-appointed

liquidator of the now-insolvent health insurer, pursuing common law tort

claims against a third-party contractor, is bound by an arbitration

provision in a preinsolvency agreement between the health insurer and the

third-party contractor.

The plaintiff in this case is a court-appointed liquidator of an

insolvent health-insurance provider. Prior to its insolvency, the health-

insurance provider entered into an agreement with a third-party

contractor for actuarial consulting services. The third-party contractor

assisted the health-insurance provider in securing federal funding

approval and setting rates. One year after the health-insurance provider

began operations, it was declared insolvent and placed into liquidation.

The liquidator of the health-insurance provider filed a petition

against the third-party contractor, asserting common law tort damages for

preliquidation work the contractor performed under the agreement. The

third-party contractor submitted a motion to dismiss and compel

arbitration because the agreement between itself and the health-insurance

provider contained an arbitration provision.

The district court denied the third-party contractor’s motion. It

determined that the liquidator’s claims did not arise out of or relate to the

agreement, that the Iowa Liquidation Act precludes arbitration of the

liquidator’s claims, and that the McCarran-Ferguson Act reverse preempts

the Federal Arbitration Act (FAA). The third-party contractor appealed the

judgment, and we retained the appeal.

On our review, we conclude the court-appointed liquidator is bound

by the arbitration provision because, under the principles of contract law
 4

and as pled, the liquidator stands in the shoes of the health-insurance

provider and is bound by the preinsolvency arbitration agreement.

Therefore, the liquidator’s claims cannot be detached from the contractual

relationship between the health-insurance provider and the third-party

contractor, pursuant to which all of the preinsolvency work was

performed. We also conclude the liquidator cannot use Iowa Code section

507C.21(k) (2017) to disavow a preinsolvency agreement that the third-

party contractor already performed. Finally, in this case, the McCarran-

Ferguson Act does not permit reverse preemption of the FAA when the

liquidator asserts common law tort claims against a third-party contractor.

Courts in other states have unanimously required liquidators to arbitrate

their claims against the same third-party contractor under the same

arbitration provision.

I. Background Facts and Proceedings.

Because we are reviewing a ruling on a motion to dismiss, we take

as true the petition’s well-pled facts. See Karon v. Elliot Aviation, 937

N.W.2d 334, 335 (Iowa 2020); Shumate v. Drake Univ., 846 N.W.2d 503,

507 (Iowa 2014).

Doug Ommen and Dan Watkins are court-appointed liquidators of

the now-insolvent CoOportunity Health—an Iowa–based insurer.1

CoOportunity was a nonprofit health insurer launched under the

Affordable Care Act. In 2012, CoOportunity secured a $145 million federal

start-up loan to launch the company. Member enrollment began in

October 2013 and CoOportunity started the coverage of healthcare claims

in January 2014. After one year of operation, CoOportunity faced

significant financial distress; it reported $163 million in losses.

1We will refer to the court-appointed liquidators, Doug Ommen and Dan Watkins,
as “the liquidator.”
 5

CoOportunity was declared insolvent and placed into liquidation by a Final

Order of Liquidation on March 2, 2015.

The liquidator of CoOportunity filed a petition against Milliman and

the founders of CoOportunity, asserting common law tort damages for

preliquidation work Milliman performed for CoOportunity pursuant to a

2011 Consulting Services Agreement (2011 Agreement). Milliman is an

actuarial and consulting firm. Before CoOportunity secured its $145

million loan, the federal government, on July 28, 2011, announced a

funding opportunity inviting nonprofit health insurance companies, such

as CoOportunity, to apply for federal funding. CoOportunity relied on

Milliman to secure federal funding approval, set rates, and provide other

actuarial work. On September 30, 2011, a CoOportunity founder signed

the 2011 Agreement for Milliman to provide “consulting services” including

“general actuarial consulting services.” The liquidator’s petition seeks to

recover millions in losses sustained by CoOportunity “as a result of the

professional negligence, breach of fiduciary duty, and reckless, willful, or

intentional misconduct by the actuarial firm, Milliman, Inc.”

Milliman submitted a motion to dismiss and compel arbitration

pursuant to Iowa arbitration laws and the FAA. It indicated the

liquidator’s claims arose out of and related to its engagement by

CoOportunity pursuant to the 2011 Agreement. The 2011 Agreement

contained an arbitration provision which stated any dispute “will be

resolved by final and binding arbitration.”

The district court entered an order denying Milliman’s motion to

dismiss and compel arbitration. It determined the liquidator’s claims did

not arise out of or relate to the 2011 Agreement, the liquidator disavowed

the 2011 Agreement, the Iowa Liquidation Act precluded arbitration of the
 6

liquidator’s claims against Milliman, and the McCarran-Ferguson Act

reverse preempted the FAA.

Milliman appealed the district court’s order, which we retained.

II. Standard of Review.

The denial of a motion to compel arbitration is reviewed for

correction of errors at law. Bullis v. Bear, Stearns & Co., 553 N.W.2d 599,

601 (Iowa 1996); see Heaberlin Farms, Inc. v. IGF Ins., 641 N.W.2d 816,

818, 823 (Iowa 2002).

III. Analysis.

This case presents the novel issue of whether a court-appointed

liquidator of a now-insolvent health insurer, pursuing common law tort

claims against a third-party contractor, is bound by an arbitration

provision in a preinsolvency agreement between the health insurer and the

third-party contractor. The relevant portion of the arbitration provision in

this case states,

In the event of any dispute arising out of or relating to the
engagement of Milliman by Company, the parties agree that
the dispute will be resolved by final and binding arbitration
under the Commercial Arbitration Rules of the American
Arbitration Association.

(Emphasis added.) This written provision to resolve any dispute by

arbitration is central to the issue before us. We must determine whether

the parties are bound to that arbitration agreement. We note that courts

in other jurisdictions have unanimously required the liquidator to honor

the same arbitration provision in pursuing claims against Milliman.

Milliman, Inc. v. Roof, 353 F. Supp. 3d 588, 603–04, 606 (E.D. Ky. 2018)

(granting Milliman’s petition to compel arbitration of the tort and contract

claims brought against it by the liquidator of an insolvent Kentucky

healthcare cooperative); Donelon v. Shilling, 2017 CW 1545, 2019 WL
 7

993328, at *13–14 (La. Ct. App. Feb. 28, 2019) (reversing the district

court’s denial of Milliman’s motion to compel arbitration and ordering

arbitration of the Louisiana Insurance Commissioner’s claims against

Milliman); State ex rel. Richardson v. Eighth Judicial Dist. Ct., No. 77682,

2019 WL 7019006, at *1 (Nev. Dec. 19, 2019) (order denying petition for

writ of mandamus) (allowing Milliman’s motion to compel arbitration to

proceed and rejecting liquidator’s argument that arbitrating her common

law damages claims against Milliman would “thwart the insurance

liquidator’s broad statutory powers and the general policy under” Nevada

law). We reach the same conclusion.

A. Is the Liquidator Bound by the Preinsolvency Arbitration

Agreement? The thrust of the FAA, 9 U.S.C. §§ 1–14 (Supp. IV 2017),

declares a written agreement to arbitrate in “a contract evidencing a

transaction involving commerce . . . shall be valid, irrevocable, and

enforceable, save upon such grounds as exist at law or in equity for the

revocation of any contract.” Id. § 2. Essentially, section 2 of the FAA is a

“congressional declaration of a liberal federal policy favoring arbitration

agreements.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460

U.S. 1, 24, 103 S. Ct. 927, 941 (1983). A party to the arbitration

agreement may petition a court for an order to compel arbitration.

9 U.S.C. § 4; Bullis, 553 N.W.2d at 601. Where the arbitrability of a

dispute between parties occurs in state court, as is the case here, the FAA

governs. Moses H. Cone Mem’l Hosp., 460 U.S. at 24, 103 S. Ct. at 941.

According to the Supreme Court, the FAA “places arbitration agreements

on an equal footing with other contracts, and requires courts to enforce

them according to their terms.” Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S.

63, 67, 130 S. Ct. 2772, 2776 (2010) (citation omitted). States may

regulate arbitration agreements under general principles of contract law,
 8

and states may even invalidate arbitration agreements under the same

grounds for the revocation of any contract. Allied-Bruce Terminix Cos. v.

Dobson, 513 U.S. 265, 281, 115 S. Ct. 834, 843 (1995). States, however,

may not decide a contract is fair enough to enforce its terms but not fair

enough to enforce its arbitration agreement. Id. That type of state policy

is made unlawful by the FAA and would place arbitration agreements on

an unequal footing with other contracts, contrary to the FAA’s language

and congressional intent. Id. Congress’s intent, according to Southland

Corp. v. Keating, is to “foreclose state legislative attempts to undercut the

enforceability of arbitration agreements.” 465 U.S. 1, 16, 104 S. Ct. 852,

861 (1984). Doubts about the scope of arbitrable issues are to be resolved

in favor of arbitration. Moses H. Cone Mem’l Hosp., 460 U.S. at 24–25, 103

S. Ct. at 941.

The liquidator asserts arbitration cannot be compelled because he

did not sign the 2011 Agreement that contained the arbitration provision.

The parties do not dispute the liquidator did not sign the 2011 Agreement.

Instead of categorically banning nonsignatories from arbitration as the

liquidator suggests, we believe the analysis depends on general principles

of contract law. As we stated in Bullis, “Whether one is bound by an

arbitration agreement that she did not sign depends on the general

principles of contract law . . . .” 553 N.W.2d at 602; see Arthur Andersen

LLP v. Carlisle, 556 U.S. 624, 631, 129 S. Ct. 1896, 1902 (2009); Rent-A-

Ctr., Inc. v. Iowa Civil Rights Comm’n, 843 N.W.2d 727, 732–33 (Iowa

2014).

