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 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.
Arbitration, as a dispute resolution device, is much less expensive than litigation since use of lawyers is not necessarily required. Unlike litigation, the proceedings are informal and can be brought before an arbitrator in a period of time much less than litigation.
Many insurance companies are part of ADR groups like the Special Arbitration Agreement below. If there is a dispute among insurance companies that belong to the group, the dispute is subject to mandatory, binding ADR. The insurance companies agree to the binding ADR to cut the cost of defense and to resolve issues quickly. The members are all insurers. The decision makers all have experience in insurance, and the dollar value is limited to the policy.
An arbitration award, once rendered, can be turned into a judgment after an appropriate petition to a court of competent jurisdiction. It is almost impossible to overturn an arbitration award unless there is some action by the arbitrator that is an abuse of the law.
The special arbitration agreement consists of a compulsory and a voluntary section.
Topics covered:
Article first – compulsory provisions
Article second – exclusions
Article third – decisions
Article fourth – non-compulsory provisions
Article fifth – AFs function and authority
Article sixth – withdrawals
The text of the Special Arbitration Agreement follows. It is Copyright 2013 by Arbitrations Forums, Inc. and reproduced with permission.
By signing this Agreement, the company accepts and binds itself to the following:
Upon settlement* of a claim or suit, signatory companies must submit any unresolved disputes to Arbitration Forums, Inc. (herein after referred to as AF) where:
(a)Each has issued a policy of casualty insurance covering, or as a self-insured covers, one or more parties asserted to be legally liable for an accident, occurrence or event out of which a claim or suit arises; or
(b) Each has issued separate policies of property or casualty insurance providing, or as a self-insured provides, concurrent coverage to the same party or parties asserted to cover an accident, occurrence or event out of which a first or third party claim or suit for bodily injury or property damage arises; or
(c) A workers compensation carrier or a self-insured seeks to recover reimbursement of workers compensation benefits from an alleged tortfeasor.
*In order to facilitate the prompt settlement of the claim or suit at issue, it is strongly recommended that each company contribute equally to the settlement. The settlement of a case is made without prejudice to any party participating in the settlement. The amount of such settlement shall not be at issue unless specifically plead by one of the parties to the arbitration proceeding.
No company shall be required, without its written consent, to arbitrate any claim or suit if:
(a) It is not a signatory company nor has given written consent; or
(b) It creates any cause of action or liabilities that do not currently exist in law or equity; or
(c) Its policy is written on a retrospective or experience-rated basis; or
(d) Any payment which such signatory company may be required to make under this Agreement is or may be in excess of its policy limits. However, a company may agree to accept an award not to exceed policy limits; or
(e) It has asserted a denial of coverage to the party or parties seeking coverage under the policy for the claim or suit otherwise subject to arbitration; or
(f) Under the casualty insurance coverage, by terms of the policy contract, settlement can be made only with the insureds consent
The decision of the arbitrator(s):
(a) Shall be based on local jurisdictional law consistent with accepted claim practices.
(b) Is final and binding without the right of rehearing or appeal except when allowed under the Procedure section of the rules. However, this does not preclude AF from correcting a clerical or jurisdictional error of an arbitrator(s) or AF staff.
(c) Is neither res judicata nor collateral estoppel to any other claim or suit arising out of the same accident, occurrence, or event. The decision is conclusive only of the issues in the matter submitted to the panel and only as to the parties to the arbitration. The admissibility of the decision in any other proceeding is not intended, nor should be inferred from this Agreement.
All matters concerning an arbitration proceeding shall be held in strict confidence.
The parties may, with written consent, submit a claim:
(a) Prior to settlement, or
(b)That exceeds this forums monetary limit, or
(c) Where a non-signatory wishes to participate, or
(d)Not included in this or any other existing Agreement.
Once a company gives written consent, all Articles and Rules of this forum are applicable, and the company may not revoke its consent.
AF, representing the signatory companies, is authorized to:
(a) Make appropriate Rules and Regulations for the presentation and determination of controversies under this Agreement;
(b) Determine the location, and the means by which arbitration cases are heard;
(c) Determine qualification criteria and provide for the selection and appointment of arbitrators;
(d) Establish fees;
(e) Invite other insurance carriers, non-insurers, self-insureds, or commercial insureds with large retentions to participate in this arbitration program, and compel the withdrawal of any signatory for failure to conform to the Agreement or the Rules issued thereunder.
The signatories, directors, officers, staff, agents, and AF employees, as well as the arbitrators, are not liable to and will be held harmless by any party for any negligence, act, or omission concerning the processing, administration, or hearing of any arbitration conducted under this Agreement.
