Whether Subsequent Agreement Between the Insurance Company and the Insured Affected Arbitrability of Dispute Is A Question for the Arbitrator

On June 1, 2017, the Court of Appeals issued a decision in Town of Amherst v. Granite State Insurance Company, 2017 NY Slip Op 04321, ruling that the effect of a subsequent agreement to "litigate" on the arbitrability of a dispute under an insurance agreement should be decided by the arbitrator, rather than the Court. Our previous post about this case, which includes a link to the Fourth Department decision, is available here.

Town of Amherst arose from an insurance coverage dispute. The policy at issue mandated arbitration before the American Arbitration Association of any "disagreement as to the interpretation of this Policy." In the context of settling a lawsuit against an indemnitor, Amherst and the insurance carrier signed a separate agreement to "litigate" of the disposition of the settlement proceeds. The Town of Amherst argued that this was a modification of the arbitration agreement in the policy. The trial court agreed and denied a motion to compel arbitration, but the Fourth Department reversed, finding that the effect of the subsequent agreement to "litigate" on the arbitrability of the dispute was for the arbitrator to decide.

The Court of Appeals, in a brief decision, affirmed, explaining:

Under the facts of this case, including the terms of the parties' insurance policy, which incorporated the rules of the American Arbitration Association, the issue of whether the later agreement between the parties affected the arbitrability of the dispute should be resolved by the arbitrator.

Judge Stein issued an equally terse dissent, stating:

Unlike the majority, I interpret the arbitration clause at issue here as narrow, rather than broad. In my view, under the facts of this case and that interpretation of the policy, the determination of the arbitrability of the parties' dispute should be made by the courts.

The law on the issue of who determines arbitrability (the Court or the arbitrator) is sometimes murky. The general rule is that arbitrability is determined by the Court, but there are some recognized exceptions to this rule. We recently blogged about a decision by Justice Ostrager, holding that the parties’ incorporation of the AAA Commercial Arbitration Rules (under which the arbitrator has the power to determine his own jurisdiction) reflects an intent to have the arbitrator decide questions of arbitrability. The majority in Town of Amherst relied in part on the AAA rules (an issue that does not appear to have been raised by the parties themselves). On the other hand, arguably the question before the Court was not arbitrability, but rather the existence of an arbitration agreement in the first place (an issue typically reserved for the Court), given that the parties had agreed to "litigate."