A New York judge dealt a blow to mandatory arbitration clauses in workers’ compensation policies, ruling that a Chartis subsidiary cannot compel arbitration in a dispute with an employment agency.

The decision by Judge Eileen Bransten of the New York Supreme Court in New York County denied the petition of National Union Fire Insurance Co. to force arbitration with Source One Staffing. Bransten left the door open for the insurers to replead within 20 days.

At issue is whether state insurance law — in this case, California law — is pre-empted by the Federal Arbitration Act. The court determined that the McCarran-Ferguson Act upholds the validity of the California law.

“It affirms the important point that state laws regulating insurance are not pre-empted by the Federal Arbitration Act,” said Alex D. Hardiman of Anderson Kill & Olick, P.C., counsel to Source One.

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