Asking claims professionals and attorneys if they have mediated before is a rhetorical question at this point in history. But, when arbitration is brought up, most hands seem to go down. Because so many claims are driven by personal injury or torts, the idea of a contractual agreement to arbitrate seems foreign—almost unreasonable. However, arbitration clauses are appearing in more places and in more ways, and it is likely only a matter of time until you find your claim in arbitration. To prepare, you need to know what arbitration is, when it applies, and how it differs from other litigated claims.
An arbitrator is more than a mediator with authority to make you settle. An arbitrator has control over most stages of the claim as if it was in state or federal court, but with the goal of more efficient resolution than in court. Pleadings, discovery, and the trial are all streamlined. Instead of a jury trial at the end, the arbitrator will issue a decision that the parties can abide by, ask a court to reject for procedural reasons, or ask a court to confirm so it becomes an enforceable judgment.
Arbitration is also not mediation, and many claims in arbitration are still mediated at some point. While mediation is focused on encouraging the parties to reach an agreed compromise, arbitration is focused on efficient determination of a case outcome. A private arbitrator, like other forms of alternative dispute resolution, is not free. You can expect to pay a filing fee and an hourly rate for the arbitrator. Depending on the type of case, arbitration costs may not be split equally. Like mediation, rates can vary widely. However, the costs of arbitration are usually offset by less defense costs.
How Do I Know if Arbitration Applies?
If you get a new claim and are wondering if you may be able to arbitrate, the first place to look is the contract. Sometimes this may be straightforward, as in a construction or consumer protection case. An arbitration agreement may be a standalone agreement, separately signed but part of the same transaction. It may also be a clause within the contract, usually well marked. Often there will be a large disclaimer on the first page or right before the signature lines noting that there is an arbitration clause and providing the opportunity to opt out of arbitration without impact on the remainder of the contract.
It is also possible that a contract exists outside of or adjacent to the events that lead to the dispute. A guest who enters a movie theater may have agreed to arbitration when they purchased admission tickets. Even if the ultimate claim is that the patron slipped and fell on butter spilled by the popcorn, the arbitration clause for the ticket purchase may cover the dispute.
There may be cases where an arbitration clause could apply but should not be applied. Disney faced significant public backlash last year for enforcing an arbitration clause contained in its Disney+ subscription agreement against a guest who had a severe food allergy at a restaurant in a Disney park. Uber is similarly facing backlash over enforcing an arbitration agreement in the Uber Eats terms of service against a couple injured in a car accident involving an Uber vehicle. In these cases, the public backlash weighed against arbitration.
A Primer on Arbitration Procedure
Claimants’ attorneys often do not want to arbitrate, preferring their chances with a jury trial, so litigation in state or federal court is often filed first. A defendant can then ask the court to force arbitration. You must act carefully when suit is filed because most states hold that arbitration can be waived if not initiated promptly. Some venues require that arbitration be requested at the time the answer is filed; other venues will let you ask for arbitration later as long as significant litigation activity has not occurred. Significant litigation activity can be getting within weeks of trial or it can be any step to initiate discovery. If successful, the state or federal court case will not terminate; it will be paused pending completion of arbitration. Usually, the judge will check on arbitration progress regularly to make sure the parties are moving the case forward.
Once in arbitration, the case will be similar to a court case, but with some substantial changes for claims handlers to note. Pleadings are often short written statements rather than lengthy briefings. Motions are allowed, but most arbitrators prefer that disputes be resolved by conference calls with the arbitrator or through short letters rather than full briefings. Discovery is also often abbreviated, but will still include a document exchange and depositions in most cases. Arbitrators may limit interrogatories or depositions to much less than what would otherwise be allowed by a court—for example, only 10 interrogatories or only party depositions. Claims professionals and attorneys should push back on lengthy discovery and should seek to establish deadlines by agreement as much as possible.
The arbitration hearing will usually be in a conference room or by videoconference. The parties typically dispose of opening statements in favor of a pre-arbitration submission that includes the key case law and exhibits for the arbitrator’s use during arbitration. Witnesses can be subpoenaed if necessary. Because there are no issues of a jury hearing evidence it should not, objections are usually taken under advisement at the hearing. Closing arguments, if any, are brief and can sometimes be supplemented by a post-arbitration submission.
Arbitration removes the case from the jury, but arbitration does not remove the case from litigation completely. After the arbitrator has issued a decision, there are several possible ways to end up back in court. If suitwas already filed, the parties need to submit the decision to the court to be confirmed. A losing party can challenge procedural issues, but typically cannot challenge the decision itself. Once confirmed, it becomes an enforceable judgment. If suit was not filed, the parties can voluntarily agree to abide by the decision, or an action can be opened to enforce it.
Arbitration can be a favorable way to resolve a dispute—the case is being decided by an experienced arbitrator with a legal background rather than a jury of peers. As arbitration clauses make their way into more contracts covering more scenarios, you are more likely to find yourself in arbitration in the future. Be prepared, and you won’t be surprised by the other alternative dispute resolution.