Our caselaw discussing whether a court-appointed liquidator is

bound to a preinsolvency arbitration agreement is sparse. In Rent-A-

Center, we held the FAA’s reach did not extend to a public agency that was

not a party to the arbitration agreement nor “a stand-in for a party.” 843
 9

N.W.2d at 736. We looked to whether the agency’s claims were “merely

derivative” of the employee’s claims and whether the agency simply

“ ‘[stood] in the employee’s shoes’ or act[ed] as a ‘proxy’ for the employee.”

Id. at 734 (quoting EEOC v. Waffle House, Inc., 534 U.S. 279, 297–98, 122

S. Ct. 754, 766 (2002)). Because the agency in Rent-A-Center was “acting

in its prosecutorial capacity” and its claims were “independent of [the

employee’s] own claims, in order to protect the public interest,” it was not

bound to arbitration under the FAA. Id. at 737. The arbitration agreement

between the employee and Rent-A-Center did not “displace any

independent authority” the agency had “to investigate and rectify

violations” of the Iowa Civil Rights Act. Id. at 741 (quoting Preston v.

Ferrer, 552 U.S. 346, 359 n.7, 128 S. Ct. 978, 987 n.7 (2008)).

As the liquidator has pled his case against Milliman, the liquidator’s

claims are a derivative of another party’s claims, in this case,

CoOportunity. 2 More squarely on point is Roth v. Evangelical Lutheran

Good Samaritan Society, 886 N.W.2d 601 (2016). There, we regarded a

wrongful-death claim brought by a personal representative as a claim that

stands in the shoes of the decedent, not as an independent claim. Id. at

608–09. We explained, “[W]hen a personal representative brings a
wrongful-death action against a party with whom the decedent entered into

a binding arbitration agreement, the case is subject to arbitration.” Id. at

608. In Iowa, the wrongful death statute did not create a new cause of

2To the extent the liquidator attempts to bring the Department of Health and
Human Services (HHS) or “state and federal regulators” within the ambit of its
misrepresentation claims, those entities are not included in the limited statutory
authority granted a liquidator to prosecute claims on behalf of specific insurer
stakeholders. See Iowa Code § 507C.21(m) (granting liquidator authority to “[p]rosecute
an action on behalf of the creditors, members, policyholders or shareholders of the
insurer against an officer of the insurer, or any other person”).
 10

action in the decedent’s survivors. Id. Rather, it preserved the rights and

liabilities a decedent had at the time of his death. Id.

In this case, the liquidator’s petition is on behalf of CoOportunity

and seeks to recover damage for the financial loss to CoOportunity. The

petition states the liquidator’s action is to recover millions in losses

sustained by CoOportunity “as a result of the professional negligence,

breach of fiduciary duty, and reckless, willful, or intentional misconduct

by the actuarial firm, Milliman, Inc.” This authority is pursuant to the

Final Order of Liquidation, which vests with the liquidator “the title to the

property, contracts, and rights of action and the books and records of

CoOportunity” and the right to “carry out all direct, indirect and/or related

aspects of the liquidation of CoOportunity.” What matters here is that in

this petition the liquidator brings common law tort claims for alleged

damages to CoOportunity.

It makes no difference that the liquidator frames the complaint in

tort, because Milliman’s alleged duties arise solely from the

2011 Agreement containing the arbitration provision. 3 Without the

2011 Agreement, Milliman would not have performed any work that could

give rise to claims by the liquidator. The liquidator, standing in
CoOportunity’s shoes, may not avoid a contractual arbitration agreement

merely by “casting its complaint in tort.” Sweet Dreams Unlimited, Inc. v.

3Cf.Donelon, 2019 WL 993328, at *11 (distinguishing claims in that case against
Milliman as actuary from breach of an auditor’s statutory duties involved in Taylor v.
Ernst & Young, L.L.P., 958 N.E.2d 1203, 1210–12 (Ohio 2011), which did not require
reference to contractual obligations to ascertain extent of duties). As in Donelon, the
liquidator here identified no statutory duties owed by Milliman, but instead relied solely
on Milliman’s contractual relationship with CoOportunity and its accompanying
contractual obligations to support each of his claims. To the extent the liquidator alleges
generalized harm to CoOportunity’s creditors or policyholders, the petition fails to identify
any noncontractual duties owed by Milliman to those policyholders or creditors. We
therefore have no occasion to consider whether nonparty tort claims would be subject to
the contractual arbitration provision.
 11

Dial-A-Mattress Int’l, Ltd., 1 F.3d 639, 643 (7th Cir. 1993) (quoting In re Oil

Spill by “Amoco Cadiz” Off Coast of France Mar. 16, 1978, 659 F.2d 789,

794 (7th Cir. 1981)); see Chelsea Family Pharmacy, PLLC v. Medco Health

Sols., Inc., 567 F.3d 1191, 1198 (10th Cir. 2009) (“Focusing on the facts

rather than on a choice of legal labels prevents a creative and artful pleader

from drafting around an otherwise-applicable arbitration clause.”);

Hudson v. ConAgra Poultry Co., 484 F.3d 496, 499–500 (8th Cir. 2007)

(“Under the Federal Arbitration Act, we generally construe broad language

in a contractual arbitration provision to include tort claims arising from

the contractual relationship[.]”); Taylor v. Ernst & Young, L.L.P., 958

N.E.2d 1203, 1222 (Ohio 2011) (O’Donnell, J., concurring in part and

dissenting in part) (“[T]he duties imposed by Ohio law that E & Y allegedly

failed to perform are the same as those set forth in the engagement letter,

and whether cast in tort or contract, the issue is one that falls within the

broad scope of the arbitration provision.”). 4

4In Taylor, the Ohio Supreme Court majority held that the liquidator was not

required to arbitrate because his claims did not “arise from the contract containing the
arbitration clause.” 958 N.E.2d at 1213 (majority opinion). The same opinion recognizes
the converse that liquidators are bound to arbitrate when asserting claims arising from
a contract requiring arbitration. Id. at 1214. That is what we have here. Indeed, as the
Ohio Supreme Court has held, “it would be inequitable to allow [the liquidator] to avoid
arbitration while simultaneously seeking a substantive benefit of the contract that
contained the arbitration clause.” Id.; Gerig v. Kahn, 769 N.E.2d 381, 385–86 (Ohio 2002)
(enforcing arbitration agreement against nonsignatory liquidator); Covington v. Lucia, 784
N.E.2d 186, 190–91 (Ohio Ct. App. 2003) (“The overriding principle in Gerig, and the
cases cited therein, is that when seeking to enforce rights under a contract, a
nonsignatory can be bound by that contract’s arbitration clause.”).
Courts have noted insurance liquidators act for the public interest. See, e.g.,
Mitchell v. Taylor, 43 P.2d 803, 804 (Cal. 1935) (en banc); Arthur Andersen v. Super. Ct.,
79 Cal. Rptr. 2d 879, 882 (Ct. App. 1998). But those cases did not involve claims arising
from an insolvent insurer’s agreement with a third party that included an arbitration
clause. Neither the Iowa legislature nor the Iowa Insurance Commissioner has prohibited
health insurance co-ops from including arbitration provisions in contracts with third-
party contractors such as Milliman. See, e.g., Iowa Code § 505.8. It is too late for the
liquidator to impose such a provision in this case. The liquidator, having stepped into
the shoes of CoOportunity, cannot now after-the-fact cherry-pick his agreement with
Milliman and decide he is bound only by the parts he likes.
 12

Here, the arbitration provision is broad: “In the event of any dispute

arising out of or relating to the engagement of Milliman by Company” the

parties agree to arbitrate. (Emphasis added.) In light of the arbitration

provision’s general breadth, we have no reason to believe the parties

somehow meant to exclude postinsolvency disputes from arbitration. See

Quackenbush v. Allstate Ins., 121 F.3d 1372, 1380 (9th Cir. 1997); Bennett

v. Liberty Nat’l Fire Ins., 968 F.2d 969, 972 (9th Cir. 1992) (“[B]ecause the

liquidator, who stands in the shoes of the insolvent insurer, is attempting

to enforce [the insolvent insurer’s] contractual rights, she is bound by [the

insolvent insurer’s] pre-insolvency [arbitration] agreements.” (Footnote

omitted.)).

Where the language of the arbitration provision is broad, a claim will

proceed to arbitration if the underlying allegations “simply touch” matters

covered by the provision. Leonard v. Del. N. Cos. Sport Serv., Inc., 861 F.3d

727, 730 (8th Cir. 2017) (quoting Unison Co. v. Juhl Energy Dev., Inc., 789

F.3d 816, 818 (8th Cir. 2015)). The liquidator’s claims arise out of and

relate to the work Milliman completed pursuant to the 2011 Agreement

with CoOportunity. The petition sets forth claims that relate to either

Milliman’s actuarial consulting services or to a conflict of interest in the

2011 Agreement. For instance, the liquidator’s petition states,

CoOportunity retained the Milliman Defendants to
provide actuarial professional services for purposes of working
on critical aspects of the company’s plans, including initial
and later federal funding applications, rate setting, and
financial reporting to federal and state regulators.

....

The terms of the agreement between CoOportunity and
Milliman created an improper incentive for Milliman to
convince federal officials to approve and fund the project. . . .
The improper financial motivation compromised Milliman’s
objectivity and independence in certifying the feasibility study
and business plan.
 13
Milliman did not disclose [its] financial interest in
CoOportunity (and the other CO-Ops) receiving federal
funding approval or its potential conflict of interest to
HHS . . . .

The liquidator’s claims cannot be detached from the contractual

relationship between Milliman and CoOportunity, pursuant to which all of

the work was performed. Therefore, under the principles of contract law,
we conclude the liquidator stands in CoOportunity’s shoes; his claims are

merely derivative of CoOportunity’s claims. See Roth, 886 N.W.2d at 608;

Rent-A-Ctr., 843 N.W.2d at 736. Accordingly, the liquidator is bound by

the preinsolvency arbitration agreement. See Donelon, 2019 WL 993328,

at *9 (holding that the Louisiana Insurance Commissioner, despite being

a nonsignator, is bound by Milliman’s arbitration agreement).

