Private arbitrations have become a “major commercial enterprise”[2] in part because arbitration appears to present a desirable alternative to traditional litigation. Commentators often trumpet the so-called benefits of resolving disputes through private arbitration rather than trial, claiming that arbitration is less formal, less expensive, and less time-consuming than traditional litigation. Some lawyers, this author among them, question whether these benefits are actually realized in insurance disputes. Experience demonstrates that pursuing resolution of insurance disputes through private arbitration can be frustrating, expensive, and inherently unfair. The inequity stems from the fact that one of the parties in a private insurance arbitration (the insurance company) routinely retains arbitrators and provides them with a steady flow of business, while the other party (the policyholder) usually does not.
As one commentator has noted, private arbitrations “generate inherent conflicts of interest, including the provider’s pursuit of repeat business from high-volume customers.”[3] As a result of this conflict and potential bias, policyholders should carefully examine the wording of any private arbitration provisions set forth in insurance program agreements so that they may better assess the implications of forfeiting their right to pursue traditional litigation.