IN THE

ARIZONA COURT OF APPEALS

DIVISION ONE

ALLSTATE PROPERTY AND CASUALTY INSURANCE COMPANY, 

Plaintiff/Appellee,

v.

WATTS WATER TECHNOLOGIES, INC., Defendant/Appellant.

__________________________________________________________

STATE FARM FIRE AND CASUALTY INSURANCE COMPANY, 

Plaintiff/Appellee,

v.

WATTS REGULATOR COMPANY, Defendant/Appellant.

No. 1 CA CV 16-0500, 1 CA-CV 16-0559 (Consolidated)

Appeal from the Superior Court in Mohave County

No. S8015CV201600190

The Honorable Charles W. Gurtler, Judge

Appeal from the Superior Court in Maricopa County

No. CV2016-005213

The Honorable James T. Blomo, Judge (Retired)

REVERSED AND REMANDED

COUNSEL

Bauman Loewe Witt & Maxwell, PLLC, Scottsdale

By Frank B. Jancarole

Counsel for Appellee Allstate

FILED 2-6-2018
2

Manning & Kass Ellrod, Ramirez, Trester, LLP, Phoenix

By Scott A. Alles, Keith R. Ricker

Co-Counsel for Appellee State Farm

Grotefeld, Hoffmann, Schleiter, Gordon, Ochoa & Evinger, LLP, Geneva, 

Illinois

By Jonathan Tofilon

Co-Counsel for Appellee State Farm

Grotefeld, Hoffmann, Schleiter, Gordon, Ochoa & Evinger, LLP, 

Minneapolis, Minnesota

By Daniel W. Berglund

Co-Counsel for Appellee State Farm

Lewis Brisbois Bisgaard & Smith LLP, Phoenix

By James K. Kloss, Adam S. Polson

Counsel for Appellant Watts

OPINION

Judge John C. Gemmill1 delivered the opinion of the Court, in which 

Presiding Judge Kenton D. Jones and Judge Jon W. Thompson joined.

G E M M I L L, Judge:

¶1 Watts Water Technologies, Inc. (“Watts”) appeals the denial 

of its motions to dismiss and compel arbitration. The parties disagree about 

whether these product liability subrogation claims are subject to mandatory 

contractual arbitration. For the following reasons, we reverse and remand 

for proceedings consistent with this opinion.

BACKGROUND

¶2 In April 2014, a Watts-made water supply line allegedly failed 

at the residence of Terry and Lisa McNemar, causing property damage. The 

McNemars’ insurer, Allstate Property and Casualty Insurance Company 

 

1 The Honorable John C. Gemmill, Retired Judge of the Arizona Court 

of Appeals, Division One, has been authorized to sit in this matter pursuant 

to Article 6, Section 3, of the Arizona Constitution.
Allstate v. Watts

Opinion of the Court

3

(“Allstate”), paid $53,149.65 for the McNemars’ loss and nearly two years 

later, in March 2016, filed a subrogation action against Watts.

¶3 In June 2014, Russell and Pam Vaughn suffered property 

damage following the alleged malfunction of a reverse osmosis water filter 

manufactured by Watts. The Vaughns were insured by State Farm Fire and 

Casualty Insurance Company, Inc. (“State Farm”). State Farm paid

$15,675.00 for the Vaughns’ loss and filed a subrogation action against 

Watts in April 2016.

¶4 At the time of the incidents causing property damage, 

Allstate, State Farm (collectively, “the Insurers”), and Watts were parties to

a Property Subrogation Arbitration Agreement (“the Agreement”)

promulgated by Arbitration Forums, Inc. (“AF”), which required that 

signatory companies forego litigation and arbitrate property subrogation 

claims. Article First of the Agreement, signed by Allstate in 1996 and State 

Farm in 2003, provided in pertinent part: 

Signatory companies are bound to forego litigation and in 

place thereof submit to arbitration any questions or disputes 

which may arise from . . . any fire subrogation or property 

damage claim not in excess of $100,000.

