Speece v. Allied Professionals Ins. Co. ( 2014 )

Nebraska Advance Sheets
SPEECE v. ALLIED PROFESSIONALS INS. CO. 75
Cite as 289 Neb. 75Dr. Brett Speece, D.C., appellee, v. Allied
P rofessionals Insurance Company, a Risk
R etention Group, Inc., appellant.
___ N.W.2d ___
Filed September 19, 2014. No. S-13-700.
1. Arbitration and Award. Arbitrability presents a question of law.
2. Judgments: Appeal and Error. On a question of law, an appellate court reaches
a conclusion independent of the court below.
3. Pretrial Procedure: Arbitration and Award: Final Orders. The denial of a
motion to compel arbitration is a final, appealable order because it affects a sub-
stantial right and is made in a special proceeding.
4. Federal Acts: Insurance: Contracts: Arbitration and Award. The Federal
Arbitration Act does not preempt Neb. Rev. Stat. § 25-2602.01(f)(4) (Cum.
Supp. 2012).
5. Federal Acts: Insurance. The Liability Risk Retention Act of 1986 is a federal
act that specifically relates to the business of insurance.
6. Federal Acts: Insurance: States. The Liability Risk Retention Act of 1986 is the
type of federal law excluded from the operation of 15 U.S.C. § 1012(b) (2012) of
the McCarran-Ferguson Act, and therefore, the McCarran-Ferguson Act does not
prevent the Liability Risk Retention Act of 1986 from being construed to preempt
state law.
7. Constitutional Law: Federal Acts: States. Under the Supremacy Clause of the
U.S. Constitution, state law that conflicts with federal law is invalid.
8. Federal Acts: States: Intent. Federal law preempts state law when state law
conflicts with a federal statute or when the U.S. Congress, or an agency acting
within the scope of its powers conferred by Congress, explicitly declares an intent
to preempt state law. Preemption can also impliedly occur when Congress has
occupied the entire field to the exclusion of state law claims.
9. Federal Acts: Insurance: States: Intent. In the Liability Risk Retention Act
of 1986, Congress explicitly declared an intent to preempt state law regulat-
ing the operation of foreign risk retention groups except in certain enumer-
ated instances.
10. Federal Acts: Insurance: States. The purpose of the Liability Risk Retention
Act of 1986 is to permit risk retention groups to efficiently operate on a nation-
wide basis by providing that they are regulated by their domiciliary states with
only limited variations in regulation in the other states in which they operate.
11. Federal Acts: Insurance: Contracts: Arbitration and Award. The prohibi-
tion of an arbitration clause in insurance policies pursuant to Neb. Rev. Stat.
§ 25-2602.01(f)(4) (Cum. Supp. 2012) regulates the operation of a risk reten-
tion group within the meaning of 15 U.S.C. § 3902 (2012) of the Liability Risk
Retention Act of 1986.
12. Federal Acts: Insurance: States. The Liability Risk Retention Act of 1986, by
its terms, preempts the application of Neb. Rev. Stat. § 25-2602.01(f)(4) (Cum.
Supp. 2012) to foreign risk retention groups.
Nebraska Advance Sheets
76 289 NEBRASKA REPORTS
13. Appeal and Error. An appellate court will not consider an issue on appeal that
the trial court has not decided.
Appeal from the District Court for Fillmore County:
Vicky L. Johnson, Judge. Reversed and remanded for further
proceedings.
Joseph S. Daly and Mary M. Schott, of Sodoro, Daly,
Shomaker & Selde, P.C., L.L.O., and Rick A. Cigel, of Cigel
Law Group, P.C., for appellant.
Andrew D. Strotman, Jonathan J. Papik, and Cristin McGarry
Berkhausen, of Cline, Williams, Wright, Johnson & Oldfather,
L.L.P., for appellee.
Justin D. Eichmann, of Bradford & Coenen, L.L.C., for
amicus curiae National Risk Retention Association.
Heavican, C.J., Connolly, Stephan, McCormack, Miller-
Lerman, and Cassel, JJ.
Miller-Lerman, J.
NATURE OF CASE
Allied Professionals Insurance Company (APIC) appeals
the order of the district court for Fillmore County in which the
court determined that Neb. Rev. Stat. § 25-2602.01(f)(4) (Cum.
