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Tips for Effective Management of Insurance Industry Arbitrations

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Tips for Effective Management of Insurance Industry Arbitrations

Source: Texas Lawyer
Date: November 1, 2016

Hon. Mark Whittington (Ret.)
There’s been an upTick in insurance industry arbitra- tions in recent years. These pro- ceedings involving corporate insureds can raise complex and time-consuming issues. but early and focused efforts by the insurer and the insured can help provide for a fair and efficient process. arbitration works best when all parties have a clear meet- ing of the minds on important provisions contained in the arbitration clause and work together to avoid unnecessary complications. The best time to address management of the arbitration process is not after a disagreement has arisen, but when the insurance policy is being negotiated. While insur- ance companies typically draft the arbitration clause contained in the policy, an informed risk manager or in-house counsel for the insured may be able to negotiate specific and important changes to the provision. The following are a few important areas that should considered. First, the scope of the arbi- tration clause will determine whether a particular dispute is subject to arbitration. some insurance policy arbitration clauses limit their scope to sim- ply valuation of damaged prop- erty whereas others are broadly drafted to include any and all disputes arising under the pol- icy. a broadly drafted clause texaslawyer.com | November 1, 2016 w By Mark Whittington Tips for Effective Management of Insurance Industry Arbitrations wildpixel gives an arbitration panel authority to consider all issues arising under the policy , includ- ing coverage questions and “arbitrability”—i.e., the ques- tion of what issues are covered by the arbitration clause. Fail- ure to specify the scope of the arbitration clause frequently results in added delay and liti- gation costs. next, choice of law is an important but frequently over- looked topic. in fact, which state’s law governs may deter- mine the outcome of some arbi- trations. Frequently, the law of the state of incorporation of the insurer or the insured gov- ern the proceeding. This des- ignation can be negotiated and should be made only after care- ful consideration by the insur- ance professionals involved with assistance of counsel. again, failure to include a choice of law determination in an arbitration clause can result in delay and increased costs. Which procedures and rules will be used in the arbitration proceeding are also important considerations. although cost savings and efficiency are goals of arbitration, the ultimate goal of the Federal arbitration act is to enforce agreements resolving disputes. so, in a large complex insurance dispute, the parties probably should determine which procedures and rules will allow for sufficient dis- covery and motion practice to adequately develop their case. Most aDr providers, such as JaMs and aaa, have compre- hensive commercial arbitration rules that can be applied if an aDr provider is included in the arbitration clause. The comprehensive arbitra- tion rules offered by JaMs and aaa also provide procedures for selection of neutrals and methods for dealing with nomi- nations and objections. Without such procedures in place, selec- tion of members of the arbitra- tion panel can be extremely difficult. another issue that arises in the insurance industry is a provision in the arbitration clause that sets forth required qualifications for the prospec- tive arbitrators. For example, some provisions require arbitra- tors to have a certain amount of management or adjusting expe- rience in the insurance indus- try. insureds generally feel this type of provision tilts the play- ing field in the insurer’s favor. regardless of its consequences, such language severely limits the pool of potential arbitra- tors and makes selection of a panel difficult. The best choice may well be to allow each party maximum flexibility in selecting an arbitrator without regard to predetermined qualifications. another provision that can be negotiated is the forum- selection clause designating the place where the arbitra- tion will take place. again, the home state of the insurer or the insured are frequent choices, but there is another option that should be considered. if the insurance policy covers occur- rences that would involve large numbers of witnesses and par- ties, the forum where the claim or occurrence arises might make the most sense when consider- ing convenience and costs. These are some of the impor- tant considerations both an insurer and insured should keep in mind when negotiating the terms of an arbitration clause in an insurance policy. Too often, these matters are overlooked or given little thought. When these terms are negotiated at the out- set, the parties will have a fair and efficient alternative dis- pute resolution mechanism for resolving potential disputes. Reprinted with permission from the November 1, 2016 edition of the Texas La wyeR © 2016 aLM Media Properties, LLC. all rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 or reprints@alm.com. # 651-11-16-06 w