COA holds that arbitration exclusion applies to State Farm case

December 27, 2016

The Indiana Court of Appeals affirmed summary judgment in favor of State Farm Insurance Tuesday, writing that the appellants in the case could not compel arbitration due to an exception in the arbitration agreement it signed with the insurance company.

In Watts Water Technologies, Inc. v. State Farm Fire & Casualty Co. a/s/o Richard Lucka, 45A04-1604-CT-831, Watts Water Technologies and State Farm Fire & Casualty Co. were signatories to a property subrogation arbitration agreement which provided, in part, that the signatories must forgo litigation and submit any claims to Arbitration Forums Inc.

In November 2014, Arbitration Forums informed the parties that effective Jan. 1, 2015, the agreement would be amended to require that, “No company shall be required, without its written consent, to arbitrate any claim or suit if: (i) it is a product liability claim arising from an alleged defective product.”

In July 2015, State Farm, as subrogee of Richard Lucka, filed a complaint alleging that Lucka purchased a water heater with a Watts brand connector, which failed on Nov. 30, 2014, and caused water damage to his home and property. Watts moved to dismiss or stay proceeding and compel arbitration, but the Lake Superior Court denied that motion based on the amendment to the arbitration agreement.

Watts appealed, arguing that the amended agreement did not terminate its right to arbitrate State Farm’s property subrogation claim that accrued prior to Jan. 1, 2015. Further, Watts argued on appeal that State Farm is collaterally estopped from re-litigating the issue of whether the agreement in effect when its claim accrued governs the arbitrability of the claim and that State Farm did not allege a product liability claim subject to the product liability exclusion.

State Farm, however, argued that the amendment made the date of filing determinative, not whether a party could have filed in 2014 or earlier.

The Indiana Court of Appeals disagreed with Watts, writing that Arbitration Forum’s notice of the amendment was not extrinsic and that it did have the authority to amendment the agreement.

Further, Judge Elaine Brown, writing for the unanimous panel, pointed out that the amended agreement stated, “While the use of the Property Program to resolve disputes involving product liability claims arising from an alleged defective product will no longer be compulsory as of January 1, 2015, cases filed prior to January 1, 2015 will remain in arbitration’s jurisdiction and will be processed to hearing.” Such language shows that the filing date is determinative, so State Farm’s claim against Watts, filed July 23, 2015, is not subject to compulsory arbitration, Brown wrote.

In regard to Watts’ argument that State Farm is collaterally estopped from re-litigating the issue of whether the agreement in effect governs whether a claim can be arbitrated, Brown wrote that under the circumstances, Watts could not fairly use collateral estoppel because the various trial court orders from other states that the parties cited each produce different results.

Finally, the appellate panel found that State Farm’s claims on behalf of Lucka did fall into the exclusion to arbitration laid out in the amended agreement.


Recent Articles by Olivia Covington