Some insurance policies contain a provision that calls for arbitration should the policyholder and insurance company disagree on a settlement figure. Arbitration is when a neutral, third party is brought in to settle a dispute, rather than having the dispute settled in court through litigation. Binding arbitration simply means that a final decision in arbitration is binding (or final) on both parties, and may not then be taken to court if one party does not agree with the outcome. If your policy requires binding arbitration in the event of a dispute between you and your insurer, then both you and your insurer must seek out arbitration and comply with the decision of the arbitrator. Arbitration is typically only used in situations where damages are the only issue.
How Arbitration Works and What It Costs
Arbitration provisions in insurance policies are often called "appraisal clauses." Each party (the policyholder and the insurance company) hires an appraiser to look at the claim and recommend a settlement figure. If the appraisers can't agree on a settlement figure, a third, neutral appraiser is brought in to look at the claim. A decision by any two of the three appraisers is typically binding on the parties. Either party may invoke the appraisal clause when a settlement can't be reached. The process itself can take anywhere from a couple of weeks to several months.
While the arbitration process is generally less costly than litigation, it is still not free. Each party must pay for its own appraiser and share the cost of the third appraiser. If these costs are more than what you're hoping to get in a settlement, then rethink your strategy. It should not cost you more to go through arbitration than you would otherwise gain after settlement has been reached in your favor. Another form of dispute resolution is mediation and is often confused with arbitration. Mediation is a process where a trained mediator, best thought of as a facilitator, meets with the parties to the dispute, both individually and collectively, to try to help the parties reach an agreement to resolve the dispute. However, mediation is generally not binding.
An insurance company is acting in bad faith if it does not honor a binding arbitration decision and can be sued in a court of law. If you are in this situation, consult attorney W. Craft Hughes right away.
Other Roads to Take if All Else Fails
If negotiations hit the proverbial "brick wall," you might consider one of the following:
(1) Small Claims Court: This option may make sense if your damages involve a relatively small amount. Small Claims Courts are a usually faster, inexpensive and less stressful way to resolve disputes. And generally you can sue without using the services of a lawyer (though using a lawyer to coach you as to strategies makes sense). All Small Claims Courts, however, have a maximum amount for which you can sue, and this amount differs from state to state. So if you are looking for $8,000 and your state's dollar limit is $5,000, it may not make sense to proceed. You will be giving up your right to seek the extra $3,000 in another court.
(2) Department of Insurance: You can make a complaint to your state's department of insurance, although the agency is unlikely to intercede favorably on your behalf. However, the mere suggestion that you are filing a complaint may spur a recalcitrant insurance adjuster to increase the settlement figure. Your state agency may investigate your claim if the insurer wrongfully denied coverage, acted improperly or refused to negotiate a settlement.
(3) File a lawsuit: You can sue the person responsible for the accident if: 1) you're not getting anywhere with the insurance adjuster, 2) the claim is more than the maximum limit in your state's small claims court, 3) there are insurance coverage issues, or 4) your statute of limitations is set to expire within 2 or 3 months. Where the stakes are high (i.e., serious or permanent injury), you are better off with legal representation.
A personal injury lawyer can help you:
- Assess your legal situation. An experienced personal injury attorney will help you understand the legal issues involved in your specific personal injury claim. Is the injury serious? Is it a permanent or temporary injury? Who was at fault? Was there an uninsured or underinsured motorist involved? Is there any third party responsibility? Do you have pain and suffering? Should you try to negotiate with the insurer yourself? Do you have to accept his settlement offer? Do you know what your case is worth (the insurance company does and won't tell you)? A good lawyer will tell you whether it makes sense to sue in small claims court, to sue for a larger amount in state court or to settle out of court.
- Obtain additional evidence, information and reports. A good personal injury attorney will know what kinds of evidence to look for (i.e., medical and vocational evidence, police reports, etc.) and will investigate and interview potential witnesses for statements.
- Provide legal coaching. If representing yourself works better for you, consider using an attorney as a legal coach to help you (1) understand the personal injury law that applies to your case; (2) find the evidence that best supports your case; (3) understand the relative strengths and weaknesses of your claim; (4) understand the litigation process and customs unique to your local courts; (5) draft or review paperwork; (6) identify opportunities for a settlement to your personal injury claim; or (7) represent you if at some point you feel you can no longer go it alone.
- Negotiate. If there is an unresolved dispute, there will be negotiations with a claim adjuster who is a professional negotiator. You'd be wise to hire an attorney to negotiate on your behalf and to protect your interests.
- Make a phone call or draft a lawyer's letter. Your attorney can handle all communications with the other party, including phone calls. This reduces your exposure to the risks and unpleasantness of dealing with the other party on your own. Similarly, good lawyers often extend each other professional courtesies and may be able to obtain with a phone call what would otherwise take a battle. A letter from your lawyer helps to establish your claim and puts the other party on notice that you are taking the matter seriously and are represented by a professional.
- Represent you in court. An experienced lawyer can help you file a personal injury lawsuit against the party with whom you have a dispute. If your opponent has a lawyer, then by all means, you need to get one too.
