Lerma v. Allstate Insurance Company, Civ. No. 4758.

CourtUnited States District Courts. 7th Circuit. United States District Court of Northern District of Indiana
Writing for the CourtEdward J. Raskosky, Hammond, Ind., for plaintiffs
Citation301 F. Supp. 361
PartiesBen LERMA and Robert Lerma v. ALLSTATE INSURANCE COMPANY, an Illinois corporation.
Docket NumberCiv. No. 4758.
Decision Date22 April 1968

301 F. Supp. 361

Ben LERMA and Robert Lerma
v.
ALLSTATE INSURANCE COMPANY, an Illinois corporation.

Civ. No. 4758.

United States District Court N. D. Indiana, Hammond Division.

April 22, 1968.


Edward J. Raskosky, Hammond, Ind., for plaintiffs.

Patrick J. Dougherty, Gary, Ind., for defendant.

MEMORANDUM

BEAMER, District Judge.

Plaintiffs bring this action to recover on the "uninsured motorist coverage" of defendant's policy of automobile insurance No. 12-041-779. Plaintiff Ben Lerma was the named insured in the policy and he alleges that he was injured in an automobile collision with an uninsured motorist while driving an automobile covered by the policy. Plaintiff Robert Lerma alleges that he is the son of Ben Lerma and that he was injured in the same collision with his father, and is also entitled to recover under the "uninsured motorist coverage" clause.

The defendant insurer has filed a motion to dismiss the complaint for failure to state a claim upon which relief may be granted. It is defendant's contention that the pleadings and exhibits demonstrate that the plaintiffs have failed to fulfill a condition precedent — arbitration. The Contract between the parties provides:

In the event of disagreement and upon written demand of the insured, the matter or matters upon which the insured and Allstate do not agree shall be settled by arbitration in accordance with the rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any Court having jurisdiction thereof. The insured and Allstate each agrees to consider itself bound and to be bound by any award made by the Arbitrator(s) pursuant to this Section II.
301 F. Supp. 362

The plaintiffs contend that this provision is void as against public policy in the State of Indiana.

The issue thus presented is whether a contract provision purporting to require the parties to submit future disputes to binding arbitration is void under Indiana law and whether under such a provision, arbitration is a condition precedent to bringing suit on the contract. Both parties have approached this question as one of Indiana law, and the Court, as it is bound to do, decides it on that basis. See Bernhardt v. Polygraphic Co., 350 U.S. 198, 76 S. Ct. 273, 100 L.Ed. 199, 202 (1956); Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

An examination of the Indiana cases reveals one overriding fact — confusion. There are three distinct principles enunciated in the various cases. First, the Indiana Supreme Court has held that an agreement purporting to oust the Courts of jurisdiction over a future dispute is void as against public policy. Second, an agreement making arbitration a condition precedent to a suit on the contract is valid under some circumstances. Third, once a dispute has been submitted to arbitration and an award has been made, the award is binding on the parties. It would appear that the strict prohibition enunciated by the Supreme Court would be circumvented by making arbitration a condition precedent to an action on the contract, and making that arbitration binding once it was undertaken. Because the Indiana law may be uncertain or confused is no reason for this Court to ignore it or remake it. Instead, the Court must look to that law to determine what the Indiana courts would do when presented the same questions raised here.

As early as 1882 the Indiana Supreme Court held, in Kistler v. Indianapolis and St. Louis Railroad Co., 88 Ind. 460, 464 (1882) that:

It is said, however, that, by the contract, the parties made the engineer the sole umpire of all differences that might arise between them, and thus precluded themselves from the right to resort to the courts for the settlement of such differences. If the eleventh clause of the contract means this, we think it against public policy, and void.

This case still states the law of Indiana. Later cases, which indicate that submission of the dispute to some third party might be a condition precedent, also hold that the decisions of an arbitrator or third party cannot be made binding. In Supreme Council of the Order of Chosen Friends v. Forsinger, 125 Ind. 52, 25 N.E. 129, 130, 9 L.R.A. 501 (1890) the Court stated: "Our decisions declare that it is not competent for parties, in advance of any dispute, to oust the jurisdiction of the courts by providing that the decision of persons named...

