An
Introduction to The Use Of Alternative Dispute Resolution to Resolve Insurance
Disputes
Jay E. Grenig*
I.
Alternative dispute resolution
describes the techniques or procedures for resolving disputes short of trial in
the public courts. Alternatives to civil
litigation are not a new phenomenon.[1] However, in recent years the interest in
alternative dispute resolution has increased.[2] Non-judicial procedures may be superior in a
variety of disputes. They may be less expensive,
faster, less intimidating, more sensitive to the disputants’ concerns, and more
responsive to the underlying problems.
The first section of this article
provides an introduction to alternative dispute resolution. The second section discusses the Federal
Arbitration Act[3]
and the McCarran-Ferguson Act.[4] The third section examines the use of various
alternative dispute resolution processes in addressing different types of
insurance situations.
II.
Alternative Dispute Resolution
A. Generally
There
are a number of voluntary alternative dispute resolution methods available to
facilitate the settlement of disputes or to adjudicate disputes if settlement
cannot be reached. These methods can be
used separately or in combination, and their components can be modified and
mixed to suit the circumstances of the particular case.
Negotiation
normally should be considered the first step in attempting to resolve any
dispute.[5] It is probably the most frequently used
method of dispute resolution.
Negotiation implies joint responsibility and authority for making
certain decisions. Parties to a dispute
may utilize negotiation to solve their problems and disputes directly as
between themselves, without the involvement of a third party.
The
negotiation process is voluntary and non-binding. In negotiation, two or more disputing parties
meet together in good faith to identify and discuss the issues at hand, present
facts and supporting data, arrive at mutual solutions, and abide by the
outcome. Negotiation continues as long
as the parties are willing to exchange views on settlement.
Conciliation
is the process in which a third party brings the disputing parties together so
that the disputing parties can begin to discuss the issues. It involves the adjustment and settlement of
a dispute in a friendly, non-antagonistic manner. Conciliation may be used in the courts before
trial, with a view towards avoiding trial, and in labor disputes prior to
arbitration.
Conciliation
may be a particularly good choice when emotions are running high, or when
ongoing relationships are involved and the parties’ inability or unwillingness
to communicate is a major barrier to resolution. Conciliation also may be inappropriate where
one party has a clear legal entitlement or where the parties have unequal
bargaining power or sophistication.
The
term “conciliation” is frequently used interchangeably with “mediation.”[6] However, conciliation generally refers to a
process less structured than mediation.
In some forms of conciliation, a conciliator does not take active part
in the process or settlement discussions, while a mediator may actively promote
a mutually acceptable settlement. The
conciliator’s primary role is to reduce the parties’ inflammatory rhetoric and
tension, open channels of communication, and arrange for formal negotiations.
Unlike
a mediator, a conciliator sometimes is called upon to make non-binding
recommendations or findings that often concern the factual or legal issues in
dispute. The conciliator also may
recommend an appropriate resolution under the circumstances.[7] The finding or recommendation is made to the
parties jointly by the conciliator.
Mediation
introduces the assistance of a neutral third party -- the “mediator” -- in
attempting to resolve the dispute.[8] The mediator’s function is to assist the
parties in their negotiations by helping the parties to define the issues, to
overcome barriers to communication, and to explore alternative methods of resolving
their dispute.[9] Mediation enhances the parties’ ability to
communicate with each other. The mediation process is voluntary; either party
can reject further participation by the mediator at any time in the process. The mediator has no authority to impose a
settlement and does not render a binding decision. A mediator can clarify the parties’
expectations by focusing their needs and interests, attempting to diffuse
hostilities, and reducing the adverse impact of emotions. The parties retain complete control over the
process and make their own decisions about what solutions will work for them.
The
mediator usually deals directly with the parties or their representatives. The mediator endeavors to ensure that each party
is evaluating his or her position realistically. A mediator helps the parties appreciate the
difference between the best alternative to a negotiated agreement and the worst
alternative to a negotiated agreement.
A
mediator can facilitate the resolution of a dispute by suggesting non-monetary
benefits that cost the party providing the benefit less than the value of the
benefit to the other. A mediator also
can help parties overcome perceptive differences. By communicating directly with those persons
having settlement authority, a mediator can reduce the risk of a conflict of
interest between a party and its negotiating representatives. To be most successful in this regard, a
mediator should strive to appear fair and impartial. Furthermore, the mediator should analyze the
disputed issues and prioritize them in order to facilitate resolution of the
dispute.
Some
mediators favor party-generated settlement options and do not suggest
settlement terms. They see themselves
primarily as facilitators, digging deep into the interests and feelings
underlying the surface dispute.[10] Other mediators will propose settlement
options and attempt to persuade the parties to make concessions. In some cases, the mediator may be asked to
offer an assessment of the probable outcome of the case in order to facilitate
the parties’ more realistic evaluation of their respective positions.
In
evaluative mediation, the mediator decides what the case is worth and advises
how it should be settled. It can be
effective in a situation where the neutral has tried many similar cases or
otherwise knows the case well.
Appraisal
involves the valuation or estimation of the value of property by disinterested
persons of suitable qualifications.[11] It uses expert opinion, rather than explicit
market transactions, in order to ascertain the value of an asset or
liability. Appraisals usually relate to
leases, real estate, losses and damages under insurance policies or purchase
and sale agreements. Appraisals involve
questions of value, price, amounts, damages, and other similar areas of
dispute.
The
appraiser is selected or appointed by a competent authority to arrive at a just
and true valuation of property.
Appraisers are selected for their special knowledge of the subject
matter. An appraisal may be conducted
without formal hearings, and the appraiser is permitted to make his or her own
investigation and to establish his or her own procedures.
The
appraiser’s decision need not assume any particular form. However, an appraisal award may be invalid if
it is outside the scope of the issues submitted to the appraiser. An appraisal made within the scope of the
submission is not invalid because the appraiser was mistaken as to law or fact.[12]
Appraisal
differs from arbitration in that an arbitration award is the judgment of a
tribunal selected by the parties to determine matters actually in variance
between them, whereas an appraisal settles the price or value of property or a
claim.[13] In the appraisal, the appraiser is empowered
only to settle the price or value of the property or claim in issue.
Unless
express provision is made for a hearing, the method of determining the facts in
an appraisal is left to the appraiser.[14] The decision may be made without notice to
the parties and without a hearing, unless such notice or hearing is required by
an express provision in the agreement between the parties.[15] In addition, the appraisal may be made upon
such principles as the appraiser sees fit to adopt, or upon such evidence as
the appraiser chooses to receive.
Appraisers are not required to take an oath and are not obliged to
provide formal notice or to hear evidence.
They usually proceed by ex parte
investigation, so long as the parties are given an opportunity to furnish
information and explanation regarding the matters in issue.[16]
An
appraisal resolves only the specific issues of actual value or loss or
damages. All other issues are reserved
for determination in a more complete and formal hearing on the merits.[17] Generally, a dissatisfied party who
participates in the selection of an independent appraiser has no greater right
to challenge the appraiser’s valuations than that party would have to attack an
arbitrator’s award. However, notwithstanding that the award may be fair on its
face, a court may consider the method by which the appraiser reached his or her
decision.[18] Where the evidence shows that the appraisal
was the result of fraud, corruption, dishonesty or bad faith, a court is
justified in overturning the appraiser’s determination, even though the
appraiser was selected by agreement between the parties.[19]
It
should also be noted that a court is without power to enter a judgment upon an
appraisal report as if it were an arbitration award. The proper remedy is to
commence an action involving a complete and formal trial on the merits.[20]
Arbitration
is a method for dispute resolution in which the parties submit their dispute to
an impartial person selected by the parties.[21] The parties may use a single arbitrator to
hear a dispute or they may use an arbitration board or panel. The arbitrator makes a decision following a
hearing. In binding arbitration (usually
referred to simply as “arbitration”), the arbitrator’s decision is final and
binding on the parties.
The
arbitrator hears evidence from each side and renders a decision that is
normally binding on the parties, as noted above. The procedure is less formal than a judicial
trial. Unless the parties agree to the
contrary, the arbitrator is not bound to follow the law. Instead, the arbitrator may base the decision
on business custom and practice, technical insight, or broad principles of
equity and justice. Once confirmed, an arbitrator’s
award is enforceable in the same manner as a court judgment.[22]
The
process in non-binding arbitration is the same as binding arbitration, except
that the arbitrator’s decision is advisory only. If the parties do not accept the decision,
the advisory decision may be used as an aid to resolve the dispute through
negotiation or other means.[23] Incentive arbitration is a form of
non-binding arbitration in which the parties agree to the imposition of a
penalty on the party who rejects the arbitrator’s advisory decision and pursues
its claim in court, if that party does not improve its position by some
percentage or formula. The penalties may
include payment of attorney fees in the litigation or payment of the full cost
of arbitration.
