Arbitration is a form of alternative dispute resolution where a neutral third party, called an arbitrator, decides the outcome of a dispute. It’s commonly used when an insurance company and policy holder (with no-fault insurance, or PIP) disagree over the settlement amount of a personal injury claim.
Arbitration is also used in claims involving uninsured or underinsured drivers, when liability isn’t contested, but there’s a dispute over the amount of damages. Arbitration is only available if the insured’s policy is in effect at the time of the accident.
Arbitration can also apply to third-party personal injury claims, however, insurance companies are not contractually bound to make arbitration available to third-party claimants. 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 best and final offer, and is confident the third party won’t be able to do much better in arbitration or in court, there’s no reason for them to agree to arbitration. They don’t want third-party claimants to get the impression that filing a lawsuit or threatening to file one is an automatic way to force a settlement.
If you have no-fault or PIP insurance, and are at a deadlock with settlement negotiations, it may be time to check if you have a contractual right to arbitration. Binding arbitration, as opposed to non-binding arbitration, is the type most favored by insurance companies. The decision made by the arbitrator is final, and no appeals or lawsuits can be filed later.
Look for a section in your insurance policy titled “Alternative Dispute Resolution.” The language will sound 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 can’t be settled between the parties must be submitted to binding arbitration as part of the alternative dispute resolution process.”
When a binding arbitration clause exists, you’re prohibited from filing a lawsuit. It would be a violation of the contract you entered into when you purchased the insurance policy. If you can’t settle your claim and your policy includes this clause, you have two choices:
- Give up and walk away with nothing
- 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 file a Motion to Dismiss based on the arbitration clause in the policy. There’s a 99.9 percent chance the judge would agree with the motion and dismiss your case. The judge may also order you to pay the defendant’s court costs and attorney fees.
The adjuster will likely try to dissuade you from arbitration. She may make one last attempt to settle your claim, possibly raising her offer a bit more. If you go to arbitration it means the adjuster didn’t do her job. A claim that goes to litigation or arbitration costs the insurance company more money.
After telling the adjuster you want your claim arbitrated, send her a certified letter. It doesn’t have to be formal. Here’s a sample letter requesting arbitration.
Choosing an Arbitrator
An arbitrator is usually a local attorney who’s been certified to conduct arbitrations. Within a week or two after requesting arbitration, you should receive a confirmation letter. Many insurance companies rely on the non-profit American Arbitration Association (AAA) to provide the names of local arbitrators.
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 are paid at the conclusion.
The letter you receive from the arbitration association will reference your insurance claim and confirm 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 a licensed attorney, most of them are.
The insurance company will receive a similar letter and 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 mutually, 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.
Research the Arbitrator
Before making your initial choice of arbitrator, you should do some research. Check the arbitrators’ websites, especially if they are attorneys. See what type of law they generally practice.
If one specializes in insurance defense, you probably don’t want to choose him as your arbitrator. If you see a plaintiff’s attorney (who represents victims in personal injury claims), he would be a good choice for you.
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 make a decision.
Location of the Arbitration
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 other neutral locations.
If you’re not comfortable with the place or time specified for the arbitration, contact the arbitrator, not the insurance company. Although most arbitration clauses give you the right to have the hearing in the county where you live, sometimes, especially in large counties, getting to the arbitration may be difficult.
For example, if you have to rely on someone else to drive you or you have to use public transportation, getting to a particular location may be difficult. If that’s the case, tell the arbitrator. He’ll work with you to resolve the issue.
Hiring an Attorney
You can have an attorney represent you at the arbitration, and it’s a good idea to do so if you suffered serious injuries. It really depends on the complexity of your claim and the amount in dispute.
The attorney can be paid several ways. If she believes the potential award of the arbitrator will be enough to cover a contingency fee, she may agree to take the case on contingency. If not, she may prefer to charge by the hour, possibly requiring advanced payment as a retainer.
You likely don’t need an attorney to arbitrate a minor personal injury dispute. While the insurance company has attorneys experienced in the arbitration process, they really 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.
As long as you’re prepared to present your side of the claim, you should be on equal footing with the attorney. In fact, many arbitrators go out of their way to present a sense of fairness by leaning toward the pro se claimant.
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