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