Compulsory
arbitration results when a statute or administrative rule or regulation
requires certain types of disputes to be submitted to arbitration. In voluntary or contractual arbitration, the
parties mutually agree that an issue may be submitted to arbitration. The parties either contractually agree to
submit future disputes to arbitration or they agree to submit an existing
dispute to arbitration.
Mediation-arbitration,
sometimes referred to as “med-arb,” is a mixed process that begins as mediation
and ends with arbitration if the mediation is unsuccessful.[24] Mediation-arbitration is used most commonly
in labor-management disputes. It is
supported by the theory that, under the threat of arbitration, the participants
will try harder to achieve voluntary settlement of the dispute.
Mediation-arbitration
involves a two-step process. First, a
neutral third party mediates the dispute with the parties in an attempt to
reach a voluntary settlement. Subsequently, if the participants remain at
impasse, the neutral renders a binding decision on the unresolved issues following
an arbitration hearing.
Mediation-arbitration is particularly effective when the participants
are of relatively equal bargaining experience; the efficiency of a combined
procedure outweighs the inhibiting effect of the mediator’s anticipated role
change.[25]
The
arbitrator may be the person who conducts the mediation or the parties may
select one person to mediate and another person to arbitrate. A person who acts as mediator and then as
arbitrator is known as the mediator-arbitrator.
Some contend that using the same person to mediate and to arbitrate is
advantageous because the neutral has more leverage in the mediation process --
the parties know a solution will be imposed upon them if they do not arrive at
one of their own. Others assert that
mediation-arbitration compromises the integrity of the mediation process and
the arbitrator’s neutrality. The neutral
may have received confidential information relevant to the merits of the
dispute in the course of mediation before deciding the arbitration.
Because
of this concern about the integrity of the process, some agreements provide for
one person to mediate and a different person to arbitrate. However, this remedy
is more costly and time consuming than using the same person as both mediator
and arbitrator. In addition, it does not
allow for further attempts to mediate once the process reaches arbitration.[26] However, the use of different persons as the
mediator and the arbitrator is appropriate if the parties are concerned about the
perceived bias of the mediator-arbitrator.[27]
The
minitrial is not a trial, per se. It is
a structured dispute-resolution method in which senior executives of the parties
involved in a legal dispute meet in the presence of a neutral advisor. After
hearing presentations on the merits of each side, these representatives attempt
to formulate a voluntary settlement.[28] The minitrial is a form of facilitated
negotiation and includes elements of negotiation and adversarial case
presentation.
The
minitrial was developed in the corporate setting. Minitrials are usually employed to resolve
disputes that would otherwise involve lengthy litigation. The senior executives selected to participate
by the parties should hold no direct involvement in the dispute, lest they feel
a need to defend past actions. The more
senior the management representatives, the greater the range of options available
for a constructive solution.
The
parties should agree in writing that the minitrial proceedings are confidential
and that no written or oral statement made by any participant can be used as
evidence or an admission in other proceedings.
The fees and expenses of the neutral advisor are borne equally by the
parties. Each party normally is
responsible for its own costs, including legal fees, incurred by participation
in the minitrial. In their written
agreement, the parties may alter the allocation of fees and expenses.
Early
neutral evaluation is a court-annexed settlement program used to assist the
parties in developing an approach to the litigation that focuses on key issues
and necessary discovery.[29] The parties may hire, or the court may
appoint, a neutral evaluator (such as an attorney), who is highly experienced
with the subject to conduct a review of the matter in dispute.
The
evaluator appraises the merits of the dispute and makes suggestions for
conducting discovery and obtaining legal rulings to resolve the case
efficiently. The evaluator helps the
parties identify areas of agreement, assess the strengths and weaknesses of
their arguments and their evidence, and devise a plan for sharing important
information and conducting key discovery.
The neutral evaluator’s report may also aid the parties in reaching a
settlement. If the case does not settle,
the report remains confidential. The
evaluator then helps the parties to simplify and adapt the case for more
expeditious handling in trial.
III.
Federal Law
Traditionally,
courts refused to enforce agreements to arbitrate.[30] The Federal Arbitration Act of 1925[31]
(also referred to as the United States Arbitration Act)[32]
changed the common law rule. It made a
written agreement to arbitrate specifically enforceable in the federal courts,
so long as the agreement is connected with a maritime transaction or evidences
a transaction involving foreign or interstate commerce.[33] By adopting the Act, Congress intended to
create a new body of federal substantive law affecting the validity and
interpretation of arbitration agreements.
It also sought to exercise its full range of constitutional power under
the commerce clause in order to make the Act as widely effective as possible.[34] The Act applies in state courts as well as in
federal courts.[35]
The purpose of the Act is to relieve congestion in the
courts and to provide parties with an alternative method for dispute resolution
that would be more efficient and less costly than litigation.[36] It recognizes a strong public policy favoring
arbitration of maritime and commercial disputes.[37] The Act intends for the courts to enforce
arbitration agreements into which parties have entered[38]
and to place such agreements upon the same footing as other contracts.[39] All doubts as to arbitrability under the Act
are construed in favor of the liberal policy of promoting arbitration.[40]
Section 4 of the Act, allowing a party to petition the
district court for an order compelling arbitration, does not create independent
federal jurisdiction.[41] In order to establish federal jurisdiction,
the party seeking to compel arbitration must demonstrate that, if there were no
agreement to arbitrate, a federal court would have jurisdiction “of the subject
matter of a suit arising out of the controversy between the parties.”[42]
However,
Section 4 has been interpreted to mean that a federal court has subject matter
jurisdiction over an action to compel or stay arbitration merely because the
underlying claim raises a federal question.
A petition under Section 4 must be brought in state court unless some
other basis of federal jurisdiction exists, such as diversity of citizenship or
assertion of an admiralty claim.[43]
The Act applies to contracts “evidencing a transaction
involving [interstate] commerce.”[44] The Federal Arbitration Act is the only
federal statute using the phrase “involving” to represent an interstate
commerce relationship.[45] Since the enactment of the Act, federal and
state courts have differed as to when a transaction “involves” interstate
commerce to such an extent that the Act applies.[46]
In Allied-Bruce
Terminix Companies, Inc. v. Dobson,[47]
the United States Supreme Court held that the words, “involving commerce,” as
used in the Act, are the functional equivalent of “affecting commerce,” signaling
Congress’ intent to exercise its commerce power to the full. The Court rejected the “contemplation of the
parties” standard, which provides that the Act applies only if the parties
contemplated substantial interstate activity.
The Supreme Court applied a “commerce in fact” standard, noting that the
transaction must have involved interstate commerce, even if the parties did not
contemplate an interstate commerce connection.[48]
The United States Supreme Court added further
clarification in Prima Paint Corp. v.
Flood & Conklin Manufacturing Co.,[49]
declaring that the Federal Arbitration Act “is based upon and confined to the
incontestable federal foundations of ‘control over interstate commerce and over
admiralty.’”[50] The Court rejected the argument that the
transactions involving commerce covered by the Act are limited to contracts
between merchants for the interstate shipment of goods. Acknowledging that the Act articulates
substantive law, the Court determined that the Act applied in diversity cases
because Congress had intended that result.
The Court explained, “Congress may prescribe how federal courts are to
conduct themselves with respect to subject matter of which Congress plainly has
power to legislate.”[51]
In Southland Corp.