The Agreement, signed by Watts in 2005, also provided, in Article Fifth, that 

“AF, representing the signatory companies, is authorized to . . . (a) make 

appropriate Rules and Regulations for the presentation and determination 

of controversies under this Agreement.”2 

¶5 In November 2014, AF advised its signatory members 

through an e-bulletin that, effective January 1, 2015, it was adding a “new 

exclusion” to the Agreement that would remove product liability claims 

arising from allegedly defective products from the claims subject to 

mandatory arbitration between signatory companies. The November ebulletin further advised:

 

2 Article Fifth further authorized AF to: “(b) determine the location, 

and the means by which, arbitration cases are heard; (c) determine 

qualification criteria and provide for the selection and appointment of 

arbitrators; (d) establish fees; (e) invite other insurance carriers, 

noninsurers, or self-insureds to participate in this arbitration program, and 

compel the withdrawal of any signatory for failure to conform to the 

Agreement or the Rules issued thereunder.” (Emphasis in original.)
Allstate v. Watts

Opinion of the Court

4

While the use of the Property Program to resolve disputes 

involving product liability claims arising from an alleged 

defective product will no longer be compulsory as of January 

1, 2015, cases filed prior to January 1, 2015 will remain in 

arbitration’s jurisdiction and will be processed to hearing.

¶6 AF did not include the foregoing e-bulletin language 

regarding claims accrued or “cases filed prior to January 1, 2015” within the 

revised Agreement (“Amended Agreement”) promulgated by AF in 

January 2015. Instead, only the following exclusion (i) was added to Article 

Second: 

Article Second

Exclusions

No company shall be required, without its written consent, 

to arbitrate any claim or suit if:

. . . 

(i) it is a product liability claim arising from an alleged 

defective product.

(Emphasis in original). The Amended Agreement does not include any 

language specifying whether the new exclusion applied to claims accruing 

before 2015 but not filed until after January 1, 2015. Neither Watts nor the 

Insurers signed the Amended Agreement with the new exclusion removing 

product liability claims from compulsory arbitration.

¶7 In 2016, the Insurers filed product liability actions against 

Watts in superior court, based on the losses that occurred in 2014. Watts 

moved for dismissal of the lawsuits or alternatively for a stay and order 

compelling arbitration. Watts argued the claims accrued before January 

2015 and were therefore subject to mandatory arbitration under the 

Agreement in effect in 2014. After briefing and oral argument, the superior 

court in State Farm’s case denied Watts’s motion, finding the Agreement 

“was modified and the matter before the Court is not subject to mandatory 

arbitration.” The superior court in Allstate’s case concluded that “as both 

Plaintiff and Defendant are signatories to the AF Agreement, they are 

bound by the provisions of the same, including the right of AF to delineate 

when its services will be provided,” and, therefore, denied the motion.

Watts timely appeals the superior court’s orders denying the motions to 

dismiss and compel arbitration. We have consolidated these appeals. 

Appellate jurisdiction is based upon Arizona Revised Statutes (“A.R.S.”)
Allstate v. Watts

Opinion of the Court

5

sections 12-120.21(A)(1) (2018) and -2101.01(A)(1) (2018). See also Brumett v. 

MGA Home Healthcare, L.L.C., 240 Ariz. 420, 430-31, ¶¶ 20-21 (App. 2016).

ANALYSIS

¶8 Watts argues the superior court erred in denying its motions

to dismiss and compel arbitration because AF’s change to the Agreement 

does not govern claims arising before the change. The Insurers maintain 

that AF was authorized by the Agreement to exclude product liability 

claims because of its power to make “appropriate Rules and Regulations 

for the presentation and determination of controversies under th[e] 

Agreement,” and therefore the superior court correctly determined product 

liability claims filed after January 1, 2015 were “excluded” from compulsory 

arbitration. The parties ask us to determine which is applicable — the 

Agreement, based on date of loss, or the Amended Agreement, based on 

date of filing.3

¶9 The validity and enforceability of an arbitration agreement 

are mixed questions of fact and law that we review de novo. Estate of 

DeCamacho ex rel. Guthrie v. La Solana Care & Rehab, Inc., 234 Ariz. 18, 20-21, 

¶ 9 (App. 2014) (citing Schoneberger v. Oelze, 208 Ariz. 591, 594, ¶ 12 (App. 