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4 practice notes
  • Indiana Ins. Co. v. Noble, No. 569A84
    • United States
    • Indiana Court of Appeals of Indiana
    • December 30, 1970
    ...coverage as above set forth. The appellee cites and relies heavily upon the decision of Judge Beamer v. Lerma v. Allstate Ins. Co., 301 F.Supp. 361 (N.D.Ind.1968), which stated in 'The final principle enunciated by the courts of this state which bears upon this question is that a common law......
  • Pathman Const. Co. v. Knox County Hospital Ass'n, No. 1--474A60
    • United States
    • Indiana Court of Appeals of Indiana
    • May 5, 1975
    ...460; The Supreme Council of the Order of Chosen Friends v. Forsinger (1890), 125 Ind. 52, 25 N.E. 129; Lerma v. Allstate Insurance Co., 301 F.Supp. 361 (N.D.Ind.1968); Indiana Insurance Co. v. Noble (1970); 148 Ind.App. 297, 265 N.E.2d 5 We note that this conclusion is in accord with Hospit......
  • Utopia Coach Corp. v. Weatherwax, No. 3-776A175
    • United States
    • Indiana Court of Appeals of Indiana
    • August 21, 1978
    ...under Indiana law, a contract provision requiring arbitration of future disputes was of no effect. Lerma v. Allstate Insurance Company, 301 F.Supp. 361 (N.D.Ind.1968); Vernon Fire and Casualty Insurance Company v. Matney (1976), Ind.App., 351 N.E.2d 60; Indiana Insurance Company v. Noble (1......
  • Vernon Fire & Cas. Ins. Co. v. Matney, No. 1--1075A186
    • United States
    • Indiana Court of Appeals of Indiana
    • July 15, 1976
    ...in Indiana at that time invalidated arbitration agreements. Indiana Insurance Co. v. Noble, supra; Lerma v. Allstate Ins. Co. (1968), 301 F.Supp. 361 (N.D.Ind.). That fact would preclude the use of the arbitration clause in the policy.' 'Consent to sue' provisions have also been frequently ......
4 cases
  • Indiana Ins. Co. v. Noble, No. 569A84
    • United States
    • Indiana Court of Appeals of Indiana
    • December 30, 1970
    ...coverage as above set forth. The appellee cites and relies heavily upon the decision of Judge Beamer v. Lerma v. Allstate Ins. Co., 301 F.Supp. 361 (N.D.Ind.1968), which stated in 'The final principle enunciated by the courts of this state which bears upon this question is that a common law......
  • Pathman Const. Co. v. Knox County Hospital Ass'n, No. 1--474A60
    • United States
    • Indiana Court of Appeals of Indiana
    • May 5, 1975
    ...460; The Supreme Council of the Order of Chosen Friends v. Forsinger (1890), 125 Ind. 52, 25 N.E. 129; Lerma v. Allstate Insurance Co., 301 F.Supp. 361 (N.D.Ind.1968); Indiana Insurance Co. v. Noble (1970); 148 Ind.App. 297, 265 N.E.2d 5 We note that this conclusion is in accord with Hospit......
  • Utopia Coach Corp. v. Weatherwax, No. 3-776A175
    • United States
    • Indiana Court of Appeals of Indiana
    • August 21, 1978
    ...under Indiana law, a contract provision requiring arbitration of future disputes was of no effect. Lerma v. Allstate Insurance Company, 301 F.Supp. 361 (N.D.Ind.1968); Vernon Fire and Casualty Insurance Company v. Matney (1976), Ind.App., 351 N.E.2d 60; Indiana Insurance Company v. Noble (1......
  • Vernon Fire & Cas. Ins. Co. v. Matney, No. 1--1075A186
    • United States
    • Indiana Court of Appeals of Indiana
    • July 15, 1976
    ...in Indiana at that time invalidated arbitration agreements. Indiana Insurance Co. v. Noble, supra; Lerma v. Allstate Ins. Co. (1968), 301 F.Supp. 361 (N.D.Ind.). That fact would preclude the use of the arbitration clause in the policy.' 'Consent to sue' provisions have also been frequently ......

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