Ill. Cas. Co. v. B&S of Fort Wayne Inc.

235 N.E.3d 827

ILLINOIS CASUALTY COMPANY, Appellant (Plaintiff below),

v.B&S OF FORT WAYNE INC., Showgirl III, Inc., Reba Enterprises LLC, Jessica Burciaga, Jessica Hinton, Jamie Middleton Eason, Lucy Pinder, Abigail Ratchford, Emily Scott, Denisa Trlica, Sara Underwood, Jennifer Walcott Archuletta, Paola Canas, Camila Davalos, Mariana Davalos, Jaime Edmondson, Cielo Jean Gibson, Hillary Hepner, Krystal Hipwell, Melanie Iglesias, Joanna Krupa, Arianny Celeste Lopez, Brooke Marrin, Ursula Mayes, Carrie Minter, Anya Monzikova, Andra Cheri Moreland, Caitlin O’Connor, Lina Posada, Laurie Romeo, Ina Schnitzer, Cora Skinner, Alana Souza, Irina Voronina, Jennifer Zharinova, and Rachel Koren, Appellees (Defendants below).

Supreme Court Case No. 23S-PL-180

Supreme Court of Indiana.

Argued: October 10, 2023

Filed June 10, 2024

Appeal from the Allen Superior Court, No. 02D02-2107-PL-273, The Honorable Craig J. Bobay, Judge ATTORNEY FOR APPELLANT: Thomas J. Costello III, Best, Vanderlaan & Harrington, Chicago, Illinois

ATTORNEYS FOR APPELLEES: Edmund S. Aronowitz, Aronowitz Law Firm PLLC, Royal Oak, Michigan, Brad A. Catlin, Williams & Piatt, LLC, Indianapolis, Indiana

On Petition to Transfer from the Indiana Court of Appeals, 22A-PL-432

Massa, Justice.

[1–3] Who decides? That is the fundamental question before us today. Of course, the answer depends on who decides what. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (explaining that " ‘who has the primary power to decide arbitrability’ turns upon what the parties agreed about that matter"). If we are talking generally about arbitration agreements, courts can determine whether one "exists." Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S. 63, 69, 139 S.Ct. 524, 202 L.Ed.2d 480 (2019). But if we are talking more specifically about threshold arbitrability—the power to decide whether a dispute must be first resolved by arbitration—parties may choose to delegate that matter to an arbitrator through agreement. Id. at 67–68, 139 S.Ct. 524. To establish an intent to delegate arbitrability, the parties must also satisfy the "clear and unmistakable evidence" requirement, an additional interpretive rule imposed by the United States Supreme Court. Id. at 72, 139 S.Ct. 524 (citing First Options, 514 U.S. at 944, 115 S.Ct. 1920).

Today, Illinois Casualty Company ("ICC") and thirty-three Models contest on the surface whether arbitration is proper based on the assignment of several business insurance policies that ICC issued to B&S of Fort Wayne, Inc., Showgirl III, Inc., and Reba Enterprises, LLC (collectively, "Insured Clubs"). But on a deeper level, this case is about whether the parties agreed to have an arbitrator, rather than the courts, resolve whether their arbitration agreement requires arbitration. Here, two questions exist: First, does the incorporation of American Arbitration Association ("AAA") rules constitute "clear and unmistakable" intent to delegate arbitrability to an arbitrator? Second, did ICC and the Insured Clubs—and the Models by way of assignment—agree to arbitrate arbitrability for the claims asserted by each Model?

We address each issue in sequence. First, we hold, as a matter of first impression in Indiana, that an agreement to arbitrate in accordance with AAA or similar rules reflects "clear and unmistakable" evidence of an intent to delegate arbitrability to an arbitrator. Our rule adopted today tracks most jurisdictions to have answered this question left open by the Supreme Court in Henry Schein. But applying our rule to the agreement here yields a nuanced disposition, which leads to our second point. For 2016 and later claims, the trial court must defer to the arbitrator because the agreement incorporates the AAA rules. But because no agreement to arbitrate existed between ICC and the Insured Clubs before 2016, the Models cannot compel arbitration for claims deriving from this period.

We affirm in part and reverse in part.

Facts and Procedural History

The Models are from around the globe, but their alleged injuries took place from acts taken by strip clubs in Ft. Wayne, where the Models had no prior affiliation or connection. The Models allege the Insured Clubs obtained their pictures and converted them into social media advertisements without the Models’ approval between December 2014 and October 2020.

In October 2020, eight of the thirty-three Models filed a complaint against the Insured Clubs in the United States District Court for the Northern District of Indiana. They alleged that the Insured Clubs wrongly used their images and likenesses without authorization or payment, asserting claims (1) under the federal Lanham Act, 15 U.S.C. § 1125, (2) under Indiana’s Right of Publicity Law, Ind. Code § 32-36-1, and (3) for unjust enrichment. They later added other Models to the suit.