2004)). We also review de novo a trial court’s decision whether to compel 

arbitration. Sun Valley Ranch 308 Ltd. P’ship ex rel. Englewood Props., Inc. v. 

Robson, 231 Ariz. 287, 291, ¶ 9 (App. 2012) (citing Nat’l Bank of Ariz. v. 

Schwartz, 230 Ariz. 310, 311, ¶ 4 (App. 2012)).

¶10 A written arbitration agreement “is valid, enforceable and 

irrevocable, save upon such grounds as exist at law or in equity for the 

 

3 The insured homeowners are not signatories to the AF Agreement. 

The parties have focused on the dates of the property losses and the dates

the subrogation actions were filed in superior court. The parties have not 

addressed the dates the Insurers paid the claims. Generally, an insurer’s 

right to subrogation does not arise until it has made payment for the 

property damage and thereby becomes subrogated to the claim. See Safeway 

Ins. v. Collins, 192 Ariz. 262, 266, ¶ 19 (App. 1998) (citing Hamman-McFarland 

Lumber Co. v. Ariz. Equip. Rental Co., 16 Ariz. App. 188, 190 (1972), and St. 

Paul Fire & Marine Ins. v. Glassing, 887 P.2d 218, 220 (Mont. 1994)). The 

record on appeal does not establish when the Insurers made payments and 

became subrogated to their insureds’ claims. The parties have not argued 

or briefed whether the date of payment by the Insurers was significant, and 

we do not address that issue.
Allstate v. Watts

Opinion of the Court

6

revocation of any contract.” A.R.S. § 12-1501 (2018); accord A.R.S. § 12-

3006(A) (2018); see also U.S. Insulation, Inc. v. Hilro Constr. Co., 146 Ariz. 250, 

256 (App. 1985). When a party denies the existence of an agreement to 

arbitrate, the trial court “shall proceed summarily to the determination of 

the issue so raised.” A.R.S. § 12-1502(A) (2018); see also A.R.S. § 12-3006(B) 

(“The court shall decide whether an agreement to arbitrate exists or a 

controversy is subject to an agreement to arbitrate.”). “Although it is 

commonly said that the law favors arbitration, it is more accurate to say that 

the law favors arbitration of disputes that the parties have agreed to 

arbitrate.” S. Cal. Edison Co. v. Peabody W. Coal Co., 194 Ariz. 47, 51, ¶ 11 

(1999) (citing Clarke v. ASARCO Inc., 123 Ariz. 587, 589 (1979), and Pima Cty. 

v. Maya Constr. Co., 158 Ariz. 151, 154 (1988)); see also Smith v. Pinnamaneni, 

227 Ariz. 170, 176, ¶ 22 (App. 2011) (“[A] party is bound to arbitrate only 

those disputes which it has contractually agreed to arbitrate.”).

¶11 The parties do not contest the validity of the Agreement or the 

Amended Agreement. The parties acknowledge that each signed the 

Agreement to forego litigation and submit to arbitration all claims 

described therein.

4 The parties also agree that the Amended Agreement

was effective January 2015 and applies to all claims accruing thereafter. 

Watts, however, contends the Amended Agreement did not negate its right 

to arbitration of claims that arose before January 2015, but were filed after 

January 1, 2015. The Insurers argue in response that the Amended 

Agreement unambiguously applies to all claims filed after January 1, 2015, 

regardless of when the claim arose.

¶12 To resolve this conflict, we look to the plain language of the 

Agreement and Amended Agreement. See US W. Commc’ns, Inc. v. Ariz. 

Corp. Comm’n, 185 Ariz. 277, 280 (App. 1996) (explaining the purpose of 

contract interpretation “is to determine and enforce the parties’ intent”

(citing Taylor v. State Farm Mut. Auto. Ins., 175 Ariz. 148, 152 (1993))). “[I]t 

is axiomatic that any agreement must be construed as a whole, and each 

part must be read in light of all the other parts.” C & T Land & Dev. Co. v. 

