In my prior post about the Supreme Court’s decision in AT&T Mobility v. Concepcion, I made some preliminary observations about how insurance companies might take advantage of the opportunity provided by that decision to potentially reduce class action exposure through the use of arbitration clauses that bar class arbitrations.  I’ve given some further thought to that recently and thought I would share my thoughts with readers of my blog: 

1. In order to significantly limit class action exposure through the arbitration mechanism, arbitration clauses would need to be added to homeowners’ policies (which currently have only appraisal provisions) and life insurance policies, and the scope of such clauses in auto insurance policies would need to be expanded (currently arbitration is typically limited to UM/UIM coverage).  That would require a major change in the manner in which disputes under these types of policies historically have been resolved.  Some insurers may not be comfortable having a dispute over a $250,000 loss to a house resolved in arbitration, with no appellate review and limited means of judicial review.  But class actions rarely involve $250,000 losses, so one approach might be to limit the scope of what is arbitrated to only small claims (perhaps under $10,000).
2. Some insurers and their counsel are much more comfortable with judges deciding coverage issues, and there may be concern about leaving coverage issues significant enough to be raised in a putative class action for arbitrators to resolve.  One potential way of addressing this issue would be to have the arbitration clause require the use of an arbitrator with insurance expertise.  That might even lead to better results than the parties might get before a generalist judge, say one who just joined the bench after 20 years of a practice limited to criminal law.
3. Whether the outcome in a small arbitration could somehow be the basis for collateral estoppel in a future case is an issue requiring research in any jurisdiction where this approach might be considered.
4. There are some jurisdictions that have statutes barring the use of arbitration in insurance policies.  Under the federal McCarran-Ferguson Act, state law barring arbitration might “reverse preempt” the Federal Arbitration Act.  For a couple of cases addressing this issue, see American Bankers Ins. Co. v. Inman, 436 F.3d 490 (5th Cir. 2006) and McKnight v. Chicago Title Ins. Co., 358 F.3d 854 (11th Cir. 2004).
5. Regulatory approval is obviously an issue but it seems that insurance companies would have a strong argument that an appropriately-drafted arbitration clause providing for swift resolution is fairer to insureds who have small disputes than subjecting them to time-consuming and expensive litigation.
6. There may be some benefit to waiting to see how things play out in court decisions applying Concepcion and in arbitrations under other consumer contracts before an insurance company decides what to do on this.  AT&T, for example, recently got hit with a large number of arbitrations filed by a couple of law firms, attempting to challenge its merger with T-Mobile (see this Reuters article for more information).  AT&T has filed suits seeking to block these arbitrations on the grounds they are effectively an end-run around the prohibition on class arbitrations, and they seek relief beyond the scope of what AT&T’s arbitration clause provides for.  This development suggests that using arbitration clauses may lead to some unanticipated problems.  

If anyone has further thoughts about additional considerations I haven’t addressed on this issue, I’d be interested to hear them by e-mail.