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A federal court in Illinois held that a party does not forfeit its right to enforce an arbitration clause by failing to discuss arbitration in conjunction with a pre-lawsuit settlement offer.
In Hedges v. Yosemite Insurance Co., No. 306-CV-510-JPG, 2007 WL 601834 (S.D. Ill. Feb. 22, 2007), Hedges secured a mortgage loan through American General Finance Services, Inc. (American General), but failed to insure the secured property, as required by the Mortgage Agreement (Agreement). American General obtained insurance from Yosemite Insurance Company (Yosemite) and charged Hedges for the insurance premiums.
When a fire destroyed the property, both Hedges and American General made insurance claims on the policy. American General's claim was granted, but Hedges' claim was denied because investigators determined that the fire resulted from the manufacture of methamphetamine. As a result, Yosemite assumed the Mortgage from American General and commenced foreclosure proceedings on the property. Hedges sued Yosemite for violation of state contract and tort law, and Yosemite moved to compel arbitration pursuant to the terms of the Agreement.
Hedges argued that Yosemite "forfeited" its right to demand arbitration by failing to mention the subject following Hedges' letter demanding settlement negotiations. However, the Court disagreed and compelled arbitration of the dispute. Forfeiture only occurs when a party fails to timely assert a right. United States v. Woods, 301 F.3d 556, 561 (7th Cir. 2002). Yosemite properly asserted its right to arbitration upon being sued.
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