Coverage Arbitration Pros and Cons

As soon as I read the article Arbitration's Fall From Grace in GC South, I knew I needed to pass it along to others. Insurance policies are often written with arbitration clauses that require coverage disputes between the insured and the insurer to be arbitrated. In seminars I have given, I often discuss the pros and cons of arbitrating a coverage dispute, and I try to emphasize that arbitration is not necessarily preferable to litigation. It depends on what you want to accomplish in the dispute resolution process, and variables related to how you think you should get to the result you are pursuing. Do you need certain types of discovery to win, types that are more readily available in the court system than under the rules of the American Arbitration Association? If so, then you want to avoid arbitration.

Another key question is whether you are aiming to prevail on summary judgment - the arbitration rules do not explicitly provide for such motion practice, and I have arbitrated cases in which substantial briefing and expense has gone into simply trying to convince the arbitration panel to hear summary judgment type motions.

Another key consideration is the legal strength of your case. Is the body of law in the circuit that the case would be litigated in if the matter were not arbitrated favorable to you? If so, I often advise clients to avoid arbitration. Why? Because if the law is in your favor but an arbitration panel misapplies it, you have no right of appeal; if a trial court misapplies it and you lose at that level as a result, you can have it overturned on appeal. Thus, if you should win on the law, you shouldn't willingly go to arbitration, if you can avoid it.

I have won more commercial arbitrations than I have lost, but whichever end of the stick I have ended up on, one fact has remained consistent: for any even mildly complicated case, arbitration can be an unwieldy beast.

All these problems and more are discussed in wonderful detail in the article. In my own experience, the article is right on the money, both with regard to the pros, and the cons, of arbitrating disputes.

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