Learn More About Arbitration Clauses
Most car insurance policies have a provision that requires arbitration if the provider and policyholder cannot agree on a settlement amount. This is where a dispute is brought before an independent third party instead of settling the disagreement through litigation. The arbitrator is usually an experienced and neutral practicing attorney. Insurers include these clauses in the majority of policies in order to save time and money on legal expenses. With binding arbitration, the decision of the arbitrator is final, or binding, for both parties, and the decision may not be disputed in court by either party. If your auto policy has a binding clause, you and your insurer must pursue arbitration and comply with the resulting final decision. Usually, this is reserved for cases where damages are the sole issue.
How It Works
In auto policies, these provisions are often referred to as appraisal clauses. Both parties, the consumer and the insurer, hire an appraiser to evaluate the claim and determine a fair settlement amount. If the two appraisers cannot agree on a settlement amount, a third neutral appraiser is hired to examine the claim. The decision of any two of the three hired appraisers is usually final for both parties. The customer and the provider both have the ability to exercise the appraisal option when they can't reach a settlement figure. This process often takes a few weeks but can take up to several months.
The Costs
Arbitration is substantially less expensive than litigation, but there are still costs associated with the process. The provider and the customer must each pay for their own appraiser and split the cost of the third neutral appraiser. If the cost of pursing this would exceed the amount of the settlement an individual wishes to receive, he or she should not invoke the appraisal option. Instead, the policyholder might pursue mediation, which is a professional form of dispute resolution that is likely not legally binding. With mediation, a trained, impartial facilitator meets with the involved parties to help them reach an agreement.
Alternatives to Consider
Small claims court is one way to resolve disputes for small amounts of damages. Small claims court is usually faster and cheaper than the aforementioned option, and you can usually file suit without the help of a lawyer. Policyholders might also consider filing a complaint against the auto insurer with their state's insurance department. The department most likely will not intervene on your behalf, but your carrier may change its tune if it finds out you are filing a formal complaint.