Litigation, Arbitration, Appraisal and Mediation are all processes through which an insurance claim or coverage dispute can be resolved after informal negotiations fail. Each has pros and cons related to cost, time and fairness. Policyholders should always have the option of choosing the process that works best in their situation. But that is not the case. Many insurance policies (e.g., uninsured motorist coverage under auto policies) contain wording that forces policyholders into private, binding arbitration and deprives them of the constitutional right to have a dispute resolved in a public court of law. Worse still, many policies dictate where the arbitration must take place (sometimes outside the state or country where the policyholder bought the insurance), and what private company will run the show.
Kind of outrageous, really...
Insurers already enjoy substantial advantages over policyholders in legal and technical expertise and financial resources. It is manifestly unfair for them to also have the upper hand in a dispute resolution process. Private arbitrations run by private companies that routinely do business with insurance companies favor insurers time and time again. They happen behind closed doors. They don't generate published decisions or a record of the facts and outcomes. They offer very few of the protections that voluntary mediation or our public justice system provide.
The “soundless halls of arbitration”
Together with our partners, United Policyholders is working to ban forced arbitration wording in insurance contracts. We're doing this work at the NAIC, in courts through our Amicus Project, and wherever we can influence decision-makers. Momentum is building to restore dispute resolution fairness in many contexts, including insurance.
Some states expressly prohibit insurers from writing mandatory binding arbitration wording into property policies. Every state should. UP and our partners are working with state insurance regulators on a bulletin and model regulation that willl help all states reject policy forms that force policyholders to waive their rights to full, fair and open resolution of claim and coverage disputes, starting with first party property policies. Once that gets done, we hope to move on to commercial policies - where small businesses are routinely disadvantaged through policy wording that makes it difficult to impossible to get a fair dispute resolution outcome at a reasonable cost.
Selected UP comments and testimony:
- Supporting amendment to model regulations banning pre-dispute mandatory arbitration
- NAIC Power Point re: harm to small businesses from forced arbitration
- NAIC Power Point re: harm to individuals from forced arbitration
- Support for banning mandatory arbitration provisions in insurance policies
- Opposing a Texas insurer's attempt to include an arbitration provision in a homeowner's policy
- Opposing changes in Virginia law that would allow arbitration provisions in insurance policies
- Joint comments on NAIC Working Group Draft Arbitration Bulletin
UPdate November 15, 2018:
State Financial Officers Foundation Writes Letter to SEC Chairman Clayton requesting the SEC reject attempts to include forced arbitration clauses in corporate governance documents.