Supp. 2012) prohibited enforcement of the mandatory arbitra-
tion clause in the parties’ insurance contract and overruled
APIC’s motion to compel arbitration. Section 25-2602.01(f)(4)
generally prohibits mandatory arbitration clauses in insur-
ance contracts. At issue is whether federal law preempts
§ 25-2602.01(f)(4). We conclude that the Federal Arbitration
Act (FAA), 9 U.S.C. §§ 1 through 16 (2012), does not pre-
empt the state statute, but that the Liability Risk Retention
Act of 1986 (LRRA), 15 U.S.C. §§ 3901 through 3906 (2012),
does preempt application of the Nebraska statute to foreign
risk retention groups, and that therefore, the district court
erred when it determined that § 25-2602.01(f)(4) prohibited
enforcement of the arbitration clause in the parties’ insur-
ance contract. We reverse the district court’s order overruling
Nebraska Advance Sheets
SPEECE v. ALLIED PROFESSIONALS INS. CO. 77
Cite as 289 Neb. 75APIC’s motion to compel arbitration and remand the cause for
further proceedings.
STATEMENT OF FACTS
Dr. Brett Speece, D.C., a chiropractor practicing in Exeter,
Nebraska, purchased a professional liability insurance pol-
icy from APIC. APIC is a risk retention group incorporated
in Arizona and registered with the Nebraska Department of
Insurance as a foreign risk retention group. In our analysis,
we sometimes refer to Nebraska as the nonchartering or non­
domiciliary state. As a general statement, a risk retention group
is an entity formed by persons or businesses with similar or
related exposure for the purpose of self-insuring. See LRRA,
15 U.S.C. § 3901(a)(4).
The policy included a provision requiring binding arbi-
tration in California of any dispute concerning the policy.
Paragraph V.C. of the policy stated as follows:
Arbitration. All disputes or claims involving [APIC]
shall be resolved by binding arbitration, whether such
dispute or claim arises between the parties to this Policy,
or between [APIC] and any person or entity who is not
a party to the Policy but is claiming rights either under
the Policy or against [APIC]. This provision is intended
to, and shall, encompass the widest possible scope of
disputes or claims, including any issues a) with respect
to any of the terms or provisions of this Policy, or b)
with respect to the performance of any of the parties
to the Policy, or c) with respect to any other issue or
matter, whether in contract or tort, or in law or equity.
Any person or entity asserting such dispute or claim
must submit the matter to binding arbitration with the
American Arbitration Association, under the Commercial
Arbitration Rules of the American Arbitration Association
then in effect, by a single arbitrator in good standing. If
the person or entity asserting the dispute or claim refuses
to arbitrate, then any other party may, by notice as herein
provided, require that the dispute be submitted to arbitra-
tion within fifteen (15) days. All procedures, methods,
and rights with respect to the right to compel arbitration
Nebraska Advance Sheets
78 289 NEBRASKA REPORTS
pursuant to this Article shall be governed by the [FAA].
The arbitration shall occur in Orange County, California.
The laws of the State of California shall apply to any sub-
stantive, evidentiary or discovery issues. Any questions
as to the arbitrability of any dispute or claim shall be
decided by the arbitrator. If any party seeks a court order
compelling arbitration under this provision, the prevail-
ing party in such motion, petition or other proceeding to
compel arbitration shall recover all reasonable legal fees
and costs incurred thereby and in any subsequent appeal,
and in any action to collect the fees and costs. A judg-
ment shall be entered upon the arbitration award in the
U.S. District Court, Central District of California, or if
that court lacks jurisdiction, then in the Superior Court of
California, County of Orange.
In 2012, Speece was audited by the Nebraska Department
of Health and Human Services with regard to his billing for
Medicaid reimbursements, and in January 2013, the State
of Nebraska filed a civil suit against Speece for violations
of law regarding false Medicaid claims. Speece gave notice
of the proceedings to APIC and demanded that APIC cover
the expenses of his defense. A dispute arose between Speece
and APIC regarding whether and to what extent the policy
covered the costs of Speece’s defense. Speece filed an action
in the district court seeking a declaration that APIC was obli-
gated to provide coverage for his defense in the Medicaid
proceeding; he also sought damages for breach of contract
and bad faith.
APIC filed a motion to compel arbitration. The district
court overruled the motion. The court relied on § 25-2602.01.
Subsection (b) of the statute generally provides that a provision
in a written contract to submit controversies between the par-
ties to arbitration is valid and enforceable. However, subsection
(f) of the statute lists certain exceptions to this general rule.
