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State Farm Mutual Automobile Insurance Company v. Cincinnati Insurance Company

October 01, 2002

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, PETITIONER, APPELLANT,
v.
CINCINNATI INSURANCE COMPANY, RESPONDENT.



Wright County District Court File No. C1-01-3583

Considered and decided by Toussaint, Chief Judge, Randall, Judge, and Harten, Judge.

SYLLABUS BY THE COURT

An insured's tender of the defense of a claim is a condition precedent to compelling arbitration under an intercompany arbitration agreement.

The opinion of the court was delivered by: Toussaint, Chief Judge

Affirmed

OPINION

Respondent insurance company refused to arbitrate a car accident because its insured instructed it not to provide coverage, pay or defend the action. Appellant insurance company moved to compel arbitration, and the district court denied the motion. Appellant contends that (1) the district court erred by denying its motion to compel respondent to arbitrate; (2) respondent's refusal to pay the claim based on the instruction of the insured violates public policy and the Unfair Claims Practices Act, Minn. Stat. §á72A.201, subd. 8(3) (2000); (3) appellant is entitled to attorney fees under the arbitration agreement; and (4) the proceedings in the underlying action against respondent's insured should be stayed pending conclusion of arbitration. We affirm.

FACTS

This case arises out of a motor-vehicle accident. Glen Meyer hired Michelle Miller's husband, Loren, to plow his driveway. As Loren was plowing Meyer's driveway, Michelle drove in the driveway to speak to Loren. At about the same time, Meyer backed out of his garage, drove forward around his rock garden, and then, while looking at and waving to Loren, collided with Michelle's vehicle.

At the time of the accident, the Millers were insured by appellant State Farm Mutual Insurance Company (State Farm). State Farm paid for the property damage to Michelle's vehicle, but Michelle also sustained out-of-pocket expenses as a result of the policy's $500 deductible. State Farm attempted to recover from Meyer, the amounts it had paid to Michelle and Michelle's out-of-pocket expenses. When Meyer refused to disclose the identity of his insurer, State Farm and Michelle sued him. State Farm later learned that Meyer was insured by respondent Cincinnati Insurance Company (Cincinnati), but Meyer had instructed Cincinnati not to provide coverage, pay the claim, or defend him. Cincinnati "stood ready to defend and indemnify" Meyer, but Meyer elected not to invoke his liability coverage and instead decided to defend the matter himself.

State Farm filed a petition for arbitration pursuant to its intercompany arbitration agreement with Cincinnati. While Cincinnati admitted that it was a signatory to the agreement it argued that the agreement only takes effect if Cincinnati's insured invokes coverage.

State Farm moved to compel Cincinnati to arbitrate. The district court denied State Farm's motion, concluding that (1) the disputed claim does not fall within the scope of the arbitration agreement; (2) Cincinnati is under no obligation to defend, indemnify, or arbitrate on its insured's behalf because its insured had not tendered defense of the claim to it; (3) the insurance policy between Cincinnati and its insured did not confer third-party-beneficiary status on State Farm; and (4) the Minnesota Unfair Claims Practices Act does not affect State Farm's claim. State Farm appeals.

ISSUES

Did the district court err by denying appellant's motion to compel arbitration?

Did respondent's refusal to pay the claim based on the instruction of its insured violate public policy and the Unfair Claims Practices Act, Minn. Stat. § 72A.201, subd. 8(3) (2000)?

Did the district court err by denying appellant's request for attorney fees under the terms of the parties' intercompany arbitration agreement?

Did the district court err by denying appellant's motion to stay the underlying proceeding between appellant's insured and respondent's insured?

ANALYSIS

Motion to Compel Arbitration

This court reviews the district court's denial of a motion to compel arbitration de novo. Johnson v. Piper Jaffray, Inc., 530 N.W.2d 790, 795 (Minn. 1995). When considering a motion to compel arbitration, the court's inquiry is limited to determining (1) whether a valid arbitration agreement exists; and (2) whether the dispute falls within the scope of ...


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