v. Keating,[52]
the United States Supreme Court addressed an additional question about whether
the Act preempts conflicting state anti-arbitration law, or whether state
courts could apply their own anti-arbitration statutes in pending cases,
thereby reaching results different from those reached in similar federal
diversity cases. Declaring that Congress
would not have wanted state and federal courts to reach different outcomes
about the validity of arbitration in similar cases, the Court concluded that
the Federal Arbitration Act preempts state law and is applicable in both state
and federal courts.[53]
Furthermore, although traditional state law contract
defenses, such as fraud, duress or unconscionability, may apply to invalidate
arbitration agreements without contravening the Act, a court may not invalidate
arbitration agreements under state laws applicable only to arbitration
provisions.[54] In Doctor’s
Associates, Inc., v. Casarotto, franchisees brought an action in state
court against a franchisor and its agent involving a dispute under a standard
form franchise agreement. The state
trial court stayed the action pending arbitration, and the franchisees
appealed. The Montana Supreme Court
reversed, finding that the arbitration clause was unenforceable under a state
statute that conditioned enforceability of arbitration agreements on compliance
with a special notice requirement not otherwise applicable to contracts
generally.[55]
The United States Supreme Court held that Montana’s
special notice requirement was preempted by the Federal Arbitration Act.[56] The Court explained that, by enacting Section
2 of the Federal Arbitration Act, Congress precluded states from singling out
arbitration provisions for suspect status, requiring instead that such
provisions maintain the same status as other contracts.[57]
The Court affirmed that the Montana provision directly conflicted with Section
2 of the Act because the Montana law conditioned the enforceability of
arbitration agreements on compliance with a special notice requirement not
applicable to contracts generally.[58]
The Federal Arbitration Act does not mandate arbitration
of all claims. Without an agreement to
arbitrate, the Act does not apply, and the parties are then entitled to a
judicial remedy.[59] Since arbitration arises through contract,
parties are essentially free to define for themselves what questions may be
arbitrated, the remedies an arbitrator may afford, and the extent to which the
decision must conform to general principles of law.[60] However, it has been held that arbitrators
are without authority to decide constitutional issues irrespective of the
contractual language.[61]
The McCarran-Ferguson Act[62]
exempts certain insurance practices from federal law (including the Federal
Arbitration Act),[63]
and makes state law supreme.[64] An agreement between an insurer and an
insured to arbitrate claims arising out of insurance coverage should be
considered as involving the “business of insurance,” as that term is used in
the Act.[65] However, there are few cases holding that the
arbitration of claims is or is not the business of insurance.[66]
There is little case law on the
applicability of the Federal Arbitration Act to individual insurance contracts.[67] In addition, much of the insurance business
is exempt from otherwise applicable federal law under the McCarran-Ferguson
Act.[68] In United
States v. South-Eastern Underwriters Association,[69]
the United States Supreme Court determined that, even if an individual
insurance contract could be seen as “local” rather than “interstate” commerce,
the broader business of insurance nonetheless was interstate commerce.[70]
Some courts have upheld the
application of the Federal Arbitration Act to reinsurance agreements.[71] Only a few cases involving individual
insurance policies have arisen under the Federal Arbitration Act. Hart v.
Orion Insurance Co.[72]
involved a disability insurance policy.
The insurance company had sought and obtained a court order compelling
arbitration. The insured appealed,
asserting that the arbitration agreement was unenforceable. On appeal to the Tenth Circuit, the court
held that the Federal Arbitration Act applies whenever interstate commerce is
involved. Such involvement existed in this case by virtue of an interstate
delivery of the insurance policy.[73]
Congress passed the McCarran-Ferguson
Act[74]
in response to South-Eastern Underwriters.[75] The Act is intended to exempt the insurance
industry from most federal antitrust laws and to return to the states some of
their regulatory authority prior to South-Eastern
Underwriters. How much authority
Congress intended to return to the states is still unclear.[76]
In the McCarran-Ferguson Act,
Congress ceded to the states the primary responsibility for regulating the
insurance business and it provided an exemption, under certain circumstances,
from application of federal law.[77] In order to establish that an activity is
exempt from a particular federal law, three conditions must be met: (1) the federal law in question does not
specifically relate to the business of insurance; (2) the activity in question
is the “business of insurance;”[78]
and (3) the application of federal law would invalidate, impair or supersede
state regulation of the activity.[79]
Since the Federal Arbitration Act
does not specifically relate to the business of insurance,[80]
the first criterion is readily satisfied in cases involving the Federal
Arbitration Act and insurance disputes.
Most controversies regarding application of the McCarran-Ferguson Act
involve the second and third criteria.[81]
In determining whether a particular
practice is part of the “business of insurance,” one court has suggested that
the following three factors should be considered:
IV.
A. Personal Injury Claims
Many personal injury claims are
suitable for alternative dispute resolution.[83] If utilized properly and with the right type
of claim, alternative dispute resolution can be important in securing the just,
speedy, and inexpensive determination of a claim. Mediation can be used to resolve personal
injury claims.[84] Mediated personal injury claims generally
have three characteristics:[85]
Liability is typically stipulated by
the parties before entering an agreement to mediate a personal injury claim.[87] In addition, the issue of who pays for any
alleged damages is usually established before mediation. Thus, the defendant
frequently is not present at the mediation session. The plaintiff, the plaintiff’s attorney, the
defendant’s attorney and an adjuster from the defendant’s insurer will focus on
the issue of damages.
Because the mediation involves a
claimant who is probably involved in a single lawsuit necessitating evaluation,
while the insurance representative may have handled hundreds of similar cases,
the mediator is challenged to bring some balance to the playing field. For this reason, it may benefit the plaintiff
to be represented by a lawyer.
The distributive nature of personal
injury disputes requires the mediator to determine how to facilitate
give-and-take when the claim involves only how much the defendant will pay and
how much the claimant will accept. The
subjective nature of the personal injury dispute involves the claimant’s pain
and suffering. The mediator is
challenged to find suitable criteria that will help the parties place an acceptable
value on pain and suffering.
The mediation session usually begins
with a joint session at which both parties provide a brief overview of their
issues and arguments.[88] The mediator may then caucus separately with
each party to discuss each side’s concerns.
At the mediation session, the plaintiff may present a settlement
package, including all medical records and billings as well as other records of
special damages to provide the mediator with access to the records as the case
is being discussed. It is important for
the mediator to establish communication and rapport as soon as possible.[89] Although distributive interests constitute a
large segment of personal injury mediation, the mediator should help the
parties identify the other interests involved.[90] These interests may include the desire for an
admission of fault or an apology.
An unresolved issue of liability
often precludes the use of mediation and requires the use of binding
arbitration.[91] Cases involving substantial medical expenses
with no objective findings of injury, and cases involving minor impacts, are
often more suitable to arbitration because the defendant is sometimes reluctant
to accept the claim or the extent of the claim.[92]
Initially, the parties enter into a
written arbitration agreement, establishing the procedural rules, rules for
conduct of the hearing, powers of the arbitrator, enforceability of the award,
method of selecting the arbitrator, and any other terms and conditions to
arbitration.[93] At the arbitration hearing, the parties
present material evidence and cross-examine opposing witnesses.[94]
Under the rules of the American
Arbitration Association, insurers or claimants start the process by sending the
following information to the nearest AAA office:
Upon receipt of this information,
the AAA writes the other party to explain the program, enclosing a submission
form and a copy of the procedures.[95] Within ten days of that letter, an AAA
administrator telephones the party to explain the program further and to answer
any questions. Once the parties have
agreed to submit a case to arbitration, they are asked to complete a submission
agreement. By that form, they are given
the option of selecting mediation or arbitration. The AAA appoints an arbitrator from its panel
of neutrals. Following appointment of
the arbitrator, the AAA telephones the parties’ representatives and the
arbitrator in order to schedule a convenient date and time for the hearing.[96]
The arbitrator looks to the
following documents to ensure that the authority granted is not exceeded and
that all issues submitted are answered:
After both sides have had an equal
opportunity to present all of their evidence and arguments, the arbitrator
declares the hearing closed. The
arbitrator usually has thirty days from the close of the hearing within which
to render an award.
B.
Mass Torts And Class Actions
Unlike settlements of ordinary tort
litigation, mass tort and class action settlements can create a monetary pool
covering numerous claims.[97] The settlements frequently are funded by
multiple defendants. Alternative dispute
resolution may be effective in resolving disputes involving such settlements.
Alternative dispute resolution
procedures may include negotiation, mediation or arbitration, or a combination
of these.[98] In one class action settlement, the parties
agreed that class members would submit their claims to a claim-review process,
which included the right to appeal to a mediator/arbitrator selected from an
American Arbitration Association roster.[99]
Initially, a claims determination is made by a claim review team appointed by
the defendant. If a class member is dissatisfied with the claim-review team’s
decision, the class member subsequently may obtain de novo review of the claim
by an independent mediator/arbitrator.
Mediation may be appropriate in
resolving mass torts, including defective products, defective drugs, and
environmental exposure actions.[100] Mediation offers a solution to the myriad
problems associated with trying a mass tort case by opening communications
between the parties. The parties should
evaluate a case for mediation early in deliberations, before the parties harden
their positions or expend unnecessary funds on discovery and pretrial motions.
