Arbitration in a Nutshell

Written by jeffreyhoward on December 9, 2024. Posted in North Carolina Law Blog

What Is Arbitration? A Guide to This Alternative Dispute Resolution Method

Arbitration comes up in my practice mostly in the context of claims against your OWN insurance carrier, and most commonly in the Uninsured Motorist or Underinsured Motorist claims context. This article provides a straightforward explanation of what arbitration is, how it works, and its pros and cons.

What Is Arbitration?

Arbitration with your insurance carrier is a form of alternative dispute resolution (ADR) where THREE third-parties, known as an arbitrators, hear and decide a dispute. Unlike court trials, which are public and governed by rigid rules of evidence and procedure, arbitration offers a more private and flexible approach.

Arbitration can be binding or non-binding:

Binding arbitration means the arbitrator’s decision is final and enforceable, similar to a court judgment.
Non-binding arbitration allows parties to seek other remedies if they are dissatisfied with the arbitrator’s decision.

Arbitration in the context of UM and UIM claims is generally binding.

How Does Arbitration Work?

The arbitration process typically follows these steps:

Agreement to Arbitrate: By having auto insurance in North Carolina, you’ve already agreed to resolve your dispute with your carrier through arbitration due to an arbitration clause in the standard insurance agreement.
Selection of an Arbitrator: We, as the plaintiffs, select an arbitrator and the carrier, as the defendant, selects an arbitratoras well. Those two arbitrators jointly agree upon a third arbitrator who is referred to as the “neutral.”This panel of arbitrators often has a lot of expertise relevant to the dispute. We each pay the hourly rate of our own arbitrator and we split the neutral’s fee with the defendants.
Arbitration Hearing: The arbitrators conduct a hearing where both sides present evidence, witnesses, and arguments. While less formal than a courtroom trial, arbitration still allows for structured presentations.
Decision: After reviewing the evidence, the arbitrators issue a written decision, known as an award. In binding arbitration, this decision is final and enforceable.

What Are the Benefits of Arbitration?

Arbitration offers several advantages, including:

Efficiency: Arbitration can resolve disputes more quickly than traditional litigation, which often takes years.
Cost-Effectiveness: Without the prolonged procedures of court trials, arbitration tends to be less expensive, but in some cases can be more expensive. It depends!
Privacy: Arbitration proceedings are private, which can be crucial for businesses and individuals seeking to keep sensitive matters confidential.
Flexibility: Parties have more control over scheduling and procedural rules.
Expertise: Arbitrators with specialized knowledge can better understand complex technical or industry-specific issues. This is really nice compared to a random jury panel that may not understand anything of what’s going on in your case.

What Are the Drawbacks of Arbitration?

While arbitration has many benefits, it’s not without drawbacks:

Limited Appeal Rights: In binding arbitration, decisions are final, with very limited opportunities for appeal.
Costs in Some Cases: Arbitrator fees can be significant, especially for complex disputes requiring multiple sessions. And you still have to have a medical expert, which can really drive up costs.
Unequal Bargaining Power: In some cases, one party may feel pressured to agree to arbitration clauses that favor the other party.
Lack of Transparency: While privacy can be an advantage, it also means arbitration awards do not create public precedents, which may leave broader legal questions unresolved.

Is Arbitration Right for You?

Arbitration can be an effective tool for resolving disputes, but it’s not a one-size-fits-all solution. If you’ve got a UM or UIM claim, it’s crucial to understand the terms of your arbitration agreement and the potential implications for your case. Consulting with an experienced attorney can help you navigate this process and make informed decisions.

If you have questions about arbitration or need legal assistance, contact me at 919-929-2992.

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