Our conclusion is in accordance with federal jurisprudence, holding

that a state insurance liquidator must arbitrate common law damages

claims asserted against third-party contractors for preinsolvency work

pursuant to an agreement. See, e.g., Suter v. Munich Reins., 223 F.3d 150,

161–62 (3d Cir. 2000); Quackenbush, 121 F.3d at 1382; Bennett, 968 F.2d

at 970; Milliman, Inc., 353 F. Supp. 3d at 603–04.

B. Can the Court-Appointed Liquidator Disavow the

2011 Agreement Pursuant to Iowa Code Section 507C.21(k)? The

liquidator alternatively claims arbitration cannot be compelled because

Iowa law permits the court-appointed liquidator to disavow the entire

2011 Agreement. Pursuant to the Iowa Liquidation Act, the liquidator may

“[e]nter into contracts as necessary to carry out the order to liquidate and

affirm or disavow contracts to which the insurer is a party.” Iowa Code

§ 507C.21(k) (emphasis added). The liquidator attempts to shoehorn the

power to disavow a contract into the FAA’s “grounds as exist at law”

language for the revocation of any contract. See 9 U.S.C. § 2. However,
 14

permitting the liquidator to disavow the entire 2011 Agreement may run

afoul of the FAA’s mandate to place arbitration agreements on an equal

footing with other contracts. See Allied-Bruce Terminix Cos., 513 U.S. at

281, 115 S. Ct. at 843. The issue with the liquidator’s position is that it

attempts to disavow a contract that Milliman already performed. The

2011 Agreement does not vanish. Milliman rendered its consulting

services under the 2011 Agreement, and the rights established under that

contract still exist. It is difficult to reconcile the ability of the liquidator to

disavow the 2011 Agreement while still retaining the ability to assert

claims against Milliman pursuant to the same contract. See Costle v.

Fremont Indem. Co., 839 F. Supp. 265, 272 (D. Vt. 1993) (“[I]f a liquidator

seeks to enforce an insolvent company’s rights under a contract, she must

also suffer that company’s contractual liabilities.”); Taylor, 958 N.E.2d at

1221 (O’Donnell, J., concurring in part and dissenting in part) (“[T]he

liquidator cannot prosecute an action for breach of contract or one

involving a contract on the authority conferred in [the Ohio Liquidation

Act] and yet seek to escape arbitration by disavowing an arbitration

provision contained in that contract pursuant to [the Ohio Liquidation

Act].”).

Disavowing the entire 2011 Agreement, while allowing the liquidator

to assert claims pursuant to the same agreement, amounts to nothing

more than singling out the arbitration provision for evasion. The liquidator

cannot pick and choose which provisions in the contract existed. To avoid

treating the arbitration provision as “suspect status,” and to place the

provision on equal footing as other contracts, the liquidator cannot be

permitted to disavow the 2011 Agreement under Iowa Code section

507C.21(k). See Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116

S. Ct. 1652, 1656 (1996). Moreover, if section 507C.21(k) were interpreted
 15

to allow disavowal of a preinsolvency arbitration agreement with a third-

party contractor, “this would raise serious questions as to its validity

under the Supremacy Clause of the United States Constitution,” as we

explained in Roth. 886 N.W.2d at 611.

C. Does the McCarran-Ferguson Act Permit Reverse

Preemption of the FAA? We must also consider the McCarran-Ferguson

Act. 15 U.S.C. §§ 1011–15. McCarran-Ferguson establishes “reverse

preemption,” where state law preempts federal law. This federal statute

says,

No 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, or which
imposes a fee or tax upon such business, unless such Act
specifically relates to the business of insurance. . . .

Id. § 1012(b). For reverse preemption to apply, (1) the federal statute must

not specifically relate to the business of insurance, (2) the state statute

must have been enacted for the purpose of regulating the business of

insurance, and (3) the federal statute would, “invalidate, impair, or

supersede” the state statue. Munich Am. Reins. Co. v. Crawford, 141 F.3d

585, 590 (5th Cir. 1998). We will discuss the three factors as necessary.
The district court, agreeing with the liquidator, found the Iowa

Liquidation Act required the liquidator’s claims be resolved in a public

forum of the liquidator’s choosing, subject to the rules and procedures

established by the Iowa legislature. The liquidator asserts requiring

arbitration under the FAA would “invalidate, impair, or supersede”

operation of the Iowa Liquidation Act. Milliman, on the other hand,

questions whether there is any conflict between the FAA and the Iowa

Liquidation Act. If there is no conflict, McCarran-Ferguson’s reverse

preemption is inapplicable. See id.
 16

The Iowa Liquidation Act authorizes the liquidator to “[c]ontinue to

prosecute and to institute . . . any and all suits and other legal

proceedings.” Iowa Code § 507C.21(1)(l) (emphasis added). Pursuant to

the Iowa Liquidation Act, the Final Order of Liquidation in this case

expressly permits the liquidator to sue or defend CoOportunity in “any

necessary forum,” including “arbitration panels.”

The Liquidator and the Special Deputy are hereby
authorized to deal with the property, business and affairs of
CoOportunity and CoOportunity’s estate, and, in any
necessary forum, to sue or defend for CoOportunity, or for the
benefit of CoOporunity’s policyholders, creditors and
shareholders in the courts and tribunals, agencies or
arbitration panels of this state and other states or in any
applicable federal court in the Liquidator’s name as
Commissioner of Insurance of the State of Iowa, in his
capacity as Liquidator, or the Special Deputy in his capacity
as Special Deputy Liquidator, or in the name of CoOportunity
Health.

(Emphasis added.) The liquidator claims enforcing the arbitration

agreement under the FAA would frustrate the policy of the Iowa

Liquidation Act and strip the authority to prosecute claims in a

transparent, public forum. The Iowa legislature stated the purpose of the

Iowa Liquidation Act as follows:

The purpose of this chapter is the protection of the interests
of insureds, claimants, creditors, and the public, with
minimum interference with the normal prerogatives of the
owners and managers of insurers, through all of the following:

a. Early detection of a potentially dangerous condition
in an insurer and prompt application of appropriate corrective
measures.

b. Improved methods for rehabilitating insurers,
involving the cooperation and management expertise of the
insurance industry.

c. Enhanced efficiency and economy of liquidation,
through clarification of the law, to minimize legal uncertainty
and litigation.
 17
d. Equitable apportionment of any unavoidable loss.

e. Lessening the problems of interstate rehabilitation
and liquidation by facilitating cooperation between states in
the liquidation process, and by extending the scope of
personal jurisdiction over debtors of the insurer outside this
state.

f. Regulation of the insurance business by the impact
of the law relating to delinquency procedures and substantive
rules on the entire insurance business.

g. Providing for a comprehensive scheme for the
rehabilitation and liquidation of insurance companies and
those subject to this chapter as part of the regulation of the
business of insurance, the insurance industry, and insurers
in this state. Proceedings in cases of insurer insolvency and
delinquency are deemed an integral aspect of the business of
insurance and are of vital public interest and concern.

Iowa Code § 507C.1(4)(a)–(g).

We disagree with the liquidator that requiring arbitration under the

FAA would invalidate, impair, or supersede operation of the Iowa

Liquidation Act. Nowhere in the Iowa Liquidation Act is it required that

the liquidator must bring claims in a public forum. The opposite of the

liquidator’s assertion is true. Iowa granted the liquidator power to

prosecute suits and “other legal proceedings.” See id. § 507C.21(1)(l). The

liquidator’s power to prosecute other legal proceedings is recognized in the

Final Order of Liquidation, which specifically contemplates that the

liquidator may sue or defend CoOportunity in “arbitration panels.” In fact,

the Iowa Liquidation Act does not prohibit arbitration of the liquidator’s

claims against Milliman. The liquidator frames the issue as whether

enforcing arbitration under the FAA “invalidates, impairs, or supersedes

the enforcement of the state process designed to protect the interests of

policyholders.” Davister Corp. v. United Republic Life Ins., 152 F.3d 1277,

1282 (10th Cir. 1998). The case before us, however, does not involve the

disposition of claims by policyholders. Cf. U.S. Dep’t of Treasury v. Fabe,
 18

508 U.S. 491, 508, 113 S. Ct. 2202, 2212 (1993) (holding the Ohio priority

statute, “to the extent that it regulates policyholders,” was exempt from

preemption, but priority given to employees and general creditors was not

free from preemption under the McCarran-Ferguson Act). The liquidator

is not litigating on behalf of policyholders, and we are not persuaded that

any indirect effects on the policyholders are sufficient to avoid preemption

under the McCarran-Ferguson Act. The Fabe court noted the indirect-

effects argument “goes too far.” Id. “[I]n that sense, every business

decision made by an insurance company has some impact on its

reliability . . . and its status as a reliable insurer.” Id. (quoting Grp. Life &

Health Ins. v. Royal Drug Co., 440 U.S. 205, 216–17, 99 S. Ct. 1067, 1076

(1979)).

CoOportunity’s liquidator brings common law tort claims against a

third-party contractor. Requiring arbitration only alters the forum in

which the liquidator may pursue his common law tort claims. The

interests and rights of policyholders under Iowa’s statutory scheme are not

altered. See Milliman, 353 F. Supp. 3d at 603 (rejecting reverse-

preemption and stating that “[m]andating arbitration in this case does not

alter the disposition of claims of the policy holders and does not ‘invalidate,

impair, or supersede’ the [Kentucky Liquidation Act] as a whole”).

The arbitration forum does not impede the liquidator’s ability to

conduct an orderly dissolution. Discovery, including depositions, are

permitted in the arbitration proceedings. The liquidator can bring the

same claims in arbitration as it asserted in district court, and the

liquidator has identified no procedural impediments to a full recovery in

arbitration. Moreover, the FAA leaves no discretion with the district courts

“to consider public-policy arguments in deciding whether to compel

arbitration under the FAA.” Quackenbush, 121 F.3d at 1380, 1382. In
 19

short, there is no conflict here between the FAA and the Iowa Liquidation

Act. Accordingly, in this case, we hold the McCarran-Ferguson Act does

not permit reverse preemption of the FAA.