Section 25-2602.01(f)(4) provides that, with certain exceptions
not relevant to the present case, an arbitration provision is not
valid and enforceable in “any agreement concerning or relating
to an insurance policy.”
Nebraska Advance Sheets
SPEECE v. ALLIED PROFESSIONALS INS. CO. 79
Cite as 289 Neb. 75The court considered and rejected APIC’s argument that
§ 25-2602.01(f)(4) cannot be applied to Speece’s insurance
policy because that Nebraska statute is preempted by federal
law at least as it applies to foreign risk retention groups. The
federal laws that are relevant to this argument are: (1) the FAA,
which generally provides that arbitration provisions in written
contracts are valid and enforceable; (2) the McCarran-Ferguson
Act (MFA), 15 U.S.C. §§ 1011 through 1015 (2012), which
provides in relevant part at § 1012(b) that a federal statute
does not preempt a state statute “regulating the business of
insurance” unless the federal statute “specifically relates to the
business of insurance”; and (3) the LRRA, which provides in
relevant part at § 3902(a)(1) that a foreign risk retention group
is exempt from any state law that would “regulate, directly or
indirectly, the operation of a risk retention group.”
The district court determined that neither the FAA nor the
LRRA preempted § 25-2602.01(f)(4). The court further deter-
mined that the Nebraska statute’s prohibition of arbitration
provisions in “any agreement concerning or relating to an
insurance policy” applied to the professional liability policy
issued by APIC to Speece in this case. The court concluded
that the arbitration clause in the policy was not valid and
enforceable, and the court therefore overruled APIC’s motion
to compel arbitration.
APIC appeals.
ASSIGNMENT OF ERROR
APIC claims that the district court erred when it overruled
its motion to compel arbitration.
STANDARD OF REVIEW
[1,2] Arbitrability presents a question of law. Kremer v.
Rural Community Ins. Co., 280 Neb. 591, 788 N.W.2d 538(2010). On a question of law, we reach a conclusion indepen-
dent of the court below. See id.ANALYSIS
APIC claims that the district court erred when it overruled
the motion to compel arbitration. APIC contends that federal
Nebraska Advance Sheets
80 289 NEBRASKA REPORTS
law preempts § 25-2602.01(f)(4), which prohibits arbitration
clauses in insurance contracts, and that therefore, the court
must enforce the arbitration clause in the policy it issued to
Speece. As explained below, we conclude that the FAA does
not preempt § 25-2602.01(f)(4), but that the LRRA does
preempt the application of the Nebraska statute to foreign
risk retention groups, and that therefore, the district court
erred when it overruled APIC’s motion to compel arbitra-
tion on the basis that the arbitration clause was prohibited by
§ 25-2602.01(f)(4).
Jurisdiction.
[3] We note as an initial matter that the denial of a motion
to compel arbitration is a final, appealable order because it
affects a substantial right and is made in a special proceed-
ing. Webb v. American Employers Group, 268 Neb. 473, 684
N.W.2d 33 (2004). Therefore, this court has jurisdiction to
consider this appeal of the district court’s order overruling
APIC’s motion to compel arbitration.
FAA Does Not Preempt
§ 25-2602.01(f)(4).
With respect to its conclusion that the FAA does not pre-
empt § 25-2602.01(f)(4), the district court relied on this court’s
decision in Kremer, supra. We agree with the district court’s
reliance on Kremer and the district court’s conclusion that the
FAA does not preempt § 25-2602.01(f)(4).
[4] In Kremer, we noted generally that the FAA provides
that written provisions for arbitration are valid and enforce-
able and that the FAA by its terms preempts inconsistent state
laws that apply solely to the enforceability of arbitration pro-
visions. However, we further noted in Kremer that the MFA
also applied to our analysis and that under the MFA, state law
regulating the business of insurance “reverse preempts” federal
law that does not specifically govern insurance. 280 Neb. at
605, 788 N.W.2d at 551. We quoted 15 U.S.C. § 1012(b) of
the MFA, which provides in part, “No 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
Nebraska Advance Sheets
SPEECE v. ALLIED PROFESSIONALS INS. CO. 81
Cite as 289 Neb. 75insurance . . . unless such Act specifically relates to the busi-
ness of insurance.” Applying this provision of the MFA, we
determined in Kremer that § 25-2602.01(f)(4) is a state stat-
ute that regulates the business of insurance; that the FAA is a
federal act that does not specifically relate to the business of
insurance; and that the FAA operates to invalidate, impair, or
supersede § 25-2602.01(f)(4). Based on these determinations
and applying § 1012(b) of the MFA, we held that the FAA does
not preempt § 25-2602.01(f)(4). However, given the nature of
the dispute in Kremer, the FAA was not the only federal law
that we needed to consider to determine whether federal law
preempted § 25-2602.01(f)(4).
