The Alabama Supreme Court recently held in Hanover Insurance Company v. Kiva Lodge Condominium Owners’ Association, Inc. (No. 1141331) that where a dispute is governed by a contract that requires arbitration the arbitrator must determine whether particular claims are time barred under the contract, not the courts.
In 2009, Kiva Lodge Condominium Owners’ Association, Inc. contracted with Hudak & Dawson Construction Co., Inc. to make repairs to a condominium building owned by Kiva on the Alabama Gulf Coast. The contract between Kiva and Hudak included a form contract from the American Institute of Architects that contained a mandatory arbitration provision. Kiva and Hudak also executed an addendum to the contract, however, which altered the language of the underlying contract “[a]ny Claim arising out of or related to the Contract . . . may at the election of either party . . . be subject to arbitration.” Hudak then hired Colvin Plastering to conduct the repair work as a subcontractor, and Hanover Insurance Company issued a performance bond to Kiva, guaranteeing full performance of Hudak’s work under the contract. Both Hanover’s performance bond and Colvin’s subcontract incorporated the terms of the contract between Kiva and Hudak by reference. Colvin and Hudak performed the work to Kiva’s satisfaction in 2010.
In 2012, however, the condominiums experienced leaks, and Kiva demanded that Colvin and Hudak remediate the damage. According to Kiva, Colvin and Hudak failed to properly do so, and Hanover failed to secure performance under the bond. Kiva sued Colvin, Hudak, and Hanover in 2015, and immediately moved to stay the suit and compel arbitration. The defendants each opposed the motion to compel arbitration, but the trial court granted the motion.
The defendants appealed, arguing that the contract did not require arbitration, and that Kiva’s claims were time barred. The Alabama Supreme Court affirmed. In reaching that conclusion, the Court rejected defendants’ contention that the arbitration provision, as modified by the addendum, required the consent of both parties. Instead, the Court held that the plain language of the addendum stated that arbitration became mandatory if either party demanded it. Since Kiva had demanded arbitration, the Court held that the trial court had properly compelled arbitration under the contract. Further, the Court held that because the dispute was governed by the contract, which required arbitration, questions of whether Kiva’s claims were time barred under the contract were questions to be determined by the arbitrator, not by the Court. Finally, the Court held that, while Hanover’s claims for indemnity against Hudak and Colvin were not governed by the contract or the arbitration clause, the trial court had nonetheless properly stayed Hanover’s claims because they were dependent on the outcome of the dispute between Kiva and the defendants.
This case should serve as a reminder to practitioners that arbitration is a threshold question of contract disputes. As such, if a court determines that a contract is subject to arbitration, practitioners must recognize that all other questions of construction and interpretation will be determined by the arbitrator. If parties desire a different arrangement, including allowing courts to rule on questions such as statute of limitations defenses, then they must make that arrangement explicit in the contract.