United States District Court, N.D. Indiana, South Bend Division
OPINION AND ORDER
Pletcher operates a company that performs RV paint repair. He
bought insurance with Auto-Owners Insurance Company through
one of its agencies, KFG Insurance Agency. In August 2018,
the business experienced a fire that caused significant
damage, so Mr. Pletcher submitted a claim. Auto-Owners paid
for part of the loss, but now it seeks to deny coverage and
rescind the policy because the application contained false
information. Auto-Owners filed this suit against Mr.
Pletcher, KFG Insurance, and one of KFG Insurance's
employees, Leann Davis, alleging that they are responsible
for providing false information. Mr. Pletcher filed counter-
and cross-claims, and his business intervened as a defendant
and has likewise sought to file counter-and cross-claims.
Insurance and Ms. Davis have now moved to compel arbitration
of Auto-Owners' claims against them and to stay the
claims pending the arbitration. They rely on an arbitration
provision in KFG Insurance's agency contract with
Auto-Owners. That provision states: “In the event of
any dispute arising out of the Contract, parties agree to
submit such dispute to arbitration . . . .” [DE 1-4
Part VIII]. Auto-Owners opposes the motion.
Federal Arbitration Act “embodies both a ‘liberal
federal policy favoring arbitration and the fundamental
principle that arbitration is a matter of
contract.'” Gore v. Alltel Comm'ns,
LLC, 666 F.3d 1027, 1032 (7th Cir. 2012) (quoting
AT&T Mobility LLC v. Concepcion, 563 U.S. 333,
339 (2011)). A court may compel arbitration when three
elements are present: “a written agreement to
arbitrate, a dispute within the scope of the arbitration
agreement, and a refusal to arbitrate.” Zurich Am.
Ins. Co. v. Watts Indus., Inc., 417 F.3d 682, 687 (7th
Cir. 2005). When a court compels arbitration, it must also
stay the claims. 9 U.S.C. § 3.
does not dispute the existence of a binding agreement to
arbitrate with KFG Insurance. It argues, however, that Ms.
Davis is not a party to that contract, and that the claims
against her should not be stayed unless KFG Insurance first
admits that it is responsible for her conduct (apparently on
the theory that such an admission would render the claims
against Ms. Davis superfluous). First, Auto-Owners'
argument that KFG Insurance's liability for Ms.
Davis' conduct must be established prior to arbitration
is a non-starter. That is a question on the merits of the
claims that would be resolved in arbitration, not a condition
precedent to arbitration. The question of whether Ms. Davis
can enforce the arbitration provision as a non-signatory to
the contract is a distinct issue from the substance of the
part, though, Ms. Davis fails to develop any argument as to
why she should be entitled to enforce the arbitration
agreement. The Supreme Court has held “that
‘traditional principles of state law' govern
whether a contract, including an arbitration agreement, is
enforceable by or against a non-party.” Scheurer v.
Fromm Family Foods LLC, 863 F.3d 748, 752 (7th Cir.
2017) (quoting Arthur Andersen LLP v. Carlisle, 556
U.S. 624, 631 (2009)). Thus, “a litigant who was not a
party to the relevant arbitration agreement may invoke [the
Federal Arbitration Act] if the relevant state contract law
allows him to enforce the agreement.” Arthur
Andersen, 556 U.S. at 632. Ms. Davis' filings do not
discuss any Indiana standards on the enforceability of
contracts by non-signatories, nor do they cite any Indiana
cases to that effect. And though Auto-Owners raised the issue
in its response brief that Ms. Davis is not a party to the
contract, Ms. Davis did not substantively address that
argument in her reply brief or discuss why she is nonetheless
entitled to compel arbitration of the claims against
Ms. Davis has thus failed to meet her burden of showing that
an arbitration agreement exists between her and Auto-Owners,
so the Court denies the motion to compel Auto-Owners to
arbitrate its claims against Ms. Davis.
arbitration agreement undisputedly exists between Auto-Owners
and KFG Insurance, though, so the Court must consider whether
the claims against KFG Insurance are within the scope of that
agreement, such that those claims must be referred to
arbitration. Once it is clear that the parties entered a
contract “that provides for arbitration of some issues
between them, any doubt concerning the scope of the
arbitration clause is resolved in favor of arbitration as a
matter of federal law.” Gore v. Alltel
Commc'ns, LLC, 666 F.3d 1027, 1032 (7th Cir. 2012).
