Summary: Special arbitration is designed to settle arguments among casualty insurers, self-insurers, and commercial insureds with large retentions or liability deductibles in two types of controversy: co-defendants in a third party's claim or suit and overlapping coverage. The cases may involve disagreements over areas such as the respective liability for insurers that cover co-defendants in a claim or suit, the respective liability for insurers that have overlapping coverage in a claim or suit, and coverage for concurrent or primary/excess policies on first- and third-party claims.
The special arbitration agreement consists of a compulsory and a voluntary section.
Compulsory Arbitration
Special arbitration is a compulsory program for member companies if the accident or occurrence happened in a state where Arbitration Forums has a special arbitration panel. However, jurisdiction can change to another state or territory with the consent of the involved parties. Signatories must submit their coverage overlap and co-defendant casualty disputes to an arbitration panel as long as:
1. The amount in dispute is no greater than $250,000.
2. The involved companies made a good faith effort to resolve the disagreement prior to arbitration.
3. One of the insurers settled with the claimant or plaintiff.
The location of the accident, occurrence, or offense from which the disputed claim arose determines the specific geographic jurisdiction for the special arbitration. Even if the claimants are from different states, the laws of the state in which the loss occurred will be applied to it.
Voluntary Arbitration
Special arbitration is compulsory only in the states where AF maintains facilities for the program. Because of constant statutory changes, members should consult the directory of AF office locations and participating members to determine if special arbitration is available in a particular state.
For the most part, rules and regulations of special arbitration committees—organization, jurisdiction, procedure, hearings—are basically similar to those for the committees handling inter-company arbitration.
Special Arbitration Agreement
The text of the special arbitration agreement follows. It is Copyright 1995, Arbitration Forums, Inc. and is reproduced with permission.
WHEREAS, signatory companies have endorsed the principle of arbitration for the purpose of resolving certain disputes on claims in which two or more signatory companies are involved, and
WHEREAS, it is the desire of the said companies to encourage:
(a) the prompt settlement of all meritorious claims and suits;
(b) voluntary resolution of policy coverage disputes between several insurers of the same insured.
NOW, therefore, signatories to this agreement hereby bind themselves as follows:
Article First:
To forego litigation and arbitrate unresolved disputes between two or more signatories wherein each has issued:
(a) a policy of casualty insurance covering one or more of a number of parties each asserted to be legally liable for an accident or occurrence out of which a claim or suit for bodily injury or property damage, or a first party payment arises, or as a self-insured has been alleged to be legally liable for an accident or occurrence; or
(b) separate policies of casualty insurance to the same party or parties asserted to cover an accident or occurrence out of which a claim or suit for bodily injury or property damage or first party repayment arises.
With respect to the amount, if any, which each such signatory shall ultimately pay toward a consummated settlement of any such claim or suit, provided such signatories have agreed on the overall settlement value of such claim or suit or first party repayment, it is recommended that each signatory pay an equal share of such settlement, but the settlement of a case in any ratio is made without prejudice to any party to the arbitration proceeding.
Article Second:
A signatory company, prior to verdict, may in its discretion and without the consent of the other signatory company, settle such claim or suit or first party repayment within the jurisdiction of the preceding article. The amount of such settlement shall not be at issue unless specifically pleaded by one of the parties to the arbitration proceeding.
Article Third:
No signatory company shall be required, without its written consent, to arbitrate any claim or suit if:
(a) its policy is written on a retrospective or experience rated basis;
(b) any payment which such signatory company may be required to make under this agreement is or may be in excess of its policy limits;
(c) arbitration might substantially prejudice its rights in the defense or prosecution of any claim or suit arising out of the same accident or occurrence;
(d) it has asserted a policy defense to the claim or suit otherwise subject to arbitration. This exception does not apply to controversies arising under Article First, subdivision (b), above.
(e) under the casualty insurance coverage, by the terms of the policy contract, settlement can be made only with the insured's consent.
Article Fourth:
The decision of the majority of the arbitrators is final and binding without the right of rehearing or appeal, as to the claim or suit arbitrated. However, it shall have no moral effect on any other claim or suit arising out of the same accident or occurrence.
Article Fifth:
Any controversy not already included in this or other existing arbitration agreements may be submitted for arbitration under this agreement with the prior written consent of the interested signatories.
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 provisions of the Agreement and proceed through litigation will be at the sole discretion of the Board.
Article Sixth:
Arbitration Forums, Inc., representing signatory companies, is authorized to:
(a) make appropriate rules and regulations for the presentation and determination of controversies under this agreement;
(b) select the places where arbitration facilities are to be available and provide for the selection and appointment of arbitration panels from lists of nominees submitted by the home offices of signatory companies;
(c) make appropriate rules and regulations to apportion equitably among signatory companies the operating expenses of the arbitration program;
(d) invite other insurance carriers, self-insurers, or commercial insureds with large retentions to participate in this arbitration program, and also to compel the withdrawal of any signatory for failure to conform with the agreement or the rules issued thereunder.
Article Seventh:
The decision of the arbitrators shall be based on law and equitable considerations consistent with accepted claim practices. All matters in connection with an arbitration proceeding shall be held in strict confidence.
Article Eighth:
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 panels. The effective date of withdrawal as to such pending cases shall be upon final settlement.
Case Histories
The following are examples of the wide range of situations that may be submitted to special arbitration: They are reproduced with permission.
1. A controversy arose when an out-of-control car struck a mobile hot dog stand and several pedestrians. The insurer of the vehicle, the insurer of the hot dog stand, and the insurer of the auto manufacturer were unable to agree on their respective liability. To resolve their differences, they turned to special arbitration.
2. A recreational trailer became disconnected from its towing vehicle, and struck and killed a child. Liability was assigned to the party that connected the trailer to the vehicle and the manufacturer of the hitch. The AF panelists were asked to decide the respective liability of the party which connected the trailer to the vehicle and the manufacturer of the trailer hitch.
3. A young boy, while under the care of his grandmother, was bitten by a neighbor's dog. The boy's parents filed suit against the dog owners, claiming negligence based on strict liability. The neighbors filed a countersuit against the grandmother, claiming that she was negligent in watching her grandson. The companies turned to special arbitration to determine their respective liabilities.
4. A child, while being examined by a pediatrician, was injured falling from the doctor's examining table. The professional liability carrier and the general liability carrier could not agree on their respective liability. The dispute was submitted to special arbitration.
5. An electrical shock from a home appliance caused paralysis to a woman's finger. Arbitrators were asked to determine whether the accident was caused by the negligence of the electrical contractor who installed the wiring, the negligence of the appliance installer, or the negligence of the manufacturer.