Question: Can an insurer force its insured to arbitration instead of having their case heard by a jury?
Answer: Yes, if policy allows for arbitration.
This case arises from a motor vehicle collision in 2008 where the plaintiffs sought underinsured motorist benefits from their insurer Pekin. The provision for underinsured motorist benefits contained in the insurance policy included an arbitration clause that provided as follows:
If we and an “insured” do not agree:
1. Whether that person is legally entitled to recover damages under this endorsement; or
2. As to the amount of damages; either party may make a written demand for arbitration….
Pekin made its written demand for arbitration. The plaintiffs filed a “Response in Opposition to Pekin’s Motion to Stay Pending Arbitration,” contending that the policy language was permissive rather than mandatory and that arbitration was not proper. After a hearing on Pekin’s motion to stay, the trial court denied the motion. Pekin now appeals and argues that the trial court erred in failing to enforce the arbitration provision of its policy as mandated by I.C. 34–57–2–3. Pekin contends that its policy provided that arbitration was mandatory when requested by either the insurer or the insured. It claims that this policy language was unambiguous and must be given its plain and ordinary meaning. Pekin asserts that the policy plainly provided that either party may make a written demand for arbitration which is a mandatory procedure.
On appeal, the Appellate Court noted that if the language in an insurance policy is clear and unambiguous, it should be given its plain and ordinary meaning. An ambiguity does not exist simply because a controversy exists between the parties, each favoring an interpretation contrary to the other. Under Indiana law, an insurance policy is ambiguous if reasonable persons may honestly differ as to the meaning of the policy language. Where there is ambiguity, insurance policies are to be construed strictly against the insurer. The insured argue that the word “may” in the policy makes arbitration permissive and not mandatory. They contend that a reasonable interpretation of the policy is that the parties are permitted to submit disagreements to arbitration, but not that arbitration is unequivocally required should either party demand it. Pekin acknowledges that the term “may” is permissive and that, in general, the arbitration provision in the policy is permissive, not mandatory. However, once a demand for arbitration is made, the provision becomes mandatory. Under the policy, either Pekin or the insured “may” make a demand for arbitration, but neither is required to make such a written demand. However, once either party makes a written demand for arbitration, arbitration becomes mandatory. The policy provides that after either party submits a written request for arbitration, “each party will select an arbitrator. The two arbitrators will select a third…. Each party will…bear the expenses of the third arbitrator equally. A decision agreed to by two of the arbitrators will be binding…. After a written demand for arbitration is made, the language of the policy is no longer permissive. “Will” is defined as [a]n auxiliary verb commonly having the mandatory sense of “shall” or “must.” The Appellate Court found no ambiguity in the policy language and enforced the provision. 984 N.E.2d 227