IV. Conclusion.

For the aforementioned reasons, we hold the court-appointed

liquidator of a now-insolvent health insurer, pursuing common law tort

claims against a third-party contractor, is bound by an arbitration

provision in a preinsolvency agreement between the health insurer and the

third-party contractor. We reverse the district court judgment and remand

the case with directions to enter an order compelling arbitration.

REVERSED AND REMANDED WITH DIRECTIONS.

All justices concur except Appel, J., who dissents.
 20

#18–0335, Ommen v. Milliman, Inc.

APPEL, Justice (dissenting).

I respectfully dissent. The majority holds that the Iowa insurance

commissioner’s effort to sue a consulting firm allegedly responsible for the

insolvency of a provider of an Iowa health insurance to the public under

the Affordable Care Act will be decided by a panel of private arbitrators in

New York applying New York law under the terms of an private insider

agreement rather than by an Iowa judge and jury in an Iowa courtroom

applying Iowa law. The majority holds that a private insider agreement

between the insurer and its consultants, which dramatically limits the

potential liability of the consultants to the detriment of policyholders and

the public, is binding on the state’s chief regulator, the insurance

commissioner, in a liquidation proceeding under Iowa Code chapter 507C

even though the insurance commissioner was not a party to the private

insider agreement. Further, the majority enforces the private insider

agreement even though the insurance commissioner has exercised the

power given to him by the legislature to disavow the contract.

The panel of private arbitrators which the majority believes should

decide the insurance commissioner’s case will not be required to permit

broad discovery that the insurance commissioner would be entitled to

under Iowa law. The private arbitrators will meet in New York and will be

required to apply the law of New York, not the law of Iowa. The private

arbitrators meeting in New York and applying New York law will determine

whether to enforce strict limitations on damages provided in the private

insider agreement between the founders of the failed health insurance

company and its professional consultants. The private arbitrators will

decide disputed questions of law and fact. If they follow the terms of the

private insider agreement, they will be precluded from awarding punitive
 21

damages. Once the panel or arbitrators operating in private have made

their decision under New York law, the insurance commissioner will have

only strictly limited rights to appeal the privately determined decision.

Enforcement of the arbitration provision of the private insider

agreement thus establishes a very favorable terrain for the insider

consultants at the expense of the insureds, creditors, and the public. A

person on the street would understandably see the application of the

private insider agreement against the insurance commissioner as an

example of the big shots protecting themselves, while the public gets the

shaft.

If this were simply a private business dispute between signatories to

an agreement requiring arbitration, the sending of this matter to New York

for a private arbitration under New York law with limited discovery and

tightly curtailed remedies might not be objectionable. But this is not an

inconsequential private dispute between signatories to an agreement that

may properly be decided in confidential proceedings in some New York

high-rise.

This case is infused to the bone with public policy considerations

arising from the catastrophic failure of a health insurance entity under the

Affordable Care Act. Indeed, the provision of healthcare through

insurance carriers under the Affordable Care Act is one of the most

incandescent public policy issues of our time. Here, the insurer somehow

allegedly managed to lose $163 million in its first year of operation, became

insolvent in short order, and left thousands of policyholders to scramble

to obtain alternate coverage.

The public, through the Iowa insurance commissioner, a

nonsignatory to the contract including the arbitration provision, seeks to

hold those allegedly responsible accountable in a public proceeding in an
 22

Iowa courtroom pursuant to the commissioner’s broad and comprehensive

authority granted by the legislature in the broad and comprehensive

provisions of Iowa Code chapter 507C governing the liquidation of

insurance companies. Because the insurance commissioner is a public

official charged with vindicating public interests, he does not simply “stand

in the shoes” of the insurer in a way that allows the arbitration provision

to which the commissioner never agreed to be enforced against him. And,

in any event, the commissioner has exercised the power given to him by

the legislature to disavow the private insider contract which the majority

now seeks to enforce.

Here, the insurance commissioner has launched a claim against an

insider claiming, among other things, malpractice, misrepresentation,

breach of fiduciary duty, and fraud in connection with the creation and

operation of a health insurer in the state of Iowa. The public interest in

this kind of litigation is enormous. Yet, the majority sees this dispute over

the failure of a health insurer and the resulting public carnage as a

controversy for private and secret resolution through an unaccountable

private arbitrator outside the comprehensive regulatory framework

adopted by the Iowa General Assembly for liquidation of insurers.

Does the law support this startling result? The answer is no.

First, the insurance commissioner as liquidator is unlike a receiver

under the Bankruptcy Code, but is a public officer who acts on behalf of

“insureds, claimants, creditors [largely healthcare providers], and the

public.” Iowa Code § 507C.1(4) (2017). The legislature named the

insurance commissioner as liquidator for a reason, namely, to see that a

publically accountable officer is responsible to see that the public interest,

and not that of insiders like Milliman, are zealously protected. The

majority fails to place Iowa’s insurance liquidation statute in the context
 23

of the long history of intense public regulation of the insurance industry.

The insurance commissioner does not stand in the shoes of CoOportunity,

but stands in the shoes of the public. Unlike a private wind-down of a

bankrupt local pawnshop, the liquidation of an insolvent insurance

company is the public’s business.

As a result, the insurance commissioner as liquidator does not

merely stand in the shoes of the insurer but represents broader public

interests. As liquidator, the insurance commissioner is acting within the

scope of his official duties as a public official. He is charged with protecting

not the insolvent insurance entity, but “the insured, claimants, creditors,

and the public.” Id. The insurance commissioner is thus not bound by

an arbitration provision in a private insider agreement to which the

commissioner is not a party.

But if there is any doubt, there is a second and equally powerful

reason to affirm the district court. The legislature in Iowa Code section

507C.21(1)(k) provided the insurance commissioner with an extraordinary

power, the power to “disavow contracts to which the insurer is a party.”

In other words, private ordering by third parties and the insurer is not

binding on the insurance commissioner. In disavowing a contract, the

insurance commissioner does not stand in the shoes of a private party who

has no power to generally disavow contracts, but in the shoes of the public.

Importantly, the legislature chose to vest the insurance

commissioner with this extraordinary power to disavow contracts entered

into by the insurance company without qualification. Id. It could, of

course, have limited that power to executory contracts, as it has repeatedly

done in other contexts, but it chose not to do so. The broad power to

“disavow contracts” is a manifestation of what before today has been
 24

universally recognized, namely, the strong public interest in all aspects of

the insurance business.

Further, the legislature made clear that the provisions of the chapter

“shall be liberally construed to effect the purpose” of the chapter, namely,

“protection of the interests of the insureds, claimants, creditors, and the

public.” Iowa Code § 507C.1(3)-(4). Protection of the interests of

“insureds, claimants, creditors, and the public” is exactly what the

insurance commissioner seeks to do in this case as he seeks to hold

accountable insiders who, allegedly, contributed to the demise of the

entity.

But the majority ignores the legislative direction to narrowly

construe the disavowal language to protect the insider, Milliman, from

public accountability. The majority drives resolution of the important

issues in this case into the hand of a private arbitrator by affirmatively

amending the statute by careting in a nonexistent qualifier to limit the

insurance commissioner’s power to disavow to “executory contracts.” But

such a limitation, of course, is totally absent from the statutory provision.

Any such material narrowing of the broad powers of the insurance

commissioner must await legislative action. In this populist age with

abiding concerns about insider privileges, the prospects of such an

insider-protecting amendment seem rather slim. This court has no

business amending a statute that the political process has declined to

correct.

In light of the unqualified power of the insurance commissioner to

disavow contracts, the majority understandably resorts to another ground,

namely, that the disavowal by the insurance commissioner, even if

authorized by the plain language of Iowa Code section 507.21(1)(k),

violates the Federal Arbitration Act (FAA). There is federal caselaw
 25

indicating that a state statute that discriminates against arbitration

clauses violates the FAA. But, the broad and unqualified disavowal

provision of Iowa Code section 507C.21(1)(k) does not discriminate against

arbitration provisions in a way that contravenes even the extraordinarily

muscular interpretations of the FAA by the United States Supreme Court.

And, federal law has affirmatively protected the ability of states to

engage in the regulation of the business of insurance through enactment

of the sweeping McCarran-Ferguson Act. Under the McCarran-Ferguson

Act, “[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. . . .” 15 U.S.C. § 1012(b) (Supp. IV 2017).

McCarran-Ferguson has been interpreted to require “reverse preemption,”

namely that the reach of any act of Congress is preempted in the face of a

state’s regulation of the business of insurance.

A threshold question under McCarran-Ferguson is whether the

liquidation of an insurance company by the insurance commissioner is

“for the purpose of regulating the business of insurance.” The Iowa

legislature certainly thinks so. The legislature declared that proceedings

in cases of insurance insolvency “are deemed an integral aspect of the

business of insurance.” Iowa Code § 507C.1(4)(g). That conclusion seems

unassailable in light of the comprehensive scheme provided for the

liquidation of insurance companies under Iowa Code chapter 507C. As a

result, to the extent there is a conflict between Iowa Code section

507C.21(1)(k) and the FAA, it is the FAA, and not the Iowa statutory

provision regulating the business of insurance, that would be

unenforceable.

Further, for reasons that will be explained below, the sending of this

important public litigation off to New York will substantially frustrate the
 26

ability of the Iowa insurance commissioner to implement the provisions of

Iowa Code chapter 507C. As a result, the insider private agreement cannot

be enforced through application of the FAA; instead, to the extent there is

a conflict, the FAA is reversed preempted by the provisions of Iowa law.

For these reasons, the district court refused to dismiss the action

brought by the insurance commissioner and send the file off to a private

arbitrator in New York City to apply New York state law. The district court

got it right. For those not yet convinced, here are the details.