Every catastrophe, such as
earthquake, hurricane, hailstorm, flood or other event, presents innumerable
difficulties when establishing the amount of the loss. Appropriate alternative
dispute resolution mechanisms in such situations include appraisal,[101]
arbitration,[102]
and mediation.[103]
Appraisal is a suitable method for
determining values.[104] Homeowner policies frequently provide that
each party selects an appraiser. The
policies require that the appraisers be competent and disinterested or
independent. Categories of persons
challenged for lack of impartiality include public adjusters who formerly
represented the insured on other matters, and accountants who serve to advise
the insured.[105] The two appraisers select an impartial
umpire.[106] Objections to the competence or interest of
the appraisers or umpire should be made promptly or they may be deemed waived.[107]
The procedures used during
appraisals are dependent upon the appraisers’ discretion. Hearings can be
requested and testimony received together with evidentiary exhibits. The appraisers should secure all evidence
necessary for a complete review and resolution of the issues. This may include a site inspection and
reports by experts.[108]
The proceedings are concluded by a
written appraisal award signed by the appraisers and the umpire. If the appraisers fail to agree on the value
of the property and the amount of the loss, they submit their differences to
the umpire. A determination adopted by
any two is binding on the parties.[109] An appraisal conducted pursuant to an
insurance contract is binding upon the parties to the contract. However, challenges may lie regarding:[110]
One of the most common forms of
insurance arbitration agreements is the arbitration agreement in uninsured or
underinsured motorist coverage of automobile insurance policies.[114] Uninsured motorist insurance provides coverage
to the insured for injuries caused by the owner or operator of an uninsured, or
sometimes underinsured, motor vehicle.
The amount owed by the insurer to its insured is determined by an
existing right to recover damages for the injury from the uninsured or
underinsured motorist.
If the insured sues the uninsured
third-party directly, obtains a judgment and then collects that judgment from
the insured’s insurance company, the company effectively is made an insurer of
the third-party. However, in that
situation the insurance company has no ability to control the litigation or
demand cooperation from the uninsured motorist.
If the insured sues the insured’s insurance company directly, the
company runs the risk that juries will treat it unfairly.
In order to avoid this problem, the
standard automobile insurance policy attempts to prevent suit by the insured
against the third-party, either by prohibiting such actions explicitly or by
providing that the insurance company will not be bound by a judgment obtained
without its permission in such an action.
The standard policy also includes provision for compulsory and binding
arbitration at the election of either the company or the insured. Most states permit or require that uninsured
motorist claims be resolved by arbitration.
However, when such a requirement is imposed by the legislature as a
matter of binding arbitration, the uninsured motorist may sometimes challenge
the loss of a right to jury trial.[115]
According
to the California Supreme Court, a trial court has authority to consolidate an
uninsured motorist arbitration proceeding between an insurer and the insured
with the insured’s pending action against third-parties for all purposes,
including trial. Such consolidation
ostensibly avoids conflicting rulings on a common issue of law or fact.[116]
Few court decisions have considered whether the Federal
Arbitration Act[117]
applies to arbitrations under uninsured motorist clauses. In Preziose
v. Lumbermen’s Mutual Casualty Co.,[118]
the Vermont Supreme Court held that the Federal Arbitration Act applied to an
uninsured motorist dispute. The court
explained that enforcement of the arbitration clause in the insurance policy
did not invalidate, impair or supersede the Vermont Arbitration Act or its
uninsured motorist statute. Accordingly,
it concluded that the McCarran-Ferguson Act[119]
did not bar application of the Federal Arbitration Act to the dispute. The court observed that there was no
provision in Vermont law requiring a jury trial in uninsured motorist disputes.
A clause within an insurance policy
providing that the damage award will be binding only if it does not exceed the
minimum limit for bodily injury liability specified by law is often
characterized as an “escape hatch”[120]
or “escape”[121]
clause. This language is commonplace in
automobile insurance policies.
A
number of courts have addressed the validity of the “escape” clause, sometimes
holding that the clause is void as against public policy.[122] The Minnesota Supreme Court found the
provision contrary to public policy and articulated its rationale as follows:
The policy’s arbitration provision, instead of
providing a speedy, informal, and relatively inexpensive procedure for
resolving controversies between the parties--the raison d’etre of
arbitration--instead substantially thwarts those policy goals. By permitting resort to the court system for
a trial de novo notwithstanding the absence of any claimed impropriety in the
arbitration process itself, by fostering multiple hearings in multiple forums,
by increasing the costs to the contracting parties, and, by unnecessarily, and
without real cause, extending the time consumed in resolving the controversy it
likewise operates to defeat goals designed to promote judicial economy and
respect for the judicial system.[123]
Other
relevant jurisdictions have concluded there is no violation of public policy
and subsequently enforced these “escape hatch” provisions.[124] The New Mexico Supreme Court offered its rationale
for upholding an “escape” clause as follows:
Our legislature has not expressed its intent
that an arbitration award should be final in cases in which the parties have
provided to the contrary by contract; the [Uniform Arbitration Act] is supportive
of the parties’ right to contract for arbitration. Further, this Court has consistently held
that “parties to an insuring agreement may contract for and agree upon any
mutually acceptable terms and provisions.”
. . . Although contractual terms and provisions will not be enforced if
they contradict “our public policy, as manifest in positive law,” . . . we are
unable to find that this provision is repugnant to public policy. As evidenced by the unambiguous terms of the
contract between Bruch and CNA, the parties agreed to settle by arbitration
controversies arising under the uninsured motorist clause only if the award was
less than the minimum limit for bodily injury liability required by law. As CNA admits, it would be bound by the
decision of the arbitrators to award less than that amount and would not be
entitled to a trial de novo. We strongly
encourage final settlement by arbitration; however, Bruch and CNA mutually
accepted the applicable term of the insurance contract.[125]
In cases administered by the
American Arbitration Association, the injured person can initiate the claim by
serving a demand for arbitration on the insurance company with copies to the
nearest AAA office.[126] The injured individual may designate the
place of hearing. If the insurance
carrier objects to the location, the AAA will determine the location of the
hearing.
Uninsured motorist hearings tend to
be brief and informal, affording each side the opportunity to present its case
through the testimony of witnesses and the presentation of exhibits. A written award must be signed by the
arbitrator within thirty days after the hearing is declared closed. It is not customary for the arbitrator to
explain the reasoning behind the award.[127]
Unlike arbitration of uninsured
motorist claims, which is based solely upon the agreement of the insurer and
the insured to arbitrate any disputes, no-fault arbitration is afforded by
state statutes.[128] No-fault arbitration awards usually contain
detailed options.[129] New York has special provisions for the
arbitration of no-fault motor vehicle claims administered by the American
Arbitration Association. The New York
no-fault arbitration system has its own unique review procedure. Under the New York procedure, awards can be
appealed to a master arbitrator. Grounds
for review include:
Many
reinsurance agreements include arbitration clauses providing that any dispute
relating to the agreement will be resolved by disinterested insurance or
reinsurance executives who must resolve disputes in accord with industry custom
and practice.[131] A representative arbitration clause provides:
If any dispute shall arise between the reinsured
and the reinsurer with reference to the interpretation of this contract or
their rights with respect to any transaction involved, the dispute shall be
referred to three arbitrators. . . .
[The] arbitrators shall consider this contract an honorable engagement
rather than merely a legal obligation; they are relieved of all judicial formalities
and may abstain from following the strict rules of law. The decision of a majority of the arbitrators
shall be final and binding on both the reinsured and the reinsurer.[132]
At times, the interplay between the
McCarran-Ferguson Act[133] and
the Federal Arbitration Act creates issues unique to the insurance and
reinsurance industries.[134] Some courts have interpreted their state’s
legislative framework for handling insolvent insurers and reinsurers as vesting
exclusive jurisdiction in the state court responsible to oversee the
liquidation or rehabilitation. Using the
rationale expressed by these courts, the McCarran-Ferguson Act bars application
of the Federal Arbitration Act and enforcement of arbitration provisions.[135] Other courts have enforced arbitration
agreements in reinsurance contracts, either compelling liquidators or
rehabilitators to arbitrate, or enforcing demands by liquidators to arbitrate.[136]
Federal courts have applied the
Federal Arbitration Act to reinsurance disputes.[137] In Hamilton
Life Insurance Co. v. Republic National Life Insurance Co.,[138]
the Second Circuit Court of Appeals held that the defendant was bound to
arbitrate a reinsurance dispute under the Federal Arbitration Act.[139] However, some federal courts have relied on the
McCarran-Ferguson Act to uphold state statutes or doctrines that do not permit
insurance or reinsurance agreements to include arbitration provisions.[140]
Parties to a reinsurance
relationship commonly have entered into several different reinsurance agreements,
typically covering different risks or different time periods.[141] Absent the consent of the parties, a court
may not order the arbitrations consolidated.[142] This could create a problem of multiple
arbitration proceedings between the same parties.[143]
Many title insurance policy forms
contain arbitration provisions. Under a
clause used by the American Land Title Association (ALTA), arbitration can be
requested at the option of either the insured or the insurer when the amount of
insurance is $1,000,000 or less. If the
amount of insurance is more than $1,000,000, arbitration can be invoked only if
both the insured and the insurer agree.
