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Allstate Property and Casualty Insurance Co. v. Watts Water Technologies, Inc.

Court of Appeals of Arizona, First Division

February 6, 2018

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.

         Appeal from the Superior Court in Mohave County No. S8015CV201600190 The Honorable Charles W. Gurtler, Judge

         Appeal from the Superior Court in Maricopa County No. CV2016-005213 The Honorable James T. Blomo, Judge (Retired)

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

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

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

          Judge John C. Gemmill [1] delivered the opinion of the Court, in which Presiding Judge Kenton D. Jones and Judge Jon W. Thompson joined.

          OPINION

          GEMMILL, JUDGE:

         ¶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.

         BACKGROUND

         ¶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 ...


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