Donelon v. Milliman, Inc., et al., ---So.3d---; 2020 WL2079362 (La. 4/27/2020)

QUESTION: Is an arbitration agreement between an insurance company and a third-party contractor, entered into prior to receivership,enforceable against the Commissioner of Insurance in post-receivership litigation?

ANSWER:  No. According to the Louisiana Supreme Court and Louisiana law, such a pre-receivership arbitration agreement is unenforceable against the Louisiana Commissioner of Insurance (“Commissioner”) in post-receivership litigation.  Finding that Louisiana’s comprehensive, statutory scheme relating to receivership litigation displaced the parties’ intent to select a venue other than a Louisiana court and reverse preempted the FAA pursuant to the McCarran-Ferguson Act, the unanimous court held that the Commissioner is not bound by the contractual arbitration agreement.  The Cullens Group serves as lead counsel for the Commissioner in Donelon v. Milliman, Inc., et al., ---So.3d---; 2020WL 2079362 (La. 4/27/2020); needless to say, but we are very pleased with this favorable result.  Go here for a copy of this case.

FACTS:  In Milliman, the Louisiana Health Cooperative, Inc. (“LAHC”), a health cooperative created in 2011 pursuant to the Patient Protection and Affordable Care Act (“ACA”), entered into a written contract with Milliman, Inc. (“Milliman”) for actuarial and other services.  Milliman is one of the world’s largest actuarial and consulting firms. Among other work performed for LAHC, Milliman prepared the feasibility study submitted to the federal government regarding the approximately $65 million in loans made to LAHC to set up the cooperative and sell healthcare policies in Louisiana.  Milliman also set the initial premiums charged by LAHC in 2014. After losing more than approximately $50 million over its first eighteen(18) months of selling policies, the Louisiana Department of Insurance placed LAHC into Receivership.


The Commissioner filed suit in state court against numerous parties, including Milliman for its alleged professional malpractice, relating to the collapse of LAHC.  The pre-receivership contract between LAHC and Milliman contained an arbitration provision that arguably subjected all issues related to the work performed for LAHC by Milliman to arbitration.  Milliman filed a motion to compel arbitration.  The state district court ruled that the arbitration provision was unenforceable against the Commissioner.  On appeal, a lower appellate court stayed the litigation in its entirety while it considered the arbitration issue; after more than a year, the lower appellate court reversed the district court and ordered the Commissioner to submit to arbitration.  The Louisiana Supreme Court granted the Commissioner’s writ application, and on April 27, 2020, issued a unanimous opinion reversing the appellate court, reinstating the district court’s ruling, and remanding the case to the district court for further proceeding.

DISCUSSION:  Recognizing that the Commissioner is the protector of public interests, the Louisiana Supreme Court in Milliman began its analysis with the legislative purpose and scope of the Louisiana Rehabilitation, Liquidation, Conservation Act (“RLCA”), the statutory basis of the Commissioner’s authority to regulate and control insurance receivership proceedings.  Finding that the Commissioner’s authority to enforce LAHC’s contract with Milliman is statutory,not contractual, the court held that private parties like Milliman have a“limited ability to contractually interfere” with the Commissioner’s statutory authority to manage and control receivership proceedings in Louisiana.


Looking specifically to La.R.S.22:2004(A), the Louisiana Supreme Court held that Louisiana law permits the Commissioner to choose where and how to litigate an action.  “We hold that [La.R.S.] 22:2004(A) is an express grant of authority for the Commissioner,” wrote the court, “to bring this suit in court, rather than arbitration.” A private party cannot contractually force the Commissioner to litigate outside of a court of law as mandated by Louisiana law.


The subject contract between LAHC and Milliman also contained a choice of law provision which applied New York law to “enforce” the contract. Significantly, New York law prohibits the enforcement of pre-receivership arbitration clauses against the Commissioner of Insurance.  The Louisiana Supreme Court did not, however, apply New York law to resolve this issue; instead, the court disregarded the intent of the contracting parties and this choice of law issue by holding “[w]here the legislature, through positive law, empowers the Commissioner to bring an action in court, private parties cannot contract to deprive him of that right.”  Similarly,the court found it unnecessary to address the application of the direct-benefit estoppel doctrine, as it is an equitable remedy that cannot alter the statutory power provided to the Commissioner.


Lastly, the Louisiana Supreme Court addressed the issue of whether the Federal Arbitration Act (“FAA”)preempts Louisiana law, thereby compelling arbitration against the Commissioner.  The McCarran-Ferguson Act (“MFA”) exempts state laws from federal preemption if they were enacted “for the purpose of regulating the business of insurance.” 15 U.S.C. § 1012.  Finding that the “Commissioner persuasively argues Louisiana’s comprehensive statutory scheme for handling insolvent insurers, including the right to choose the forum for actions brought by him as rehabilitator, serves the purpose of regulating the business of insurance and is within the scope of McCarran-Ferguson,” the court held that the FAA was reverse preempted pursuant to the MFA. Citing Munich v. Crawford, 141 F.3d 585, 591 (5th Cir. 1998).


Because Milliman served as the actuary for numerous other ACA cooperatives which have failed and been placed into receivership in other states besides Louisiana, this issue has been addressed by other courts.  In Nevada,the district court has ruled that Milliman’s arbitration clause is enforceable,and the Nevada Supreme Court has refused to overturn that interlocutory ruling by finding, on limited review, that it could “not say the district court committed clear legal error.” Richardson v. Milliman, 454 P.3d 1260 (Table); 2019 WL 7019006 (Nevada 12/19/2019). In Iowa, the Iowa Supreme Court, in a 5-1 opinion, concluded that Milliman’s arbitration clause was enforceable against the Iowa Commissioner of Insurance. Ommen v. Milliman, 2020 WL 1649868(Iowa 4/3/2020). Given the nature of this dispute and in light of these apparently conflicting rulings, a writ of certiorari to the SCOTUS is anticipated in one or more of these cases.