Introduction

In a landmark decision on June 10, 2024, the Supreme Court of Indiana addressed the crucial issue of arbitrability within insurance policies. The case, Illinois Casualty Company v. B&S of Fort Wayne Inc. et al., revolved around whether the incorporation of the American Arbitration Association (AAA) rules into insurance policies constitutes a "clear and unmistakable" intent to delegate the determination of arbitrability to an arbitrator. This case involved Illinois Casualty Company (ICC) as the appellant and thirty-three models as appellees, who alleged unauthorized use of their images by strip clubs insured under ICC's policies.

Summary of the Judgment

The Indiana Supreme Court, in a majority opinion authored by Justice Massa, affirmed part of the lower court's decision while reversing another. The core holding affirmed that in Indiana, incorporating AAA rules into an arbitration agreement serves as "clear and unmistakable" evidence of the parties' intent to delegate arbitrability to an arbitrator. Consequently, for claims arising from 2016 onwards—when ICC's policies included the Cyber Protection Endorsement (CPE) with the arbitration clause—arbitrability must be resolved by an arbitrator. Conversely, for claims predating 2016, where no such arbitration agreement existed, arbitration could not be compelled.

Justice Goff concurred in the result but dissented in part, arguing that mere reference to AAA rules does not inherently delegate arbitrability and that other provisions within the arbitration agreements provided clearer indications of such intent.

Analysis

Precedents Cited

The judgment extensively referenced key precedents to underpin its rulings:

• FIRST OPTIONS OF CHICAGO, INC. v. KAPLAN, 514 U.S. 938 (1995) – Established the foundational principle that arbitration is a matter of contract.
• Henry Schein, Inc. v. Archer &White Sales, Inc., 586 U.S. 63 (2019) – Clarified the "clear and unmistakable" standard for committing to arbitration and affirmed that arbitrability can be delegated if such intent is unmistakably expressed.
• Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) – Emphasized enforcing arbitration agreements according to their terms.
• Blanton v. Domino's Pizza Franchising LLC, 962 F.3d 842 (6th Cir. 2020) – Recognized that incorporation of AAA rules can constitute clear evidence of delegating arbitrability to an arbitrator.

Additionally, the judgment drew upon numerous federal circuit courts and state supreme courts that generally concurred that incorporating AAA rules into arbitration agreements signifies clear intent to delegate arbitrability, with some exceptions noted.

Legal Reasoning

The court's legal reasoning unfolded in two primary phases:

1. Delegation of Arbitrability: The court first examined whether the incorporation of AAA rules into the arbitration agreements constituted a clear delegation of arbitrability to an arbitrator. Citing AAA Rule 7(a), which grants arbitrators the authority to rule on their own jurisdiction, including arbitrability, the court concluded that such incorporation meets the "clear and unmistakable" standard.
2. Applicability to Claims: The court then differentiated between claims arising before and after 2016, noting that the arbitration provisions were only incorporated in ICC's policies starting that year. Consequently, only the post-2016 claims fell under the arbitration agreements.

The court emphasized the sanctity of contract terms, asserting that arbitration agreements must be enforced based on their explicit language without judicial enlargement or implication. Where parties have clearly delegated arbitrability, courts are bound to respect that delegation, deferring to arbitrators to resolve related disputes.

Impact

This decision has far-reaching implications for arbitration agreements in Indiana and potentially influences other jurisdictions following similar legal landscapes. Key impacts include:

• Strengthening Arbitration Scope: Parties incorporating AAA or similar arbitration rules in contracts can more confidently delegate arbitrability to arbitrators, ensuring such matters are resolved outside the judicial system.
• Policy Enforcement: The ruling reinforces the Federal Arbitration Act's policy favoring arbitration, aligning state court interpretations with federal standards.
• Assignment of Claims: The decision clarifies that assignments of claims post-loss are valid even when initial contracts contain consent-to-assignment clauses, broadening the ability of assignees to compel arbitration where applicable.
• Precedent for Future Cases: The clear articulation of the "clear and unmistakable" standard and its application to AAA rule incorporation serves as a guiding principle for future arbitration-related disputes.

Complex Concepts Simplified

Arbitrability

Arbitrability refers to whether a particular dispute is eligible to be resolved through arbitration rather than through court litigation. Not all disputes can or should be arbitrated; certain issues may require judicial intervention.

Delegation of Arbitrability

This concept involves parties in a contract agreeing that an arbitrator, rather than a court, will determine whether their dispute falls within the scope of their arbitration agreement. Delegation requires clear intent from both parties, typically evidenced by specific contractual language.

Clear and Unmistakable Evidence Standard

Originating from the Supreme Court's decision in Henry Schein, Inc. v. Archer &White Sales, Inc., this standard mandates that for arbitrability to be delegated to an arbitrator, there must be unequivocal evidence of the parties' intent to do so. Ambiguous or vague language does not satisfy this requirement.

Cyber Protection Endorsement (CPE)

In this case, the CPE was an additional endorsement added to ICC's insurance policies in 2016, which included the arbitration clause incorporating AAA rules. Its inclusion marked the point from which arbitration agreements began to apply to disputes arising from claims.

Conclusion

The Indiana Supreme Court's decision in Illinois Casualty Company v. B&S of Fort Wayne Inc. et al. significantly clarifies the enforceability of arbitration agreements within the state's jurisdiction, particularly regarding the delegation of arbitrability. By affirming that the incorporation of AAA rules constitutes a "clear and unmistakable" intention to delegate arbitrability to an arbitrator, the court has reinforced the preference for arbitration in resolving contractual disputes. This ruling not only upholds the principles of the Federal Arbitration Act but also provides a robust framework for the interpretation and enforcement of arbitration agreements in Indiana, offering predictability and certainty to contracting parties.