In Certain Underwriters at Lloyd’s v. 3131 Veterans [1], the Court of Appeals for the Second Circuit reversed its precedent that Article II, Section 3 of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) is not self-executing, which was established in 1995 in Stephens v. American International Insurance [2]. By doing so, the Second Circuit aligned its interpretation of the New York Convention with that of the First, Fourth, Fifth, and Ninth Circuits.
Historical context
The McCarran-Ferguson Act (“MFA”) [3] provides that “[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, … unless such Act specifically relates to the business of insurance.” [4] Consequently, in the United States, the insurance industry is exempt from most federal laws and is regulated at the state level. However, under the Supremacy Clause, this exemption does not apply to international treaties that are self-executing, that is, treaties that bind without the need for an act of Congress, as they are considered the law of the land.
In 1995, the Second Circuit issued its opinion in Stephens, where it considered whether the New York Convention is self-executing. It concluded that the Convention is not self-executing, as it required an act of Congress for implementation. However, the court did not consider the specific wording of Article II, Section 3 of the Convention.
Article II, Section 3 of the New York Convention provides that: “The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”
Background
Petitioners were a group of surplus lines insurers who insured against otherwise uninsurable risks, such as the costs of hurricane damage. They issued two insurance policies for multiple commercial properties located in Louisiana. Each policy included an identical arbitration clause referring “all matters in difference between the parties in relation to the insurance, including its formation and validity” to “an Arbitration Tribunal” seated in New York. The Arbitration Tribunal was obliged to apply “the law of New York as the proper law of the insurance.”
In August 2021, the property sustained damage from Hurricane Ida. Shortly after, the insured commercial properties had been purchased by 3131 Veterans Boulevard LLC and MPIRE Properties LLC.
Disputes arose when both 3131 Veterans and MPIRE contested the insurance payouts. As a result, 3131 Veterans and MPIRE sued several of Petitioners in the Louisiana state courts. In response, Petitioners filed two separate actions in the U.S. District Court for the Southern District of New York, seeking to compel arbitration and to enjoin the Louisiana state court proceedings.
District Court Proceedings
In both proceedings, the District Court denied the motions to compel arbitration and the motions to enjoin the state court actions [5].
The District Court reasoned that:
- The principles of state contract law determine whether parties have agreed to arbitrate. Here, the Louisiana law applies.
- Under Louisiana law, an insurance contract cannot require construction in accordance with the law of any other state or country. Furthermore, contractual provisions depriving Louisiana courts of jurisdiction, including arbitration agreements, are unenforceable according to precedent.
- Under the MFA, the above regulation preempts the Federal Arbitration Act (“FAA”), as the FAA is not a regulation specifically relating to the business of insurance.
- At the same time, the binding Second Circuit precedent in Stephens holds that MFA preempts the New York Convention, as it is not self-executing.
In both cases, Petitioners appealed.
Second Circuit Proceedings
On May 8, 2025, the Second Circuit abrogated Stephens insofar as it held that Article II, Section 3 of the New York Convention is not self-executing, reversed the district court decisions in both cases, and remanded the matter for further proceedings [6].
The Second Circuit reasoned that:
- The applicable Louisiana law prohibits the enforcement of arbitration provisions in insurance disputes.
- The FAA does not specifically relate to the business of insurance. Therefore, it is preempted by the Louisiana law under the MFA. Furthermore, this means that the FAA’s delegation principles, which allow parties to empower the arbitral tribunal to decide on the validity or enforceability of an arbitration agreement, are also preempted. Thus, the court, and not the arbitrator, must resolve the issue of enforceability of the arbitration agreement.
- However, Article II, Section 3 of the New York Convention, requiring courts to enforce arbitration agreements, is not preempted by Louisiana law, as it is self-executing:
- Under the Supreme Court’s precedent in Medellín [7], a provision of an international treaty is self-executing when: (1) it provides a directive to domestic courts; (2) the directive uses mandatory language such as “shall” or “must”; and (3) the text, background, negotiating and drafting history indicate the Senate’s or President’s intention that the provision take immediate effect in domestic courts.
- The Medellín test dictates the conclusion that an international treaty may contain both self-executing and non-self-executing provisions. Therefore, the fact that there is legislation implementing the treaty does not confirm that specific provisions are self-executing.
- Turning to Article II, Section 3 of the New York Convention, it must be noted that it explicitly commands the domestic courts to enforce arbitration agreements. It also uses the word “shall,” making compliance mandatory. As such, the first and second prerequisites of the Medellín test are satisfied.
- There is also no evidence that Congress or the President believed that Article II, Section 3 of the Convention required their action to implement it. This means that the third prerequisite is also satisfied.
- This conclusion is not affected by the language of other provisions of the New York Convention, which leave it to the contracting states to decide certain issues, such as the types of arbitrable disputes or the applicability of the Convention only to commercial relationships. There is no conflict between these provisions and the self-executing character of Article II, Section 3 of the Convention.
- Other Circuits, including the First and Ninth Circuits, also have held that under the Medellín test, Article II, Section 3 of the New York Convention is self-executing.
- For these reasons, the court abrogated its precedent in Stephens, which concluded otherwise on the issue of the self-executing character of Article II, Section 3 of the New York Convention.
Relevance
The Second Circuit’s decision in Certain Underwriters has practical implications for the enforceability of international arbitration agreements in insurance disputes. By holding that Article II, Section 3 of the New York Convention is self-executing, the court significantly limited the scope of the McCarran-Ferguson Act’s preemptive effect in international contexts. It also aligned the Second Circuit with other circuits, reinforcing the Convention’s relevance in enforcing arbitration agreements in U.S. courts. Given that New York is a global hub for both insurance and arbitration, the ruling enhances legal predictability for international insurers and reinsurers contracting with U.S.-based parties.
[1] Certain Underwriters at Lloyd’s London, v. 3131 Veterans Blvd LLC, Nos. 23-1268, 23-7613 (2d Cir. 2025).
[2] Stephens v. Am. Int’l Ins. Co., 66 F.3d 41 (2d Cir. 1995).
[3] McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015.
[4] 15 U.S.C. § 1012(b).
[5] Certain Underwriters at Lloyd’s London v. 3131 Veterans Blvd. LLC, No. 22-CV-9849 (S.D.N.Y. Aug. 15, 2023); Certain Underwriters at Lloyd’s London v. MPIRE Props. LLC, No. 22-CV-9607 (S.D.N.Y. Sept. 28, 2023).
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