A question that corporate policyholders should ask before entering insurance coverage arbitration is whether arbitration is a viable way to resolve a complex corporate insurance dispute. In the not so recent past, arbitration provisions in insurance policies were rare. Now, they are common. And, language contained in many standard-form arbitration clauses has become even more onerous over time. The reason for this is that Insurance Carriers prefer Insurance Coverage Arbitration over litigation.
Are Insurance Coverage Arbitrations a Good Option for Corporate Policyholders?
We address here some of the issues that corporate policyholders should note when faced with an insurance coverage arbitration. We also draw some basic conclusions about insurance coverage arbitration based on our extensive experience in this area of insurance recovery law.
First, lets look at some of the reasons why insurers feel so strongly about arbitration.
1) Arbitrators May Not Follow Policyholder-Friendly Law
To prevail on claims, policyholders rely on powerful policyholder-friendly rules of construction. For example, there is a duty to defend whenever there is any potential of coverage. Courts and arbitrators should not look to the ultimate outcome of whether the claim is covered. Rather, if a claim has any possibility of being covered, a defense must be provided. Similarly, policy exclusions are construed against insurers and in favor of policyholders, and for an exclusion to apply, there must be no other reasonable interpretation of coverage other than the one offered by the insurer.
It goes without saying that both arbitrators and Courts should follow the law. If these and other common insurance rules of construction are applied, policyholders have a distinct advantage.
As a general rule, courts follow the law, and if the law is followed, policyholders are typically entitled to coverage. In litigation, if a Court does not follow the law correctly, an appeal may be taken.
Arbitration is a different animal. Review of arbitration awards is limited, and arbitrators are generally afforded more flexibility than courts in fashioning their rulings. In insurance coverage arbitration, arbitrators may be permitted to evaluate factors that have nothing to do with coverage. Arbitrators have been known to look at what a policyholder paid for coverage in relation to the value of the claim to determine what the insurer intended as far as coverage. They may also be improperly...