Discover how arbitration works, and why it might be better than a lawsuit for settling your car accident injury claim.
When you’re injured in a car accident, you expect the insurance company to pay fair compensation for your medical bills, out-of-pocket expenses, and pain and suffering.
If you’re trying to settle your claim without a lawyer and negotiations fail, arbitration might be a good option for resolving your dispute with the insurance company.
Arbitration is a method of Alternative Dispute Resolution (ADR) where a neutral person is chosen to hear both sides of a disagreement and decide the outcome.
Arbitration often comes into play when car accident claims are in dispute, whether under your own auto policy, or with the at-fault driver’s insurance company. In fact, many policies require arbitration for settling first-party claim disputes with your own insurance company.
Here we unpack what you should know about arbitration clauses, the advantages of arbitration for car accident claims, and what you can expect at the arbitration hearing.
Arbitration Clauses in Auto Insurance Policies
Auto insurance policies are a contract between the insurance company and the policyholder.
Because arbitration is quicker and less expensive than courtroom battles, many types of contracts, including insurance policies, require arbitration for settling disputes.
There are two kinds of arbitration, binding and non-binding:
- Binding arbitration means the arbitrator’s decision is final, with no appeal.
- Non-binding arbitration means both parties can accept the arbitrator’s decision, or either party can reject the decision and file a lawsuit.
Insurance companies tend to mandate binding arbitration in auto policies. You might encounter a mandatory arbitration clause when you file an auto accident claim with your own insurance company.
First-party car insurance claims are usually filed under:
- No-fault insurance Personal Injury Protection (PIP) coverage
- Medical Payment (Med-Pay) coverage
- Uninsured or Underinsured Motorist Coverage
- Collision coverage
When settlement negotiations with your auto insurance company are beginning to fall apart, check your policy for an arbitration clause. Look for a section in your insurance policy titled “Alternative Dispute Resolution.”
Arbitration language will read something like this:
“Any controversy or claim arising out of, or in any way relating to this insurance contract between the insured and the insurance company, which cannot be settled between the parties must be submitted to binding arbitration as part of the alternative dispute resolution process.”
You can’t get away with suing your insurance company when your policy has a binding arbitration clause. When you purchased your policy, you agreed to abide by the terms of the contract.
If you can’t settle your claim and your policy has an arbitration clause, you can give up and walk away with nothing, or tell the adjuster you want to submit your claim to binding arbitration.
Technically, the insurance company couldn’t stop you from filing a lawsuit, but their lawyers would show up in court waving the arbitration clause from your contract. Your lawsuit would almost certainly be dismissed. Worse, because you should have known better than to ignore the arbitration clause, you could be ordered to pay the insurance company’s legal fees.
Advantages of ADR for Personal Injury Claims
You might be headed to arbitration because you have no other choice for resolving your accident claim. But arbitration can work to your advantage.
Personal injury lawsuits can take more than a year to get to trial, especially in jurisdictions with overloaded court dockets. Arbitration of car accident claims may be concluded in two or three months.
Choosing the arbitrator and hearing location may take a few weeks. Conducting discovery and preparing your presentation may take another month. The arbitration hearing usually won’t take more than a day. After the hearing, you should be notified of the arbitrator’s decision with two weeks.
Financial advantages of arbitration include:
- Arbitration can be less expensive than a full-blown lawsuit
- Arbitration doesn’t have monetary limits like small claims court
- You can include pain and suffering in your compensation demand
Procedural advantages of arbitration include:
- Arbitration can be scheduled sooner than a court date
- You get a say in picking the arbitrator
- The rules of evidence are more relaxed than in court
- If you’re awarded compensation, you will be paid within a week or two
If you’ve been handling your claim without an attorney and decide to go to arbitration on your own, you’ll find the arbitration hearing less daunting than the prospect of presenting your case in a courtroom full of spectators.
Requesting Car Accident Arbitration
Arbitration for First-Party Claims
You can’t threaten a lawsuit if your policy has an arbitration clause, but you can tell the adjuster you want to take your car accident claim to arbitration.
The adjuster will likely try to talk you out of arbitration and might even raise their offer to make one last attempt to settle your claim. If you go to arbitration it means the adjuster didn’t do their job. A claim that goes to arbitration will cost the insurance company more, especially if you win a higher arbitration award.
If you still can’t get a fair settlement from your insurance carrier, insist on arbitration. Follow up with a written request sent by certified mail, return receipt requested.
Arbitration for Third-Party Claims
When you file an accident claim with the at-fault driver’s insurance company, it’s called a third-party claim. Insurance companies can’t force third-party claimants to use arbitration. You have the right to file a lawsuit.
Consider all your options, and talk to an experienced attorney before filing a lawsuit, even in small claims court. Arbitration or mediation might still be better options for settling your accident claim, if you can get the insurance company to agree.