Because the dispute at issue in Kremer v. Rural Community
Ins. Co., 280 Neb. 591, 788 N.W.2d 538 (2010), involved a
crop insurance policy, we considered whether federal laws
and regulations governing crop insurance, not repeated here,
preempted § 25-2602.01(f)(4). We determined in Kremer
that relevant federal crop insurance laws and regulations
specifically “relate[d] to the business of insurance.” 280
Neb. at 610, 788 N.W.2d at 554. Therefore, under § 1012(b)
of the MFA, such laws were of the type that were not
reverse preempted by state statutes “regulating the business
of insurance.” We noted that the federal crop insurance laws
and regulations expressed an intent to preempt state law if
state law conflicted with the federal regulations. Because
federal regulations requiring arbitration conflicted with the
prohibition of arbitration clauses in insurance contracts
in § 25-2602.01(f)(4), we concluded that under the MFA,
§ 25-2602.01(f)(4) did not reverse preempt federal crop
insurance law and regulations and that therefore, federal reg-
ulations requiring arbitration preempted § 25-2602.01(f)(4)
and thus the arbitration clauses of the crop insurance con-
tracts at issue were enforceable.
Similar to the framework we employed in Kremer, in the
present case, we must consider whether federal law other than
the FAA, specifically the LRRA, preempts § 25-2602.01(f)(4)
in the same manner that the federal crop insurance law at issue
in Kremer preempted the state statute.
Nebraska Advance Sheets
82 289 NEBRASKA REPORTS
LRRA Preempts Application of
§ 25-2602.01(f)(4) to Foreign
Risk Retention Groups.
The district court concluded that the LRRA does not pre-
empt § 25-2602.01(f)(4) and that as a result, the arbitration
clause in Speece’s insurance policy was not enforceable. In
reaching its conclusion, the district court relied on Sturgeon
v. Allied Professionals Ins. Co., 344 S.W.3d 205 (Mo. App.
2011), in which the Missouri Court of Appeals held that a
Missouri statute similar to § 25-2602.01(f)(4) was not pre-
empted by the LRRA. Because we respectfully disagree with
the analysis in Sturgeon, we determine that the district court’s
reliance on Sturgeon was misplaced. In our analysis which fol-
lows, we conclude that under the MFA, the LRRA is a federal
statute that “specifically relates to the business of insurance”;
that an examination of the provisions of the LRRA shows an
express intent to preempt certain state regulations; and that the
LRRA preempts the application of § 25-2602.01(f)(4) to for-
eign risk retention groups. Having eliminated the application of
the antiarbitration provision in § 25-2602.01(f)(4), the arbitra-
tion clause at issue is enforceable.
We must first determine whether, under § 1012(b) of the
MFA, the LRRA is a federal act that “specifically relates to
the business of insurance.” If it is, then the MFA’s “reverse
preemption” provision of § 1012(b) does not apply and, if the
terms of the LRRA so indicate, the LRRA can be construed to
preempt conflicting state law.
[5] We conclude that the LRRA is a federal act that spe-
cifically relates to the business of insurance. The basis for
this conclusion is apparent from the purpose of the LRRA and
its terms. The U.S. Court of Appeals for the Second Circuit
recently provided a brief description of the history and purpose
of the LRRA as follows:
In the late 1970s, . . . Congress perceived a seemingly
unprecedented crisis in the insurance markets, during
which many businesses were unable to obtain product
liability coverage at any cost. And when businesses could
obtain coverage, their options were unpalatable. Premiums
often amounted to as much as six percent of gross sales,
Nebraska Advance Sheets
SPEECE v. ALLIED PROFESSIONALS INS. CO. 83
Cite as 289 Neb. 75and insurance rates increased manyfold within a single
year. . . .
After several years of study, Congress enacted the
Product Liability Risk Retention Act of 1981 . . . which
was meant to be a national response to the crisis. As rel-
evant here, the 1981 Act authorized persons or businesses
with similar or related liability exposure to form “risk
retention groups” for the purpose of self-insuring. . . .