“‘To this end, a court may not deny a party's
request to arbitrate an issue ‘unless it may be said
with positive assurance that the arbitration clause is not
susceptible of an interpretation that covers the asserted
dispute.'” Id. (quoting Kiefer
Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907,
909 (7th Cir. 1999)).
arbitration provision here states, “In the event of any
dispute arising out of the Contract, the parties
agree to submit such a dispute to arbitration[.]” [DE
1-4 Part VII (emphasis added)]. The Seventh Circuit has
interpreted similar provisions expansively, holding that the
phrase “‘arising out of' reaches all disputes
having their origin or genesis in the contract, whether or
not they implicate interpretation or performance of the
contract.” Gore, 666 F.3d at 1033 (internal
quotation omitted); Sweet Dreams Unlimited, Inc. v.
Dial-A-Mattress Int'l, Ltd., 1 F.3d 639, 642 (7th
Cir. 1993). Under that standard, the claims at issue here
squarely arise out of the contract.
begin with, Count IV of Auto-Owners' complaint expressly
invokes the contract's indemnification provision as the
basis for the claim. [DE 8 ¶ 59 (“Per the Agency
Contract, . . . KFG Agency is obligated to indemnify
[Auto-Owners] for all expenses arising from the fraud,
misrepresentation, errors, and omissions of KFG
Agency[.]”)]. Auto-Owners argues that the claim does
not arise under the contract because the dispute is purely
factual and does not involve competing interpretations of the
contract. That is irrelevant, though. This claim seeks to
enforce the contract, so the dispute arises out of the
contract; it does not matter whether the dispute
“implicate[s] interpretation or performance of the
contract.” Gore, 666 F.3d at 1033.
claims for negligence and breach of fiduciary duty arise
under the contract, too. The contract grants KFG Insurance
the “authority to receive applications for contracts of
insurance written by [Auto-Owners] and to bind
coverage[.]” [DE 1-4 Part I(1)]. It also requires KFG
Insurance to “complete all documents required by
[Auto-Owners], including but not limited to, applications,
binders or requests for policy changes.” Id.
Part I(7). It further requires KFG Insurance to
“promptly report to [Auto-Owners] improper or illegal
activities or breaches of the Company policies . . . by any
employee of [KFG Insurance], ” and makes KFG Insurance
responsible for the performance of its agents. Id.
Part I(2), (9). Auto-Owners' claims arise out of those
responsibilities. Auto-Owners alleges that KFG Insurance is
liable because its employees provided false information in
the application they submitted to Auto-Owners and failed to
provide accurate information in response to questions.
resisting arbitration, Auto-Owners notes that its claims for
negligence and breach of fiduciary duty are based on common
law duties, and do not assert breaches of the contract.
Again, that is irrelevant. The contract calls for KFG to
accept applications and to complete documents required by
Auto-Owners. The claims at issue here arise out of the
relationship created by the contract and out of KFG
Insurance's performance of those duties, so the claims
have their origin or genesis in the contract. Thus,
Auto-Owners' claims against KFG Insurance fall within the
scope of the arbitration agreement.
Auto-Owners argues that compelling arbitration would result
in piecemeal litigation because only part of the dispute is
subject to the arbitration agreement. Auto-Owners has also
sued Mr. Pletcher, who asserted counter-claims and
cross-claims, and his company also intervened as a party.
None of those claims are subject to an arbitration agreement,
so an arbitration could only resolve a portion of the greater
dispute, which could generate inefficiencies and
inconsistencies. That is not a basis to avoid arbitration,
though. The Federal Arbitration Act makes no exception for
those circumstances, and the Seventh Circuit has expressly
rejected this argument:
At its core, [the plaintiff's] argument is that it is
unfair to force it to litigate and to arbitrate the same
legal and factual issues with different parties. The short
answer to this is that the Federal Arbitration Act (FAA)
makes no exception to the enforceability of arbitration
clauses when this type of inefficiency exists. . . . If there
is to be a duplicative proceeding exception, it is for
Congress to add it to the FAA; it is not for us to create . .
Reliance Ins. Co. v. Raybestos Prods. Co., 382 F.3d
676, 679-80 (7th Cir. 2004). Accordingly, because an
agreement to arbitrate exists and the claims are within the
scope of that agreement, the Court must grant the motion to
compel arbitration of Auto-Owners' claims against KFG
Insurance. For the same reasons, the Court must also stay