April 27, 2020

Cullens Group Wins Major Victory in Louisiana Supreme Court Regarding Arbitration

Cullens Group Wins Major Victory in Louisiana Supreme Court Regarding Arbitration

In Donelonv. Milliman, Inc., et al., ---So.3d---; 2020 WL 2079362 (La. 4/27/2020),after finding that Louisiana’s comprehensive, statutory scheme relating to receivership litigation displaced the parties’ intent to select a venue other than a Louisiana court, a unanimous Louisiana Supreme Court held that the Louisiana Commissioner of Insurance is not bound by the contractual arbitration agreement.  


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 actuarialand other services.  Milliman is one ofthe 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 “LDI”) placed LAHC into Receivership.


The Cullens Group was hired by the LDI as special litigation counsel to represent the Receiver of LAHC and file suit against those individuals and entities responsible for the failure of LAHC.


The Receiver for LAHC 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.


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 forcethe Commissioner to litigate outside of a court of law as mandated by Louisiana law.


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 McCarran-FergusonAct.


Click here to read this opinion.

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