I. Factual and Procedural Background.

A. Overview of the Amended Petition. The Iowa insurance

commissioner brought an amended petition in Polk County district court

against Milliman, Inc., two of its actuaries, and three individuals alleged

to be the founders of a failed insurance company called CoOportunity

Health, Inc. The more than fifty-page petition details the failure of

CoOportunity and alleges a total of ten causes of action against the

defendants. The insurance commissioner demanded a jury trial in the

amended petition.

According to the petition, CoOportunity was one of twenty-three

entities established throughout the United States under the Affordable

Care Act. The entity was organized under Iowa law and headquartered in

West Des Moines. CoOportunity opened for enrollment in October of 2013

and started covering health claims in January 2014.

CoOportunity was in business for only about a year. During that

period of time, the insurance commissioner alleged that the business

suffered catastrophic losses totaling $163 million dollars. The insurance

commissioner ultimately obtained a liquidation order from the district

court to deal with the insolvent entity.
 27

Counts I through IV of the amended petition alleged that the

Milliman defendants engaged in professional malpractice, breached

fiduciary duties, made negligent misrepresentations, and engaged in

intentional and willful or reckless misrepresentations. Counts V through

X of the amended petition alleged that the founders breached fiduciary

duties as founders; aided and abetted the breach of fiduciary duty by the

Milliman defendants; engaged in a conspiracy to commit Milliman’s

wrongful failure to meet the standard of care by ignoring the true financial

condition of CoOportunity; were negligent and failed to act in the best

interest of the insurer, policyholders and creditors; received preferential

payments in the form of bonus and severance payments; and engaged in

prepetition fraudulent transfers.

Under the majority’s approach in this case, counts I through IV

alleging breach of various duties by the Milliman defendants would be

resolved in New York arbitration, while the Iowa insurance commissioner’s

claims that the founders aided and abetted Milliman’s breach of duties

and conspired with Milliman to commit various wrongs would be tried in

Iowa district court.

B. The Consulting Services Agreement. During the organizational

phase of CoOportunity, Milliman and the founders signed a “Consulting

Services Agreement.” Milliman was to provide actuarial and consulting

services in connection with the business. The private insider agreement

was signed by one of the founders and a representative of Milliman.

The private insider agreement limited the liability of Milliman under

any theory of law, including negligence, tort, breach of contract, or

otherwise, to three times the professional fee paid to Milliman. The

limitation did not apply, however, to cases involving intentional fraud or

willful misconduct of Milliman. The private insider agreement declared
 28

that the arbitrators lacked the power to impose punitive or exemplary

damages.

The private insider agreement also markedly limited the liability of

the founders to Milliman. The founders were not liable for any of

Milliman’s fees “in the event that the health cooperative is dissolved and

does not receive funds to become a going concern.” The private agreement

provided that any disputes would be resolved by a panel of three

arbitrators pursuant to the commercial arbitration rules of the American

Arbitration Association. Under the private agreement, the arbitrators have

the authority “to permit limited discovery.” The arbitrators have the power

to shift costs and attorney fees to “the prevailing party.” The arbitration

“shall be confidential, except as required by law.”

The consulting services agreement provided that the construction,

interpretation, and enforcement of the agreement “shall be governed by

the substantive contract law of the State of New York without regard to its

conflict of laws provisions.” As a result, under the terms of the private

insider agreement, the arbitrators could apply New York state law even

though the forum had no nexus whatsoever to the underlying facts and,

under the conflicts law of the State of New York, the law of the State of

Iowa would normally apply.

C. District Court Ruling. The Milliman defendants moved to

dismiss the claims against them and sought an order compelling

arbitration pursuant to the consulting services agreement. The district

court denied the relief sought by Milliman.

According to the district court, the arbitration provision in the

private insider agreement signed by Milliman and a representative of the

founders did not bind the statutory liquidator. According to the district

court, the insurance commissioner as liquidator did not merely stand in
 29

the shoes of CoOportunity but had a broad grant of authority to protect

policyholders and creditors by bringing claims. Accordingly, the liquidator

was not bound by the arbitration provision of the consulting services

agreement.

The district court further noted that the liquidator had disavowed

the consulting services agreement in its entirety as authorized by Iowa

Code section 507C.21(l)(k). The district court rejected the argument of the

Milliman defendants that the disavowal authority extended only to

“executory contracts.”

Finally, the district court found that the provisions of Iowa Code

chapter 507C expressly involve “the business of insurance” and that the

case falls within the meaning of the phrase in United States Supreme

Court precedent. As a result, the district court declined to compel

arbitration of the matter under the FAA because “the McCarran-Ferguson

Act reverse preempts the FAA and . . . the rights and remedies in Iowa

Code Chapter 507C prevail.”

The Milliman defendants appealed.

II. Because the Insurance Commissioner as Liquidator Is Acting
on Behalf of the Public and Not a Receiver Simply Standing in the
Shoes of the Insolvent Insurer, the Judgment of the District Court
Should Be Affirmed.

A. Strong Public Interest in the Business of Insurance. To begin

with, it has long been recognized that contracts of insurance do not simply

involve the two parties directly involved, but also affect vital public

interests. A leading insurance authority puts it this way: “Insurance is a

highly regulated industry due to its well-recognized importance to the

public interest.” 1 Steven Plitt et al., Couch on Insurance § 2:1 (3d ed.),

Westlaw (database updated Dec. 2019) (footnote omitted). As noted by the

United States Supreme Court, “Government has always had a special
 30

relation to insurance.” Osborn v. Ozlin, 310 U.S. 53, 65, 60 S. Ct. 758,

763 (1940). The Supreme Court later observed that a state’s police power

“extends to all the great public needs” and “is peculiarly apt when the

business of insurance is involved—a business to which the government

has long had a ‘special relation.’ ” Cal. State Auto. Ass’n Inter-Ins. Bureau

v. Maloney, 341 U.S. 105, 109, 71 S. Ct. 601, 603 (1951) (first quoting

Noble State Bank v. Haskell, 219 U.S. 104, 111, 31 S. Ct. 186, 188 (1911);

and then quoting Osborn, 310 U.S. at 65, 60 S. Ct. at 763). See generally

Karl L. Rubinstein, The Legal Standing of an Insurance Insolvency Receiver:

When the Shoe Doesn’t Fit, 10 Conn. Ins. L.J. 309, 314–15 (2004)

[hereinafter Rubinstein, Legal Standing]. An insurance contract is not an

arm’s-length sale of a peppercorn where market forces may be left alone.

B. Government Interest in Insurance Insolvency Beyond

Narrow Interest of Insurer. A small dose of historical perspective will

demonstrate the public interest in the liquidation of insurance companies.

Prior to 1898, insurance insolvencies were subject to federal bankruptcy

proceedings and thus treated like any other business failure. The 1898

Bankruptcy Act removed insurance insolvencies from bankruptcy

proceedings, thereby recognizing that insurance was affected by the public

interest, regulated by state regulators with specialized knowledge and

expertise, and better handled by state insurance receivers than

bankruptcy trustees. See Jeffrey E. Thomas & Susan Lyons, The New

Appleman on Insurance Law Library Edition § 96.01[1], at 96-3 (2018).

State regulatory frameworks enacted after 1898 differ materially

from those in ordinary bankruptcy proceedings.

[B]ecause insurance is affected by a public purpose and
enforced through the state’s police powers, policyholders are
treated more favorably than other unsecured creditors.
Bankruptcy law distinguishes between secured and
 31
unsecured creditors and does not afford favorable treatment
to policyholders.

Id. § 96.01[2], at 96-5 to 96-6.

In other words, the fact that an insurance company crosses into

insolvency does not eliminate the public interest in the business of

insurance. As noted by the United States Supreme Court, “[The] solvency

[of insurers] are of great concern . . . [and the potential impact of

insolvency] demonstrates the interest of the public in it.” German All. Ins.

v. Lewis, 233 U.S. 389, 413, 34 S. Ct. 612 (1914). According to Couch,
“The state has an important and vital interest in the liquidation of an

insolvent insurance company.” 1 Steven Plitt et al., Couch on Insurance

§ 5:35. Indeed,

[t]he solvency of insurers is . . . a matter of vital public concern
both in regard to preventing insurer insolvencies and in regard
to handling them when they do occur. . . . The injury to
policyholders, third party claimants, general creditors,
shareholders and the general public is very serious even in
the smallest of cases.

Rubinstein, Legal Standing, 10 Conn. Ins. L.J. at 315. As stated by one

observer, “State regulation of insurers is a ‘cradle-to-grave process,’

commencing with the licensing of an insurer and, in cases of business

failure, terminating with receivership proceedings in state court and, in

certain instances, dissolution.” Philip A. O’Connell et al., Insurance

Insolvency: A Guide for the Perplexed, 27 No. 14 Ins. Litig. Rep. 669 (2005).

Notably as in the allegations in this case,

[i]nsurer insolvencies most frequently result from acts or
omissions that either overstate its assets, understate its
liabilities, or both. . . . Whether inept or intentional, the fault
is often that of corporate management, but sometimes a
substantial share of the fault is upon third parties who have
acted in concert with management.
 32

Rubinstein, Legal Standing, 10 Conn. Ins. L.J. at 315. It is in precisely the

kind of case before the court here that the public interest in enforcement

of tort law is very high.

C. Protection of Public Interest in Iowa Code Chapter 507C.

Because of the intense public interest in the proper handling of insurance

insolvency, the National Association of Insurance Commissioners first

proposed the Uniform Insurer’s Liquidation Act and later, the Insurers

Rehabilitation and Liquidation Model Act. Rubinstein, Legal Standing, 10

Conn. Ins. L.J. at 317. Iowa has enacted a version of the Model Act in

Iowa Code chapter 507C.

Under the Iowa version, only the insurance commissioner, or a

designee of the insurance commissioner, can be appointed as liquidator.