Insurance companies are not contractually bound to make arbitration available to third-party claimants. Often, an insurance company is unlikely to agree to arbitration unless a lawsuit has been filed or is imminent.
If the insurance company has made its “final offer” and the adjuster thinks you won’t be able to do much better in arbitration or court, there’s no reason for the insurance company to agree to alternative dispute resolution.
Unless you have a strong case, you might want to take a nuisance value payout to settle your claim.
Beginning the Arbitration Process
Within a week or two after requesting arbitration, you should receive a confirmation letter. Some insurance companies use an arbitration organization to locate arbitrators in your area, or they may rely on their local attorney network for recommendations.
1. Choosing an Arbitrator
An arbitrator is usually a retired judge or local attorney certified to conduct arbitrations.
You’ll likely have to split the arbitrator’s fee with the insurance company. Depending on the length and complexity of the dispute, fees can reach into the thousands of dollars. Some arbitrators require a down payment of a few hundred dollars before the hearing date. Others don’t require an advance fee and get paid at the conclusion.
If an arbitration association is involved, you’ll get a letter referencing your insurance claim and confirming the proposed arbitration. The letter will also list the names and contact information of several arbitrators. Although most states don’t require an arbitrator to be an attorney, most of them are.
The insurance company will receive a similar letter and an identical list of potential arbitrators. You and the company will select one or more names from the list and notify the association of your choices. They will then search for names chosen by both sides.
If only one arbitrator is chosen by both parties, then he or she will preside over the hearing. If more than one is mutually chosen, then you and the insurance company may have to make another choice from a more limited list.
2. Researching the Arbitrator
Before making your initial choice of arbitrator, do some research. Check the arbitrators’ websites, especially if they’re attorneys. See what type of law they generally practice.
You probably don’t want to choose an arbitrator who specializes in insurance defense, meaning they typically work for insurance companies. You do want an arbitrator who understands injury claims, so a better choice for you is an active or retired personal injury attorney, who might also be called a “plaintiff’s” attorney or “trial” attorney.
If the arbitrator isn’t a licensed attorney, you may have a tougher time getting background information. Don’t let that stop you.
There’s nothing wrong with calling and speaking directly with the arbitrator. Ask about their experience in similar types of disputes. You can also ask for references or additional information to help you decide.
3. Choosing a Hearing Location
Once the arbitrator is chosen, a hearing date will be set. You’ll receive a letter notifying you of the place and time of the arbitration. Although most arbitrations are held at the arbitrator’s office, they can also take place in conference rooms at courthouses, in meeting rooms at hotels, and in other neutral locations.
If you’re not comfortable with the place or time specified for the arbitration, contact the arbitrator, not the insurance company.
For example, if you must rely on someone else to drive, or use public transportation, getting to a specific location may be difficult. The arbitrator should work with you to resolve any problems.
4. Discussing the Need for Discovery
Although the insurance policy may require arbitration, the clause may not clarify discovery rules. Discovery means allowing each side to get the information they need to present a strong case.
Unlike litigation discovery, you won’t need to arrange for expensive depositions or subpoena documents unless both sides agree. Generally, the arbitrator will meet with you and the insurance company’s attorneys to decide what’s fair and affordable for both sides.
What Happens During the Hearing
You can have an attorney represent you at the arbitration, and it’s a good idea to retain legal counsel if you suffered serious injuries in a car accident. It depends on the complexity of your claim and the amount in dispute.
You might not need an accident attorney to arbitrate a minor personal injury dispute. While the insurance company will always be represented by attorneys, they won’t have much of an advantage. The arbitrator’s job is to decide the claim based on the facts, not on any legal maneuvering.
So long as you’re prepared to present your side of the claim and back it up with convincing evidence, you should be on equal footing with the insurance company’s attorney. Many arbitrators go out of their way to promote a sense of fairness with the claimant who’s not represented by counsel.
Arbitration hearings are much less formal than a court trial but tend to follow the same framework.
Most arbitration hearings proceed as follows:
- Opening Statements: You will introduce yourself, give a short description of your car accident claim, and say what you want to get from the arbitration.
- Case Presentations: Here’s where you make your case to the arbitrator and present evidence of your accident damages. If your dispute is with another driver’s insurance company, you’ll need to prove their insured was at fault for the accident and therefore liable for your injuries.
- Closings Statements: After both sides have presented their cases, you’ll end by summarizing all the strong points of your case and telling the arbitrator why they should decide in your favor.
Dealing with the Final Decision
You and the insurance company will be notified in writing of the arbitrator’s decision, usually within one or two weeks of your hearing.
If you go through binding arbitration and don’t like the final decision, you’re out of luck. If the arbitrator decides in favor of the insurance company, you may still have to pay your share of the arbitration fees.
Even when arbitration looks like your only option, you owe it to yourself to get good legal advice from an experienced accident attorney before moving forward.
Most personal injury lawyers offer a free consultation to accident victims. There’s no obligation and no cost to find out what a good attorney can do for you.
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