McNall v. Farmers Ins. Group

• Decision Date: 01 August 1979
• Docket Number: No. 3-476A97,3-476A97
• Parties: David McNALL, b/n/f Ralph McNall, and Ralph McNall, Plaintiffs-Appellants and Cross-Appellees, v. FARMERS INSURANCE GROUP, Defendant-Appellee.
• Court: Indiana Appellate Court

Page 520

392 N.E.2d 520

181 Ind.App. 501

David McNALL, b/n/f Ralph McNall, and Ralph McNall, Plaintiffs-Appellants and Cross-Appellees, v. FARMERS INSURANCE GROUP, Defendant-Appellee.

No. 3-476A97.

Court of Appeals of Indiana, Third District.

Aug. 1, 1979.

Edward L. Murphy, Jr., Gilmore S. Haynie, Jr., Livingston, Dildine, Haynie & Yoder, Fort Wayne, for plaintiffs-appellants and cross-appellees.

John M. Clifton, Jr., Joseph A. Bruggeman, Barrett, Barrett & McNagny, Fort Wayne, for defendant-appellee.

GARRARD, Presiding Judge.

David McNall was severely injured when the motorcycle upon which he was riding was struck by a motorcycle driven by Rick Waterson, an unlicensed, uninsured minor. Ralph McNall, David's father and a cross appellee in this action, had been issued three insurance policies by Farmers Insurance Group (hereinafter Farmers Insurance), all containing uninsured motorist coverage. Farmers Insurance denied liability under the policies because the motorcycle ridden by David was not an insured vehicle under any of the policies and secondly because David was allegedly contributorily negligent. Along with denial of coverage and liability of the uninsured motorist, Farmers Insurance demanded that all claims under the policy be submitted to arbitration. The McNalls filed suit against Farmers Insurance to establish the existence of coverage, the status of Waterson as an uninsured motorist, his liability and the amount of damages. Farmers Insurance filed motions to dismiss and for an order compelling the McNalls to proceed with arbitration pursuant to the policies. The trial court overruled these motions and granted summary judgment in favor of the McNalls on the existence of coverage and found that Waterson was an uninsured motorist. The remaining issues of liability and damages were tried to a jury which found Waterson liable for the injuries sustained. It awarded Ralph $6,000 in damages and awarded David zero damages.

David and Farmers Insurance appealed raising the following issues:

1. Whether the court erred in denying Farmers Insurance's motion to compel arbitration.

2. Whether the verdict awarding no damages to David McNall was contrary to the evidence.

3. Whether the court correctly instructed the jury as to the standard of care of a child engaged in adult activities.

4. Whether the court correctly instructed the jury as to the doctrine of last clear chance.

5. Whether the court committed reversible error in allowing the jury to take the final instructions into the jury room during deliberations.

6. Whether the court erred in refusing to give Farmers Insurance offered instruction relating to the dollar limitation of the policies.

Issue I:

Farmers Insurance contends that under Indiana law and the specific provisions of the policies sued upon, the court erred in refusing to order the McNalls to pursue their claim against it in arbitration. The policies in question provide that "determination as to whether the insured is legally entitled to recover, and if so entitled the amount thereof, shall be made by agreement between the insured and the company or, in the event of disagreement by arbitration."

The definitional section of the policy provides:

"4. Arbitration: If any insured making claim hereunder and the Company do not agree that such insured is legally entitled to recover damages from the owner or operator of an uninsured motor vehicle because of bodily injury to the insured, or do not agree as to the amount payable hereunder, then either party, on written demand of the other, shall institute arbitration proceedings by serving upon the other a formal demand for arbitration.

The arbitrator shall hear and determine the following:

1. The existence of the uninsured motorist,

2. The liability of the uninsured motorist to the insured.

3. The amount of the award within the terms and limits of the policy or policies applicable to the proceedings."

Farmers Insurance is correct in its assertion that such clauses are enforceable in this state. The Uniform Arbitration Act (IC 34-4-2-1 Et seq.) provides for the validity of written agreements to arbitrate disputes existing or hereafter arising and further provides for legal proceedings to compel arbitration. Courts, however, cannot compel arbitration of matters which the parties have not agreed to arbitrate. The policies before us do not require that All disputes arising under them be settled by arbitration. Mandatory arbitration is required on three issues only:

1) The existence of an uninsured motorist;

2) the liability of the uninsured motorist to the insured;

3) the amount of damages.

