On December 8, 2025, the Fifth Circuit shut down arbitration bids in Louisiana property insurance disputes, cementing litigation as the default for surplus lines.
The US Court of Appeals for the Fifth Circuit affirmed district court orders denying motions to compel arbitration in consolidated coverage cases arising from Louisiana property risks. The lead dispute involved a surplus line insurance policy purchased by a Louisiana town from a mix of foreign and American insurers. After the policyholder dismissed the foreign insurers with prejudice, the remaining American insurers removed the case to the Western District of Louisiana and sought arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Federal Arbitration Act. The district court denied the motions, and the Fifth Circuit affirmed on de novo review.
The opinion turns on the policy wording and an endorsement that shaped the analysis. The policy included an arbitration clause requiring that “all matters in difference between the Insured and the Companies … in relation to this insurance, including its formation and validity” be referred to an arbitration tribunal. It also included a Contract Allocation Endorsement stating the policy “shall be constructed as a separate contract between the Insured and each of the Underwriters.” The court treated that endorsement as controlling.
That reading was critical to the Convention question. The Convention applies only if a party to the arbitration agreement is not an American citizen. Because the separate‑contract endorsement created distinct agreements between the insured and each underwriter, the dismissal with prejudice of the foreign insurers meant no foreign party remained to any arbitration agreement at issue. The court noted that numerous courts have read similar “separate contract” language to create separate agreements to arbitrate and found no basis to depart from that approach. It also explained that if the arbitration clause’s reference to “companies” conflicted with the endorsement’s separate‑contract language, the endorsement would prevail over the base policy, and any ambiguity would be construed against the drafter.
The insurers alternatively sought to compel arbitration via equitable estoppel. The Fifth Circuit rejected that argument in light of the Louisiana Supreme Court’s decision in Police Jury of Calcasieu Parish v. Indian Harbor Insurance Co., which concluded that Louisiana law prohibits arbitration clauses in Louisiana‑issued insurance policies, applies to municipalities, and that equitable estoppel did not apply. Because equitable estoppel cannot contravene Louisiana positive law, it could not be used to compel arbitration here.
The insurers also invoked the policy’s delegation clause, pointing to language that would ordinarily send questions of formation and validity to the arbitrator. The court stated that a court must first determine whether a valid arbitration agreement exists before referring threshold issues to arbitration. It cited circuit precedent that “[w]hen a statute prevents the valid formation of an arbitration agreement … we cannot compel arbitration, even on threshold questions of arbitrability.” Given Louisiana law as applied in this case, the delegation clause did not change the result. The court affirmed the district court’s orders denying the motions to compel arbitration and to stay proceedings.
The court’s analysis turns on policy text and Louisiana law. The Contract Allocation Endorsement – treating the policy as “a separate contract between the Insured and each of the Underwriters” – meant that once the foreign insurers were dismissed with prejudice, no foreign party remained to any arbitration agreement, so the Convention did not apply. With the Convention off the table, Louisiana’s prohibition on arbitration clauses in insurance policies controlled, and the court held that equitable estoppel and a delegation clause could not overcome that bar. For Louisiana property risks written on multi‑insurer surplus lines programs, this points to litigation – not arbitration – as the expected forum and confirms that endorsements will control where they conflict with base policy language.
