Insurance Policy Arbitration Clauses: Perils And Considerations For Policyholders

More and more insurance policies contain arbitration clauses, calling for the policyholder to arbitrate (rather than litigate in a court) any dispute over insurance coverage. Arbitration usually provides advantages for insurance companies that few policyholders fully comprehend at the time of insurance purchase.

To compound the problem, insurance companies routinely couple arbitration provisions with New York choice of law provisions in certain forms of commercial liability and property insurance. These choice of law clauses purport to apply New York law to disputed insurance policy terms. Again, from the perspective of the policyholder, this can spell trouble. Compared to the law of almost any other U.S. jurisdiction, New York law is less favorable on a number of important insurance coverage issues. Thus, policyholders should be wary of purchasing insurance policies purporting to require arbitration or application of New York law.