Bushnell, 106 Ariz. 21, 22 (1970) (citing Goodman v. Newzona Inv. Co., 101 

Ariz. 470, 473 (1966)). We apply a common-sense approach and consider 

the language used and the organizational structure of the contract. See Sw. 

Sav. & Loan Ass’n v. SunAmp Sys., Inc., 172 Ariz. 553, 560 (App. 1992) (citing 

Burkons v. Ticor Title Ins, 168 Ariz. 345, 350-51 (1991)); see also Fishman v. 

LaSalle Nat’l Bank, 247 F.3d 300, 302-03 (1st Cir. 2001) (“Common sense is as 

 

4 Although Allstate contends it “did not have a direct contractual 

relationship” with Watts, it agrees that each party was “bound by the rules 

and services administered and offered by AF.”
Allstate v. Watts

Opinion of the Court

7

much a part of contract interpretation as is the dictionary or the arsenal of 

canons.”).

¶13 Based on the language of the Agreement in effect in 2014 

when the property damage occurred, arbitration of product liability claims 

less than $100,000 was compulsory — the Insurers and Watts had agreed 

upon it. The Insurers contend, however, that the Agreement was amended 

and superseded in 2015 by the Amended Agreement and that AF had the 

power to promulgate new exclusions because Article Fifth of the 

Agreement authorized AF to “make appropriate Rules and Regulations for 

the presentation and determination of controversies under this 

Agreement.” To evaluate this provision, we must examine the 

organizational structure and language of the Agreement. 

¶14 Article First of the Agreement describes with specificity the 

disputes the signatory companies agreed to arbitrate, limited by the 

exclusions in Article Second. Articles First and Second therefore delineate 

the controversies the parties agreed to arbitrate. 

¶15 Article Fifth separately empowers AF to make rules and 

regulations for the arbitration of “controversies under this Agreement” —

that is, to promulgate procedures for the presentation of evidence and 

conduct of the arbitrations. AF’s unilateral addition of a new exclusion of 

product liability claims from mandatory arbitration was not a mere 

procedural rule change. Rather, it was a significant, substantive change. Cf. 

Thurston v. Judges’ Retirement Plan, 179 Ariz. 49, 51 (1994) (“[I]t is generally 

agreed that a substantive law creates, defines and regulates rights while a 

procedural one prescribes the method of enforcing such rights or obtaining 

redress.”). Nowhere does Article Fifth authorize AF to change, expand, or 

contract the disputes the signatories specifically agreed to arbitrate in 

Articles First and Second. The other portions of Article Fifth — addressing 

details such as fees, locations, means, and selection of arbitrators, see supra

note 2 — further confirm that Article Fifth does not authorize AF to amend 

Articles First or Second and thereby unilaterally expand or contract the

controversies the parties have agreed to arbitrate. 

¶16 Based on a plain reading of the Agreement, therefore, AF was 

not empowered to unilaterally amend the predetermined “controversies 

under this Agreement.” The “controversies” subject to the Agreement were 

those described in Article First and not excluded by Article Second. We 

therefore conclude that these signatory parties — by agreeing AF would 
Allstate v. Watts

Opinion of the Court

8

provide rules and regulations for arbitrations — did not empower AF to 

change which controversies were subject to compulsory arbitration.5 

¶17 Moreover, application of the Agreement to these claims is

confirmed by A.R.S. § 12-1501: 

A written agreement to submit any existing controversy to 

arbitration or a provision in a written contract to submit to 

arbitration any controversy thereafter arising between the 

parties is valid, enforceable and irrevocable, save upon such 

grounds as exist at law or in equity for the revocation of any 

contract.

(Emphasis added); accord A.R.S. § 12-3006(A). The statute indicates that an

“existing controversy” and “any controversy thereafter arising” become 

“enforceable and irrevocable” upon the arising of the controversy, unless 

the parties agree otherwise. There is no requirement for the formal filing of 

a demand for arbitration or an action in court. The controversies at issue 

here arose before 2015 and the Agreement became “enforceable and 

irrevocable” between the signatories prior to the Amended Agreement. 