As liquidator, the insurance commissioner is acting in his official capacity

as an officer of the state. Courts have emphasized that the insurance

commissioner in the insolvency context acts for the benefit of the general

public, as well as policyholders and creditors. See, e.g., 20th Century Ins.

v. Garamendi, 878 P.2d 566, 580 (Cal. 1994) (en banc); Mitchell v. Taylor,

43 P.2d 803, 804 (Cal. 1935); Rubinstein, Legal Standing, 10 Conn. Ins.

L.J. at 318. If the legislature did not see liquidation of an insurance

company as infused with the public interest, it could have allowed the

appointment of a private individual to wind down the affairs of the

insurance company. But the legislature made a deliberate choice not to

do that.

Iowa Code chapter 507C vests the insurance commissioner with

sweeping powers in liquidation proceedings. Under Iowa Code section

507C.42(2), after costs and administration of expenses, claims of policy

holders are given top priority in a liquidation. This special priority rule

reflects the importance of protecting rights of the public over other
 33

claimants, particularly corporate insiders. Iowa Code section

507C.21(1)(k) authorizes the insurance commissioner to affirm or disavow

contracts, a very powerful provision not available to a private party. The

power to disavow contracts is a tool to allow the insurance commissioner

to advance the public interests by the rejection of ill-advised contracts into

which the insurer may have entered. Finally, Iowa Code section

507C.21(1)(m) authorizes the insurance commissioner to bring litigation

“on behalf of creditors, members, policyholders, or shareholders” against

any persons.

These strong provisions demonstrate that the insurance

commissioner as liquidator works for the general public and not simply as

a successor to the insolvent insurer. Certainly the legislature thinks so.

For instance, Iowa Code section 507C.1(4) declares that the purpose of the

liquidation chapter “is the protection of the interests of insured, claimants,

creditors, and the public.” The purposes are to be achieved, among other

things, through “[e]quitable apportionment of any unavoidable loss.” Iowa

Code § 507C.1(4)(d). Of course, the insurance commissioner is seeking to

equitably apportion the loss through prosecution of its action against

Milliman. Further, the legislature had declared in Iowa Code section

507C.1(4)(g) that the purpose of the chapter is accomplished, in part, by

[p]roviding for a comprehensive scheme for the rehabilitation
and liquidation of insurance companies and those subject to
this chapter as part of the regulation of the business of
insurance, the insurance industry, and insurers in this state.
Proceedings in cases of insurer insolvency and delinquency
are deemed an integral aspect of the business of insurance and
are of vital public interest and concern.

Id. (emphasis added). The proposition that the insurance commissioner

acting as liquidator acts as a public officer, and not merely as a private

representative, was well recognized in the California case of Arthur
 34

Andersen LLP v. Superior Court, 79 Cal. Rptr. 2d 879 (Ct. App. 1998). In

Arthur Andersen, an insurance commissioner acting as liquidator sued the

accounting firm of Arthur Andersen for negligence. Id. at 881. There, the

court rejected the notion that the insurance commissioner was a mere

receiver of the insolvent insurer, emplacing that the insurance

commissioner acting as a regulator “is not acting to protect the investment

of the insurance company’s owners, but instead to protect the policy-

buying public.” Id. at 882.

The Ohio Supreme Court took an approach similar to Arthur

Andersen in Taylor v. Ernst & Young, L.L.P., 958 N.E.2d 1203 (Ohio 2011).

The Taylor court rejected the narrow argument that the insurer’s liquidator

simply stood in the shoes of the insurer, noting that the liquidator sought

to protect “the rights of insureds, policyholders, creditors, and the pubic

generally.” Id. at 1213 (quoting Fabe v. Prompt Fin., Inc., 631 N.E.2d 614,

620 (Ohio 1994)).

As in Andersen and Taylor, the Iowa insurance commissioner does

not simply stand in the shoes of the insurer, but has been charged by the

legislature to protect broader public interests.

D. Impact of Public Interest of Insurance Commissioner on

Enforceability of Arbitration Clause.

1. Introduction. The fighting issue in this case is whether a privately

agreed upon arbitration clause between the founder and Milliman is

binding on the insurance commissioner as liquidator. It is clear, of course,

that the insurance commissioner is not a signatory to the arbitration

agreement. A nonsignatory may be bound by an arbitration agreement,

but only if traditional principles of state law allow the contract to be so

enforced. Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631, 129 S. Ct.

1896, 1902 (2009). If the insurance commissioner was a mere
 35

representative of the insurer, however, he might be seen as simply

“stepping into the shoes” of the insurer.

2. More than in shoes of insolvent insurer. But as seen above, the

insurance commissioner is not merely “stepping into the shoes” as a mere

receiver. The insurance commissioner is also acting as a regulator. As

was noted decades ago, the liquidator

not only represents the insolvent insurance company, but he
also represents its policyholders, the beneficiaries under the
policies, the creditors, and is the representative of the public
interest in the enforcement of the insurance laws as applicable
to the policies of an insolvent insurance company.

English Freight Co. v. Knox, 180 S.W.2d 633, 640 (Tex. Civ. App. 1944).

More recently, in Arthur Andersen the court observed,

Nor can AA’s argument that the Insurance Commissioner acts
only as an ordinary receiver exonerate AA from liability for
negligent misrepresentations in an audit report. When
carrying out his statutory regulatory duty of monitoring the
claims-paying ability of an insurer, the Insurance
Commissioner is not acting to protect the investment of the
insurance company’s owners, but instead to protect the policy-
buying public. The Insurance Commissioner hence represents
far broader interests than those typically represented by an
ordinary receiver, whose potential claims are limited to those
of the company in receivership.

Arthur Andersen, 79 Cal. Rptr. 2d at 882 (emphasis added).

A similar observation was made in an Ohio court, which found that

[t]o permit the officers and directors of a regulated industry to
attempt to defeat the liquidation statutes by privately
contracting to resolve allegations of corporate
mismanagement in a private forum of their own choosing is
contrary to the purposes of the liquidation act and prejudicial
to the rights of policyholders and creditors who have been
harmed by the insolvency of the corporations.

Covington v. Lucia, 784 N.E.2d 186, 191–92 (Ohio Ct. App. 2003).

The Ohio Supreme Court came to the same conclusion in Taylor,

958 N.E.2d 1203. After determining that the liquidator of an insurance
 36

company did not merely stand in the shoes of the insurer, the Taylor court

declared that the case presented “a garden-variety attempt to enforce an

arbitration clause against a nonsignatory.” Id. at 1213. Andersen,

Covington, and Taylor stand for the proposition that an arbitration

provision agreed upon by an insurer is not binding on the insurance

commissioner acting as liquidator under insurance liquidation statutes in

light of his distinctive public responsibilities as the liquidator.

3. No presumption of arbitrability. Milliman suggests that under the

FAA, there is a strong presumption that matters that relate to the

underlying contract are subject to arbitration. That is true enough. AT&T

Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 650, 106 S. Ct.

1415, 1419 (1986). But this presumption does not arise until it has been

shown that there is an underlying agreement to arbitrate. Griswold v.

Coventry First LLC, 762 F.3d 264, 271 (3d Cir. 2014). In determining

whether there is, in fact, an underlying agreement to arbitrate, the

presumption is against arbitration. Taylor, 958 N.E.2d at 1213.

Further support for this proposition that an arbitration clause may

not be enforced against a nonsignatory liquidator with public

responsibilities may be found in EEOC v. Waffle House, Inc., 534 U.S. 279,

122 S. Ct. 754 (2002). In this disability discrimination case, the EEOC

brought an action seeking victim-specific relief. Id. at 283–84, 122 S. Ct.

at 758–59. The victim, however, had signed a contract agreeing to

arbitrate employment claims. Id. at 282, 122 S. Ct. at 758. The question

in Waffle House was whether the EEOC was subject to the arbitration

provision signed by the victim. Id.

The Supreme Court held that the EEOC was not subject to the

arbitration provision between the victim and the employer. Id. at 289, 122

S. Ct. at 762. The Waffle House Court emphasized that the EEOC was
 37

empowered by statute to bring claims that sought victim-specific relief and

that the EEOC was master of any such claim. Id. at 289–91, 122 S. Ct. at

762–63. In bringing such claims, the Waffle House Court noted that “the

agency may be seeking to vindicate a public interest . . . even when it

pursues entirely victim-specific relief.” Id. at 296, 122 S. Ct. at 765.

Where the public agency has authority to bring a claim and does so in the

public interest, even when the relief sought is specific to a victim who

signed an arbitration agreement, the public interest prevails and the

arbitration agreement is not enforceable.

We adopted the Waffle House approach in Rent-A-Center, Inc. v. Iowa

Civil Rights Commission, 843 N.W.2d 727, 732–33, 735–36 (Iowa 2014). In

Rent-A-Center, we declared that “[t]he essential point of Waffle House is

that the FAA’s reach does not extend to a public agency that is neither a

party to an arbitration agreement nor a stand-in for a party.” Id. at 736.

III. In Any Event, the Insurance Commissioner Validly
Exercised His Unqualified Legislative Power to Disavow in Total the
Insider Contract Between the Founders and Milliman.

A. Legislative Vesting in Insurance Commissioner of

Unqualified Power to Disavow Contracts. The Iowa version of the

Insurers’ Rehabilitation and Liquidation Model Act vests the insurance

commissioner as liquidator with very broad powers. One of the broad

powers vested in the commissioner is Iowa Code section 507C.21(l)(k) that

provides that the insurance commissioner as liquidator may “affirm or

disavow contracts to which the insured is a party.” In this case, the

insurance commissioner has disavowed the contract between the

Founders and Milliman that, among other things, limited any liability

Milliman might have to three times its fee for services.
 38

The legislature’s vesting in the insurance commissioner the power

to disavow contracts is unqualified. Further, Iowa Code section 507C.1

provides that the act “shall be liberally construed to effect the purpose”

which is “the protection of interests of the insureds, claimants, creditors,

and the public.” Combining these provisions means that if there is an

insider contract that stands in the way of vindicating the interests of the

insureds, claimants, creditors, and the public, the insurance

commissioner may disavow the contract.

