Jun 26, 2017

Should You Arbitrate Your Claim?


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11/17/2008
Brian S. King
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The ability of insurers, employers and business interests to enforce arbitration provisions contained in “take it or leave it” contracts has been hotly contested in recent years. Generally speaking, I’m not a fan of arbitration. Arbitration is often much more expensive than litigation. The parties are paying out of their own pockets for the structure to resolve a dispute (cost of a judge, court reporter, etc.) that in litigation is already provided through our tax dollars. I’ve paid tens of thousands of dollars to an arbitrator's time for which I wouldn’t have had to pay a nickel in litigation. The Supreme Court has taken notice. It ruled in Green Tree Financial Corp – Alabama v. Randolph, 531 U.S. 79 (2000), that if a party demonstrates the financial burden of arbitration will impair his ability to resolve the dispute, an arbitration clause may not be enforceable. In addition, while arbitration advocates such as the American Arbitration Association claim that it is faster than litigation, that is not necessarily the case. The only structural aspect of arbitration that makes it likely the case will be resolved more quickly than litigation is the absence of a meaningful opportunity to appeal an adverse ruling. That is hardly a point in arbitration’s favor in my book. I have no interest in seeing litigation prolonged. Over 95% of my cases are handled on a contingent fee basis. The longer the case goes without a final resolution, the longer I go without getting paid. But even so, the absence of any real appeal mechanism in arbitration is distinctly unattractive to me. If the court in which your case is pending is clogged and your case will not be resolved for months if not years, arbitration may be faster. But in my experienced most courts are not significantly backlogged. In short, there is nothing inherent about arbitration to make it faster than litigation except the absence of a genuine appeal mechanism and that aspect of arbitration is not a good thing in my mind. In the context of ERISA it is pretty much settled that boilerplate arbitration clauses in form insurance policies or other ERISA plan documents are not enforceable, at least not at the sole election of insurers or ERISA plans. Sosa v. PARCO Oilfield Services, Ltd., 2006 U.S. Dist. LEXIS 70312 (E.D. Tex. 2006), discusses the issue in a recent case written by Judge T. John Ward. The primary authority on the issue is the federal regulation underlying ERISA’s claims procedure section, 29 C.F.R. §2560.503-1(c)(4). The section states that mandatory arbitration provisions in ERISA plans are unreasonable. Only if both parties voluntarily choose to arbitrate, after the dispute has arisen, will arbitration be enforced. Since most contested insurance claims involving health, disability and life claims arise under ERISA, mandatory arbitration isn’t usually an issue in the cases I handle Sometimes there are good reasons to arbitrate claim disputes. But I generally avoid arbitration if I can.

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