Accordingly, the accrual of these property damage claims in 2014 triggered 

the application of the Agreement providing mandatory arbitration of these 

product liability claims. 

¶18 Nevertheless, the Insurers rely upon the language of the 

November 2014 e-bulletin to argue the Amended Agreement specifies the 

operative date for the exclusion of product liability claims is the date the 

claim was filed, not the date the claim arose. But the e-bulletin language is 

not part of any agreement signed by the parties, nor is it part of the 

 

5 State Farm at oral argument before this court contended that an 

unpublished, unappealed order in Watts Water Technologies v. Arbitration 

Forums, Inc., 1:14-cv-14411-RGW (D. Mass. Feb. 24, 2015), constituted res 

judicata or collateral estoppel preventing Watts from arguing in this appeal 

that AF did not have the power to unilaterally impose the product liability 

exclusion. We disagree. In its February 2015 order, the Massachusetts 

federal district court granted a motion to dismiss Watts’s complaint for 

failure to state a claim because, according to the court, AF was not a party 

to the Agreement. In dicta, the court expressed the view that the parties 

had “implicitly recognize[d] the authority of AF to define the scope of the 

arbitration services that it will offer.” We are not bound by that court’s 

ruling, nor its differing interpretation of the Agreement.
Allstate v. Watts

Opinion of the Court

9

Amended Agreement. The Amended Agreement does not contain any new

language beyond exclusion (i). The e-bulletin presumably represents the 

desire of AF, but this record reveals no contractual documents signed by 

Watts or the Insurers stating that the Amended Agreement would apply to 

all actions filed after January 1, 2015, even if the claims accrued prior to that 

date.

¶19 The Insurers also rely on an opinion of the Illinois Court of 

Appeals that addressed similarissues, State Farm Fire & Casualty Co. v. Watts 

Regulator Co. (Montero), 63 N.E.3d 304 (Ill. App. Ct. 2016). The court in 

Montero, however, conflated the e-bulletin language with the language of 

the Amended Agreement. The Montero court twice quoted the Amended 

Agreement as saying, “cases filed prior to January 1, 2015, will remain in 

arbitration’s jurisdiction and will be processed to hearing.” Id. at 307-08, 

¶¶ 4, 8. However, that language is found only in the e-bulletin; the

Amended Agreement contains no such language. The Montero opinion is 

therefore unpersuasive. 

¶20 The Insurers further rely on an Indiana Court of Appeals case, 

Watts Water Technologies, Inc. v. State Farm Fire & Casualty Co. (Lucka), 66 

N.E.3d 983 (Ind. Ct. App. 2016), which relied in part on the Montero case

and the e-bulletin language. The Lucka court also decided that AF’s 

authority to make rules and regulations included the authority to add the 

product liability exclusion at issue here. Id. at 989. We disagree with Lucka’s

analysis.

¶21 Finally, State Farm relies upon Article Sixth, Withdrawals, to 

support its interpretation of the Agreement. The provision states:

Any signatory company may withdraw from this Agreement 

by notice in writing to AF. Such withdrawal will become 

effective sixty (60) days after receipt of such notice except as 

to cases then pending before arbitration panels. The effective 

date of withdrawal as to such pending cases shall be upon 

final compliance with the finding of the arbitration panel on 

those cases.

This provision specifically addresses claims pending at the time of 

withdrawal. In contrast, the Amended Agreement does not address 

whether the new exclusion of product liability claims applies to pending 

claims or claims already accrued but not yet filed. The withdrawal 

provision does not provide the answer to the issue before us. 
Allstate v. Watts

Opinion of the Court

10

CONCLUSION

¶22 The Agreement does not give AF the power to unilaterally 

impose the product liability exclusion, and Watts and the Insurers never 

agreed between themselves to apply the Amended Agreement to claims 

arising before 2015. Accordingly, the Agreement in effect in 2014 applies to 

these property damage claims and the Amended Agreement does not. We 

therefore vacate the superior court’s orders denying Watts’s motions to 

compel arbitration and remand for further proceedings consistent with this 

opinion. We award taxable costs to Watts upon compliance with Arizona 

Rule of Civil Appellate Procedure 21(b).