The ATLA arbitration clause provides
that arbitrable matters may include any controversy or claim between the
insurer and the insured arising out of or relating to the policy, any service
of the insured in connection with its issuance, or the breach of a policy
provision or other obligation. The law
of the jurisdiction in which the real property is located applies to the
arbitration. Arbitrations under the ATLA
clause are conducted by the American Arbitration Association under its Title
Insurance Arbitration rules.
Increasingly, state and federal
courts are establishing mandatory settlement programs using mediation to
resolve environmental insurance coverage disputes. Similarly, parties themselves are suggesting
mediation in order to quickly resolve environmental disputes. Arbitration also may be utilized in resolving
environmental disputes.
A variety of environmental insurance
issues can be submitted to arbitration.
For example, it may be necessary to determine which of a policyholder’s
insurance policies responds to a covered loss.[144] Another issue involves the question whether
the term “damages,” as used in the insurance policy, covers clean-up or
response costs that are sought pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980[145]
or similar statutes.[146]
It may be necessary to determine
whether the insured expected or intended the bodily injury or property damage
for which coverage is sought. There
would be no insurance coverage if the conduct was expected or intended, since
coverage is based upon the happening of an “occurrence” that requires the harm
be neither expected nor intended from the standpoint of the insured.[147] Commercial general liability policies contain
a number of pollution exclusions.
Alternative dispute resolution may be used to determine whether an
exclusion applies.[148]
When the parties wish to have some
control over the process and the outcome, mediation[149]
is the appropriate method of alternative dispute resolution. Arbitration[150]
may be appropriate when factual or damage related issues are the major focus of
dispute and legal issues hold minor importance.[151] On the other hand, a minitrial[152]
may be appropriate in complex cases, where a formal hearing is necessary to
present their cases properly, but the parties wish to retain control of the
outcome.
Alternative dispute resolution
likewise can be effective in resolving marine insurance disputes. In particular, arbitration may be appropriate
because it is relatively efficient and affords the opportunity to utilize an
arbitrator with expertise in marine insurance matters. Arbitration has been
used to resolve such marine insurance disputes as whether an insured should
contribute, in general average, to the insurer’s costs of salvaging the
insured’s boat which sunk because the insured’s uninsured fish net and other
fishing equipment were salvaged in the same operation that had raised the boat.[153]
A contract of protection and
indemnity insurance covering a vessel between an American insured and a foreign
insurer is a maritime contract. The
Federal Arbitration Act[154]
requires enforcement when a maritime contract has an arbitration clause,
despite the McCarran-Ferguson Act.[155] The court in Triton Lines explained that the McCarran-Ferguson Act was
inapplicable because a disputed claim is not the “business of insurance.”
Force-placed insurance programs
protect a lender’s interest in collateral from loss or damage. They are commonly used by lending
institutions which finance automobile purchases.[156] Under a force-placed insurance program, a
borrower is required to maintain insurance on the collateral supporting the
loan and to provide the lender with the right to “force-place” insurance on the
collateral, should the borrower allow the insurance coverage to lapse.
In recent years, consumer finance
suits have attacked the validity of charges imposed on borrowers by
force-placed insurance programs.
Alternative dispute resolution may be appropriate in resolving
“force-placed” disputes. Arbitration, in
particular, can provide swift settlement of claims and enhance customer
relations.[157]
Society
does not and should not rely exclusively on the courts for resolving
disputes. Other non-judicial procedures may
be superior when addressing a variety of disputes. These non-judicial mechanisms may be less
expensive, faster, less intimidating, more sensitive to the disputants’
concerns, and more responsive to the underlying problems.
Alternative dispute resolution can
provide an efficient and economical procedure for resolving insurance
disputes. In that regard, alternative
dispute resolution complements the judicial system. As the cost of litigation rises and courts
become increasingly congested, private litigants turn to alternative dispute
resolution with greater frequency to manage unavoidable disputes. Alternative dispute resolution may be
appropriate particularly where the parties desire privacy, limited discovery,
jury avoidance, preservation of relations, or reduction of costs.
ENDNOTES
* This article is adapted from Jay Grenig, Alternative Dispute Resolution With Forms (2d ed. 1997)
published by West Group.
[1] See, e.g., Warren Burger, Isn’t There a Better Way?, Annual Report on the State of the Judiciary
(1982); Frank Sander, Varieties of Dispute Processing, 70
F.R.D. 79 (1976).
[2] For
a discussion of the historical development of alternatives to formal
adjudication, see Jerold S. Auerbach, Justice Without Law? (1983).
[3] 9
U.S.C. § 1 et seq.
[4] 15
U.S.C. §§ 1011-1015.
[5] See generally
Gerald Williams, Legal Negotiation & Settlement (1983).
[6] See Steven J. Burton, Combining Conciliation With Arbitration of
International Commercial Disputes, 18 Hastings
Int’l & Comp. L. Rev. 637, 638 (1995) (“conciliation” is often
called “mediation” in the United States).
[7] Michael
B. Shane, The Difference Between
Mediation and Conciliation, 50 Disp.
Resol. J. 31 (July 1995). See Erik Langeland, The Viability of Conciliation in International Disputes Resolution,
50 Disp. Resol. J. 34 (July 1995)
(conciliation differs from mediation: in conciliation the neutral evaluates the
dispute and then strives to construct a just resolution that is proposed to the
parties for their approval or rejection, while in mediation the mediator’s role
is to facilitate resolution of the conflict by the parties, not to suggest
solutions).
[8] For
a detailed discussion of medication, see
Jay E. Grenig, Alternative Dispute Resolution
With Forms (2d ed. 1997) (“Grenig”), ch. 7.
[9] See generally
Kimberlee Kovach, Mediation: Principles and Practice
(1994); Robert Coulson, Professional Mediation of Civil Disputes
(1984).
[10] Richard
C. Reuben, The Lawyer Turns Peacemaker,
ABA J. 55, 59 (August 1996).
[11] See also
Grenig, supra note 8, § 13.21
(use of appraisal in insurance disputes).
[12] Cf. Jordan Marsh Co. v. Beth Israel
Hosp., 118 N.E.2d 79 (Mass. 1954).
[13] Franks
v. Franks, 1 N.E.2d 14 (Mass. 1936). But see
Cal. Code of Civ. Proc. § 1280(a)
(agreements for “valuation and appraisal of property and similar proceedings”
are treated as agreements for arbitration).
[14] Sorrells
& Co. v. Ancona Co., 145 N.E. 564 (Mass. 1924).
[15] See Harmon v. Schwartz, 242 A. 2d 490
(Md. 1968).
[16] See City of Omaha v. Omaha Water Co.,
218 U.S. 180 (1910) (appraisers not rigidly required to confine themselves
either to matters within their own knowledge or those submitted to them
formally in presence of parties).
[17] In re Delmar Box Co., 309 N.Y. 60, 127
N.E.2d 808 (1955).
[18] Dimson
v. Elghanayan, 19 N.Y.2d 316, 280 N.Y.S.2d 97, 227 N.E.2d 10 (1967).
[19] Nelson
v. Maiorana, 478 N.E.2d 945 (Mass. 1985).
See Helzel v. Superior Court
of Alameda County, 123 Cal. App. 3d 652, 176 Cal. Rptr. 740 (1981).
[20] Hollander
v. Kessler, 14 N.Y.2d 646, 249 N.Y.S.2d 431, 198 N.E.2d 600, aff’d, 15 N.Y.2d 586, 255 N.Y.S.2d 257,
203 N.E.2d 646 (1964).
[21] For
a more detailed discussion of arbitration, see
Grenig, supra note 8, chs. 3-6.
[22] See id.,
§§ 6.1-6.29.
[23] See id.,
§ 2.56 (discussion of fact-finding).
[24] See generally
Sherry Landry, Med-Arb: Mediation with a
Bite and an Effective ADR Model, 63 Def.
Couns. J. 263 (1996).
[25] Jay Folberg & Alison Taylor, Mediation: A Comprehensive Guide to Resolving
Conficts Without Litigation 268 (1984).
[26] See Bartel Bartel, Comment, Med-Arb as a Distinct Method of Dispute
Resolution: History, Analysis, and Potential, 27 Willamette L. Rev. 661, 666 (1991).
[27] But see
Dean G. Pruitt, Solutions Not Winners:
Community Mediators Help Neighbors, Families and Ex-lovers Solve Their Problems
Without Going to Court, Psychol.
Today Dec. 1987, at 58 (study revealed that, when different persons used
as mediator and arbitrator, participants were less creative and mediators
appeared less interested in sessions).
[28] See Grenig,
supra
note 8, ch. 8 (detailed discussion of minitrials).
