## Facts

- Danny and Irma Thomas bought a vehicle and financed it through a retail installment contract (RIC) that contained a broad arbitration clause.
- In the same transaction, the Thomases elected credit life insurance issued by Southern Pioneer Life Insurance Company; the insurance premium was financed as part of the loan.
- The insurance coverage period was based on the scheduled loan term through the original maturity date.
- The Thomases paid off the loan about five years early and claimed they were entitled to a pro rata refund of the “unearned” insurance premium for the unused coverage period.
- Southern Pioneer did not refund the alleged unearned premium, and the Thomases filed a putative class action seeking reimbursement and related relief.
- The arbitration clause was contained in the RIC, not in the separate insurance policy.

## Issues

1. Whether the Thomases’ unearned-premium refund claims arise from the RIC (with an arbitration clause) or from the separate insurance contract.
2. Whether Arkansas’s statutory exclusion of insurance contracts from arbitration renders the RIC arbitration clause unenforceable as to these claims.
3. Whether the Federal Arbitration Act preempts Arkansas’s anti-arbitration rule for insurance contracts, or whether the McCarran-Ferguson Act allows state law to control.

## Decision

- The Arkansas Supreme Court affirmed the denial of Southern Pioneer’s motion to compel arbitration.
- The court held the dispute centered on Southern Pioneer’s obligations under the insurance policy, not the financing terms of the RIC.
- Arkansas law excluded insurance contracts from arbitration, and that exclusion applied to the claims.
- The McCarran-Ferguson Act prevented the FAA from displacing Arkansas’s insurance-specific arbitration restriction.

## Legal Principles

- A court determines arbitrability by examining the substance of the dispute; financing of an insurance premium within a credit agreement does not convert an insurance-coverage dispute into a credit-contract dispute.
- Arkansas law (as then in effect) barred enforcement of arbitration agreements as to insurance contracts and insurance disputes.
- Under the McCarran-Ferguson Act, state laws enacted to regulate the business of insurance reverse-preempt generally applicable federal statutes, including the FAA, unless the federal statute specifically relates to insurance.
- An arbitration clause in a related, non-insurance contract cannot be used to compel arbitration of claims that arise from an insurance contract when state insurance regulation prohibits arbitration.

## Conclusion

Because the Thomases’ claims concerned an insurer’s alleged duty to refund unearned premiums under an insurance policy, Arkansas’s statutory prohibition on arbitrating insurance disputes applied and, under McCarran-Ferguson, controlled over the FAA; arbitration could not be compelled.


S. Pioneer Life Ins. Co. v. Thomas, 385 S.W.3d 770 (Ark. 2011)