Arbitration Clauses & the Specifics of Insurance Disputes

In insurance disputes, many legal practitioners favor arbitration over litigation, depending on the nature of the case.

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In insurance disputes, many legal practitioners favor arbitration over litigation, depending on the nature of the case.

However, it is still important to pay attention to arbitration clauses during the signatory and contractual phases of an insurance agreement from the corporate policyholder’s perspective. Too often, the process is skewed in favor of insurance companies.

Policyholders have no choice to litigate as they are now being offered discounts on their premiums if they agree to settle any future disputes via arbitration. Often policyholders don’t realize the implications of this choice. (Source: Daic Law, 2016). As the Chairman of ARIAS (UK), Sir Bernard Eder, puts it, “The world consists of policy holders on one side and insurers on the other, leaving a great risk for arbitrators to regard themselves as one or the other.” According to Peter Halprin and Finley Harckham, partners at Anderson Kill, in their article entitled, Arbitration Clauses Can Make Dispute Resolution Arbitrary, provisions like requiring arbitrators to be active or retired executive officers of insurance companies, forces policyholders to present their cases to arbitrators who may or may not be sympathetic to their cause. They explain how it can “contain wrinkles that radically alter the manner in which the dispute is resolved.” And in order to address these provisions, corporate policyholders and insurance brokers must seek to negotiate the arbitration clauses to a fair benefit before a claim is made during the signing phase of the contract.

In this context, why would insurance disputes lean towards arbitration rather than the courts? “Most insurance disputes fall into two main categories. First, there are disputes concerning the proper construction of the policy. Second, there are factual disputes which raise issues, for example, as to whether the policyholder can bring itself within the terms of cover; whether the insurer can bring itself within a relevant exception; or whether the insurer can avoid the policy,” as Sir Eder explains. The specifics of these disputes explains why the parties would favor arbitration.

They need the legal proceedings to be confidential, quicker and cheaper than complex, long-lasting litigations, which is the case when you have an experienced tribunal. And guess when this happens? It happens when the parties choose their arbitrator “with specific expertise of particular types of insurance or reinsurance.”

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