[29] For
a discussion of court-annexed dispute resolution, see id., ch. 18.
[30] See discussion of common law arbitration
in Grenig, supra note 8, § 3.4. See Volt Info. Sci., Inc. v. Board of
Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 474 (1989). See
generally Jones, Historical Development of Commercial Arbitration in the United States,
12 Minn. L. Rev. 240, 240-62
(1928) (discussing history of judicial approach to arbitration provisions).
[31] 9
U.S.C. §§ 1-301. See generally Charles Alan Wright et al., Federal Practice and Procedure: Jurisdiction
§ 3569 (2d ed. 1984).
[32] See, e.g., Southland Corp. v. Keating,
465 U.S. 1 (1984).
[33] 9
U.S.C. § 2. See Wright, supra note 31. See
also Allied-Bruce Terminix Cos. v.
Dobson, 513 U.S. 265 (1995); Moses H. Cone Mem. Hosp. v. Mercury Const. Corp.,
460 U.S. 1 (1983); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 220
(1985), on remand, 760 F.2d 238 (9th Cir. 1985) (when Congress passed the
Arbitration Act in 1925 it was “motivated, first and foremost,” by a desire to
change this anti-arbitration rule); Bernhardt v. Polygraphic Co. of Am., 350
U.S. 198, 201-02 (1956) (Act applicable only when agreement involves a maritime
transaction or interstate or foreign commerce).
[34] Allied-Bruce
Terminix Cos. v. Dobson, 513 U.S. 265 (1995); Mittendorf v. Stone Lumber Co.,
874 F. Supp. 292 (D. Or. 1994); Associated Metals & Mins. Corp. v. The
Steamship Mihalis Angelos, 234 F. Supp. 236 (S.D.N.Y.1964).
[35] See discussion of preemption in Grenig, supra note 8, § 3.24. See Allied-Bruce Terminix Cos. v.
Dobson, 513 U.S. 265 (1995); Southland Corp. v. Keating, 465 U.S. 1, 15-16
(1984).
[36] Scherk
v. Alberto-Culver Co., 417 U.S. 506, reh’g
denied, 419 U.S. 885 (1974); Wilko v.
Swan, 346 U.S. 427 (1953).
[37] Gilmer
v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991); Perry v. Thomas, 482 U.S.
483 (1987), on remand, 246 Cal. Rptr. 156 (Cal. Ct. App. 1988).
[38] Dean
Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 220 (1985).
[39] Volt
Info. Sci., Inc. v. Board of Trustees of Leland Stanford Jr. Univ., 489 U.S.
468, 474 (1989).
[40] AT&T
Techs., Inc. v. Communications Workers of Am., 475 U.S. 643 (1986).
[41] Moses
H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983);
Gibraltar, P.R., Inc. v. Otoki Group, Inc., 104 F.3d 616 (4th Cir. 1997)
(dispute over ownership of trademarks did not present federal question but was
merely a contract dispute).
[42] 9
U.S.C. § 4; Gibraltar, P.R., Inc. v.
Otoki Group, Inc., 104 F.3d 616, 618 (4th Cir. 1997).
[43] Westmoreland
Capital Corp. v. Findlay, 100 F.3d 263, 268 (2d Cir.1996) (federal courts do
not have subject matter jurisdiction over action to compel or stay arbitration,
even when petition raises a statute of limitations defense and underlying claim
involves federal question). See Prudential-Bache Sec., Inc. v.
Fitch, 966 F.2d 981, 986-88 (5th Cir. 1992) (federal securities law claims in
underlying state court dispute could not provide required independent basis for
federal jurisdiction in separate federal action seeking to compel arbitration
of dispute under Federal Arbitration Act).
[44] 9
U.S.C. § 2. See generally Isham R.
Jones, III, Note, The Federal Arbitration
Act and Section 2’s “Involving Commerce" Requirement: The Final Step
Towards Complete Federal Preemption Over State Law and Policy, 1995 J. Disp. Resol. 327.
[45] Allied-Bruce
Terminix Cos. v. Dobson, 513 U.S. 265 (1995).
[46] Scott
R. Swier, Note, The Tenuous Tale of the
Terrible Termites: The Federal Arbitration Act and the Court’s Decision to
Interpret Section Two in the Broadest Possible Manner: Allied-Bruce Terminix Companies, Inc. v.
Dobson, 41 S. D. L. Rev. 131,
133 (1996).
[47] 513
U.S. 265 (1995).
[48] Allied-Bruce
Terminix Cos. v. Dobson, 513 U.S. 265 (1995) (Court recognized “multi-state
nature” of defendant and fact that termite-treating and house-repairing
material used by defendant came from outside forum state).
[49] 388
U.S. 395.
[50] 388
U.S. at 405 (quoting H.R.Rep. No. 96, 68th Cong., 1st Sess., 1 (1924)).
[51] Prima
Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 405 (1967).
[52] 465
U.S. 1.
[53] Southland
Corp. v. Keating, 465 U.S. 1 (1984). Accord Allied-Bruce Terminix Cos., Inc.
v. Dobson, 513 U.S. 265 (1995) (state may decide not to enforce contract upon
grounds for revocation of any contract, but Act renders unlawful any state
policy that would place arbitration clauses on “unequal ‘footing’” directly
contrary to the Act’s language and Congress’ intent). But
see Volt Info. Sci., Inc. v. Board of
Trustees, 489 U.S. 468 (1989) (contract provision that “law” of particular
state “governs the agreement” may be interpreted as incorporating state
arbitration procedures in place of those provided by Federal Arbitration Act).
[54] Doctor’s
Assocs., Inc. v. Casarotto, 517 U.S. 681 (1996).
[55] Casarotto
v. Lombardi, 886 P.2d 931 (Mont. 1994).
The state statute required that the arbitration clause be “typed in
underlined capital letters on the first page of the contract.” Mont. Code Ann. § 27-5-114(4).
[56] Doctor’s Assocs., Inc., 517 U.S. at 686.
[57] Id. at 687.
[58] Id.
[59] AT&T
Techs., Inc. v. Communications Workers of Am., 475 U.S. 643 (1986).
[60] School
City of E. Chicago v. East Chicago Fed. of Teachers, 422 N.E.2d 656 (Ind. App.
1981).
[61] McGrath
v. State, 312 N.W.2d 438 (Minn. 1981).
[62] 15
U.S.C. §§ 1011-1015.
[63] See Grenig, supra note 8, §§ 3.21-3.30 and 13.32 (discussion of the Federal Arbitration
Act).
[64] See Grenig, supra note 8, § 13.3.
[65] See Stephen Lamson, The Impact
of the Federal Arbitration Act and the McCarran-Ferguson on Uninsured Motorist
Arbitration, 19 Conn. L. Rev.
241, 265 (1987).
[66] See Stephen Lamson, The Impact
of the Federal Arbitration Act and the McCarran-Ferguson on Uninsured Motorist
Arbitration, 19 Conn. L. Rev.
241, 266 (1987). But see Preziose v.
Lumbermen’s Mut. Cas. Co., 568 A.2d 397 (Vt. 1989) (holding Federal Arbitration
Act applicable to insurance dispute).
[67] Stephen
Lamson, The Impact of the Federal
Arbitration Act and the McCarran-Ferguson on Uninsured Motorist Arbitration,
19 Conn. L. Rev. 241, 256 (1987).
[68] 15
U.S.C. §§ 1011-1015. See
Grenig, supra note 8, §§ 13.3,
13.33 and 13.51.
[69] 322
U.S. 533 (1944) (superseded by statute as stated in United States Dept. of
Treasury v. Fabe, 508 U.S. 491, 499 (1993)).
[70] United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533,
552-53 (1944).
[71] See Grenig, supra note 8, §§ 13.50-13.59.
[72] 453
F. 2d 1358 (10th Cir. 1971).
[73] See also Miller v. Nat’l
Fidelity Life Ins. Co., 588 F. 2d 185 (5th Cir. 1979) (insurance dispute covered
by Federal Arbitration Act where insured and insurer resided in different
states and question of interstate commerce was not disputed).
[74] 15
U.S.C. §§ 1011-1015.
[75] Costle
v. Fremont Indem. Co., 839 F. Supp. 265, 273 (D. Vt. 1993). See
United States Dept. of Treasury v. Fabe, 508 U.S. 491 (1993) (McCarran-Ferguson
Act did not simply overrule South-Eastern
Underwriters and restore the status quo; it transformed legal landscape by
overturning normal rules of preemption).
See also Grenig, supra note 8, § 13.2.
[76] See Stephen Lamson, The Impact
of the Federal Arbitration Act and the McCarran-Ferguson on Uninsured Motorist
Arbitration, 19 Conn. L. Rev.
