Allstate Prop. & Cas. Ins. Co. v. Watts Water Techs., Inc., 1 CA CV 16-0500, 1 CA-CV 16-0559 (Consolidated)

CourtCourt of Appeals of Arizona
Citation418 P.3d 1026
Docket NumberNo. 1 CA CV 16-0500, 1 CA-CV 16-0559 (Consolidated),1 CA CV 16-0500, 1 CA-CV 16-0559 (Consolidated)
Parties ALLSTATE PROPERTY AND CASUALTY INSURANCE COMPANY, Plaintiff/Appellee, v. WATTS WATER TECHNOLOGIES, INC., Defendant/Appellant. State Farm Fire and Casualty Insurance Company, Plaintiff/Appellee, v. Watts Regulator Company, Defendant/Appellant.
Decision Date06 February 2018

Bauman Loewe Witt & Maxwell, PLLC, Scottsdale, By Frank B. Jancarole, Counsel for Appellee Allstate

Manning & Kass Ellrod, Ramirez, Trester, LLP, Phoenix, By Scott A. Alles, Keith R. Ricker, CoCounsel for Appellee State Farm

Grotefeld, Hoffmann, Schleiter, Gordon, Ochoa & Evinger, LLP, Geneva, Illinois, By Jonathan Tofilon, CoCounsel for Appellee State Farm

Grotefeld, Hoffmann, Schleiter, Gordon, Ochoa & Evinger, LLP, Minneapolis, Minnesota, By Daniel W. Berglund, CoCounsel for Appellee State Farm

Lewis Brisbois Bisgaard & Smith LLP, Phoenix, By James K. Kloss, Adam S. Polson, Counsel for Appellant Watts

Judge John C. Gemmill1 delivered the opinion of the Court, in which Presiding Judge Kenton D. Jones and Judge Jon W. Thompson joined.



¶ 1 Watts Water Technologies, Inc. ("Watts") appeals the denial of its motions to dismiss and compel arbitration. The parties disagree about whether these product liability subrogation claims are subject to mandatory contractual arbitration. For the following reasons, we reverse and remand for proceedings consistent with this opinion.


¶ 2 In April 2014, a Watts-made water supply line allegedly failed at the residence of Terry and Lisa McNemar, causing property damage. The McNemars' insurer, Allstate Property and Casualty Insurance Company ("Allstate"), paid $53,149.65 for the McNemars' loss and nearly two years later, in March 2016, filed a subrogation action against Watts.

¶ 3 In June 2014, Russell and Pam Vaughn suffered property damage following the alleged malfunction of a reverse osmosis water filter manufactured by Watts. The Vaughns were insured by State Farm Fire and Casualty Insurance Company, Inc. ("State Farm"). State Farm paid $15,675.00 for the Vaughns' loss and filed a subrogation action against Watts in April 2016.

¶ 4 At the time of the incidents causing property damage, Allstate, State Farm (collectively, "the Insurers"), and Watts were parties to a Property Subrogation Arbitration Agreement ("the Agreement") promulgated by Arbitration Forums, Inc. ("AF"), which required that signatory companies forego litigation and arbitrate property subrogation claims. Article First of the Agreement, signed by Allstate in 1996 and State Farm in 2003, provided in pertinent part:

Signatory companies are bound to forego litigation and in place thereof submit to arbitration any questions or disputes which may arise from ... any fire subrogation or property damage claim not in excess of $100,000.

The Agreement, signed by Watts in 2005, also provided, in Article Fifth, that "AF, representing the signatory companies, is authorized to ... (a) make appropriate Rules and Regulations for the presentation and determination of controversies under this Agreement."2

¶ 5 In November 2014, AF advised its signatory members through an e-bulletin that, effective January 1, 2015, it was adding a "new exclusion" to the Agreement that would remove product liability claims arising from allegedly defective products from the claims subject to mandatory arbitration between signatory companies. The November e-bulletin further advised:

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.

¶ 6 AF did not include the foregoing e-bulletin language regarding claims accrued or "cases filed prior to January 1, 2015" within the revised Agreement ("Amended Agreement") promulgated by AF in January 2015. Instead, only the following exclusion (i) was added to Article Second:

Article Second
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.

(Emphasis in original). The Amended Agreement does not include any language specifying whether the new exclusion applied to claims accruing before 2015 but not filed until after January 1, 2015. Neither Watts nor the Insurers signed the Amended Agreement with the new exclusion removing product liability claims from compulsory arbitration.