The 1981 Act only applied to product liability and com-
pleted operations insurance, but following additional dis-
turbances in the interstate insurance markets, in 1986,
Congress enacted the LRRA, and extended the 1981 Act
to all commercial liability insurance.
Wadsworth v. Allied Professionals Ins. Co., 748 F.3d 100, 102-
03 (2d Cir. 2014) (citations omitted).
[6] With the just-described understanding of the history and
purpose of the LRRA, it is clear that the LRRA is a federal act
that “specifically relates to the business of insurance” within
the meaning of § 1012(b) of the MFA. In contrast to the FAA
considered in Kremer v. Rural Community Ins. Co., 280 Neb.
591, 788 N.W.2d 538 (2010), the LRRA is the type of federal
law excluded from the operation of § 1012(b) of the MFA, and
therefore, the MFA does not prevent the LRRA from being
construed to preempt state law.
However, the fact that the MFA does not prevent us from
construing the LRRA to preempt a state statute does not end
our inquiry. We need to determine whether some provision of
the LRRA does in fact preempt § 25-2602.01(f)(4).
[7,8] We have stated the following standards with respect
to determining whether federal law preempts state law. Under
the Supremacy Clause of the U.S. Constitution, state law that
conflicts with federal law is invalid. Kremer, supra. Federal
law preempts state law when state law conflicts with a federal
statute or when the U.S. Congress, or an agency acting within
the scope of its powers conferred by Congress, explicitly
declares an intent to preempt state law. Id. Preemption can also
impliedly occur when Congress has occupied the entire field to
the exclusion of state law claims. Id.
Nebraska Advance Sheets
84 289 NEBRASKA REPORTS
[9] As discussed below, we conclude that in the LRRA,
Congress explicitly declared an intent to preempt state law
regulating the operation of foreign risk retention groups except
in certain enumerated instances not applicable here. The LRRA
at 15 U.S.C. § 3902 provides in relevant part: “(a) . . . . Except
as provided in this section, a risk retention group is exempt
from any State law, rule, regulation, or order to the extent
that such law, rule, regulation, or order would . . . (1) make
unlawful, or regulate, directly or indirectly, the operation of
a risk retention group[.]” The LRRA thereafter more particu-
larly provides that the state in which a risk retention group
is chartered shall regulate the formation and operation of the
risk retention group but then provides certain exceptions to
preemption pursuant to which any state may impose the speci-
fied requirements. An example of a nonchartering power is the
LRRA provision authorizing nonchartering states to specify
acceptable means for risk retention groups to demonstrate
“financial responsibility” as a condition for granting a risk
retention group a license or permit to undertake activity within
the state. See 15 U.S.C. § 3905(d).
As noted above, the district court in this case relied on
the decision of the Missouri Court of Appeals in Sturgeon
v. Allied Professionals Ins. Co., 344 S.W.3d 205 (Mo. App.
2011), when it determined that the LRRA did not preempt
§ 25-2602.01(f)(4). The Missouri court in Sturgeon interpreted
§ 3902 of the LRRA to mean that “a state may not pass laws
that keep risk retention groups from operating as insurance
companies; however, the LRRA preserves the state’s tradi-
tional role in the regulation of insurance.” 344 S.W.3d at 215.
The Missouri court determined that a Missouri antiarbitra-
tion statute similar to Nebraska’s § 25-2602.01(f)(4) did not
conflict with § 3902, because the Missouri state statute did
not “‘“make unlawful”’” the operation of a risk retention
group nor did it “‘regulate’ the operation of [the insurance
entity] as a risk retention group.” Sturgeon, 344 S.W.3d at 216(emphasis in original). The Missouri court basically reasoned
that the purpose of the LRRA was to prevent states from dis-
criminating against risk retention groups vis-a-vis other types
Nebraska Advance Sheets
SPEECE v. ALLIED PROFESSIONALS INS. CO. 85
Cite as 289 Neb. 75of insurance companies. The Missouri court stated that “[t]he
LRRA’s protection of risk retention groups is based on states’
possible discrimination against them. Missouri’s prohibition
of arbitration clauses in insurance contracts applies to insur-
ance companies across the board, and has no discriminatory
effect on risk retention groups.” Sturgeon, 344 S.W.3d at 217.
Because Missouri’s prohibition of arbitration clauses did not
discriminate against risk retention groups as compared to other
insurance companies, the Missouri court concluded that the
LRRA did not preempt the state statute. See, also, National
Home Ins. Co. v. King, 291 F. Supp. 2d 518, 531 (E.D. Ky.