Of course, the Insured Clubs had insurance policies protecting them from the risk and cost of litigation. So they tendered the suit to ICC for defense and indemnification. Until this point, ICC had issued ten "Businessowners" insurance policies ("Policies") to the Insured Clubs for coverage between 2014 and 2020.¹ Each of the Policies contained similar language guaranteeing that ICC would pay the "sums" if the Insured Clubs became "legally obligated to pay as damages" resulting from "bodily injury," "property damage," or "personal and advertising injury." Appellant’s App. Vol. IX, p. 106. ICC agreed to defend them "against any ‘suit’ seeking those damages." Id.

In 2016, ICC added a Cyber Protection Endorsement ("CPE") that limited the personal and advertising injury coverage. The CPE, relevant here, included the following arbitration clause:

Notwithstanding any provision of this form or the Policy, any irreconcilable dispute between us and an "insured" is to be resolved by arbitration in accordance with the then current rules of the American Arbitration Association, except that the arbitration panel shall consist of one arbitrator selected by the "insured," one arbitrator selected by us, and a third independent arbitrator selected by the first two arbitrators. Judgment upon the award may be entered in any court having jurisdiction. The arbitrator has the power to decide any dispute between us and the "insured" concerning the application or interpretation of this form. However, the arbitrator shall have no power to change or add to the provisions of this form. The "insured" and us will share equally in the cost of arbitration.

Appellant’s App. Vol. IV, p. 136. Because the CPE was added in 2016, it only applied to six of the ten Policies.

In response to the suit, ICC twice sent coverage denial letters, disclaiming any defense or obligations related to the Models’ suit. After ICC’s last round of letters, the Insured Clubs and the Models entered into a Settlement Agreement ("Agreement"), effective May 25, 2021. The Agreement assigned the Insured Clubs’ "rights, claims, and causes of action against ICC" to the Models. Appellant’s App. Vol. IX, p. 188. The release, payment, assignment, and covenant terms of the Agreement required a consent judgment to be entered before those terms could take effect. The Insured Clubs and the Models jointly moved to approve the consent judgment, which the district court denied, The parties jointly renewed their motion, which the court later granted.

Before the consent judgment was approved by the federal district court, ICC filed a declaratory judgment action in the Allen Superior Court against the Insured Clubs and the Models. ICC sought a declaration that it had no duty to defend or indemnify the Insured Clubs under any of the Policies. The Insured Clubs and the Models moved to compel arbitration, which ICC opposed. The trial court held a hearing, and ICC voluntarily moved to dismiss the Insured Clubs without prejudice. The trial court granted both motions and compelled arbitration for ICC and the Models.²

ICC successfully moved to certify the order for interlocutory appeal and to stay arbitration pending appeal. But the Court of Appeals reversed, finding one issue dispositive: whether this dispute fell within the scope of the arbitration provision between the parties. The panel held that none of the Models’ claims fell within the provision, and ICC could not be forced to arbitrate. Ill. Cas. Co. v. B & S of Ft. Wayne Inc., 201 N.E.3d 690 (Ind. Ct. App. 2023). The Models sought rehearing, which was denied. In turn, they sought transfer before our Court, which we granted, 212 N.E.3d 1233 (Ind. 2023), thus vacating the appellate opinion, Ind. Appellate Rule 58(A).

Standard of Review

[4, 5] Because contract interpretation issues are pure questions of law, we review them de novo. Lake Imaging, LLC v. Franciscan All., Inc., 182 N.E.3d 203, 206 (Ind. 2022). "And we do not defer to a trial court’s decision on a motion to compel arbitration but likewise review it anew." Decker v. Star Fin. Grp., Inc., 204 N.E.3d 918, 921 (Ind. 2023).

Discussion and Decision

To begin, the parties disagree about whether the appellate opinion here clashes with Henry Schein. The Models say yes, ICC says no. Both parties point to language from that case, but the Models have the better reading.

I. Arbitrability and the AAA Rules

A. Arbitration Law

[6–10] The Federal Arbitration Act reflects the elementary principle that "arbitration, is a matter of contract," and that contracts must be enforced "according to their terms." Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 67, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010). Indiana has a robust policy favoring such agreements. MPACT Constr. Grp., LLC v. Superior Concrete Constructors, Inc., 802 N.E.2d 901, 905 (Ind. 2004). But this policy comes with a basic limitation: the parties must have "agreed to arbitrate their disputes." Id. at 907 (emphasis added); see also Decker, 204 N.E.3d at 920 (noting the "qualification" that parties cannot be required to submit to arbitration...