Any signatory company may withdraw from this Agreement by notice in writing to AF. 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 compliance with the finding of the arbitration panel on those cases.
Rules and regulations were created under authority of Article Fifth (a) of the Special Arbitration Agreement.
As a condition precedent to using the AF rules and regulations, parties should attempt to settle the dispute prior to filing arbitration. The filing company must list the correct and current representative's name and address, the name and address of the insured and the claim file number for the adverse parties. Failure to do so may cause the decision to be voided.
1.The jurisdiction is limited to the United States, Puerto Rico and the U.S. Virgin Islands.
2. If a matter that should have been referred for arbitration is placed in litigation:
(a)The filing party must dismiss the suit upon notification.
(b)The applicant must file arbitration within 60 days of the date of the suits dismissal.
(c)For cases filed after the 60 day timeframe, the expiration of the statute of limitations is a valid affirmative defense.
3.Compulsory arbitration is applicable to a maximum of $250,000 contribution sought per claim. Claims for separate parties arising out of the same accident, occurrence or event are considered separate claims. A claim and a companion claim for different lines of coverage are considered separate claims. Legal fees are not a part of this program unless the policy limit includes legal fees.
4.A respondent may argue the negligence of a non-signatory, but must implead any additional signatories by filing an amended A-form with AF and the other companies in compliance with procedural rules 2 and 3. The respondent must provide the impleaded party with a copy of the applicant's contentions.
(a)The arbitrators will hear the case and apportion liability and or damages between all parties.
(b)Non-signatories may be impleaded only if they give written consent per Article Fourth.
(c)When the negligence of a non-member is argued, parties participating in the original settlement may jointly withdraw its application prior to the hearing and pursue recovery by other means or proceed with arbitration by agreeing to accept an award against a participating company and waive the right to pursue the balance directly against the non-member.
5.Claims that fall under compulsory provisions of another AF Forum will not be heard by a Special Arbitration panel unless filed as a companion claim per procedural rule 7.
1.Legal Fees. Signatories must identify themselves as signatories to the Special Arbitration Agreement and inform all interested parties at the time a claim is made. If a signatory inadvertently enters litigation against another signatory, it must withdraw from that litigation within 30 days of notice. Failure to do so subjects the responsible signatory to payment of the other parties reasonable court costs and attorneys fees expended to cause removal from litigation. These fees may be included in the Legal Fees section of the S-Form.
2.Company 1. Company 1 should commence an arbitration proceeding within 180 days of payment by filing a completed S-Form and Contentions Sheet with AF and each involved party.
(a)Failure to file within the 180 days period is an affirmative defense only if the delay is raised as an affirmative defense in the contentions and can be shown to have caused prejudice to the party raising the defense.
(b) Company 1 must submit all other documents to AF by the close of business prior to 10 business days before the hearing date. Documents not received within this time frame will not be sent to the hearing.
3.Company 2. Company 2 answers by filing a copy of the S-Form and Contentions Sheet, with AF and company1s local representative by the close of business prior to 10 business days before the hearing date. Documents not received within this time frame will not be sent to the hearing. If one of the parties questions compliance, the burden of proof is upon that party. Personal representation will not be allowed in cases where an answer has not been filed as outlined above.
4.Legal Fees. A company seeking legal fees must list these amounts on the S-Form.
5.Affirmative Defenses. Parties must raise and support affirmative pleadings or defenses in the Affirmative Defenses/Pleadings section of the Contentions Sheet. If a denial of coverage is being plead, a copy of the denial letter to the insured must be provided.
6.Itemization of Damages. In order to contest damages, parties must present arguments on the Contentions sheet and provide its damages amounts under the Itemization of Damages section. If this section is blank, damages are not at issue.
7.Companion Claims. All companion claims will be heard together if filed with the original Special Arbitration filing or with the related docket number listed on the S-Form.
8.Withdrawal. Parties seeking contribution and or legal fees must immediately notify AF if they have resolved the disputed issues before the hearing. AF will withdraw the case upon notification.
9.Company 2. If Company 2 raises an objection to jurisdiction as a proper affirmative defense against compulsory arbitration and the panel or AF withdraws, the applicable AF office will remove the case from its active docket. If after removal, it is discovered that the case was properly placed in arbitration and Company 1 refiles the case, Company 2 must reimburse Company 1 for all reasonable legal expenses and court costs resulting from the improper objection to jurisdiction. These fees are to be included in the Legal Fees Sought section of the S-Form. AF will charge a reinstatement fee equal to the filing fee.
10.Reschedule. If requested at least 3 business days prior to the hearing, each party may be granted one reschedule of the hearing date so long as procedural rules 2 and 3 have been complied with. AF will notify all parties of the new hearing date and charge the requesting party a fee.
