Watts Water Technologies, Inc. v. State Farm Fire & Casualty Co. a/s/o Richard Lucka
2016 Ind. App. LEXIS 465
| Ind. Ct. App. | 2016Background
- Watts and State Farm were signatories to a Property Subrogation Arbitration Agreement administered by Arbitration Forums (AF), which authorized AF to promulgate rules for disputes among signatories.
- AF notified signatories in Nov. 2014 of an amendment, effective Jan. 1, 2015, adding an exclusion: no company is required, without written consent, to arbitrate product liability claims arising from an alleged defective product; AF stated cases filed prior to Jan. 1, 2015, remain in arbitration jurisdiction.
- The underlying loss occurred Nov. 30, 2014; State Farm filed its subrogation complaint against Watts on July 23, 2015, alleging multiple product liability and negligence counts and seeking $27,805 in damages.
- Watts moved to dismiss or compel arbitration; the trial court denied Watts’s motion, concluding the AF amendment and notice were within AF’s delegated authority and that the filing date (not injury date) controlled whether arbitration was compulsory.
- Watts appealed, arguing AF lacked authority to amend as to their dispute, the amendment did not apply to State Farm’s claim (which accrued before Jan. 1, 2015), collateral estoppel barred relitigation of arbitrability, and State Farm’s pleading did not allege a product liability claim within the statutory definition.
- The Court of Appeals affirmed, holding AF’s rulemaking was authorized, the amendment unambiguous (filing date controls), State Farm’s July 2015 filing fell outside compulsory arbitration, collateral estoppel was inappropriate, and State Farm’s complaint sufficiently alleged product-liability claims for purposes of the arbitration exclusion.
Issues
| Issue | State Farm's Argument | Watts's Argument | Held |
|---|---|---|---|
| Whether AF had authority to amend arbitration rules to add product-liability exclusion | AF was expressly authorized by the Agreement to make rules; the notice and amendment are within that authority | AF is a nonparty and its post‑execution notice is extrinsic and irrelevant to parties’ original intent | Held: AF had delegated rulemaking authority; amendment and notice valid |
| Whether the amendment removed compulsory arbitration for State Farm’s claim (retroactivity) | Amendment and notice unambiguously made filing date dispositive; claims filed on/after Jan. 1, 2015 are not compulsory | Arbitration should apply because claim accrued Nov. 30, 2014 (before amendment effective date) | Held: Filing date controls; State Farm’s July 23, 2015 suit not subject to compulsory arbitration |
| Whether Watts is collaterally estopped from relitigating arbitrability based on other courts’ orders | N/A (State Farm disputed estoppel application) | Prior rulings preclude State Farm from denying that the earlier agreement governs arbitrability | Held: Collateral estoppel inapplicable given divergent out‑of‑state orders and fairness concerns |
| Whether State Farm pleaded a product‑liability claim falling within the exclusion | Complaint pleaded manufacturing/design defects, failure of connector, and physical damage to property — sufficient for exclusion | Complaint fails to allege "physical harm" or "sudden, major damage" (per Indiana statute); defect and risk not pled | Held: Pleadings sufficiently alleged product‑liability claims; exclusion applies for purposes of arbitration analysis |
Key Cases Cited
- Showboat Marina Casino P’ship v. Tonn & Blank Constr., 790 N.E.2d 595 (Ind. Ct. App. 2003) (burden on party seeking to compel arbitration; de novo review)
- Homes By Pate, Inc. v. DeHaan, 713 N.E.2d 303 (Ind. Ct. App. 1999) (strong policy favoring arbitration but arbitration is contractual)
- MPACT Const. Grp., LLC v. Superior Concrete Constructors, Inc., 802 N.E.2d 901 (Ind. 2004) (arbitration is matter of contract; parties’ intent controls)
- St. John Sanitary Dist. v. Town of Schererville, 621 N.E.2d 1160 (Ind. Ct. App. 1993) (court decides whether dispute on its face is covered by arbitration clause)
- AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643 (U.S. 1986) (arbitration is a matter of contract; parties cannot be required to arbitrate disputes they did not agree to submit)
- Nat’l Wine & Spirits, Inc. v. Ernst & Young, LLP, 976 N.E.2d 699 (Ind. 2012) (standards for collateral estoppel; requirements for defensive collateral estoppel)