Arbitration of Insurance Coverage Disputes: A Policyholder’s Definitive Survival Guide

Arbitration provisions are becoming increasingly common in insurance policies, particularly where specialty coverage is concerned. Many legal practitioners favor arbitration over litigation, depending on the nature of the case. Unfortunately, when it comes to insurance disputes, arbitration can be disadvantageous for policyholders. Too often, the process is skewed in favor of the insurance company. Increasingly, insurance policy arbitration provisions contain language not only limiting a policyholder’s rights, but also eviscerating established legal protections, both statutory and under common law. Most policyholders have no choice when it comes to the inclusion of such provisions, which often consist of standard form language. This has led several states to ban arbitration of coverage disputes. As of July 2010, the following states had anti-arbitration provisions: Arkansas, Georgia, Kansas, Kentucky, Louisiana, Missouri, Montana, Nebraska, Oklahoma, South Dakota, and Vermont. Rhode Island has a statute that allows for arbitration only at the option of the policyholder.

When policyholders feel strongly that an insurance company is employing improper claim-handling tactics, or simply fighting a valid claim, there are sometimes ways that they can avoid arbitration and have the day in court they deserve. Too many policyholders, however, get stuck dealing with unanticipated claim disputes that must be resolved confidentially under arbitration provisions they may never have read or may not even have realized were included in the policy language. However, when they cannot be avoided, arbitration proceedings can be managed effectively to make the playing field less slanted.