As prior discussion suggests, a mechanism for avoiding the preemptive effect of the FAA on state insurance law is found in the McCarran-Ferguson Act, which provides for reverse preemption of federal law by state insurance law in the following manner:

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 insurance . . . unless such Act specifically relates to the business of insurance . . . .[1]

In other words, in a formulaic manner, reverse preemption occurs where:  (1) the federal statute at issue does not specifically relate to the business of insurance; (2) the state law was enacted for the purpose of regulating the business of insurance; and (3) application of the federal statute will invalidate, impair, or supersede the state law.[2]

According to the foregoing test, it appears obvious that state statutes that prohibit or restrict mandatoryarbitration in the context of insurance disputes reverse preempt the FAA.  Applying the first prong, the FAAdoes not specifically relate to the business of insurance—the FAA applies to the enforcement of arbitrationagreements generally.  Therefore, any state statute enacted for the purpose of regulating the business of insurance under the second prong, which would be impaired or invalidated by application of the FAA under the third prong, reverse preempts the FAA via the McCarran-Ferguson Act.

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