Before entering insurance coverage arbitration, policyholders should ask whether arbitration is the best and most appropriate way to resolve complicated insurance disputes. Until recently, arbitration provisions were rare in standard insurance policies. Now, they are increasingly more common. Additionally, the language contained in many standard arbitration clauses has become even more burdensome over time. This is because insurance carriers tend to prefer insurance coverage arbitration over litigation.
Arbitrators may not need to follow policyholder-friendly law
Policyholders rely on policyholder-friendly rules of construction to win claims. Courts and arbitrators need not look to the outcome of whether or not a claim is covered. Instead, a defense is necessary if a claim has any possibility of being covered. Furthermore, policy exclusions favor policyholders over insurers. For an exclusion to apply, there must not be any other viable interpretation of coverage other than the one the insurer offers.
Both arbitrators and courts must heed the law. However, if standard insurance rules of construction are applied, policyholders typically have a distinct advantage. However, arbitration is altogether different. Arbitration award reviews are limited. Plus, arbitrators are usually given more flexibility than courts in creating their rulings. Arbitrators may even be permitted to evaluate factors that are unrelated to coverage.
Moreover, arbitrators have been known to be improperly swayed by insurance industry customs and practices, rather than following the established legal standard of interpreting insurance policy language. These are factors that arbitrators may consider which cannot be considered in court, since they are factually and legally irrelevant to coverage.
Lastly, some arbitrators may be reluctant to apply standard rules of construction because these rules are designed to give black and white coverage determinations, favoring coverage. When these rules are applied to most contested corporate insurance claims, it often leads to a ruling that the claim is covered.
To muddy the waters, insurance carriers often raise as many possible defenses to coverage as possible. They may push for the devaluation of a claim, whether their arguments are valid or not. Therefore, even if the legal rules mandate coverage, arbitrators can open the door to legally invalid insurer defenses, whether intentionally or unintentionally. This may not necessarily lead to an incorrect decision. However, it complicates the process unnecessarily.
Arbitrators may disregard insurance carrier bad faith
Some arbitrators have been conditioned to ignore an insurance carrier’s bad faith conduct. On the other hand, courts and juries may be conditioned in the other way. Insurance companies want to increase their net income by limiting expenses, which includes restricting payments on claims. All too often, insurance companies find it too tempting to deny claims for financial reasons. This is a breach of their duty of good faith and fair dealing with policyholders.
Some insurance arbitration organizations are extensions of insurance companies
Insurance carriers have formed specific trade associations disguised as arbitration tribunals. These arbitrators have experience working for insurers, and they translate this knowledge into favorable outcomes for insurers in arbitrations. An arbitration before these organizations is similar to an arbitration with the insurance company claims adjuster. Policyholders should not agree to arbitration with an insurance arbitration organization that is an extension of insurance companies.
The best way to discover your options as a policyholder is to sit down with an insurance recovery lawyer, like an insurance lawyer, and discuss your situation. Attorneys know and understand the state and federal laws. These lawyers may also help with asset management and effectively manage a policyholder’s insurance coverage as a financial asset. Schedule a consultation with an insurance recovery attorney today.