I found interesting a recent blog post by Claire Wilkinson of the Insurance Information Institute (III) reporting that:
In a new record, nearly 520,000 insurance claims disputes valued at more than $2.4 billion were resolved via arbitration in 2011, Arbitration Forums Inc reports.
According to AF, the nation’s largest provider of inter-insurance dispute resolution services, it is saving the property/casualty insurance industry more than $700 million in litigation costs annually.
. . .
Some 98 percent of the arbitration filings in 2011 were made electronically, via AF’s electronic subrogation claims system known as E-Subro Hub – more than twice the percentage of a few years earlier.
. . .
E-Subro Hub significantly streamlines the process by enabling users to electronically send and receive subrogation demands, attach supporting documents, manage subrogation claims and electronically file inter-company arbitration where necessary.
The question I have is whether this kind of positive outcome would extend to arbitrations between insurers and their personal lines insureds. Regular readers of my blog will recall that I’ve mused on several occasions (see my August 22, 2011 blog post, for example) about whether insurers might increase the use of arbitration, with arbitration clauses that preclude class actions, in order to take advantage of the Supreme Court’s decision last year in AT&T v. Concepcion. The data recently reported by the III suggests that arbitration can achieve substantial costs savings where there are sophisticated entities (insurers) on both sides and proceedings are streamlined. Some of that simplification could be used in small consumer arbitrations, and indeed might be welcomed by many policyholders (and by insurance commissioners) as a good alternative to costly and lengthy litigation. Even as an insurance lawyer I might be more inclined to buy coverage from a company that offers a fair and simple arbitration process for resolving small claim disputes. But expanding consumer arbitrations in insurance also raises some issues that would not be reflected in the data regarding inter-company arbitration, including:
- Will there be many more contested and lengthy arbitration proceedings because individual insureds will not operate as rationally as a sophisticated entity on the other side of the dispute? Will that add substantial cost? Can that problem be ameliorated through the procedures employed for insured-insurer arbitrations?
- To what extent will plaintiffs’ lawyers increase indemnity payments and arbitration costs by pursuing arbitrations that they would never bother to pursue in court, if the arbitrations are easier, faster and potentially have a minimum award for a prevailing plaintiff?
- Will there be more frivolous arbitrations than frivolous lawsuits? Can a provision be built into the arbitration clause that reduces the filing of frivolous arbitrations by imposing costs on insureds if the arbitrator finds the case frivolous?
- Will the prohibition on class actions and costs savings generated thereby outweigh any additional costs from the individual arbitrations?
I’d be interested to know if anyone has, or is aware of, any data regarding whether and how cost savings can be achieved by using consumer arbitrations in insurance (if there is any), or other industries that might be somewhat analogous.