2003) (prohibiting enforcement of arbitration clause did not
“‘make unlawful’” operation of risk retention group and put it
on equal footing with other insurers).
We disagree with the reasoning of the court in Sturgeon and
its interpretation of the LRRA. Such reasoning focuses on the
portion of § 3902 exempting risk retention groups from state
laws making their operations unlawful without recognizing or
giving adequate emphasis to the additional exemption from
laws that regulate their operations. Instead, we agree with the
reasoning and interpretation of the Second Circuit Court of
Appeals in Wadsworth v. Allied Professionals Ins. Co., 748
F.3d 100 (2d Cir. 2014).
At issue in Wadsworth was whether the LRRA preempts a
New York state law which requires that any insurance policy
issued in the state must include a provision allowing an injured
party a direct action against the tort-feasor’s insurer for satis-
faction of an unsatisfied judgment. The Second Circuit Court
of Appeals concluded that the LRRA preempts the application
of the New York law to foreign risk retention groups. In reach-
ing this conclusion, the Second Circuit determined that the
portions of § 3902 quoted above “clearly announce Congress’s
explicit intention to preempt state laws regulating risk reten-
tion groups.” Wadsworth, 748 F.3d at 106. The Second Circuit
noted that while § 3902 provides for the chartering state
to regulate the operations of a risk retention group, “[i]n
stark contrast, the [LRRA] authorizes nonchartering states to
require risk retention groups to comply only with certain basic
Nebraska Advance Sheets
86 289 NEBRASKA REPORTS
registration, capitalization, and taxing requirements, as well
as various [unfair] claim settlement and fraudulent practice
laws.” Wadsworth, 748 F.3d at 106.
This expressed intent to preempt state regulation of foreign
risk retention groups is in line with the structure of the LRRA.
The Second Circuit described the LRRA as enacting “a reticu-
lated structure under which risk retention groups are subject to
a tripartite scheme of concurrent federal and state regulation.”
Wadsworth, 748 F.3d at 103. The first part of the scheme is
that at the federal level, the LRRA, in what the Second Circuit
described as the “‘expansive’” and “‘sweeping’” language of
§ 3902, preempts state laws regulating risk retention groups.
Wadsworth, 748 F.3d at 103. In the second part of the scheme,
the LRRA then scales back such preemption by authorizing the
domiciliary or chartering state to regulate the formation and
operation of a risk retention group, and, in the third part of the
scheme, authorizing nondomiciliary states to impose certain
specifically enumerated requirements on foreign risk reten-
tion groups. In this regard, the Second Circuit stated that “as
compared to the near plenary authority [the LRRA] reserves to
the chartering state, the [LRRA] sharply limits the secondary
regulating authority of nondomiciliary states over risk reten-
tion groups . . . .” Wadsworth, 748 F.3d at 104. According to
the Second Circuit, the purpose of the scheme is “to allow a
risk retention group to be regulated by the state in which it is
chartered, and to preempt most ordinary forms of regulation
by the other states in which it operates.” Wadsworth, 748 F.3d
at 103.
[10] We agree with the Second Circuit’s reading of the
LRRA. Rather than merely ensuring that risk retention groups
are not treated differently from other insurance companies as
the district court and the Missouri Court of Appeals reasoned,
the LRRA’s more encompassing purpose is to permit risk
retention groups to efficiently operate on a nationwide basis
by providing that they are regulated by their domiciliary states
with only limited variations in regulation in the other states in
which they operate. The Second Circuit Court of Appeals in
Wadsworth stated:
Nebraska Advance Sheets
SPEECE v. ALLIED PROFESSIONALS INS. CO. 87
Cite as 289 Neb. 75A major benefit extended to risk retention groups by the
LRRA is the ability to operate on a nationwide basis
according to the requirements of the law of a single
state, without being compelled to tailor their policies to
the specific requirements of every state in which they
do business.
748 F.3d at 108. The dictates of the LRRA promote the smooth
interstate operation of risk retention groups. The purpose of
the LRRA is achieved by the preemption of most regulation
of risk retention groups’ operations by nondomiciliary states
in § 3902.
