You may come across an arbitration clause when shopping for business insurance. Below is an overview of arbitration clauses.
What It Means
Arbitration is an alternative dispute resolution method — it is an alternative to litigation. Arbitration involves the parties in a disagreement sitting down with an arbitrator to get a solution for the disagreement. Therefore, the arbitration clause in an insurance contract means that you will arbitrate your disagreements with the carrier.
There are two types of arbitration clauses.
In binding arbitration, all parties to the agreement must abide by the decision of the arbitrator. None of the parties can sue the other one even if they are not satisfied with the arbitrator's resolution.
In non-binding arbitration, you reserve the right to sue the other party even after the arbitrator has made their decision. You only use the arbitrator's resolution if you find it acceptable.
Here is a brief overview of a typical arbitration process:
- You choose an arbitrator
- You file your case
- You engage in a preliminary hearing to introduce the disagreement and discuss procedural issues
- You exchange relevant information and documents
- You make submissions (this is the hearing)
- The arbitrator makes their decision
The above are the general stages of arbitration, but the exact steps will depend on the arbitrating party.
Arbitration clauses have several benefits, but the following are the major ones.
Dispute Resolution Costs
Proponents of arbitration clauses argue that arbitration reduces the cost of dispute resolution. This claim makes sense if you consider the legal costs of litigation. Lawyer fees, court fees, travel costs, and document costs are just a few of the costs associated with litigation.
Dispute Resolution Time
Court cases do not just cost a lot of money — they also take a long time. Arbitration is relatively faster than litigation. In arbitration, the parties involved can easily set the timelines they desire and determine the progress of the case. This is not always the case with litigation, where you are likely to be at the mercy of the court.
The submissions during arbitration and resolution are typically kept private. Thus, arbitration allows you to keep your information private. This can be good, particularly if the disagreement involves sensitive information.
As you can see, you really do need to scrutinize and compare business insurance policies before purchase. Consult an insurance agent to help you understand any complicated clauses before settling on a policy.
For more information on business insurance, contact a company like Welsh Insurance Agency Inc.