A Minnesota appellate court determined that because parties in an insurance dispute had proceeded to litigation and conducted substantial discovery, the parties had waived their right to arbitrate.

In Byers v. Pharmacists Mutual Insurance Co., No. A07-1565, 2008 WL 2344801 (Minn. Ct. App. June 10, 2008), while driving his employer's vehicle, Byers was struck by another motorist and injured. Byers brought suit against his employer's insurer, Pharmacists Mutual, seeking underinsured motorist benefits arising from the accident. Thereafter, Byers made a formal written demand for arbitration pursuant to the an arbitration provision in the insurance policy.

Pharmacists Mutual refused arbitration and claimed that Byers waived his right to arbitration by commencing a lawsuit instead of electing to proceed with arbitration. Byers then filed a motion to compel arbitration.

The trial court concluded that Byers had constructive knowledge of the arbitration agreement based on the insurance policy. Further, the trial court determined that arbitration would be prejudicial to Pharmacists Mutual because it had already incurred litigation costs and arbitration would cause further delay.

On appeal, Byers argued that the trial court erred because he did not voluntarily relinquish his right to arbitrate. The Court noted that it has consistently held that a party to a contract containing an agreement to arbitrate will be deemed to have waived any right to arbitration if judicial proceedings based on that contract have been initiated. The record reflects that Byers never attempted to preserve his right to arbitrate, and instead proceeded to litigate his claim and proceeded with discovery.

It was not until after discovery was closed that Byers attempted to arbitrate his claims. The attempt to arbitrate came at least eight months after Byers filed his lawsuit. Therefore, because Byers sought to litigate his claim before requesting arbitration, he relinquished his right to arbitrate.

Byers also claimed that resolving the manner through arbitration would not prejudice Pharmacists Mutual. The trial court noted that Byers caused Pharmacists Mutual to incur costs and expenses that it would not have incurred had the parties proceeded to arbitration at the outset.

Further, the record reflected that the costs related to discovery were compounded by Byers' failure to respond to Pharmacists Mutual's discovery requests. The Court noted that this conduct further augmented the costs incurred by Pharmacists Mutual.

Additionally, Pharmacists Mutual made substantial preparations for a trial on the matter. Therefore, in light of Pharmacists Mutual's expenses in preparing to litigate and Byer's failure to comply with Pharmacists Mutual's request for discovery, the Court affirmed the trial court's ruling.