A manufacturer of water products caused property damage in two separate homes for which insurers filed separate subrogation claims against the manufacturer in superior court. The manufacturer and insurers were parties to a form of arbitration agreement managed by an administrator. After the property damage occurred, but before the subrogation claims were filed, the administrator informed all parties that product liability claims were excluded from mandatory arbitration, and amended the governing agreement. The revised arbitration agreement did not, however, clarify whether such exclusion applied retroactively to claims that accrued prior to the revision. The manufacturer moved to dismiss both subrogation actions and compel arbitration. The superior court denied the motions in both actions on the grounds that the parties had agreed to allow the administrator to delineate the procedural rules regarding arbitration, which included the exclusion of product liability claims.
The Court of Appeals reversed, holding that the clear language of the arbitration agreement in effect at the time of the property damage required arbitration of the subrogation claims. The Court acknowledged that the agreement permitted the administrator to change the “rules and regulations” of controversies under the agreement, but rejected the argument that this authority permitted the administrator to change unilaterally which controversies were subject to compulsory arbitration. Moreover, the terms of the arbitration agreement in effect at the time of the property damage compelled arbitration and became enforceable and irrevocable under A.R.S § 12-1501 at the time the claims arose. Finally, the Court declined to rely on an e-mail from the administrator sent to the parties clarifying that the amendment was retroactive because it was not part of any agreement signed by the parties.
Judge Gemmill authored the opinion; Judges Jones and Thompson concurred.
Posted by: William D. Furnish