The insurance commissioner has reasonably concluded that the

disavowal of the contract between the insurer and Milliman is in the public

interest. The contract between the founders and Milliman was an inside

deal that dramatically limited Milliman’s liability for consequential

damages. The insurance commissioner reasonably decided that disavowal

of the contract, thereby eliminating application of any cap on damages,

and pursuit of residual common law claims was in the best interest of the

public.

B. No Limitation to Executory Contracts. Milliman suggests that

the power to disavow contracts is limited to executory contracts. Other

state courts construing a similar disavowal power have not limited them

to executory contracts. For instance, in Covington, the insurance

commissioner alleged that corporate insiders engaged in various torts,

including breach of fiduciary duty, negligence, fraudulent transfers, and

corporate mismanagement. 784 N.E.2d at 187. But the potential

defendants had severance agreements which limited their liability. Id. The

insurance commissioner disavowed the severance contracts, while the

insiders argued that they were entitled to have the dispute resolved in

arbitration as required by the severance agreement. Id.
 39

The Covington court held that the insurance commissioner had the

power to disavow the severance agreements. Id. at 192. The Covington

court noted that, as here, the insurance commissioner was not seeking to

enforce any rights under the contract, but was pressing contract claims.

Id. Further, the Covington court observed,

To permit [the officer] to have his action decided privately . . .
when the liquidator has disavowed the contract is contrary to
the interests of insureds, claimants, creditors, and the public
generally as well as the interest of the liquidator who in the
pursuit of his duties represents them.

Id. at 191. The Covington court further emphasized,

To permit the officers and directors of a regulated industry to
attempt to defeat the liquidation statutes by privately
contracting to resolve allegations of corporate
mismanagement in a private forum of their own choosing is
contrary to the purposes of the liquidation act and prejudicial
to the rights of policyholders and creditors who have been
harmed by the insolvency of the corporations.

Id. at 191–92.

A few months after Covington, the same Ohio court decided

Benjamin v. Pipoly, 800 N.E.2d 50 (Ohio Ct. App. 2003). The Benjamin

court emphasized that the disavowal provision in Ohio law needed to be

liberally interpreted to advance the purpose of the statute. Id. at 57. The

Benjamin court noted that “[t]he liquidator must have freedom of action to

do those acts most beneficial in achieving her objectives,” and is not

“automatically bound by . . . pre-appointment contractual obligations.” Id.

at 58–59.

The Nebraska Supreme Court considered the question in State ex

rel. Wagner v. Kay, 722 N.W.2d 348 (Neb. Ct. App. 2006). Like Covington

and Benjamin, Wagner held that the insurance commissioner as liquidator

could disavow severance agreements of former officers and directors. Id.

at 357–58.
 40

Aside from the well-reasoned caselaw, it is clear that the Iowa

legislature must have been aware of the difference between the term

“contract” and “executory contract.” On four occasions, the legislature has

used the term “executory contract” when it wanted to qualify a legislatively

granted power. See, e.g., Iowa Code § 428A.2 (making an exception to

property taxes for “[a]ny executory contract for the sale of land”); id.

§ 524.103 (defining “agreement for the payment of money” to include

“accounts receivable and executory contracts”); id. § 554.13208

(determining rules for waiver “affecting an executory portion of a lease

contract); id. § 554.13505 (allowing cancellation of lease obligations that

“are still executory on both sides”). The legislature, however, did not use

the term “executory” when it enacted Iowa Code section 507C.21(l)(k).

Further, the legislature may be presumed to have been aware of the

longstanding provision of the Federal Bankruptcy Code that expressly

limits a trustee’s power to “executory” contracts. 11 U.S.C. § 744. There

is simply no such provision in Iowa law. Our charge is to apply the law as

we find it.

Milliman cites Maxwell v. Missouri Valley Ice & Cold Storage Co., 181

Iowa 108, 164 N.W. 329 (1917), and State v. Associated Packing Co., 195

Iowa 1318, 192 N.W. 267 (1923), as supporting the position that the

insurance commissioner’s power to disavow contracts extends only to

executory contracts. These older cases predate the Act, have nothing to

do with insurance, and do not involve the insurance commissioner

exercising unqualified powers of disavowal in the public interest pursuant

to statutory authority. Rather, these are simply older cases involving

ordinary receivers in less regulated businesses. As a result, nothing in

these pre-Act, noninsurance cases suggest that the Iowa insurance

commissioner’s later, unqualified, legislatively established power to
 41

disavow contracts should be limited to executory contracts. Indeed, the

language of these cases prior to the enactment of the Act indicate that the

legislature knew exactly what it was doing when it declined to limit the

disavowal authority in Iowa Code section 507C.21(1)(k).

Milliman also cites anti-cherry-picking cases where courts have

prohibited insurance liquidators from attempting to disavow certain

provisions of contracts while enforcing other provisions. For example, in

Bennett v. Liberty National Fire Insurance Co., 968 F.2d 969 (9th Cir. 1992),

the United States Court of Appeals for the Ninth Circuit held that because

the liquidator was attempting to enforce contractual rights of the insurer,

she was bound by the preinsolvency agreements. Id. at 972. Similarly, in

Costle v. Fremont Indemnity Co., 839 F. Supp. 265 (D. Vt. 1993), the

district court refused to allow a liquidator to enforce an insolvent

insurance company’s rights under an agreement and at the same time

escape the arbitration provision of that agreement. Id. at 272.

Here, however, the insurance commissioner is not cherry-picking

the contract between Milliman and the founders. It has disavowed the

entire agreement. All claims brought by the insurance commissioner in

this proceeding sound in tort, not contract. As a result, cases like Bennett

and Costle are not applicable under the facts presented here.

C. Power to Disavow Not Preempted by Federal Arbitration Act.

1. Generally applicable state law not preempted by FAA. 5 Milliman

further asserts that the power of the insurance commissioner to disavow

contracts is preempted in light of the extraordinarily muscular

5The district court did not rule upon the question of whether the exercise of
disavowal authority by the insurance commissioner under Iowa Code section
507C.21(1)(k) discriminates against arbitration clauses and is thus invalid under the
FAA. The Milliman defendants did not file an Iowa Rule of Civil Procedure 1.904(2)
motion. As a result, the issue has been waived. Nonetheless, in the alternative, I briefly
address the merits of the issue here.
 42

interpretation of the FAA in recent cases of the United States Supreme

Court. 6 But state law that is generally applicable and does not

discriminate against arbitration provisions does not offend the FAA. See

Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 686–87, 116 S. Ct. 1652,

1656 (1996).

The disavowal provisions of Iowa Code section 507C.21(1)(k) do not

discriminate against arbitration provisions. Iowa Code section

507C.21(1)(k) applies to all contracts, empowering the insurance

commissioner to disavow contracts that it believes impair the public

interest in a state liquidation proceeding. There is simply nothing in Iowa

Code section 507C.21(1)(k) that “single[s] out arbitration provisions for

suspect status.” Id. at 687, 116 S. Ct. at 1656. As a result, the general

disavowal provision is within the scope of the savings clause of the FAA

which does not preempt state law that prevents arbitration “upon such

grounds as exist at law or in equity for the revocation of any contract.” 9

U.S.C. § 2.

2. Reverse preemption under McCarran-Ferguson Act. In any event,

even if there is a conflict between the broad and liberally construed powers

of the insurance commissioner to disavow contracts and the FAA in this

case, preemption of federal, and not state law, results. That is because of

reverse preemption under the McCarran-Ferguson Act. A brief review of

background history will illuminate the nature of reverse preemption under

McCarran-Ferguson.

6See, e.g., Margaret L. Moses, Statutory Misconstruction: How the Supreme Court
Created a Federal Arbitration Act Never Enacted by Congress, 34 Fla. St. U. L. Rev. 99,
127–31 (2006); Davis S. Schwartz, Correcting Federalism Mistakes in Statutory
Interpretation: The Supreme Court and the Federal Arbitration Act, 67 Law & Contemp.
Probs. 5, 23–26 (2004).
 43

Historically, the regulation of insurance has been a matter of state

concern. In Paul v. Virginia, 75 U.S. 168, 185 (1868), the United States

Supreme Court held that Congress lacked the power under the Commerce

Clause to regulate insurance, thus leaving the field to state regulators. In

United States v. South-Eastern Underwriters Association, 322 U.S. 533, 64

S. Ct. 1162, 1164, 1178 (1944), the Supreme Court reversed its position

and held that a contract of insurance between an insurer and a

policyholder in different states constitutes interstate commerce and was

thus subject to federal antitrust laws. See Willy E. Rice, Federal Courts

and the Regulation of the Insurance Industry, 43 Cath. U. L. Rev. 399, 401

(1994).

After South-Eastern Underwriters, the Congress quickly endorsed

the historical role of state regulators by enacting the McCarran-Ferguson

Act. Under McCarran-Ferguson, “[n]o Act of Congress shall be construed

to invalidate, impair, or supersede any law enacted by any State for the

purpose of regulating insurance . . . unless such [Federal] Act specifically

relates to the business of insurance.” 15 U.S.C. § 1012(b).

In Humana Inc. v. Forsyth, 525 U.S. 299, 307, 119 S. Ct. 710, 716

(1999), the United States Supreme Court established a three-part test to

determine when reverse preemption of federal law occurs under McCarran-

Ferguson. Reverse preemption occurs if (1) the state statute was enacted

for the purpose of regulating the business of insurance; (2) the federal

statute involved does not specifically relate to the business of insurance;

and (3) the application of the federal statute would “invalidate, impair, or

supersede” the state statute regulating insurance. Id.

In analyzing the first prong, Congress did not provide any guidance

on the meaning of the phrase “regulating the business of insurance.” In

United States Department of Treasury v. Fabe, 508 U.S. 491, 508, 113 S.
 44

Ct. 2202, 2211–12 (1993), however, the United States Supreme Court

declared that the provisions of McCarran-Ferguson protecting state

regulation of insurance were not to be narrowly construed.

