The Hidden World of Policy Arbitration

Risk Management

PUBLISHED ON: September 9, 2008

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For the last couple of decades, arbitration has been heralded as a cheaper, more efficient and more expedient way to resolve commercial disputes. A significant segment of the property/casualty insurance market seized on this refrain by imposing mandatory arbitration clauses or other forms of alternative dispute resolution provisions in their insurance products. Off-shore insurance companies, especially in Bermuda, are particularly insistent on using arbitration rather than allowing their customers to file suit in the United States should a claim dispute arise.

Many policyholders who have arbitrated a significant claim have discovered that the arbitration process is anything but cheap, however. Policyholders have to cover
the expense of their coverage counsel, often pay some or all of the expenses of foreign solicitors, barristers, party arbitrators and pay half the fees of the umpire or panel
chair. The costs for policyholders are increased further given the increasing weakness of the dollar against other foreign currencies. Perhaps even worse, some arbitrations
languish, taking years to be decided—a far cry from expedient dispute resolution.