The issue of whether the policies afforded David coverage in terms of their applicability is not included within the scope of mandatory arbitration. Hence, that issue may be decided by a court of law and not by an arbitrator. Netherlands Insurance Co. v. Moore (Fla.App.1966), 190 So.2d 191. The issue remains, however, as to whether the trial court properly retained jurisdiction over the controversy after deciding the issue of coverage or whether it was required to order arbitration of the issues of liability and damages. ¹

As noted above, the Uniform Arbitration Act provides for legal proceedings to compel arbitration. IC 34-4-2-3. ² The applicability of these procedures is predicated upon the existence of an enforceable agreement to arbitrate. The trial court found that there were no issues subject to arbitration because the denial of policy coverage constituted a waiver of the arbitration agreement.

A right to arbitration arising out of mutual agreement, like any other contractual right, may be waived, amended or altered. Galion Iron Works & Mfg. Co. v. J. D. Adams Mfg. Co. (7th Cir. 1942), 128 F.2d 411; Manchester Fire Assurance Co. v. Koerner (1895), 13 Ind.App. 372, 40 N.E. 1110. Such a waiver need not be in express terms. It may be implied by the acts, omissions or conduct of the insurer. Bielski v. Wolverine Ins. Co. (1967), 379 Mich. 280, 150 N.W.2d 788. Although Indiana has not precisely dealt with the issue of whether denial of coverage constitutes a waiver of the arbitration provision, we have followed the general rule ³ that denial of liability under an insurance policy is a waiver of the right to demand performance of conditions precedent such as proof of loss, ⁴ proof of death, ⁵ written notice of loss, ⁶ and the submission of losses incurred to an appraiser. ⁷

"The principle is old and thoroughly established that, when a party repudiates a contract and denies liability under it, the performance of conditions precedent, such as notice, demand, tender and the like, are waived on the ground that the law will not require a thing to be done which the party entitled has excused, or given notice that it will be unavailing. This principle applies to insurance as well as other contracts." Ohio Farmers Ins. Co. v. Vogel (1906), 166 Ind. 239, 243, 76 N.E. 977, 978.

In Orient Insurance Co. v. Kaptur (1911), 176 Ind. 308, 95 N.E. 230, our Supreme Court refused to allow an insurance company to avoid liability under a fire insurance policy on the basis that the insured had not satisfied the policy condition of having the alleged loss appraised by two qualified appraisers. The Court held that the jury was properly instructed that if the insurer had denied liability under the policy, the insured was not required to demand or request an appraisement or arbitration.

Other jurisdictions have explicitly held that denial of coverage amounts to a waiver of the arbitration provision in its entirety if the denial persists until after suit is brought to establish coverage. In American Southern Insurance Co. v. Daniel (Fla.App.1967), 198 So.2d 850, the insurer denied coverage until the insured initiated an action to have coverage declared to exist and for a determination as to liability and damages. In response to the complaint, the insurer, admitting coverage for the first time, demanded arbitration of the remaining issues. The court denied the motion stating, " . . . unless the insurance company admits coverage it can always be denied the right of arbitration by the insured filing suit for a declaratory decree on the question of coverage, thereby vesting in the court the right to have all the issues settled, including the jury trial. . . . (I)n view of the fact that coverage was denied until after suit had been instituted, it would appear to us that the letter of denial of coverage was sufficient to constitute a waiver of the insurance company's right to arbitration . . .." 198 So.2d at 852, 853.

In Schleif v. Hardware Dealers Mutual Fire Ins. (1966), 218 Tenn. 489, 404 S.W.2d 490, it was held that denial of coverage under the uninsured motorist provision of a policy constituted a waiver of the right to arbitrate.

"While we do not say that under other circumstances arbitration would not be proper, we do say that the courts of this State are as well qualified as any arbitrator to settle the dispute where the defendant refused to negotiate any responsibility under this portion of the policy." 404 S.W.2d at 493.

The right of arbitration was not waived where the insurance company had admitted liability several years before trial in Niazi v. St. Paul Mercury Insurance Co. (1963), 265 Minn. 222, 121 N.W.2d 349. The policyholder had been awarded summary judgment on the issue of coverage and two years later filed suit to determine the amount of damages. Since the insurer had admitted coverage before this later suit was filed, the court granted an order to compel arbitration. The court stated, however,

"If the denial of liability had continued until the present action in district court had been instituted by relators (the insured) a different case would have been presented." 121 N.W.2d 349 at 355.

There are sound policy reasons for holding that a denial of coverage persisting until an action is brought to determine coverage constitutes a waiver of...