241, 264 (1987).
[77] See 15 U.S.C. § 1012(b).
[78] See Triton Lines, Inc. v. Steamship Mut. Underwriting Assoc., 707 F.
Supp. 277 (S.D. Tex. 1989) (disputed claim is not business of insurance);
Costle v. Fremont Indem. Co., 839 F.Supp. 265, 274 (D. Vt. 1993) (not every
action of insurance company constitutes business of insurance).
[79] Stephen
Lamson, The Impact of the Federal
Arbitration Act and the McCarran-Ferguson on Uninsured Motorist Arbitration,
19 Conn. L. Rev. 241, 264-65
(1987). Compare Phillips v. Lincoln Nat’l Health & Cas. Ins. Co., 774
F. Supp. 1297 (D. Colo. 1991) (arbitration in excess liability reinsurance
agreement issued to HMO not barred by McCarran-Ferguson Act as impairing state
regulation of business of insurance), with
Eden Fin. Group, Inc. v. Fidelity Bankers Life Ins. Co., 778 F. Supp. 278 (E.D.
Va. 1991) (creation by statute of single, exclusive forum for insurance company
rehabilitation proceedings was regulation of “business of insurance” and
Federal Arbitration Act was inapplicable to dispute).
[80] See Eden Fin. Group, Inc. v. Fidelity Bankers Life Ins. Co., 778 F.
Supp. 278 (E.D. Va. 1991).
[81] Stephen
Lamson, The Impact of the Federal
Arbitration Act and the McCarran-Ferguson on Uninsured Motorist Arbitration,
19 Conn. L. Rev. 241, 265 (1987).
[82] Phillips
v. Lincoln Nat’l Health & Cas. Ins. Co., 774 F.Supp. 1297, 1300 (D. Colo.
1991) (arbitration clause involving excess liability reinsurance agreement did
not involve “business of insurance”).
[83] See William P. Zdancewicz, Alternative
Dispute Resolution in the Personal Injury Forum, 26 U. Mem. L. Rev. 1169 (1996); Elizabeth Sherowski, Notes
and Comments, Hot Coffee, Cold Cash:
Making the Most of Alternative Dispute Resolution in High-Stakes Personal
Injury Lawsuits, 11 Ohio St. J. on
Disp. Resol. 521 (1996).
[84] See Robert S. Glenn, Jr., Mediating
the Personal Injury Dispute, The
Claims Forum 1 (Fall 1995).
[85] Glenn,
Mediating the Personal Injury Dispute,
The Claims Forum 1 (Fall 1995).
[86] Cf. Sarah Rudolph Cole, Incentives
and Arbitration: The Case Against Enforcement of Executory Arbitration Agreements
Between Employers and Employees, 64 UMKC
L. Rev. 449, 452-53 (1996) (“repeat” players have a distinct and
systematic advantage in interactions with “one-shot” players).
[87] Zdancewicz,
supra note 83, at 1173.
[88] For
a detailed discussion of mediation procedures, see Grenig, supra note 8, ch. 7.
[89] Glenn,
Mediating the Personal Injury Dispute,
The Claims Forum 1, 9 (Fall
1995).
[90] Id.
[91] Zdancewicz,
supra note 83, at 1177-78.
[92] Id. at 1178.
[93] See Grenig, supra note 8, § 4.2.
[94] For a discussion of arbitration hearings, see id., §§ 5.30-5.81.
[95] If
the arbitration clause is self-executing, permitting either party to initiate
arbitration proceedings, a joint submission should be unnecessary. In such a case, arbitration is initiated by
demand. See id., §§ 4.23-4.26.
[96] For a description of arbitration procedures, see id., chs. 3 and 6.
[97] See, e.g., In re Asbestos Litig., 90 F.3d 963 (5th Cir.
1996). See generally Georgene M. Vairo, ADR
and Mass Claims: The Dalkon Shield Experience, ADR Currents 5 (June 1998); Kenneth R. Feinberg, The
Role of ADR in Mass Torts, ADR Currents
5 (Summer 1997); Richard P. Cusick, Note and Comment, Procedural Impediments to the Resolution of Mass Tort Cases: The
Anti-Injunction Act and the Due Process Clause, 12 Ohio St. J. on Disp. Resol. 485 (1997); David M. Scott, Note
and Comment, Non-Traditional Resolutions
to Mass Tort Disputes Take a Hit as AIDS-Infected Hemophiliacs Bear the Cost of
Judge Posner’s “Economic Justice,” 12 Ohio
St. J. on Disp. Resol. 159 (1997).
[98] See, e.g., Georgene M. Vairo, The Dalkon Shield Claimants Trust: Paradigm Lost (Or Found)?, 61 Fordham L. Rev. 617 (1992).
[99] Class Action Settlement Employs Unique
ADR Process, The Claims Forum 3 (Spring 1996).
[100] D.
Alan Rudlin, Mass Torts: Now Ripe for
Mediation, Nat’l L. J., April
29, 1996, at B9.
[101] See Grenig, supra note 8, § 13.21.
[102] See id., chs. 3-6.
[103] See id., ch. 7.
[104] Janet
L. Brown, Effective Utilization of
Alternative Dispute Resolution in Catastrophe Settings, 45 Fed'n Ins. & Corp. Couns. Q. 431,
434 (1995). See High Country Arts & Craft Guild v. Hartford Fire Ins. Co.,
126 F.3d 629 (4th Cir. 1997) (parties not bound by appraiser’s determination of
coverage issues); Unetco Indus. Exch. v. Homestead Ins. Co., 57 Cal. App. 4th
1459, 67 Cal. Rptr. 2d 784, 789 (1997) (appraisal clause merely required
appraisers to appraise the loss but did not provide for appraisal of
replacement cost). See Grenig, supra note 8, §§ 2.26-2.35.
[105] Brown,
supra note 104, at 435.
[106] See Weinger v. State Farm Fire & Cas. Co., 620 So. 2d 1298 (Fla.
Dist. Ct. App. 1993) (umpire has affirmative duty to disclose any dealings that
might create impression of possible bias).
[107] See Firemen’s Fund Ins. Co. v. Flint Hosiery Mills, Inc., 74 F.2d 533
(4th Cir.), cert. denied, 295 U.S. 748 (1935); Palmieri v.
Ins. Co. of N. Am., 413 N.Y.S. 2d 461 (N.Y. App. Div. 1979).
[108] Brown,
supra note 104, at 437.
[109] See High Country Arts & Craft Guild v. Hartford Fire Ins. Co., 126
F.3d 629 (4th Cir. 1997) (parties not bound by appraiser's determination of
coverage issues); Unetco Indus. Exch. v.
Homestead Ins. Co., 67 Cal. Rptr. 2d 784, 789 (Cal. Ct. App. 1997) (appraisal
clause merely required appraisers to appraise the loss but did not provide for
appraisal of replacement cost).
[110] Brown,
supra note 104, at 437. See
Jacobson v. Fireman’s Fund Ins. Co., 111 F.3d 261 (2d Cir. 1997) (unconfirmed
appraiser’s determination may, in certain circumstances, have res judicata
effect).
[111] See Weinger v. State Farm Fire & Cas. Co., 620 So. 2d 1298 (Fla.
Dist. Ct. App. 1993).
[112] See, e.g., Mitchell v. Aetna Cas. & Sur. Co., 579
F.2d 342 (5th Cir. 1978); Central Life Ins. Co. v. Aetna Cas. & Sur. Co.,
466 N.W.2d 257 (Iowa 1991).
[113] See Central Life Ins. Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d 257
(Iowa 1991).
[114] Stephen
Lamson, The Impact of the Federal
Arbitration Act and the McCarran-Ferguson Act on Uninsured Motorist Arbitration,
19 Conn. L. Rev. 241, 243
(1987). See Raymond A. Pacia, Arbitrating
the Uninsured Motorist Case, 33 Trial
26 (Feb. 1997).
[115] See Steven Zipper, Note, Legislatively
Mandated Arbitration in Oregon: The Unconstitutionality of the Uninsured
Motorist Arbitration and Personal Injury Protection Arbitration Statutes, 31 Willamette L. Rev. 737 (1995). But
see Meyer v. State Farm Fire &
Cas. Co., 582 A.2d 275 (Md. App. 1990) (appraisal provision of homeowners’
policy prohibiting insureds from bringing action without compliance with policy
provisions did not deprive insureds of right to trial by jury).
[116] Mercury
Ins. Group v. Superior Ct., 965 P.2d 1178 (Cal. 1998).
[117] See Grenig, supra note 8, §§ 3.21-3.30 and 13.2.
[118] 568
A.2d 397 (Vt. 1989).
