Did you know that according to recent studies, more than 50% of policyholders have experienced claim disputes with their insurance providers? This means you must have to find ways to get good compensation from your insurance provider. Insurance arbitration can be one of those you are looking for.
Insurance Arbitration resolves disputes between policyholders and insurance companies. An Impartial third-party arbitrator evaluates the evidence and makes a right decision. But have you ever wondered what exactly insurance arbitration is and how it works?
What is Insurance Arbitration?
In short, insurance arbitration is a form of alternative dispute resolution use to resolve conflicts between policyholders and insurers without going to court.
Arbitration clause involves an arbitrator who reviews the evidence presented by both parties and makes a decision. The final decision is known as an arbitration award. It is legally binding and contains all of the case material, as well as the arbitrator’s judgment on fees, damages, or disciplinary proceedings to resolve the dispute.
Arbitration clause process is generally faster and less expensive than going to court.
There are two main kinds of insurance arbitration: binding and non-binding. Here’s is the detail guide of the differences between the two
You can’t dispute the decision in court if you agree to it. Like a court ruling, the arbitrator’s decision is enforceable.
Binding arbitration is often utilized in settlements to resolve disputes swiftly and cheaply. Technical disagreements can be resolved through binding arbitration because the arbitrator can be chosen for their knowledge.
Parties choose three arbitrators. Each party chooses one arbitrator and the first two arbitrators choose one.
Non-binding arbitration’s arbitrator’s decision is not binding on the parties. This means that either party can reject the decision and take the case to court instead.
Parties can negotiate without courts pressure in non-binding arbitration. Non-binding arbitration gives expert opinion on a complex issue and help parties in their negotiations.
What type of contractors use binding arbitration?
Binding arbitration is often utilized to settle policyholder-insurance company disputes. They are frequently used in:
- Auto insurance claims
- Workers’ compensation insurance claims against you
- General liability insurance Claims
Binding arbitration resolves disputes if the insurance company denies a claim or the insured disputes the claim payout.
Why to choose arbitration over court proceedings?
There are several reasons why people prefer arbitration over going to court. Both parties rely on a neutral arbitrator to determine the matter without having to pay the high legal fees. Arbitration, in addition to being less expensive, goes faster and offers more flexibility than going to court.
Arbitration agreement is a good alternative for situations where:
- Lawsuits consume a lot of time and money.
- Privacy is an issue in divorce cases and other secret matters.
- To resolve the issue, an arbitrator with more specific expertise than a judge is required.
- Both parties desire to resolve the issue once and for all, with no possibility of appeal (binding arbitration)
- The parties are unable to reach an agreement on where to settle the dispute.
Insurance arbitration process
Arbitration agreement moves faster than a trial, but how much faster? It depends on your case, here is what you can expect throughout an ordinary arbitration process.
First, you’ll write a letter requesting arbitration. You’ll explain the facts of your claim and inform your insurance carrier that you wish to refer your claim to arbitration.
Choose an arbitrator
Next step is to select an arbitrator. Arbitrators are typically retired judges or attorneys with specific field knowledge. Depending on your insurance coverage or state legislation, there may also be restrictions on the selecting procedure. When you are provided with the possibilities, do your homework on the candidates before making your final decision.
Provide documentation and evidences:
Once you’ve chosen an arbitrator, a date for the insurance arbitration hearing will be scheduled. Your insurance company and the arbitrator will set a timeframe for document exchange. So keep all the evidence of your claim safe plus your call and chat details with your insurance provider.
The arbitration session itself could last only a few hours. You, your insurance company, and the arbitrator will gather in the same room. Both parties will present their own sides of the story. Insurance Arbitration usually resembles a trial and contains the following steps:
- Opening statements
- Witness attendance and cross-examination
- Providing evidence
- Responding to criticism and questions
- Closing remarks
- The arbitration decision
The arbitrator will evaluate everything and make a decision within two weeks. They will explain the decision briefly in the award statement. Note that their decision is legally binding and cannot be overturned.
How much is Insurance arbitration cost?
Arbitrator fees range $1000 to $2000 per day depending on the arbitrator’s experience and the state where he practices. The potential cost of arbitration clause process includes following things:
- Filing fees
- Hearing fees
- Administration fees
- Administrative expenses
- Hearing room rental
- Arbitrator and/or mediator fees
- Discovery costs
- Attorneys’ fees
Benefits of Insurance arbitration
In essence, arbitration (typically) benefits both parties. Why? Because it’s a mutually agreed-upon decision-making process before an incident arises. In the insurance arbitration, when there’s a dispute, it doesn’t have to get messy or costly in court.Some of the primary advantages of arbitration includes
Arbitration encourages both parties to participate in decision-making. The arbitrator acts as a mediator and assist both parties in reaching an agreement. The winner-take-all mentality of litigation is abandoned, and a better, less-emotional conclusion is possible.
Arbitration hearings are typically held in private. These are not made public, nor is the information present in its entirety. This can serve as a safeguard if the content in the case could embarrass either party or reveal information they would wish to keep private.
Arbitration is often less expensive than the fees connected with a legal team and lawsuit. Why? Given the huge time savings and the fact that legal teams are paid hourly, it reduces expenses for both sides.
A judge’s decision in court is governed by established rules, state laws, and evidence. An arbitrator is more accurate in deciding what type of evidence is relevant and appropriate to the case. Most argue that this results in more balanced “rules.”
