Mandatory Arbitration? Time to Check Your Policy

There is a dangerous new issue in the insurance world regarding arbitration clauses. Though most insurance policies usually do not have forced arbitration clauses, recent news from Texas makes it apparent that at least some carriers are trying to go that route. As Tennessee is one of the many states with no statutes in place “prohibiting or restricting the use of arbitration in insurance contracts,” it is possible that your insurer may try to put one in place eventually.

When you purchase your policy, you agree to pay a certain premium for insurance coverage. This guarantees (at least hypothetically) that your insurer will provide coverage in the event of a claim. So if you submit a claim under your homeowners’ policy after a storm damages your home, and your insurance carrier refuses to pay, or tries to pay you less than what the damage is worth, then you could come see one of our attorneys, and we would either negotiate a better settlement, or take the insurer to court. It depends on the exact circumstances of your case. Either way, you are well within your legal rights to choose either of these options.

But those premiums can be difficult to pay – especially when you have a mortgage payment on top of it – for some homeowners. The insurance company then offers you another option: lower premiums in exchange for agreeing to arbitration in lieu of a right to a jury trial should a dispute arise. With a mandatory arbitration clause, however, you are denied your right to pursue justice in court. While arbitration can sometimes be used to reach a successful resolution, it also subjects the parties to a final decision that cannot be appealed under most circumstances.

The effect on homeowners

Remember how we said that homeowners’ policies usually don’t contain these clauses? Texas Farm Bureau is trying to change that. In this letter to the Texas Commissioner of Insurance, David Mattax, The Office of Public Insurance Counsel asks the Commissioner to not approve the company’s Endorsement No. HO-802, “’Mandatory Mediation-Arbitration Endorsement’… for use in the Texas insurance marketplace.” Farm Bureau is trying to push through policies with mandatory arbitration clauses – even homeowners’ policies. Given Tennessee’s lack of regulation in the realm of arbitration clauses, homeowners here could see a similar push for arbitration by insurance companies as well. And as the insurance company is likely to be in charge of picking an arbiter, the chances are good that homeowners won’t get a fair shake if a dispute arises.

So far, this hasn’t been an issue in Tennessee, but the winds of change are blowing. Now is probably the right time to double check your insurance policies, to make sure that you understand everything they say. If you notice any discrepancies or changes to your policy that you never agreed to, speaking with a skilled Tennessee insurance attorney is a smart move.

The Gilbert Firm proudly represents policyholders throughout Tennessee. If you believe your insurance company is acting in bad faith, or that you have been sold a different policy than the one you agreed to buy, we may be able to help. Please contact Brandon McWherter, Clint Scott, or one of our offices in Nashville, Chattanooga, Memphis, Jackson or Knoxville to learn more about our services.