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Mandatory Arbitration

Mandatory to Whom and When is It Mandatory

Adjusters talk about mandatory arbitration as if it applies to everyone involved.

The reality is that mandatory arbitration only applies when two insurance companies agree to go to arbitration (they are part of the arbitration panel) and when you have a clause in your policy that forces you to go to arbitration. Isn’t that all the time? No.

Not every policy has this clause in it and this is a good reason to read your policy carefully. Also, you must have a policy with the insurance carrier involved.

For example, if your carrier is Safeco, then there is a mandatory arbitration clause if there is a dispute between you and Safeco, this does not include disputes between you and other insurance companies.

Insurance companies like to go to arbitration because it is substantially cheaper than going to court.

If they have a dispute with you (i.e. policy interpretation), then they can send the facts and policy to the arbitration panel to have your coverages decided upon.

There is not much you can do to avoid this if the clause is in your policy. However, you do not have to go arbitration if there is a dispute with someone else or your dispute is directly with the other person’s insurance company.

There is no language in your policy that binds you to a mandatory arbitration with the other party’s carrier.

This is why you can take a person to small claims court (or even sue with an attorney) while the insurance companies go to arbitration. 

The fact that mandatory arbitration is required between the carriers does not mean that you cannot seek remedy in a court of law.

Insurance companies will tell you that insurance decisions are not appealable and therefore the claim is closed.

However, a lawsuit may not be necessarily barred by the arbitration.

Another arbitration decision by an arbitration panel is barred, but a new cause of action in a court of law would make the insurance company reopen the claim, whether they like it or not.

You are entitled to consult with an attorney (and you should) when your insurance company is taking you to arbitration.

Usually this happens over coverage and interpretation of policy disputes. If you do get a lawyer, then you have to pay for it. The cost of arbitration is paid by the insurance company.

Arbitration will not necessarily be a “bad thing.” It is cheaper for you to try to get a remedy this way and you don’t have to worry about attorney fees. However, you do want to make sure that your insurance adjuster is doing what they are supposed to do.

If they are not, it could cost you a lot more than having to go to court on the first place.

The good thing about arbitration between insurance companies is that they have to pay within a few days of learning the decision, so you will not be waiting for your check long (if you win).

Arbitration claims can be resolved in a matter of weeks, while cases can take several months or even years.

In summary, mandatory arbitration will ONLY bind you against your own insurance company if there is such a clause in your policy.

Other than that, mandatory arbitration between insurance companies will not preclude any cause of action in court. You can sue someone while a case is in arbitration.

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