With this understanding of the LRRA in mind, we consider
whether application of § 25-2602.01(f)(4) and its prohibition
on arbitration clauses in insurance contracts to foreign risk
retention groups is preempted by § 3902 of the LRRA. The
relevant portion of § 3902 provides that “a risk retention group
is exempt from any State law . . . to the extent that such law
. . . would . . . regulate, directly or indirectly, the operation of
a risk retention group.” The question then is whether applica-
tion of § 25-2602.01(f)(4) would “regulate . . . the operation of
a risk retention group.” In this regard, we note that in Kremer
v. Rural Community Ins. Co., 280 Neb. 591, 608, 788 N.W.2d
538, 553 (2010), for purposes of determining whether the MFA
“reverse preemption” applied, we concluded that “a statute
precluding the parties to an insurance contract from including
an arbitration agreement for future controversies regulates the
insurer-insured contractual relationship[, and t]hus, it regulates
the business of insurance.” Similar to the reasoning that led us
to conclude that § 25-2602.01(f)(4) “regulates the business of
insurance,” we conclude that this statute regulates the “opera-
tion of a risk retention group.”
As noted above, in Wadsworth v. Allied Professionals Ins.
Co., 748 F.3d 100 (2d Cir. 2014), the Second Circuit Court
of Appeals considered a New York state law requiring that
any insurance policy issued in the state must include a provi-
sion allowing an injured party a direct action against the tort-
feasor’s insurer for satisfaction of an unsatisfied judgment.
The Second Circuit Court of Appeals considered whether the
Nebraska Advance Sheets
88 289 NEBRASKA REPORTS
New York law regulates the operations of a risk retention
group within the meaning of § 3902 of the LRRA. The Second
Circuit concluded that it did, reasoning as follows:
[The New York law] specifically governs the content of
insurance policies, requiring insurers to place in their
New York contracts a provision that is not contemplated
by the LRRA, and that is not required by all other states.
Application of the statute would therefore make it diffi-
cult for a foreign risk retention group to maintain uniform
underwriting, administration, claims handling, and dis-
pute resolution processes. . . . Requiring compliance with
various state regulations governing the content of insur-
ance policies would, in the aggregate, thwart the efficient
interstate operation of risk retention groups.
Wadsworth, 748 F.3d at 108.
[11] We similarly conclude that the prohibition of an arbitra-
tion clause in insurance policies pursuant to § 25-2602.01(f)(4)
regulates the operation of a risk retention group within the
meaning of § 3902 of the LRRA. Although the Nebraska
law prohibits a contract term rather than mandating a term
like the New York law at issue in Wadsworth, the Nebraska
statute nevertheless “governs the content of insurance poli-
cies” and prohibits a term that might be allowed by a for-
eign risk retention group’s domiciliary state. Application of
§ 25-2602.01(f)(4) would make it difficult for a foreign risk
retention group whose domiciliary state allowed arbitration
clauses in insurance policies to maintain uniform underwriting,
administration, claims handling, and dispute resolution proc­
esses nationwide, and it therefore would also “thwart the effi-
cient interstate operation of risk retention groups.” Wadsworth,
supra. Because § 25-2602.01(f)(4) regulates the operation of
a risk retention group, it is the type of statute from which
a foreign risk retention group is “exempt” under § 3902 of
the LRRA. In other words, we conclude that application of
§ 25-2602.01(f)(4) is preempted by the LRRA and that APIC’s
motion to compel arbitration had merit.
Notwithstanding our conclusion that § 25-2602.01(f)(4) is
preempted by the LRRA, Speece makes several arguments
Nebraska Advance Sheets
SPEECE v. ALLIED PROFESSIONALS INS. CO. 89
Cite as 289 Neb. 75all to the effect that § 25-2602.01(f)(4) is within the type of
requirements that the LRRA permits nondomiciliary states to
impose on foreign risk retention groups. We find none of these
arguments to have merit.
Speece first argues that § 25-2602.01(f)(4) falls within
the exception of § 3902(a)(4) of the LRRA, which provides
that although risk retention groups are exempt from any state
law that would “discriminate against a risk retention group,
. . . nothing in this section shall be construed to affect the
applicability of State laws generally applicable to persons or
corporations.” Speece’s argument relies on the understanding
of the LRRA set forth in Sturgeon v. Allied Professionals Ins.
Co., 344 S.W.3d 205 (Mo. App. 2011), which emphasized
that the purpose of the LRRA is to ensure that noncharter-
ing states do not treat risk retention groups differently from
other insurance companies. We note, however, that the lan-
guage of § 3902(a)(4) of the LRRA means that “State laws
generally applicable to persons or corporations” apply to
risk retention groups, but it does not mean that risk reten-
tion groups must comport with laws generally applicable to
insurance companies. The prohibition of arbitration clauses
in § 25-2602.01(f)(4) applies to “insurance contracts,” and it
therefore applies specifically to insurance companies rather
than generally to persons or corporations. The prohibition
in § 25-2602.01(f)(4) is not one of general application, and
it therefore is not excluded from the preemptive effect of
§ 3902.
