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Friday, February 1, 2013

Washington Supreme Court Rules State Law Not Preempted by FAA

Washington state's Supreme Court recently ruled that if a state has a statute that prohibits insurance contracts from including binding arbitration agreements, than the Federal Arbitration Act (FAA) cannot preempt that state statute. The decision was made in the case State of Washington Department of Transportation v. James River Insurance Company.

The court cited the McCarran-Ferguson Act in its decision. This act says that a federal law may not preempt a state law that was enacted "for the purpose of regulating the business of insurance" unless that federal law "specifically relates to the business of insurance." Key to the ruling was the court's finding that Washington's statute prohibiting binding arbitration agreements does regulate the "business of insurance" because "it is aimed at protecting the performance of an insurance contract by ensuring the right of the policyholder to bring an action in state court to enforce the contract."

Read the complete ruling from the Washington Supreme Court