UIM Arbitration: 2009 Update

By: Pat Duffy | Mediator, Arbitrator

duffyAs Congress considers the proposed Arbitration Fairness Act of 2009 to address several problems with the use of contractual arbitration clauses (see HR 1020), it’s a good opportunity to re-examine the evolution of arbitration in Washington and how changes in the act may impact arbitration as a method of resolving UM/UIM claims.

In the 1950’s, insurers began to voluntarily offer uninsured motorist coverage to their insureds in exchange for payment of an additional premium. In the late 1960’s, legislation was passed requiring insurers to offer uninsured motorist coverage. Later, some insurers began to offer policies that contained both uninsured and underinsured motorist coverage. In 1980, the legislature passed comprehensive uninsured/underinsured motorist legislation (which can be found at RCW 48.22.030).

Historically, automobile insurance policies have provided that UM/UIM injury claims would be decided by 3-person arbitration panels. Each party nominated one arbitrator and those two “party arbitrators” then agreed upon a neutral or “swing” arbitrator. Traditionally, a decision by a majority of the panel members was binding and the arbitrators’ fees were shared equally by the parties. This format satisfied each side’s desire to have its own “advocate” on the panel, although it certainly can be argued that the “party arbitrators” nullified each other and left the decision to essentially be made by the swing member of the panel.

But after the courts ruled in 1989 that payment of arbitrators under UM/UIM policies was the sole responsibility of insurers, there was a gradual transition by most carriers to the use of only one arbitrator. Using a sole arbitrator has undeniably saved insurers a substantial amount of arbitrator hearing fees.

Whether accurate or not, a perception began to develop with insurers that arbitrators’ awards were overly generous in favor of claimants. This view led to the advent of “sue me” clauses, which are now common in UM/UIM policies. While most policies have continued to provide for arbitration, it was to be utilized only if both parties agreed to arbitrate. If not, the only option for claimants was to initiate a lawsuit for damages against the insurer. A typical policy might now read as follows:

 If we and the insured do not agree…the dispute maybe resolved:

 a) In a binding arbitration proceeding, but only if both sides agree to arbitration, or

(b) By civil lawsuit brought by you in a court of competent jurisdiction.

Advocates for claimants have decried these changes and attempted, so far unsuccessfully, to have “sue me” clauses declared void. The plaintiff’s bar has consistently argued that the high expense and protracted delay in getting to trial is placing an unfair burden upon insureds. In turn, the plaintiffs’ bar has been soundly ridiculed for its so-called hypocrisy in attacking the right to trial by jury.

As of this writing in 2009, claimants and insurers continue to arbitrate many, if not most, uninsured/underinsured cases. Both sides have an interest in getting claims resolved without the delay and expense of a jury trial, and there is little argument about the cost and time savings associated with UM/UIM arbitration. In fact, many arbitrators like me are now seeing parties agree to resolve third party claims in binding arbitration as an alternative to trial. There is often a “high-low” agreement, not disclosed to the arbitrator, which provides for the award to be modified if it falls outside the range set by the parties.

I think it’s fair to say that arbitration is still widely viewed as an expeditious and cost-effective method of resolving UM/UIM claims. The benefits of arbitration are endorsed by Civil Rule 1 that states, in part:

These rules…shall be construed and administered to secure the just, speedy and inexpensive determination of every action.

Arbitration should continue to serve as a popular method of dispute resolution for UM/UIM claims, since the benefits of arbitration are many, including:

  •  Reliability of the hearing date
  • Privacy – no public record
  • Special expertise of neutral
  • Parties select neutral
  • Expeditious compared to trial
  • Achieves finality
  • Very narrow scope of appeal
  • Usually less costly than trial

The Arbitration Fairness Act will potentially impact UM/UIM arbitration only insofar as some policies may be considered to be “anti-consumer” by virtue of any discovery, timing, arbitrator or cost constraints that may still be used by some carriers. For the most part, however, UM/UIM arbitration in Washington is likely to remain a good choice for many disputed claims.