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State Farm Fire and Casualty Co. v. Watts Regulator Co.

Court of Appeals of Illinois, Second District

September 29, 2016

STATE FARM FIRE AND CASUALTY COMPANY, as Subrogee of Cecilia Montero, Plaintiff-Appellee,

         Appeal from the Circuit Court of McHenry County, No. 15-AR-148; the Hon. Michael J. Chmiel, Judge, presiding.


          Eugene M. LaFlamme, of McCoy Leavitt Laskey LLC, of Waukesha, Wisconsin, for appellant.

          William J. Hoffman and Jonathan J. Tofilon, both of Grotefeld Hoffmann Schleiter Gordon Ochoa & Evinger, LLP, of Geneva, for appellee.

          JUSTICE JORGENSEN delivered the judgment of the court, with opinion. Justices Hutchinson and Zenoff concurred in the judgment and opinion.



         ¶ 1 After plaintiff, State Farm Fire and Casualty Company, filed a subrogation suit against defendant, Watts Regulator Company, seeking to recover payments it made to its insured, Cecilia Montero, Watts moved to compel arbitration through Arbitration Forums, Inc. The parties were signatories to that entity's "Property Subrogation Arbitration Agreement" (Arbitration Agreement), and they disagreed over the interpretation of an amendment to the Arbitration Agreement, which would determine whether Montero's claim was subject to compulsory arbitration. Watts argued that the claim's accrual date (i.e., the date of loss) was determinative of whether the amendment applied, and State Farm took the position that the filing date was determinative. The trial court ruled in State Farm's favor, denying Watts's motion to compel arbitration. We affirm.

         ¶ 2 I. BACKGROUND

         ¶ 3 This case arose after Montero's home sustained water damage. The event occurred on September 7, 2013. At that time, the Arbitration Agreement mandated that signatories forgo litigation and submit certain personal, commercial, or self-insured property subrogation claims to arbitration. Specifically, arbitration was compulsory for property subrogation claims seeking up to $100, 000.

         ¶ 4 On November 4, 2014, Arbitration Forums posted a bulletin on its website, notifying its members that the Arbitration Agreement would be amended, effective January 1, 2015, to exclude all product-liability claims from the compulsory-arbitration provision. Specifically, the amendment stated that "cases filed prior to January 1, 2015, will remain in arbitration's jurisdiction and will be processed to hearing." (Emphasis added.)

         ¶ 5 On April 15, 2015, State Farm filed its suit against Watts, seeking recovery of certain amounts it paid to Montero. In an amended complaint, State Farm alleged that, on September 7, 2013, a fitting on a Watts-manufactured FloodSafe-brand supply line to Montero's Wonder Lake home fractured and flooded the kitchen, hallway, and dining room, causing extensive damage. State Farm raised two counts, strict liability and negligence, [1] alleging that it paid Montero $14, 385 for expenses and repairs under the terms of Montero's policy and that it also sustained a loss of $1000 in the form of the deductible amount under the policy, thereby becoming subrogated to her rights thereunder. State Farm sought a judgment of $15, 385.

         ¶ 6 On August 21, 2015, Watts filed its answer, denying the allegations and raising several affirmative defenses, including contributory negligence and spoliation. It also reserved the right to assert additional affirmative defenses, "once evidence is uncovered during discovery in this litigation that would support such additional defenses."

         ¶ 7 On December 22, 2015, Watts moved to compel arbitration through Arbitration Forums and to stay or dismiss the arbitration proceedings through the trial court, [2] asserting that the claim here accrued on September 7, 2013, which was prior to the effective date of the Arbitration Agreement amendment and that thus the amendment did not apply. It also noted that State Farm had stipulated in other cases that claims that accrued prior to the amendment were subject to the Arbitration Agreement. Watts argued, as it does in this appeal, that (1) State Farm was judicially estopped from refusing to arbitrate Montero's claim through Arbitration Forums and (2) the amendment did not apply to the claim.

         ¶ 8 The Arbitration Agreement, which the parties agree was effective when the claim accrued in this case, states that Arbitration Forums is authorized by signatory companies to make appropriate rules and regulations for the presentation and determination of controversies under the agreement. The amendment at issue states, in relevant part: "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." (Emphasis added.)

         ¶ 9 On February 25, 2016, State Farm filed its response to Watts's motion to compel, arguing that, because the filing date determined whether the amendment applied and because it filed its suit after the amendment's effective date, the claim need not be arbitrated under the Arbitration Agreement. It also noted that Watts filed its motion to compel after it filed an appearance and an answer to State Farm's complaint. State Farm noted that Watts was a signatory to the Arbitration Agreement and in other jurisdictions had unsuccessfully challenged Arbitration Forums' ability to alter the terms of the Arbitration Agreement.

         ¶ 10 On March 4, 2016, Watts moved to continue the court-set arbitration hearing, which was scheduled for April 8, 2016. As relevant here, Watts alleged that, shortly after Watts answered the amended complaint, State Farm approached Watts about resolving the claim through Arbitration Forums, although State Farm ultimately refused to submit the matter to arbitration through that entity. Watts noted that it continued to take the positions that State Farm should be ordered to submit to arbitration through Arbitration Forums and that the court-set arbitration should be stayed or dismissed, but, alternatively, Watts asked that the court continue the court-set arbitration for 60 days.

         ¶ 11 In its reply in support of its motion to compel, Watts argued that, because State Farm failed to address judicial estoppel in its response to Watts's motion, it had conceded the issue. Watts also alleged that State Farm had initially, including in September 2015, represented that it would agree to voluntarily dismiss the suit and submit the matter to arbitration through Arbitration Forums. It attached correspondence between the parties' counsel, including a September 23, 2015, e-mail wherein State ...

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