In United Ins. Co. v. Office of Ins. Regulation, 985 So.2d 665 (Fla. 1st DCA 2008), the court upheld an order from the Florida Office of Insurance Regulation which prohibited a mandatory arbitration clause in life insurance policies.

United Insurance Company of America sells life insurance in Florida, and its life insurance contract had been approved by the Office of Insurance Regulation.  On March 1, 2006, the insurance company filed an application with the Office of Insurance Regulation to include a mandatory arbitration provision to its life insurance contract. 

The Office of Insurance Regulation denied the insurance company’s request on the bases the proposed arbitration agreement did not comply with Florida Statutes Sections 624.155 (providing a civil remedy for insurer violations); 627.428 (providing attorney’s fees for successful litigation against insurance companies); and 627.455 (providing circumstances under which a life insurance policy is incontestable after 2 years from the date of issue).  The Office of Insurance Regulation also found the insurance company’s proposed arbitration agreement “contained inconsistent or ambiguous clauses, or exceptions and conditions which deceptively affected the risk purported to be assumed in the general coverage of the contract.”

The insurance company appealed.

The First District Court of Appeal initially noted that the provisions of the Federal Arbitration Act establish the right to resolve any dispute through binding arbitration.  However, the Federal Arbitration Act does not preempt the state’s rights to regulate insurance because Congress, through the enactment of the McCarran-Ferguson Act, determined that the business of insurance is the exclusive province of the individual states. 

In order for the McCarran-Ferguson Act to apply and prevent preemption, a three prong test is applied: (1) whether the federal law relates specifically to the insurance business to bar the application of a state statute; (2) whether the state statute was specifically enacted to regulate the insurance business; and (3) whether the state statute would be impaired, invalidated, or superseded by application of the federal law.  (Moore v. Liberty Nat’l Life Ins. Co., 267 F.3d 1209 (11th Cir. 2001))

The parties agreed that the Federal Arbitration Act does not specifically relate to the business of insurance.  The court explicitly found that Section 624.155, Fla. Stat. was enacted to regulate the business of insurance, and that the statute would be impaired, invalidated, or superseded by the Federal Arbitration Act.  Specifically, the court held that Section 624.155, Fla. Stat. provides for a civil action, with relevant procedural protections, courts costs, and attorneys fees.  The court also found that mandatory binding arbitration lacks the procedural and constitutional protections (such as a jury and certain appeals) which are inherent in a civil action.  (Due to this finding, the court did not address whether the arbitration agreement would impair, invalidate, or supersede Florida Statute Sections 627.428 and 627.455.)

The court then affirmed the final order of the Office of Insurance Regulation which denied the application for a mandatory arbitration provision.

The Office of Insurance Regulation can be found at: HTTP://www.floir.com/