11.Deferment. Any party may request a deferment on the S-Form. Justification for the deferment must be included in the Deferment section of the Contention Sheet. AF will charge the requesting party a deferment fee. If a deferment is requested, the case will proceed on the scheduled hearing date to determine the validity of the request. If upheld, the case will be deferred for one year. If denied, the arbitrator will continue to hear the disputed issues. The party granted the deferment may withdraw the deferment and the case will proceed to the next available hearing. Any subsequent requests must follow the above procedure.
12.Total Settlement. Any party may appeal a decision where the Total Settlement amount is $100,000 and above. AF will charge a substantial, non-refundable fee to the party filing the appeal. The appeal must be received by AF's Service Quality Department via certified mail with a recommended courtesy copy to all parties within 30 days of publication date of the decision. The appeal must set forth a specific objection to the decision and the basis for the objection. The adverse party has 30 days from AF's notification letter to submit a response, stating their position and the basis for that decision. If the response is not timely received, the right to respond is waived. AF will forward the original file, decision and appeal to a new 3 person panel. No new evidence, witnesses or personal representation will be introduced in the appeal process. No arbitrator from the original panel will sit on the appeal panel. The appeal panel will only consider the original file and each party's appeal position. The appeal panel's decision will be final and binding.
13. Inspection of Defective Products. For products liability cases, reasonable accommodations should be made for the inspection of the alleged defective products. Failure to do so may result in case withdrawal if raised as critical to defense of the claim.
1.AF will transmit or mail hearing notices to all parties at least 75 days prior to the initial hearing date.
2. The arbitrators will hear the case even if the Company 2 fails to answer.
3AF will assign arbitrators as follows: under $15,000 – one arbitrator; $15,000 to under $100,000 – 1 arbitrator unless 3 are requested on S-form; $100,000 and above – 3 arbitrators unless waived by all parties; Coverage issues filed under Article First b – 3 arbitrators, unless waived by all parties; Non-compulsory arbitration prior to settlement as per Article Fourth – 1 arbitrator, unless 3 are requested on the S-Form. There is a fee for all 3 person panels.
4.Arbitrators may grant an adjournment for cause or to request briefs or clarification of submitted materials. In such case, AF will notify all parties of the new hearing date. If requested documents are not received prior to the adjourned hearing date, the hearing will proceed.
5.The arbitrators will only consider:
(a)Affirmative defenses or objections included in the Affirmative Defense / Pleading section of the Contentions Sheet
(b)Deferment requests included in the Deferment Justification section of the Contentions Sheet
(c)Evidence listed in the Contentions Sheet
(d)Amounts listed on the Contribution Sought and Legal Fees Sought portion of the S-Form.
(e)Contested damages if specifically plead on the Itemization of Damage section of the Contentions Sheet.
6.Procedure at arbitration hearings is informal. Formal rules of evidence do not apply.
7.Witnesses may be presented. The party must indicate the intent to do so on the original or amended S-Form. Insureds or witnesses may not appear without the presence of a company representative. Personal appearances are for the purpose of ensuring the arbitrators understanding of the evidence presented and are not subject to cross examination. Representatives may not be present while the panel is deliberating.
8.No person may serve as an arbitrator over any matter in which he or she personally or his or her company has any direct or indirect interest.
1.Arbitration decisions must be based on the evidence submitted. Panels may not render default judgments.
2.As required by Article Third, the arbitrating companies must provide notice of error to AF within 30 days after the decisions publication date. AF reserves the right to correct errors without notice within 30 days after publication of the decision.
3.AF will transmit or mail the decision to all interested parties.
1.The parties are required to honor all awards within 30 days of the decisions publication date.
2.When a party does not honor an award within 30 days after the publication the prevailing company's local representative must immediately send a written request for payment to the adverse company's local senior representative. This person must be addressed by name. If still unpaid after 30 days after the written request for payment, the company should send written request to AF for assistance with the payment award. AF will notify the non-paying company and charge a fee. If the award remains unpaid for an additional 30 days, the company may seek legal recourse in pursuit of collection. The prevailing company will be entitled to statutory interest and all costs incurred in pursuing collection until the award is paid.
3.Payments made as a result of the award are to be made only to participating companies. The payment must include any deductible interest, if applicable, in the interest of good will between the companies. If the original settlement is legally voided, the arbitration finding is nullified and any award payments must be returned.
1.Each company incurs a filing fee payable to AF.
2.Photographs will be returned if requested as an Administrative Request on the Contentions Sheet. Request must include a self-addressed return envelope with postage provided. All other material will be destroyed following the hearing.