Arbitration has become an increasingly common practice to resolve disputes between policyholders and insurers. Although this process can provide some benefits to insureds, it can also bring about many frustrations for commercial property owners who just want to get back to business. Because this process can quickly become complex, it can be helpful to review the most commonly asked questions about insurance claim arbitrations.
Frequently Asked Questions About Insurance Arbitration
Commercial property damage can be detrimental to a business. While filing an insurance claim is the first step in recovering losses, if the insurer and policyholder cannot agree on the results of a claim, the process can become incredibly frustrating. Arbitration is often utilized as a method to resolve these disputes in place of litigation.
During the process of arbitration, both the insurer and the policyholder select an independent individual called an arbitrator – or a panel of arbitrators – to settle the dispute based on the facts of the claim. Once the arbitrator or arbitration panel comes to a decision, an arbitration award is issued. This award may be a legally binding decision regarding not only the covered losses, but also fees, further damages, and/or potential disciplinary actions required to resolve the dispute. Because this process involves many different moving parts, certain questions can often arise.
Some of the most commonly asked questions regarding insurance arbitration include:
What do policyholders need to do before pursuing arbitration?
In the event arbitration is not deemed mandatory based on the terms of the commercial insurance policy, policyholders can decide to pursue arbitration over litigation when a dispute arises with an insurance provider over a claim. Before doing this, however, the policyholder must first inform the carrier of their issue. Once the insurer has been made aware of the disagreement, both parties will then need to agree to pursue arbitration for the process to begin. In the event a policy does require mandatory arbitration, litigation cannot be pursued and both parties must utilize arbitration as the means to resolve their issues.
Is there a time limit within which a party must file for property damage claims through arbitration?
In Texas, there are time limitations in place for filing any lawsuit or legal action seeking the repair or replacement of damaged or destroyed property. The case must be filed within two years from the day the property was damaged or destroyed. In the event the two-year deadline has passed before the affected party files suit, the insurer can file a motion to dismiss the case. If the dismissal is granted, the plaintiff has lost the right to any legal remedy, which includes arbitration, against the carrier to recover compensation for the damaged property. However, the terms of the policy often place time limitations to file a claim—sometimes different periods depending on the cause of damage—so it is important to review the policy and do not delay if there is a dispute.
Will the arbitrator explain the basis for their decision?
Yes, once the arbitrator has reviewed the evidence related to the claim as presented by both sides, they will then make a decision or arbitration award. The arbitration award includes all the information on the case, along with the arbitrator’s final decision on fees, damages, and/or any disciplinary actions, if necessary.
What qualifications should an arbitrator have?
During the arbitrator selection process, a candidate should meet certain specific qualifications. Often, arbitrators are lawyers or business professionals with expertise in a specific field. Arbitrators are typically required to have at least a bachelor’s degree and must have learned their skills through a combination of education, training, and work experience. Insurance policies often require the arbitrator to be a person presently or formerly employed or engaged in a senior position in the insurance underwriting or claims process.
An arbitrator must also be an unbiased, independent party or panel that is unaffiliated with either side. Both the policyholder and the insurance provider also have the option to designate an organization like the American Arbitration Association to provide arbitration services.
When is mandatory arbitration most commonly used?
Mandatory arbitration can be found in a variety of commercial property insurance policies and its inclusion is quickly becoming a trend in many other types of policies as well. Mandatory arbitration means that under no circumstances can litigation be utilized to resolve insurance claims disputes. This often leaves arbitration as the only way to resolve a disputed claim.
Are arbitration clauses easy to find in insurance policies?
Arbitration clauses and other policy specifications like exclusions may be difficult to find in insurance policies. Insurance policies also often contain specific language and jargon that is not easily recognizable to the average person or business owner. Because each insurance policy is unique and contains nuanced language largely drafted in favor of the carrier, business owners should take the time to thoroughly review all insurance policy provisions with an experienced insurance claims attorney to better understand what clauses and stipulations exist.
How Arbitration Can Impact Commercial Claims
While there are a variety of questions that can be asked about how arbitration works for insurance disputes, the process can have a great impact on policyholders in particular. For instance, while non-binding arbitration allows policyholders to dispute the arbitrator’s initial award, binding arbitration clauses do the opposite. Binding arbitration means neither party can dispute or appeal the arbitration decision 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.
Additionally, many insurance companies are beginning to mandate arbitration in order to make it the only manner to resolve claims disputes. This can be incredibly unfortunate for policyholders who would rather hold their insurance company accountable through litigation. When mandatory arbitration is the only option to resolve an issue with an insurance claim, it puts policyholders at a great disadvantage and leaves them with 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.
Insurance Coverage Attorneys
At Raizner Slania, we understand just how frustrating it can be when a policyholder disagrees with their insurer on the results of a claim. Although arbitration can be used to resolve the issue, the practice often leaves policyholders at the mercy of their insurers. 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.