Matter of State Farm Mut. Auto. Ins. Co., 87 N.Y.2d 828 (1995)
A motion to stay arbitration based on arguments about compliance with contract conditions, as opposed to a challenge to the existence of an arbitration agreement itself, must be made within the 20-day statutory period following the demand for arbitration.
Summary
State Farm denied the appellant’s claim for underinsurance coverage after he settled for the maximum amount ($300,000) of the tortfeasor’s insurance policy, which exceeded the appellant’s underinsurance coverage ($100,000). When the appellant demanded arbitration, State Farm moved to stay it more than four months later, arguing no underinsurance coverage was available. The New York Court of Appeals reversed the lower court’s stay, holding that State Farm’s motion was untimely under CPLR 7503(c) because their argument concerned compliance with contract conditions, not the existence of an arbitration agreement. Therefore, the issue of coverage was now within the province of the arbitrator.
Facts
The appellant was seriously injured in an automobile accident on August 18, 1992. He settled with the tortfeasor’s insurance company for $300,000, the policy’s maximum limit. The appellant had an automobile insurance policy with State Farm, including $100,000 in underinsurance coverage. State Farm denied the appellant’s underinsurance claim, arguing that since the tortfeasor’s policy limits exceeded the appellant’s, no underinsurance coverage was available.
Procedural History
The appellant served a demand to arbitrate the underinsurance claim on October 15, 1993. State Farm moved to stay the arbitration on February 15, 1994, which was more than four months after service of the demand. Supreme Court granted the stay, concluding that the appellant was not entitled to underinsurance coverage. The Appellate Division affirmed. The Court of Appeals reversed the Appellate Division’s order and denied the petition to stay arbitration.
Issue(s)
Whether a motion to stay arbitration, based on arguments that certain conditions of the insurance contract have not been complied with, can be entertained when it is made outside the 20-day period prescribed by CPLR 7503(c), or whether it is precluded as untimely.
Holding
No, because State Farm’s argument related to whether certain conditions of the contract had been complied with, not whether an agreement to arbitrate existed. As such, State Farm’s motion to stay arbitration was barred by the CPLR 7503(c) 20-day period to object to arbitration.
Court’s Reasoning
The Court relied on CPLR 7503(c), which requires a party served with a demand for arbitration to move to stay such arbitration within 20 days of service, or be precluded from objecting. The Court cited Matter of Matarasso (Continental Cas. Co.), 56 N.Y.2d 264, where it articulated a narrow exception to this 20-day rule. The exception applies only when the motion to stay arbitration argues that the parties never agreed to arbitrate. The court reasoned that State Farm’s argument—that the appellant’s underinsurance claim was invalid because the tortfeasor’s insurance exceeded the appellant’s—concerned compliance with the conditions of the insurance contract, not the existence of an agreement to arbitrate. As the court stated in Matarasso, a motion to stay arbitration may be entertained when “its basis is that the parties never agreed to arbitrate, as distinct from situations in which there is an arbitration agreement which is nevertheless claimed to be invalid or unenforceable because its conditions have not been complied with.” Because the parties didn’t dispute that the policy contained an arbitration agreement, State Farm’s failure to move for a stay within 20 days waived its right to object to arbitration based on the policy’s coverage terms. The issue of coverage thus falls within the arbitrator’s authority.