[119] See Little v. Allstate Ins. Co., 705 A. 2d 538 (Vt. 1997) (although
dispute resolution issues are within scope of business of insurance, the
Vermont Arbitration Act does not “regulate” that business and thus provision in
VAA making arbitration agreements in insurance contracts revocable until award
is published is preempted by the Federal Arbitration Act). See
Grenig, supra note 8, §§ 13.3,
13.33.
[120] See O’Neill v. Berkshire Mut. Ins. Co., 786 F. Supp. 397 (D. Vt.
1992).
[121] Steven
R. Leppard, Note, Arbitration? Sure, But
Only on Our Terms: Escape Clauses in Uninsured Motorist Policies, 1993 J. Disp. Resol. 193 (1993).
[122] See, e.g., Huizar v. Allstate Ins. Co., 952 P.2d 342
(Colo. 1998); Mendes v. Automobile Ins. Co. of Hartford, 563 A.2d 695 (Conn.
1989); Worldwide Ins. Group v. Klopp, 603 A.2d 788 (Del. Super. Ct. 1992);
Field v. Liberty Mut. Ins. Co., 769 F. Supp. 1135 (D. Haw. 1991); Schmidt v.
Midwest Family Mut. Ins. Co., 426 N.W.2d 870 (Minn. 1988); Schaefer v. Allstate
Ins. Co., 590 N.E.2d 1242 (Ohio 1992); Pepin v. American Universal Ins. Co.,
540 A.2d 21 (R.I. 1988); O’Neill v. Berkshire Mut. Ins. Co., 786 F. Supp. 397
(D. Vt. 1992). See Jennifer L. Shaw, Note, The Tie That Binds: Arbitration in Ohio
After Schaefer v. Allstate Insurance Co., 22
Cap. U. L. Rev. 779 (1993); John P. Maxwell, Note, A Quantum Leap Backwards: The Ohio Supreme Court Constricts the
Definition of “Arbitration” in Schaefer v. Allstate Insurance Company, 9 Ohio St. J. on Disp. Resol. 181
(1993).
[123] Schmidt
v. Midwest Family Mut. Ins. Co., 426 N.W.2d 870, 874 (Minn. 1988).
[124] Krizanich
v. Liberty Mut. Fire Ins. Co., 887 P.2d 989 (Ariz. 1994); Roe v. Amica Mut.
Ins. Co., 533 So. 2d 279 (Fla. 1988); Mayflower Ins. Co. v. Mahan, 535 N.E.2d
924 (Ill. App. Ct. 1988), appeal denied, 545 N.E.2d 114 (Ill. 1989);
Cohen v. Allstate Ins. Co., 555 A.2d 21, (N.J. Super.) certif. denied, 563 A.2d
846 (N.J. 1989); Bruch v. CNA Ins. Co., 870 P.2d 749 (N.M. 1994); Allstate Ins.
Co. v. Jacobs, 617 N.Y.S.2d 360 (N.Y. App. Div. 1994); Lind v. Allstate Ins.
Co., 895 P.2d 327, modified, 902 P.2d
603 (Or. App), review denied, 907 P.2d 248 (Or. 1995).
[125] Bruch
v. CNA Ins. Co., 870 P.2d 749, 751 (N.M. 1994).
[126] See discussion of arbitration proceedings in Grenig, supra note
8, ch. 5.
[127] Robert Coulson, Business Arbitration: What You
Need to Know 101 (4th ed. 1992).
[128] Id. at 102.
[129] See id. at 104.
[130] Id.
[131] Paul
Hummer, Reinsurance Arbitrations from
Start to Finish: A Practitioner’s Guide, 63 Def. Couns. J. 228, 228 (1996). See
John Binning & Timothy Moll, Arbitration
of Reinsurance Disputes in Liquidation of Insurance Companies, 32 Tort & Ins. L. J. 937 (1997) (binding arbitration provisions in
reinsurance agreements are common and generally enforceable). See
also Porter, Should Courts Remand Ambiguous Reinsurance Awards for Clarification?,
11 Claims Forum 3 (Fall 1997).
[132] North
River Ins. Co. v. Allstate Ins. Co., 866 F. Supp. 123, 125 (S.D.N.Y.
1994). See also Michigan Mut.
Ins. Co. v. Unigard Sec. Ins. Co., 44 F.3d 826, 828 n.1 (9th Cir. 1995).
[133] 15
U.S.C. §§ 1011-1015.
[134] See Binning & Moll, supra
note 131 (it is unclear whether McCarran-Ferguson Act takes precedence over the
FAA in insurance company liquidation proceedings). See
Grenig, supra note 8, §§ 13.2
and 13.3.
[135]See,
e.g., Washburn v. Corcoran, 643
F. Supp. 554, 556 (S.D.N.Y. 1986).
[136] See, e.g., Bennett v. Liberty Nat’l Fire Ins. Co., 968
F.2d 969 (9th Cir. 1992).
[137] See, e.g., Stephens v. American Int’l Ins. Co., 1994 WL
414374, reconsideration denied, 1994 WL 463016 (S.D.N.Y. 1994);
Selcke v. New England Ins. Co., 995 F.2d 688, pet. to vacate denied, 2 F.3d 790 (7th Cir. 1993).
See also National Accident Ins. Underwriters, Inc. v. Duncanson &
Holt, Inc., 1994 WL 684720 (N.D.Ill. 1994) (arbitration of disputes arising
from agreement retroactively terminating a reinsurance agreement compelled,
although agreement in issue did not contain arbitration clause, because dispute
arose at least partly under terminated reinsurance agreement containing
arbitration provision).
[138] 408
F.2d 606 (2d Cir. 1969).
[139] Accord Life of Am. Ins. Co. v. Aetna Life Ins. Co., 744 F.2d 409 (5th
Cir. 1984).
[140] See, e.g., Mutual Reins. Bureau v. Great Plains Mut. Ins.
Co., 969 F.2d 931 (10th Cir.), cert. denied, 506 U.S. 1001 (1992) (Federal
Arbitration Act conflicted with Kansas arbitration statute excluding insurance contracts
from valid arbitration agreements). Accord Federated Rural Elec. Ins. Co. v.
Nationwide Mut. Ins. Co., 874 F. Supp. 1204 (D.Kan. 1995).
[141] Hummer,
supra note 131, at 231.
[142] Government
of U.K. v. Boeing Co., 998 F.2d 68 (2d Cir. 1993). See
also Active Glass Corp. v.
Architectural & Ornamental Iron Workers, 875 F. Supp. 245 (S.D.N.Y.
1995). But see North River Ins.
Co. v. Philadelphia Reins. Corp., 63 F.3d 160, 165 (2d Cir. 1995), cert. denied, 516 U.S. 1184 (1996) (order compelling consolidation of
arbitrations upheld where objecting party did not appeal order of consolidation
and equities required that consolidation should stand).
[143] Hummer,
supra note 131, at 231.
[144] Deborah
M. Castles & Carol Reese Orton, ADR
and Environmental Coverage Disputes: A Primer on Methods and Selection, 46 Fed'n Ins. & Corp. Couns. Q. 279,
283-84 (1996).
[145] 16
U.S.C. §§ 9601-9657; id.
at 284.
[146] Id. at 284.
[147] Id. at 285.
[148] Id.
[149] See Grenig, supra note 8, ch. 7.
[150] See id., chs. 3-6.
[151] Castles
& Orton, supra note 144, at 287.
[152] See Grenig,
supra note 8, ch. 8.
[153] Cunningham,
Arbitration of Marine Insurance Disputes,
38 Fed'n Ins. & Corp. Couns. Q.
209, 212 (1988).
[154] See Grenig, supra note 8, §§ 3.21-3.30 and 13.2.
[155] Triton
Lines, Inc. v. Steamship Mut. Underwriting Assoc., 707 F. Supp. 277 (S.D.Tex.
1989). See discussion in Grenig, supra note 8, § 13.3.
[156] See generally John M. Flynt,
Comment, A Solution to Force-Placed
Insurance Litigation for Lenders: Disclosure and Arbitration, 26 Cumb.L.Rev. 537 (1995-1996).
[157] Id. at 575-76.
(Author's bio)
Jay E. Grenig is a
Professor of Law at the Marquette University Law School. He received his B.A.
in 1966 from Willamette University and his J.D.in 1971 from Hastings College of
the Law, University of California. Prof. Grenig is a member of the American Law
Institute and the National Academy of Arbitrators. He is contributing editor on
alternative dispute resolution for the American Bar Association's Preview of United States Supreme Court Cases. Prof.
Grenig is the co-author of over forty books, including West's Federal Jury Practice and Instructions (5th
ed.).