Is an insurance company required to notify me of an arbitration decision?
Yes, an insurance company is required to notify you of an arbitration decision regarding your claim.
If your insurance claim goes to arbitration, the insurance company has a legal obligation to notify you of the arbitration decision and provide you with a copy of the arbitrator’s ruling.
How long does insurance arbitration take
Insurance arbitration can typically take anywhere from a few months to over a year, depending on the complexity of the case and the arbitration process. Here is a general timeline for how long insurance arbitration typically takes:
- Filing for arbitration: 1 to 3 weeks. The policyholder sends a request for arbitration letter to the insurance company.
- Selecting an arbitrator: 3 to 4 weeks. The parties mutually agree on an arbitrator to oversee the case.
- Information exchange: 4 weeks. The arbitrator sets deadlines for both sides to submit documentation to support their claims.
- Arbitration hearing: 1 to several days. The hearing itself where both sides present their cases and evidence.
- Arbitration award: 1 to 2 weeks. The arbitrator reviews the case and issues a final decision.
So in a relatively straightforward case, insurance arbitration could be complete within 3 to 6 months. More complex cases with multiple parties, expert witnesses, extensive documentation, etc. can easily take a year or more to resolve through arbitration.
Who pays for insurance arbitration?
Typically the insurance company and policyholder will split the arbitrator fees, filing fees, and hearing costs 50/50. However, the specific cost split depends on the arbitration agreement and rules set by the arbitration organization.
When an insurance claim goes to arbitration, the insurance company and the policyholder each pay a portion of the arbitration costs upfront. This includes:
- Arbitrator fees: The arbitrator, who acts as a neutral third party, charges a fee for their time reviewing the case and issuing a decision. This is usually the largest cost.
- Filing fees: There may be an administrative fee charge by the arbitration organization to open and manage the case.
- Hearing costs: If an in-person hearing is held, there are costs for the venue, court reporter, etc.
- Legal fees: Both sides often have attorneys representing them during arbitration, and they pay their own legal costs.
When insurance companies go to arbitration?
Insurance companies will typically go to arbitration when:
• There is a dispute over a claim with a policyholder that cannot be resolved through normal channels. Arbitration provides an alternative to going to court.
• The insurance policy includes an arbitration clause requiring disputes to be resolved through arbitration. Many commercial insurance policies have mandatory arbitration clauses.
• The amount in dispute is relatively small. Arbitration is often faster and cheaper than litigation for resolving smaller disputes.
• There are complex issues of fact or contract interpretation that an arbitrator with industry expertise may be better suited to resolve. Arbitrators in insurance disputes are often retired judges or insurance industry professionals.
• The insurance company believes they have a stronger chance of success through arbitration. Some policyholders argue that arbitrators may be biased in favor of insurance companies since they want to be selected for future arbitration cases.
Mandatory vs. voluntary arbitration
What is Mandatory Arbitration?
Mandatory arbitration is required by law or contract. US employment and consumer contracts use mandatory arbitration. Mandatory arbitration allows parties to resolve disputes through arbitration instead of court.
Mandatory arbitration is less expensive and faster than going to court. It can also be more private, as the proceedings are usually confidential.
However, there are some potential drawbacks to mandatory arbitration. Mandatory arbitration usually limits consumer contract parties’ rights.
What is Voluntary Arbitration?
Both parties agrees to voluntary arbitration. It’s voluntary and an alternative to court. Both parties agree to voluntary arbitration instead of going to court.
In complex disputes, both parties can choose their own arbitrator in voluntary arbitration.. Going to court can also be less formal and more flexible.
Voluntary arbitration costs more than mandatory arbitration as parties pay for the arbitrator’s time and expenses.
Voluntary arbitration allows parties to resolve their dispute without going to court.
An example of insurance claim arbitration
Just take an example that a tree falls on a policyholder’s dentist office during hurricane season, shattering the front glass. The policyholder claims the business’s general liability insurance ought to cover a replacement window.
The insurance, however, dismisses the claim, claiming that hurricane damage was not cover by the policy.
In the case of a dispute, the insurer and policyholder agree to binding arbitration by the American Arbitration Association.
The arbitrator determines that the insurer was not obligate to pay the damages. The binding judgement orders the insurer to repair the window.
How Can Arbitration Affect Commercial Claims?
While there are many questions regarding how arbitration works in insurance disputes, the procedure can have a significant influence on policyholders in particular.
Non-binding arbitration, for example, allows policyholders to challenge the arbitrator’s initial award, but binding arbitration agreements do the contrary. Binding arbitration means neither party can challenge or appeal the arbitration verdict, regardless of the facts.
This can be aggravating for commercial policyholders if the arbitration ruling supports the insurance provider’s findings, which frequently disadvantage the policyholder.
Furthermore, many insurance companies are beginning to mandate arbitration as the exclusive means of resolving claims disputes. This can be extremely frustrating for policyholders who would like to hold their insurance provider accountable through legal action.
When mandatory arbitration is the only alternative for resolving an insurance claim dispute, policyholders are at a significant disadvantage and have limited bargaining leverage.
Many insurers add mandatory arbitration clauses in their policies to shield themselves against bad faith claims. This significantly disadvantages policyholders by prescribing crucial terms such as costs, charges, and even venue, which can deprive policyholders of substantive and procedural rights.
What Are The Filing Fees?
The filing fee is $40.00 and must be paid before the application for arbitration may be handled. The filing fee for a three-person panel is $100.