Claims professionals have become aware of the increasing use of Alternative Dispute Resolution (ADR) to re-solve insurance claims disputes.
About 95% of all cases are now resolved without a judge and jury. Insurance companies, once ready to battle most of their cases, are now immersed in a cost-conscious and cost-cutting business environment. Law firms also are feeling the impact of inflation and face the need of obtaining capital quickly. Clients also feel this need and press attorneys for quick action.
As a result, different degrees of formality have evolved that are faster and cheaper than reliance upon the traditional litigation system: arbitration, mediation, and settlement days. ADR is now so widespread that attempts to negotiate cases are usually expected. Negotiated settlements benefit all clients.
Arbitration
Arbitration is probably the oldest form of ADR, besides direct negotiations. It involves the use of a neutral third party who essentially acts as a private judge. The arbitrator hears all sides of a dispute, reviews submitted evidence, then issues a decision which is usually binding.
In many ways, arbitration is similar to trying a case before a one- or three-person panel of judges; however, the rules of procedure and evidence are considerably simpler. Arbitrations do not include juries and they are conducted in less time than a full-scale trial. In addition, ADR providers will schedule an arbitration hearing for less time and money than would be involved in conventional litigation.
A popular new variation to the arbitration theme involves 'high-low' decisions. In high-low arbitrations, the parties are bound to a money verdict with two parameters: The claimant receives at least the last offer by the insurance company (the low) or is awarded an amount higher. Under no circumstances is the higher amount greater than the last demand of the claimant's attorney (the high). Arbitrators do not know the high-low parameters and therefore issue decisions objectively. If a decision is less than the low, it is automatically raised to the low amount. Likewise, a decision more than the high is reduced to the high's amount. Claimants are therefore assured of at least receiving some money, unlike litigated cases.
Mediation
Another form of ADR is mediation. It is often confused with arbitration, although it has fundamental differences. Mediation is basically a process whereby a third party, usually an attorney, will assist participants in discussing their differences with a view toward reaching a mutually agreeable settlement.
Unlike arbitration, mediation is usually not binding. The mediator does not render a decision, nor does the mediator act like a judge. Instead, he or she works with all the participants collectively and separately in order to achieve a settlement which is voluntarily adhered to by all concerned.
The mediator does not command but instead persuades. Mediators try to focus on areas of agreement by the involved parties, thereby reducing areas of disagreement. Once issues in dispute are clearly defined, efforts are made to reach settlements in terms of agreements on liability and damages.
Attorneys get involved in mediation sessions. They do not have to settle unless they feel it is in a client's interest. At the very least they have an opportunity to directly meet the other side(s). Often, claimants appear with their attorneys to provide a personal perspective on the effects of an injury. This can cause reevaluations of a case's worth by the defense.
Settlement Days
A new form of ADR is settlement days. Originally, settlement days were day-, week-, or month-long conferences between plaintiff and defense counsel sponsored by local courts or bar associations. Attorneys often serve as volunteer mediators.
A more aggressive form of settlement days developed. It involves a one-day conference at a neutral location between claimant attorneys and insurer claims departments or their counsel. Large numbers of claims are negotiated, usually through direct face-to-face bargaining.
Unlike arbitrations and mediations, settlement days' fees are always paid by insurers. Although any line of insurance can be involved, Auto insurance cases make up a significant percentage of submitted cases.
The three forms of ADR discussed above are by no means all of the options available. Numerous variations on mediations, arbitrations, and mini-trials abound. ADR, as a field, is still growing and developing.
In ADR, as in other areas of law and life, claims professionals must use their instincts and common sense in ADR options and vendors. If there are any misgivings about a particular claim, the case should be considered for ADR. ADR, as utilized in insurance law, is only in its infancy. It will never replace the courts but has certainly begun to complement them.
David Stonehill, Esq.