¶ 7 In 2016, the Insurers filed product liability actions against Watts in superior court, based on the losses that occurred in 2014. Watts moved for dismissal of the lawsuits or alternatively for a stay and order compelling arbitration. Watts argued the claims accrued before January 2015 and were therefore subject to mandatory arbitration under the Agreement in effect in 2014. After briefing and oral argument, the superior court in State Farm's case denied Watts's motion, finding the Agreement "was modified and the matter before the Court is not subject to mandatory arbitration." The superior court in Allstate's case concluded that "as both Plaintiff and Defendant are signatories to the AF Agreement, they are bound by the provisions of the same, including the right of AF to delineate when its services will be provided," and, therefore, denied the motion. Watts timely appeals the superior court's orders denying the motions to dismiss and compel arbitration. We have consolidated these appeals. Appellate jurisdiction is based upon Arizona Revised Statutes ("A.R.S.") sections 12–120.21(A)(1) (2018) and –2101.01(A)(1) (2018). See also Brumett v. MGA Home Healthcare, L.L.C., 240 Ariz. 420, 430–31, ¶¶ 20–21, 380 P.3d 659, 669–70 (App. 2016).


¶ 8 Watts argues the superior court erred in denying its motions to dismiss and compel arbitration because AF's change to the Agreement does not govern claims arising before the change. The Insurers maintain that AF was authorized by the Agreement to exclude product liability claims because of its power to make "appropriate Rules and Regulations for the presentation and determination of controversies under th[e] Agreement," and therefore the superior court correctly determined product liability claims filed after January 1, 2015 were "excluded" from compulsory arbitration. The parties ask us to determine which is applicable—the Agreement, based on date of loss, or the Amended Agreement, based on date of filing.3

¶ 9 The validity and enforceability of an arbitration agreement are mixed questions of fact and law that we review de novo. Estate of DeCamacho ex rel. Guthrie v. La Solana Care & Rehab, Inc ., 234 Ariz. 18, 20–21, ¶ 9, 316 P.3d 607, 612 (App. 2014) (citing Schoneberger v. Oelze , 208 Ariz. 591, 594, ¶ 12, 96 P.3d 1078, 1081 (App. 2004) ). We also review de novo a trial court's decision whether to compel arbitration. Sun Valley Ranch 308 Ltd. P'ship ex rel. Englewood Props., Inc. v. Robson , 231 Ariz. 287, 291, ¶ 9, 294 P.3d 125, 129 (App. 2012) (citing Nat'l Bank of Ariz. v. Schwartz , 230 Ariz. 310, 311, ¶ 4, 283 P.3d 41, 42 (App. 2012) ).

¶ 10 A written arbitration agreement "is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract." A.R.S. § 12–1501 (2018); accord A.R.S. § 12–3006(A) (2018); see also U.S. Insulation, Inc. v. Hilro Constr. Co ., 146 Ariz. 250, 256, 705 P.2d 490, 496 (App. 1985). When a party denies the existence of an agreement to arbitrate, the trial court "shall proceed summarily to the determination of the issue so raised." A.R.S. § 12–1502(A) (2018); see also A.R.S. § 12–3006(B) ("The court shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate."). "Although it is commonly said that the law favors arbitration, it is more accurate to say that the law favors arbitration of disputes that the parties have agreed to arbitrate." S. Cal. Edison Co. v. Peabody W. Coal Co. , 194 Ariz. 47, 51, ¶ 11, 977 P.2d 769, 773 (1999) (citing Clarke v. ASARCO Inc. , 123 Ariz. 587, 589, 601 P.2d 587, 589 (1979), and Pima Cty. v. Maya Constr. Co. , 158 Ariz. 151, 154, 761 P.2d 1055, 1058 (1988) ); see also Smith v. Pinnamaneni , 227 Ariz. 170, 176, ¶ 22, 254 P.3d 409, 415 (App. 2011) ("[A] party is bound to arbitrate only those disputes which it has contractually agreed to arbitrate.").

¶ 11 The parties do not contest the validity of the Agreement or the Amended Agreement. The parties acknowledge that each signed the Agreement to forego litigation and submit to arbitration all claims described therein.4 The parties also agree that the Amended Agreement was effective January 2015 and applies to all claims accruing thereafter. Watts, however, contends the Amended Agreement did not negate its right to arbitration of claims that arose before January 2015, but were filed after January 1, 2015. The Insurers argue in response that the Amended Agreement unambiguously applies to all claims filed after January 1, 2015, regardless of when the claim arose.

¶ 12 To resolve this conflict, we look to the plain language of the Agreement and Amended Agreement. See US W. Commc'ns, Inc. v. Ariz. Corp. Comm'n , 185 Ariz. 277, 280, 915 P.2d 1232, 1235 (App. 1996) (explaining the purpose of contract interpretation "is to determine and enforce the parties' intent" (citing Taylor v. State Farm Mut. Auto. Ins. , 175 Ariz. 148, 152, 854 P.2d 1134, 1138 (1993) ) ). "[I]t is axiomatic that any agreement must be construed as a whole, and each part must be read in light of all the other parts." C & T Land & Dev. Co. v. Bushnell , 106 Ariz. 21, 22, 470 P.2d 102, 103 (1970) (citing Goodman v. Newzona Inv. Co. , 101 Ariz. 470, 473, 421 P.2d 318, 321 (1966) ). We apply a common-sense approach and consider the language used and the organizational...

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