Though the net result of arbitration is the reduction of court congestion, quick settlement of losses reflecting savings of expense dollars, and better public relations between insureds and insurance companies, the immediate goals of the Arbitration Forums, Inc. are:

1.     to provide forums for discussion of problems of common concern to companies participating in arbitration programs under its jurisdiction;

2.     to provide facilities for disposition of inter-company disputes;

3.     to make rules and regulations for presenting controversies under its arbitration agreements;

4.     to select locations for arbitration and to appoint arbitration committees;

5.     to prescribe the territorial jurisdiction of local arbitration committees;

6.     to make rules for apportioning operating expenses of arbitration programs equitably among signatory members.

If requested by Arbitration Forums, member companies must furnish a list of names, titles, and addresses of all employees who are qualified to act as arbitrators. (Five years of claim experience is the minimum requirement.)

In a dispute involving $2,500 or less, Arbitration Forums appoints one arbitrator to hear the case. If the damages exceed $2,500, AF may appoint multiple arbitrators, if requested by one of the parties involved.

Signatories to AF are contractually obligated to arbitrate disputes. Intercompany arbitration is compulsory for member companies that sign an agreement to arbitrate future controversies.

Generally, cases arbitrated are handled under the territorial jurisdiction of the AF branch office nearest the place of accident or occurrence giving rise to the dispute. However, member companies may—by agreement—transfer a case to another branch office.

If the location of an occurrence giving rise to dispute is more than 100 miles from the nearest branch office and one of the member companies involved objects to the jurisdiction on grounds that it might impose an undue hardship or place the company at a serious disadvantage, several alternatives are available.

First, member companies should try to agree on having another AF branch arbitrate the dispute. If this fails, the administrator of the arbitration committee must report all circumstances to the Arbitration Forums home office. The home offices of companies involved in such cases will then be contacted in an effort to obtain agreement on where to arbitrate the case. And, finally, if agreement still cannot be reached, Arbitration Forums will arrange arbitration of the case.

All signatories to the AF agreement are required to make a sincere effort to settle disputes among themselves by direct negotiation; if this fails arbitration may then be used.

Arbitration must be deferred until all companion claims or suits not subject to arbitration have been settled. When all parties to a controversy agree, however, deferment may be waived.

When defending a suit instituted by a nonmember company, a signatory can, if necessary, interpose a counterclaim even though it might involve another signatory in the litigation. When a counterclaim is exercised, however, it is not regarded as a separate cause of action, but merely as a defense in the suit over which neither signatory company has control. Also, submission of a case to arbitration under the inter-company agreement has the same effect on signatory companies as the applicable statute of limitations if litigation were commenced.

Arguments between signatory and nonsignatory companies may also be arbitrated provided (1) the request for arbitration is initiated by a signatory company and (2) the nonsignatory company executes an agreement to arbitrate and to be bound by the decision of the committee.

The AF agreements apply only to accidents, insured events or losses occurring within the United States, Puerto Rico and Virgin Islands. However, arbitration may extend to other possessions and territories of the United States or to foreign countries when agreed upon by the participants.

An arbitration proceeding originates when a local representative of a member company files an inter-company arbitration statement with the AF administrator and the local representative of the other member company involved in the dispute. (In arbitration proceedings, the company initiating the request for arbitration is referred to as the applicant. The company against which the claim is made, is the respondent.)

Information an applicant is required to file in the statement includes names of applicant and respondent companies together with names of local representatives having supervision over the case; names of applicant and respondent company insureds; claim numbers of both parties; kinds of coverage provided under the policies of each; date of accident or loss; amount already paid by the applicant company and the deductible of its insured; statement describing any pending litigation and its proposed disposition; certification that settlement efforts have been unsuccessful; statement of the issue involved and, if possible, a diagram of the accident or loss.

When the applicant's copy of the inter-company arbitration statement is received by the respondent, the respondent must file an answer with the AF administrator within thirty days. Answers filed by respondents include such information as whether coverage and liability as alleged by applicant are admitted and the amount of applicant's damages contested by the respondent. The exact basis for the denial of coverage (other than inability to confirm coverage) must be included in the respondent's statements.

It is important to note that the procedure thus far also applies when counterclaims are made. A counterclaim must be filed by a respondent and heard with the original arbitration case. If this procedure is not followed, the respondent may not pursue its counterclaim against the applicant. The only exception to this rule is if the respondent shows that it made a payment to its insured less than five days prior to the original hearing.

If a respondent fails to submit an answer within thirty days after the applicant files with an AF local office, it is taken to mean that the respondent has denied the applicant's allegation and wishes to have a hearing on the issues. Failure to file an answer within the stipulated period does not delay the hearing. However, if defenses are available to a respondent—and are not asserted by answer prior to the hearing—the applicant, on request, is given time to investigate these defenses.

If after having submitted a case to arbitration, settlement is reached, the applicant must notify the AF administrator and withdraw the case from arbitration.

