Are Insurance Arbitrations Fixed for Insurance Companies? | Property Insurance Coverage Law Blog
A recent deposit1 by my friend and colleague Jeff Raizner This certainly highlights the concern that insurance companies and their lawyers want to have a stacked deck of cards to win at all costs when it comes to arbitration. State legislators and insurance commissioners must take control of surplus lines carriers. Otherwise, their state and federal antitrust exemptions should be removed. Forcing policyholders to apply laws other than those of their jurisdiction and to arbitrate claims in distant locations is an abuse, as pointed out Arbitration Clause Requiring New York Law and New York Arbitration Cited to Avoid Florida Lawsuit – Another Example of Abuse by Florida Surplus Lines Insurers, And Surplus Line Carriers Choose Arbitration and Choice of Law in New York to Pay Less Coverage and Fewer Claims.
Jeff Raizner argued the following:
It is within this framework that the parties work. In their eagerness to proceed under what they assume to be the favorable auspices of New York law, insurers overlook, or worse, reject, essential state and local requirements that are either contrary to their assumptions or would remain applicable regardless of state law. applies. The significant financial and administrative costs associated with proposed arbitration for a local school district cannot be overstated, particularly when the district’s primary mandate is to educate, not advocate. Additionally, insurers continue to overlook reasonable alternatives that would more equitably serve the interests of all parties involved.
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…the insurers have now appointed their second arbitrator, Mr. Stephen Rogers, who worked for 26 1/2 years as senior vice president of claims at industrial risk insurers and who is not licensed in either Texas or New York.
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The insurers are correct that the arbitrators appointed by the parties at this point are former Texas State District Judge Ginsberg and former Vice President of Insurance Claims Mr. Rogers. But this does not tell the whole story relevant to the Court’s evaluation of arbitration chairs.
The insurers first named Courtney E. Murphy, an insurance defense litigator with the firm Hinshaw & Culbertson. The arbitrator appointed by Edcouch Elsa’s party, Justice Ginsberg, recommended several Texas-based arbitrators serve as neutral arbitrators. Ms. Murphy responded by rejecting the Texas-based arbitrators recommended by Justice Ginsberg and recommending four New York-based arbitrators, including former insurance company executives and a current employee of insurance adjuster Sedgwick (the entity retained by the insurers in this case). To be clear: the insurers proposed that the chairman of the committee be an employee of Sedgwick, to whom the insurers have contractually delegated broad responsibilities related to the settlement of claims, management, administration, payment, etc. constituted proof of bad faith on the part of insurers and slowed down the process for months.
Then, on August 3, 2023, after nearly a year of negotiations over the arbitral presidency, the insurers unilaterally announced that they were replacing Ms. Murphy with Mr. Rogers. During the negotiations on the arbitral presidency, Judge Ginsberg proposed a number of compromises, including: (i) the consideration of neutral third parties with more limited hourly rates; (ii) consideration of neutral countries outside of Texas or New York to avoid the perception of a “domestic court” advantage; and (iii) neutrals along the Gulf Coast with substantial insurance experience.
How impartial can an insurance defense attorney who actively litigates against policyholders be? Ms. Murphy may be an excellent litigator. However, I’m sure any policyholder would be concerned to see that their website lists the following as their representative questions:
We obtained a defense verdict in a multi-million dollar property case in which the corporate policyholder sought recovery for catastrophic water loss and damage to his five-story commercial property located in Detroit’s business district. Courtney successfully argued that the policyholder failed to comply with the policy’s coverage endorsement, and all claims were dismissed. In addition, various costs were reimbursed to the insurer, thanks to an offer of judgment filed before trial.
Successfully defended a multi-million claim filed against a large marketplace of insurers for losses resulting from an alleged explosion at a manufacturing plant.
Raizner correctly noted that the policy does not require the arbitrator to be from New York:
At every turn, insurers have misinterpreted and applied the policy’s arbitration clause. As a simple example, the policy notes: “If the arbitrators cannot agree on the choice of an arbitrator, either may request that the selection be made by a judge of a New York court. » In other words, either arbitrator, not either party, can approach a court in New York. As a preliminary point, the insurers have usurped a right which belongs only to the arbitrators appointed by the parties.
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Insurers have repeatedly circumvented policy requirements. But in addition to ignoring the actual written requirements of the policy, insurers have gone even further: They have completely fabricated a New York chair requirement that is nowhere to be found in the policy.
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Simply put, insurers raise the specter of New York law not because they impartially believe that a candidate must be an expert in New York law, but simply because it suits the position taken by the insurers today. Indeed, the insurers’ prior appointment of an unlicensed person in New York belies the only argument raised by the insurers in this petition.
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Interestingly, insurers claim that using an arbitrator from a neutral state would be inconsistent with the policy. It is therefore not clear how they justify the use of Mr. Rogers, a lawyer based in Connecticut.
The central problem is the worrying tendency of some insurance companies to exploit policyholders. They do this by enforcing clauses that drag policyholders into arbitration in New York, imposing New York law and leveraging potentially biased arbitrators to their advantage. This case is an excellent illustration of such practices. It is imperative that Congress, state legislatures, and insurance commissioners address this growing concern, as it is clear that entities like Lloyds and other surplus market participants have no intention of putting a put an end to these unjust methods.
Insurance brokers who market these policies to their clients have a duty to clearly inform them of these arbitration clauses. The costs associated with seeking arbitration coverage in a remote location can be prohibitive for the policyholder. In cases where policyholders are not adequately informed of these clauses, they should seriously consider suing the brokers who facilitated the sale of these problematic policies.
Thought of the day
Our courts have their faults, like every human institution, but in this country our courts are the great levelers, and in our courts all men are created equal.
—Harper Lee in “To Kill a Mockingbird”
