§ 25.08 Arbitration of Insurance Disputes

• Jurisdiction: United States
• Publication year: 2022

§ 25.08 Arbitration of Insurance Disputes

[1]—In General

Increasingly, insurers are requiring mandatory arbitration of coverage disputes, imposing choice of venue and choice of law provisions in an effort to give themselves an advantage when disputes arise. Policyholders need to be aware of these restrictions and attempt to negotiate and remove them. Failing to do so may result in reduced or eliminated coverage and will certainly "provide the insurer with significant tactical advantages."¹

Frequently, insurers will impose mandatory arbitration in an effort to keep insurance coverage disputes out of court. Recognizing that courts will enforce standard contract rules of interpretation, viewing exclusions narrowly and resolving ambiguities in the insureds' favor, insurers are increasingly seeking mandatory arbitration of disputes. Arbitration generally will limit opportunities for discovery, especially regarding extra-contractual claims, such as bad faith.² Further, there are fewer opportunities to appeal arbitration decisions than court decisions. Also, insurers have more leeway in arguing inconsistent positions in arbitrated cases, since arbitrations are private proceedings without a public record. The right to recover attorneys' fees may also be limited in arbitration.

[2]—States Limiting Arbitration of Insurance Policies

Recognizing the limitations of arbitration, "26 states have enacted statutes that restrict arbitration provisions in insurance policies."³ Note that California, New Jersey and New York do not have statutes that restrict arbitration provisions in commercial liability and casualty insurance policies.

In certain instances, "a policyholder can insist that an arbitration provision be removed through an endorsement."⁴ In other cases, the policyholder can seek removal of arbitration provision upon renewal or "seek coverage from another insurer that will not require mandatory arbitration of coverage disputes."⁵ When a claim involves operations between or among states, the arbitration provision must be reviewed to determine whether it is enforceable under the laws of each state connected to the claim, "including where the claim arose and where the policy was issued."⁶

[3]—Venue Provisions

Recognizing that certain jurisdictions are known as either pro-policyholder or pro-insured regarding insurance coverage disputes, insurers will seek to include a choice of venue provision in their policies, of course selecting a pro-insurer jurisdiction. Since...