An appellate court in New York, affirming a trial court's decision, has ruled that an amendment to a property subrogation arbitration agreement excluded product liability claims from mandatory arbitration – and did so even for claims arising before the amendment's effective date.
The Case
State Farm Fire and Casualty Company, Watts Water Technologies, Inc., and Watts Regulator Company were members of Arbitration Forums, Inc. ("AF") and signatories to AF's "Property Subrogation Arbitration Agreement." The agreement required that signatory companies arbitrate property subrogation claims seeking to recover up to $100,000.
After giving notice to its members in November 2014, AF amended the agreement, effective January 1, 2015, to exclude from compulsory arbitration product liability claims arising from an alleged defective product.
Previously, on October 9, 2012, water damaged the house and personal property of Michael and Sarah Berry as the result of an allegedly defective pressure regulator valve manufactured by Watts. On April 12, 2013, after paying the Berrys' insurance claim for the damage to their property, State Farm sent a letter to Watts seeking to recover the total claim amount of $9,418.83.
Thereafter, on October 6, 2015, State Farm filed a product liability subrogation action against Watts to recover the $9,418.83, plus interest.
Watts moved to compel arbitration.
State Farm opposed the motion.
A New York trial court denied the motion, and Watts appealed.
The Appellate Court Decision
The appellate court affirmed.
In its decision, the appellate court explained that the AF agreement, as effective January 1, 2015, was "clear on its face" that signatory companies such as State Farm were not required to arbitrate a product liability claim arising from an allegedly defective product.
Thus, the appellate court said, in October 2015, at which time both State Farm and Wats remained signatories to the agreement, State Farm properly opted to file a product liability subrogation action against Watts rather than submit the claim to arbitration, despite the fact that the subrogation claim accrued prior to January 1, 2015.
The appellate court added that even if the agreement, as effective January 1, 2015, was not clear as to whether or not product liability claims that accrued prior to that date remained subject to compulsory arbitration, the "available extrinsic evidence" suggested that it was the case filing date, not the claim accrual date, that was determinative.
Specifically, the appellate court observed, the November 2014 "E-Bulletin" notifying AF members about the upcoming amendment to the agreement stated that "[w]hile 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." In the appellate court's opinion, by identifying only cases filed prior to January 1, 2015 as still subject to compulsory arbitration, AF "implicitly rejected the accrual date of the claim" as the critical point in time in determining whether a product liability claim remained subject to arbitration under the agreement.
The case is State Farm Fire and Casualty Co. v. Watts Water Technologies, Inc., No. 2016-12090 (N.Y. App. Div. 2d Dep't Sept. 25, 2019). Attorneys involved include: Melick & Porter, LLP, New York, NY (Jeremy I. Stein and Charles Gardner of counsel), for appellants. The Stuttman Law Group, P.C., White Plains, NY (Joel S. Stuttman, Dennis D. Murphy, and Daniel W. Berglund, pro hac vice, of counsel), for respondent.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].