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The Many Disadvantages of Forced Insurance Arbitrations


Insurance companies are constantly trying to get their policyholders to agree that disputes should be heard by a panel of arbitrators instead of by a judge and jury. The insurance companies will tell you this is meant to save costs and time, but the reality is that they have a hidden agenda. They simply would not favor arbitrations if it weren’t to their advantage. The use of mandatory arbitration clauses in insurance contracts extends to commercial insurance, disability insurance, homeowner’s insurance, and liability insurance.

Why insurance companies favor arbitration

The U.S. Supreme Court has sanctioned the use of mandatory arbitration in insurance contracts. Until that decision is overturned or laws are passed, insurance companies will demand that policyholders sign contracts with mandatory arbitration clauses. The advantages for the insurance company and the corresponding downsides for policyholders are these:

  • Tendency to compromise. Arbitrators tend to favor compromise over deciding fully for one side over another. This is unfair to policyholders who suffer a loss through no fault of their own, which is often the case. Compromises do not fully compensate the accident victims, and they fail to deter future negligence or misconduct by the wrongdoers. Insurance companies price their premiums based on likely risks. They should not then have the advantage of reducing their risks further by forcing compromised settlements.
  • Arbitrators are rarely neutral. Most arbitrators have a bias based on their past experiences and on their desire to be hired as an arbitrator again in the future. Insurance carriers and their defense lawyers often hire the same arbitrators again and again because they know the arbitrator is biased in their favor. Individual claimants do not have the same leverage.
  • Less likely to follow the law. Judges are more likely to apply current law such as the premise that since the insurance company wrote the contract, all ambiguities should be in the insured’s favor. Arbitrators tend to be less likely to apply strict interpretations.
  • Less effective discovery. In Oklahoma civil courts, the plaintiff and defendant have broad powers to question the other side. The insurance companies often delay or fail to provide crucial evidence that would help the insured prove that damages should be paid. In liability cases, the defendant who is responsible wants to avoid being found liable. Judges have the authority to compel necessary discovery. Arbitrators are usually reluctant to demand that questions be answered and documents produced.
  • Lack of accountability. In civil cases, there is a record of the proceeding. When insurance companies are found liable, other lawyers and other plaintiffs can learn of the insurance company’s theories and learn what the judge and jury found persuasive. Arbitrations are private, which makes it harder for the claimant to prepare the case. In a civil court trial, there is a record of the case that can be used on appeal. Arbitrations are generally not recorded.
  • Lower awards. Generally, arbitrators are less likely to assess bad faith damages or punitive damages than juries are.

Our civil justice system is based on the principle that individual jurors are best able to provide justice because they are involved in their community and are much more likely to listen to both sides of a dispute.

At Stipe Law Firm, our Oklahoma insurance dispute lawyers have over 60 years experience fighting for policyholders. We review your policy to see if a jury can hear your case or if it must be heard by arbitrators. We have a strong track record of success before both juries and arbitrators. Our lawyers understand, despite the inherit disadvantages, how to persuasively present arbitration claims. To speak to a skilled lawyer at our McAlester office, please call us at (918) 505-7741 or use our contact form to schedule an appointment.