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Courts will generally enforce “condition precedent” arbitration clauses, where either party has the option of commencing arbitration proceedings following the occurrence of some future event, such as an unsuccessful mediation session.
In Michael Angelo’s Gourmet Foods, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA, No. A-05-CA-912-SS, 2006 WL 2241225 (W.D. Tex. Aug. 4, 2006), the a United States district court in the Western District Texas compelled arbitration of a dispute between Michael Angelo’s Gourmet Foods, Inc. (Michael Angelo’s) and its insurer, National Union Fire Insurance Company of Pittsburgh, Pa. (National Union). The dispute resolution clause contained in the insurance agreement afforded each party the option of seeking mediation or arbitration. However, in the event of an unsuccessful mediation, either party had the right within 120 days of termination of the mediation to commence an arbitration proceeding….”
Michael Angelo’s objected to arbitration and offered three arguments why it should not be required to arbitrate. First, the Court had earlier dismissed National Union’s Rule 12(b)(6) motion. While the Court dismissed that motion on the basis of “bare assertions” of material facts outside the pleadings, this dismissal had no effect on the parties’ agreement to mediate or arbitrate.
Second, Michael Angelo’s argued that National Union forfeited the right to invoke arbitration when it refused to defend Michael Angelo’s as its insurer. Yet, by making the scope of insurance coverage a threshold issue to arbitration, the Court would literally be required to litigate the merits of the entire case. Such a result would run contrary to purpose of alternative dispute resolution, and “run afoul of the strong policy favoring arbitration.”
Finally, the Court rejected Michael Angelo’s claim that National Union waived its right to arbitrate its claims through excessive participation in litigation. While some courts have adopted looser requirements for a finding of waiver, the Fifth Circuit has held that a party is entitled to engage in some litigation activity in order to defend itself. Steel Warehouse Co. v. Abalone Shipping Ltd. of Nicosai, 141 F.3d 234, 238 (5th Cir. 1998). Since the Court characterized National Union’s participation in the discovery process as “defensive,” National Union had not waived its right to commence arbitration under the parties’ agreement.
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