Arbitration
A binding or non-binding dispute resolution process in which a neutral third party hears evidence from both sides and issues a decision. Some insurance policies require arbitration of coverage or amount disputes before litigation.
Arbitration is a dispute resolution process in which a neutral arbitrator hears evidence from both sides and issues a decision, often binding. Some insurance disputes are resolved through arbitration either by contract or by mutual agreement.
How Arbitration Works
Both parties present evidence and arguments to one or more arbitrators — neutral professionals selected either from an arbitration organization's roster or by mutual agreement. The process is more flexible than court but more structured than mediation: witnesses may testify, documents are admitted, and the arbitrator issues a written decision. Rules of evidence are typically relaxed compared to litigation, but the core structure is adjudicative.
Binding vs Non-Binding
Binding arbitration produces a decision that is final and enforceable in court, with very narrow grounds for appeal. Non-binding arbitration produces a recommendation that either party can accept or reject; if rejected, the parties can continue to mediation, settlement discussions, or litigation. Policy language determines which type applies when arbitration is required by contract.
Where Arbitration Fits in Insurance Disputes
Commercial insurance contracts commonly include arbitration clauses, especially for specialty lines and reinsurance. Personal homeowners policies are less likely to require arbitration, though some do. Appraisal, which is specifically for disputes over amount of loss, is a distinct process that many property policies require instead of or in addition to arbitration. Understanding which process applies to a given dispute is a matter of reading the policy and, for significant claims, consulting with counsel.
Frequently asked questions
Arbitration is adjudicative — a neutral arbitrator hears both sides and decides the outcome, often with a binding ruling. Mediation is facilitative — a neutral mediator helps both sides negotiate a settlement but does not impose a result. Arbitration produces a decision; mediation produces a settlement or an impasse.
Some policies include arbitration clauses. Others do not. Read your policy's dispute resolution section. If arbitration is required, the clause will describe the process, the selection of arbitrators, and whether the result is binding. State law can affect enforceability of mandatory arbitration in consumer insurance contracts.
Binding arbitration decisions are generally final and enforceable in court, with very limited grounds for appeal (fraud, arbitrator misconduct, or exceeding authority). Non-binding arbitration produces a recommended outcome that parties can accept or reject. The policy or arbitration agreement specifies which type applies.
No credit card required