Speece also refers us to § 3901(b) of the LRRA, which
provides in relevant part that “[n]othing in this chapter shall
be construed to affect . . . the law governing the interpretation
of insurance contracts of any State . . . .” He argues that this
provision saves § 25-2602.01(f)(4) from the preemptive effect
of § 3902 because the state statutory law “determines the effect
that is to be given to mandatory arbitration clauses in insur-
ance contracts under Nebraska law.” Brief for appellee at 9. We
reject this argument. A statute prohibiting an arbitration clause
does not govern the interpretation of the contract. It does not
mandate or guide how contract terms are to be interpreted;
Nebraska Advance Sheets
90 289 NEBRASKA REPORTS
instead, it mandates that certain terms may not be included in
the contract. It is not a “law governing the interpretation of
insurance contracts” as used in § 3901(b).
Finally, Speece refers us to § 3905(c) of the LRRA, which
provides that “[t]he terms of any insurance policy provided by
a risk retention group . . . shall not provide or be construed
to provide insurance policy coverage prohibited generally by
State statute . . . .” He argues that this section provides that
states may regulate the terms risk retention groups include
in insurance policies and that therefore, the LRRA does not
preempt § 25-2602.01(f)(4). Section 3905(c) does not apply
to all terms of an insurance policy, only to terms setting forth
the coverage provided under the policy. An arbitration clause
does not concern—much less prohibit—the coverage provided,
but instead governs how disputes between the parties are to
be resolved.
[12] We determine that § 25-2602.01(f)(4) is a state law
that would regulate the “operation of a risk retention group”
as understood in § 3902(a) of the LRRA, that it is not the
type of requirement that the LRRA allows states to impose on
foreign risk retention groups, and that it is the type of statute
from which Congress exempts foreign risk retention groups in
§ 3902 of the LRRA. We conclude therefore that by virtue of
the exemption in § 3902, the LRRA, by its terms, preempts
the application of § 25-2602.01(f)(4) to foreign risk reten-
tion groups.
Because of such preemption, the prohibition of arbitration
clauses in insurance contracts in § 25-2602.01(f)(4) does not
extend to insurance contracts issued by a foreign risk retention
group such as APIC. The district court therefore erred when it
denied APIC’s motion to compel arbitration on the basis that
the arbitration clause in the parties’ insurance contract was
prohibited by § 25-2602.01(f)(4).
We Do Not Address Whether
the Arbitration Clause
Is Unconscionable.
[13] In their briefs, both parties assert that Speece argued to
the district court that even if § 25-2602.01(f)(4) is preempted
Nebraska Advance Sheets
SPEECE v. ALLIED PROFESSIONALS INS. CO. 91
Cite as 289 Neb. 75by federal law, the arbitration clause in the policy in this
case is unconscionable and therefore unenforceable. However,
because the district court concluded that § 25-2602.01(f)(4)
was not preempted by federal law and that the Nebraska stat-
ute prohibited enforcement of the arbitration clause in the
parties’ insurance contract, the court did not address the issue
of unconscionability. No cross-appeal has been filed claim-
ing that the district court erred when it did not address the
unconscionability issue. An appellate court will not consider
an issue on appeal that the trial court has not decided. Conley
v. Brazer, 278 Neb. 508, 772 N.W.2d 545 (2009). We there-
fore do not comment on whether the arbitration provision
is unconscionable.
CONCLUSION
Section 25-2602.01(f)(4) generally provides that an arbitra-
tion provision is not valid and enforceable in “any agreement
concerning or relating to an insurance policy.” We conclude
that although the FAA does not preempt § 25-2602.01(f)(4),
the LRRA does preempt the application of this Nebraska stat-
ute to foreign risk retention groups, and that as a result, the
arbitration clause in the policy APIC issued to Speece was
not prohibited by § 25-2602.01(f)(4). We conclude therefore
that the district court erred when it overruled APIC’s motion
to compel arbitration on the basis that the arbitration clause
was prohibited by § 25-2602.01(f)(4). We reverse the district
court’s order and remand the cause to the district court for
further proceedings.
R eversed and remanded for
further proceedings.
Wright, J., not participating.