When all essentials for arbitration have been finalized, the administrator schedules the hearing date. The date is set at least three weeks in advance. In cases where respondents do not file an answer within the stipulated time (thirty days), notice of hearing is sent to them by certified mail where the damages claimed by the applicant exceed $5,000. Where the damages are $5,000 or less, notice will be sent under the certificate of mailing procedures of the United States Postal Service.

Hearings are conducted informally. Presentation of facts is expected to be brief, frank, and direct. If one of the companies presents evidence, it is made available to the arbitrators and opposing parties. Also, companies are permitted to present witnesses and may be represented by members of their staff or anyone retained by them. However, after having made their presentation, witnesses, staff, etc., cannot be present while arbitrators are considering their decision.

A decision of an arbitration panel is final and binding with no right of rehearing or appeal. It is required that decisions of arbitrators be rendered promptly after consideration of the cases and be complied with within thirty days. Delays must be explained to AF.

Arbitration panels are not authorized to compromise questions of liability. The law of the locality in which the accident or loss occurred prevails.

Arbitration panels may, upon their own initiative render a decision in favor of a respondent company even though the respondent does not produce evidence when the panel unanimously agrees—following submission of applicant's evidence—that applicant did not have a prima facie case.

Note that Article First of this agreement spells out which arguments of member companies must be submitted to arbitration in lieu of litigation. Article Second, on the other hand, permits arbitration of any other controversy so long as arguments involve insurers. Furthermore, Article Second, unlike Article First, is not compulsory. In other words, if an argument arises that involves a problem other than that within the scope of Article First, a committee cannot arbitrate the dispute unless both companies involved give their consent.

The primary purpose of this particular agreement is to settle disputes between insurers involving automobile physical damage claims of $100,000 or less. The program is also available to self-insurers and commercial insureds with large retentions. Other arguments can also be arbitrated but those involving damage claims of $100,000 or less are mandatory for signatory (member) companies. Actual arbitration is handled by local committees that are assigned certain territories of jurisdiction throughout the country. Generally, the arbitration committee asked to rule on a particular case has jurisdiction in the territory nearest the place of occurrence giving rise to the dispute.

The text of the Automobile Property Subrogation Arbitration Agreement follows. It is Copyright 1994 by Arbitrations Forums, Inc. and reproduced with permission.

Signatory companies are bound to forego litigation and in place thereof submit to arbitration any questions or disputes which may arise from any automobile physical damage subrogation or property damage claim not in excess of $100,000.

This Article shall not apply to:

(a)     any claim for the enforcement of which a law suit was instituted prior to, and is pending, at the time this agreement is signed;

(b)     any claim as to which a company asserts a defense of lack of coverage on grounds other than (1) delayed notice, (2) no notice, or (3) noncooperation

(c)     claims involving policies written under retrospective rating plans, unless prior written consent is obtained from the companies in interest;

(d)     any claim not involving a signatory as a party.

Any controversy, including policy coverage and interpretations, between or among signatory companies involving any claim or other matter relating thereto and not included in Article First hereof or which involves amounts in excess of those stated therein may also be submitted to arbitration under this agreement with the prior consent of the parties.

For matters within Article First, if the law on the issue is in doubt and has not been interpreted by the courts of the jurisdiction, a party to the controversy may petition AF's Board of Directors to authorize the disputing party to proceed through litigation rather than arbitration. The Board's validation will be influenced by the effect on the industry through litigation to clarify the law. The decision to waive the mandatory provision of the Agreement and proceed through litigation will be at the sole discretion of the Board.

Arbitration Forums Inc., representing the signatory companies is authorized:

(a)     to make appropriate rules and regulations for the presentation and determination of controversies under this agreement;

(b)     to select the places where arbitration facilities are to be available, and adopt a policy for the selection and appointment of arbitration panels;

(c)     to prescribe the territorial jurisdiction of arbitration panels;

(d)     to make appropriate rules and regulations to apportion equitably among arbitrating companies the operating expenses of the arbitration program;

(e)     to authorize and approve as signatories to this agreement such insurance carriers, self-insurers, and commercial insureds with large retentions as may be invited to participate in the arbitration program and also to compel the withdrawal of any signatory from the program for failure to conform with the agreement or the rules and regulations issued thereunder.

Arbitration panels, appointed by AF from among full-time salaried representatives of signatory companies, shall function in the following manner:

(a)     Arbitration panel members shall be selected annually on the basis of their experience and qualifications and they shall serve without compensation.

(b)     Each arbitration roster shall have at least three members at least one-third of whom shall be retired annually.

(c)     Any one member of an arbitration roster shall constitute an arbitration panel except when controverting parties agree to three arbitrators in a specific case, if the damages exceed $2,500.

(d)     No panel member shall serve on a panel hearing a case in which his/her company is directly or indirectly interested, or in which he/she has an interest.

(e)     The decision of the majority of an arbitration panel shall be final and binding upon the parties to the controversy without the right of rehearing or appeal.

Any signatory company may withdraw from this agreement by notice in writing to Arbitration Forums, Inc. Such withdrawal will become effective sixty (60) days after receipt of such notice except as to cases then pending before arbitration committees. The effective date of withdrawal as to such pending cases shall be upon final settlement.