Going through the process of a commercial property damage claim investigation can put a lot of undue stress on business owners. These situations can become even more taxing if the policyholder does not agree with the insurance company’s findings. When this happens, the dispute will most likely go to arbitration. However, there are many discrepancies at play when it comes to how often this method is utilized and the likelihood of a claims dispute going to arbitration.
When Insurance Cases Go to Arbitration
Damage to a commercial property can happen at any time for a wide variety of reasons. When the damage is covered by a property damage policy, the carrier will investigate it to determine the cause of damage, whether or not the claim will be accepted or denied, and how much the policyholder will receive to repair the damage. If the insurance carrier’s findings do not match up with what the policyholder was anticipating, disputes can quickly arise. Often, arbitration is used in these situations as a form of alternative dispute resolution (ADR) in place of litigation.
Because all commercial property damage claims and insurance policies are unique, it can be difficult to determine the likelihood of an insurance case going to arbitration instead of litigation. Some policies require arbitration, making it the only option for policyholders to resolve disputes with their insurance provider. When this happens, it’s important to understand how the process works and the methods insurance carriers use to benefit themselves.
The Arbitration Agreement
In most cases, arbitration can only be utilized to resolve an insurance claim dispute if both parties agree to it. This means a policyholder cannot force their insurance company to go to arbitration and vice versa. However, mandatory arbitration clauses in property damage policies are quickly becoming more popular. Then, the arbitration will be designated in the insurance policy as the only means to resolve a dispute. Regardless, there are a few things policyholders do have control over during the arbitration process:
Who the arbitrator is
Both the insurance company and the policyholder are required to select an independent individual or arbitrator to make a decision based on the facts of the claim. The arbitrator must be an unbiased individual with no affiliation to either side. The arbitrator can be a retired judge, an experienced lawyer, or any other qualified professional the policyholder and insurance company agree on. There are also arbitration groups such as the American Arbitration Association that can recommend an arbitrator. Some policies require the arbitrator to have experience in a senior-level position of insurance claims or underwriting.
Whether or not arbitration will be binding
When pursuing arbitration to resolve a claim dispute, the insurance company and the policyholder must agree whether or not the arbitrator’s findings (or arbitration award) is binding or non-binding. In binding arbitration, both parties agree that the arbitration award given cannot be appealed, regardless of the circumstances. This means neither party can overturn or appeal the decision, as both sides have committed to adhering to the arbitrator’s decision in advance. Non-binding arbitration is used when both parties wish to retain control over how the dispute is resolved. This allows either party to appeal the arbitrator’s award if they are dissatisfied with the outcome.
Regardless of a policyholder’s decision to move forward with binding or non-binding arbitration, both types of arbitration can present issues that can negatively impact them. For instance, while binding arbitration can be beneficial to policyholders if the award is in their favor, if it is not there is no option to appeal it. On the other hand, if non-binding arbitration is chosen and the award goes in the policyholder’s favor, the insurance company can choose to appeal the decision and pursue litigation, which can be costly and time-consuming for the insured.
The information provided to the arbitrator
During the arbitrator’s investigation, they will obtain information from both sides about the details of the claim. The policyholder must provide as much information as possible to support their findings. This includes documents about the property and damage, photos and videos of the damage, and anything else of note that would help the arbitrator understand how the damage occurred and its extent.
A high-low recovery amount
In certain cases, the insurance company may want to pursue a high-low agreement on the recovery amount that can be obtained. A high-low agreement works to guarantee the minimum amount that can be received by the insured and the maximum amount the insurer can be responsible for paying. This means that no matter the arbitrator’s decision, the policyholder cannot recover more than the decided upon “high” amount or less than the “low” figure.
For example, if both parties agree to a low amount of $5,000 and a high amount of $15,000, the policyholder would get $5,000 even if the arbitrator awarded less than that, but would only receive the $15,000 if the arbitrator awarded more. In the event the arbitrator awards an amount in between the low and high, then the policyholder would get the amount awarded. The arbitrator is not told what the high-low agreement is in these situations; and, because a high-low agreement is considered an executed settlement document, the decision often cannot be appealed.
Insurance Coverage Attorneys
At Raizner Slania, our attorneys are well versed in the arbitration process and the various methods insurance companies utilize to take advantage of their policyholders. We have worked with countless commercial policyholders to hold some of the largest insurance companies in the world accountable for their use of bad faith tactics to undermine the insurance claims process. If you need assistance with a commercial property insurance claim that must be arbitrated, we can help. Contact us today for more information.