The Iowa legislature certainly believes that the first prong of the

Forsyth test has been satisfied. Through adoption of the applicability

provisions in Iowa Code section 507C.1(4)(f)-(g), the legislature has

declared that the provisions of Iowa Code chapter 507C were enacted “for

the purpose of regulating the business of insurance,” as quoted in 15

U.S.C. § 1012(b).

Such express declarations of the Iowa legislature do not bind this

court. We have the power, in interpreting statutes, to tell the legislature

that the unambiguous declaration that the liquidation statute is “for the

purpose of regulating the business of insurance” is wrong and must be

ignored in this case.

But the better reasoned judicial authority agrees with the

legislature’s declaration that the provisions of Iowa Code chapter 507C

regulate the business of insurance. For instance, in Fabe v. United States

Department of Treasury, 939 F.2d 341 (6th Cir. 1991), aff’d in part, rev’d

in part, 508 U.S. 491, the Sixth Circuit held that Ohio’s liquidation statute

amounted to “a regulation of the ‘business of insurance’ within the

meaning of the McCarran-Ferguson Act and thus subject solely to the

provisions of state law absent explicitly conflicting legislation.” Id. at 343.

Strikingly, the majority cites Quackenbush v. Allstate Insurance Co.,

121 F.3d 1372 (9th Cir. 1997), for the proposition that this case should be

sent to arbitration. In actuality, Quackenbush unequivocally supports my

position. Quackenbush declares that

[u]nder Fabe, there is no question that California’s
insurer-insolvency provisions regulate the “business of
insurance” and are saved from preemption by the McCarran–
 45
Ferguson Act. Thus, Allstate could not invoke the FAA to
compel arbitration of its claims against Mission, which must
be pursued through California’s statutory insolvency scheme.

Id. at 1381.

Exactly on point! As it turns out, however, the claim in

Quackenbush was not brought under the state’s statutory insurance

insolvency scheme, but was brought outside the statutory context. Id. at

1381. As a result, the McCarran–Ferguson Act did not apply. Id. at 1381–

82. Here, however, it is undisputed that the insurance commissioner’s

claim is brought under the Iowa statutory insurance insolvency scheme.

Other cases follow Quackenbush. Following the Sixth and Ninth

Circuits, the Tenth Circuit held in Davister Corp. v. United Republic Life

Insurance, 152 F.3d 1277, 1281 (10th Cir. 1998), that the FAA was reverse

preempted by a state liquidation regime designed to protect the interests

of policyholders. Similarly, in Washburn v. Corcoran, 643 F. Supp. 554,

557 (S.D.N.Y. 1986), the federal district court held that law related to

liquidation of insurance companies was a state law regulating insurance

and that the FAA had to yield to its provisions.

The second prong of the Forsyth test has been met in this case. The

FAA is not a statute specifically related to the business of insurance.

That leaves the third prong of the Forsyth test. 7 Sending the case
against the Milliman defendants to a private arbitration in New York

plainly interferes with Iowa Code chapter 507C. Iowa Code section

507C.1(4)(g) declares that one of the purposes of chapter 507C is to

“enhance[] efficiency and economy of liquidation” and to provide “a

comprehensive scheme” for the liquidation of insurance companies. Iowa

7While the district court addressed the first prong of the Forsyth test, it did not
address the second and third prongs. Again, as the Milliman defendants did not file a
motion to expand the findings of the district court, the issue has been waived.
 46

Code § 507C.1(4)(c), (g). If Milliman succeeds divesting the Polk County

district court of jurisdiction of the insurance commissioner’s claims

against Milliman, the interconnected causes of action in the litigation will

be split into two forums. Claims against Milliman will be decided in New

York, but claims involving the founders, including the claim that they

aided and abetted and conspired with Milliman, will remain in Polk County

district court. Such slicing and dicing of the litigation would neither be

efficient nor comprehensive, as such piecemeal litigation and the

possibility of inconsistent verdicts plainly impairs the ability of the

insurance commissioner to fulfill the statutory purposes of Iowa Code

chapter 507C. See Iowa Code § 507C.1(4)(c) (stating the purpose of the

statute is to protect “the interests of insureds, claimants, creditors, and

public” through “[e]nhanced efficiency and economy of liquidation”); id.

§ 507C.1(4)(g) (stating the purpose of the statute is promoted through a

comprehensive scheme of liquidation); see also Ernst & Young, LLP v.

Clark, 323 S.W.3d 682, 691 (Ky. 2010).

Further, sending the fundamental public policy issues involved in

the litigation to a confidential arbitration proceeding in New York where

New York law is to be applied obviously impairs the ability of the insurance

commissioner to enforce Iowa law. The question of whether the insurance

commissioner may disavow the consulting services agreement, thereby

avoiding the draconian limitation of consequential damages and the

exclusion of punitive damages, should not be decided by private

arbitrators with limited rights of appeal. See Benjamin, 800 N.E.2d at 61;

Covington, 784 N.E.2d at 191. Further, the broad power of the insurance

commissioner to subpoena witnesses and compel production of

documents under Iowa Code section 507C.21(1)(e) would now be subject

to the discretion of a panel of arbitrators.
 47

Finally, proceedings pursuant to liquidation of an insurance

company are “of vital public interest and concern.” Iowa Code

§ 507C.1(4)(g). To have the proceedings in this case conducted

confidentially in New York is plainly inconsistent with the public’s interest

in the regulation of insurance and the purposes of Iowa Code chapter

507C.

The practical consequences of the approach of the majority is

stunning. The dispute between the insurance commissioner and Milliman

will be sent to a panel of arbitrators in New York. The disavowed contract

calls for the dispute to be governed not by the laws of Iowa, but the laws

of New York. It may not matter, however, as the private arbitrators will

not be bound to apply the law. See Prima Paint Corp. v. Flood & Conklin

Mfg. Co., 388 U.S. 395, 407, 87 S. Ct. 1801, 1808 (1967) (Black, J.,

dissenting) (noting arbitrators are not bound to apply the law). Further,

the parties will not be entitled to wide discovery as ordinarily afforded by

the Iowa rules of civil procedure, but will instead engage is such discovery

as allowed by the grace of the private arbitrators in the exercise of

unreviewable discretion. See Margaret M. Harding, The Clash Between

Federal and State Arbitration Law and the Appropriateness of Arbitration

as a Dispute Resolution Process, 77 Neb. L. Rev. 397, 489 (1998) (observing

that discovery in arbitration is limited). The process will also be

confidential, contrary to the public interest. See Benjamin, 800 N.E.2d at

61; Covington, 784 N.E.2d at 191. The ultimate decision of the private

arbitrators, based on whatever law the arbitrator chooses and after

whatever discovery is tolerated, will be subject to judicial review only on

the narrowest of grounds. See 9 U.S.C. § 10.

In the arbitration, there will be a question of whether the damages

limitation provision of the insider contract may be enforced in light of the
 48

effort of the insurance commissioner to disavow the contract. That

protean issue, heavy with public policy implications and dramatically

affecting the remedy that might be available, will, apparently be decided

by private arbitrators in New York, not the Iowa courts. The arbitrators

may well decide that the provision of the agreement prohibiting punitive

damages in most instances may well be enforceable. And factual issues

related to the liquidators theory of liability and proven damages will be not

be decided by an Iowa jury, but by three arbitrators not subject to voir dire

and who do not receive instructions on the law.

All this is flatly contrary to the traditional historic commitment of

the State of Iowa to regulating the insolvency of insurance companies and

the statutory acquiesce of Congress in the broad exercise of that authority

unfettered by federal meddling through bankruptcy proceedings or the

FAA. It represents the privatization of public law at its starbursting zenith

or, more accurately perhaps, at its unilluminated nadir. And it

demonstrates how the FAA has been ripped from its very modest historical

moorings 8 and recruited as a grotesque gargoyle-like accomplice in the

privatization of public law.

Further, the access to justice issues are obvious. The insurance
commissioner, a public official charged with representing the public

interest, seeks to chase after potential wrongdoers who have allegedly,

through their torts, caused untold damage on members of the Iowa public.

The catastrophic failure of the health insurance entity left countless

Iowans to scramble. The interests of Iowa healthcare providers who relied

upon CoOportunity for timely payment were no doubt threatened. The

8For a detailed explanation of how the FAA has been transformed from a modest
rule into a protean nemesis of public law, see my dissent in Karon. See Karon v. Elliott
Aviation, 937 N.W.2d 334, 348 (Iowa 2020) (Appel, J., dissenting).
 49

case demands a thorough airing and public accountability. Yet, according

to the majority, the dispute will be handled confidentially in some office in

New York applying New York law pursuant to the cramped remedies

provided by the private insider contract.

Of course, at this stage, the pleadings of the insurance

commissioner are only allegations. But the insurance commissioner, on

behalf of the public, is lawfully entitled to attempt to make the case against

the Milliman defendants in a public courtroom in Iowa where Iowa law

applies; where Iowa courts make the necessary legal determinations; and

where any factual disputes, including the amount of damages, if any, will

be resolved by a fair and impartial Iowa jury.

The liquidation of this insolvent entity by the insurance

commissioner is a regulatory action, not a private garage sale.

IV. Conclusion.

The insurance commissioner acting as liquidator does not simply

stand in the shoes of the insured in this case but is a state official

representing the interests of policyholders, creditors, and the public. As a

result, the insurance commissioner as a nonsignatory is not subject to an

arbitration provision in an insider contract between the founders and

Milliman. Further, the insurance commissioner has lawfully disavowed

the contract pursuant to the Iowa legislature’s unqualified grant of

authority, Iowa Code section 507C.21(1)(k). Nothing in the FAA precludes

the insurance commissioner from exercising his discretion to disavow an

insider contract that contains an arbitration provision when he determines

under a general disavowal statute that to do so is in the public interest.

In any event, the McCarran-Ferguson Act prevents the application of

federal law to state regulation of the business of insurance. As a result,
 50

the ruling of the district court refusing to dismiss the insurance

commissioner’s action should be affirmed.