Arbitration in Insurance Claims" />
When the unexpected happens and a commercial property owner needs to file a property damage insurance claim, it can appear to be a straightforward process to getting operations back to running as normal. Unfortunately, disputes over a claim between commercial policyholders and their insurance providers can (and often do) arise. When this happens, arbitration can be utilized as a tool to help resolve the dispute. However, there are several things about this legal process that business owners should be aware of ahead of time.
Arbitration for commercial property insurance claims can occur in the event there is a dispute between the policyholder and the insurance provider over the outcome of a claim. This process involves the use of an independent third party, known as an arbitrator, or panel of arbitrators, to help settle the dispute, rather than taking the case to court. The arbitrator(s) should be unbiased and must come to an appropriate decision based on the facts of the claim. Once the arbitrator completes their investigation, the resulting judgment or arbitration award can be given. The award includes all of the information about the case, along with the arbitrator’s decision regarding any related fees, damages, or disciplinary actions necessary to resolve the dispute.
Because going through the process of resolving a claims dispute through litigation can often be lengthy and expensive, arbitration can be used as an alternative. Instead of filing a lawsuit, the insurer and the policyholder both present their case to the arbitrator. The results of which may be binding depending on the requirements outlined in the insurance policy. If the arbitration is non-binding, either party can appeal the initial award if they are dissatisfied with the result.
Not just anyone can be an arbitrator for insurance disputes. Arbitrators can either be an independent party who is unaffiliated with either side or they can be any group that provides arbitration services. For example, the policyholder and the insurer can choose to designate an organization like the American Arbitration Association to help provide arbitration services. Additionally, each party has the option to represent themselves or hire legal counsel to represent them in these proceedings.
While the use of arbitration can be beneficial in some situations, it’s important for commercial property owners to be aware of the ways the process can negatively impact policyholders. For instance, while non-binding arbitration allows policyholders to dispute the arbitrator’s initial award, binding arbitration clauses do the opposite. Binding arbitration means that both parties agree that the arbitration award cannot be disputed or appealed at a later date, regardless of the circumstances of the case. This can be frustrating for commercial policyholders in the event the arbitration award favors the insurance provider’s findings, which often hurt the policyholder.
In addition to binding arbitration, one of the most important nuances to this process is whether or not the arbitration is voluntary or mandatory. Many insurance companies are beginning to require arbitration to be mandatory making it the only manner to resolve a claims dispute. This means that under no circumstances can litigation be utilized to resolve the issue at hand. Voluntary arbitration provides the opposite – either party still has the option to pursue litigation despite an arbitration award, if necessary.
When insurance companies include mandatory arbitration provisions in their policies, it often puts policyholders at a huge disadvantage. Because insurance policies are created and drafted by the carrier, the policyholder has very little bargaining power. Many insurers utilize mandatory arbitration clauses in their policies to help immunize themselves before a dispute arises, particularly if bad faith practices are in question. This puts policyholders at a great disadvantage by dictating important terms, such as fees, expenses, and even venue, which can strip policyholders of substantive and procedural rights.
Most mandatory arbitration clauses include a choice of forum and a choice of law clause as well, which may force policyholders to travel to and apply the laws of a state where they do not reside and where the covered property is not located. This may effectively eliminate certain damages that may be recoverable in a policyholder’s home state, but not in the state where the arbitration is required to take place.
Despite some of the positives that come with pursuing arbitration over litigation in a claims dispute, the negatives greatly outweigh them. This uneven playing field puts policyholders at a disadvantage before their commercial property has even been damaged. At Raizner Slania, we understand just how upsetting this can be. We are well versed in the arbitration process and have worked with many commercial policyholders who have been taken advantage of by their insurers. If you need assistance with a commercial property insurance claim that must be arbitrated, we can help. Contact our office today for more information.