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Happy New Year!

I am starting this blog to educate my clients about things they may encounter in their case.  This blog will explore the remedies available to clients with tort or insurance claims. We will begin with arbitration, a remedy available to victims of motor vehicle crashes where the person who causes the wreck has no insurance or inadequate automobile liability insurance and the victim is fortunate to have purchased UM (uninsured motorist) and UIM (underinsured motorist) benefits as part of their own auto insurance policy.  In such cases, the victim can elect to have their claim decided by arbitration and is not left with only trial as their remedy, which is often the only choice they would typically have otherwise.

Each entry in this series will provide information about arbitration, particularly as it concerns UM and UIM coverage.

B. Is Arbitration Right for the Issues in Your Case?

Every case is different and must be judged on its own merit but some categorization may be helpful to foster thought about your case.  For expample, you may find arbitration to be worth considering in the following cases.

1. Cases Involving Specialized Knowledge Arbitration is well-suited for cases involving specialized knowledge that might be confusing to a jury. As a result of their training and experience, arbitrators are better equipped to understand and decide complex cases with more predictability. Indeed, the arbitration movement started when various industries began relying on panels of intra-industry experts to resolve disputes. Arbitration is rooted in the idea that a select group of decision-makers with specialized knowledge about a particular trade would be better informed and more reliable than a lay jury. For this reason, arbitration is encouraged in some specialized areas of law, such as internal law firm disputes, domestic litigation, and international commerce. Arbitrators can digest and decide complex information—such as medical, forensic, or accident reconstruction—much quicker than a jury. This is particularly true when there are several confusing or specialized issues in the same case.

2. Cases with Extensive Expert Testimony Arbitration can save costs by reducing expert witness’s length of testimony or by eliminating the need for their appearance. At arbitration you may be able to informally present an expert’s letter or document informally, accomplishing what at trial might require hours of expert testimony.

3. Cases Riddled with Juicy but Inadmissible Evidence Motions in limine or other evidentiary mechanisms to screen or filter prejudicial evidence are virtually nonexistent at arbitration. You can ask the panel to prohibit evidence from being admitted, but this will only serve to highlight its importance and will likely be unsuccessful. In these cases, consider creating some agreement with opposing counsel about what types of exhibits or testimony can be used at arbitration. Alternatively, you may be better served trying the case to gain the benefits of motions in limine, the rules of evidence, and traditional rulings on such matters. None of these protections will be afforded to your client at arbitration, because there are virtually no rules about what can be produced and none of the traditional rules of evidence apply. Accordingly, your arguments center on the weight of evidence and not admissibility. Depending on the specific facts of your case, the lax evidentiary standards can work to your advantage or disadvantage.

4. Cases in Which You Want More Certainty on Causation Arbitration can lead to more predictable outcomes in certain UM/UIM cases, such as significant back injury cases. Back cases often involve complicated evidentiary or causation issues where the victim may have an extensive history of back problems or prior accidents. Arbitrators familiar with these issues may be able to quickly identify and eliminate unimportant medical events. Further, arbitrators may also apply the law on peculiar susceptibility more reliably. Jurors, by contrast, might get lost in a client’s prior medical records and lose track of what is important. Arbitrators are familiar with proximate cause, aggravation, and activation injury concepts; jurors may get confused about these concepts or focus on irrelevant matters that may cause them to rule against you on proximate cause.

5. Cases in Which You Want More Certainty on Damages Arbitration may lead to more predictable but less dramatic outcomes. As a general rule, arbitration awards are more likely to cluster in the middle of a bell curve of possible outcomes, whereas jury verdicts are more likely to deviate, perhaps with significant outliers. Notwithstanding an arbitrator’s familiarity with valuing cases, one additional factor increasing certainty is that arbitrators often know each other and the lawyers. Accordingly, arbitrators are more willing “to go along to get along,” which may lead to split-the-difference outcomes, even in cases where the lawyers have taken polar-opposite positions.

6. Cases in Which You Want to Swing for the Fences If you think your case may have great upside potential, you may be better off with a jury. Unlike arbitrators, who typically have similar training and experience with evaluating cases, jurors have diverse backgrounds and no experience valuing cases. Jurors will be unaware of how much compensation routinely gets paid in similar cases, and they will be unaware of the value of your case; they will be looking to you and the other lawyers for clues. If you are effective in educating the jury about your case’s value, you can obtain jury verdicts that far exceed arbitration awards. This is particularly true when arguing for general damages using methodologies like those discussed by David Ball in his excellent book Ball on Damages. In one case, jurors requested calculators and pads and painstakingly applied value factors to each suggested item and sub-item of non-economic harm. The jurors did this for days before rendering a verdict that far exceeded anything that could have been expected at arbitration. It is hard to imagine a panel of experienced arbitrators following such a paradigm, despite your strenuous efforts to persuade them so.

C. There are also Logistical Considerations to consider, such as the following.

1. Time Arbitration saves time. Every aspect of arbitration is quicker than litigation. Arbitration hearings typically last hours; trials last days. Although arbitration offers no formal discovery process, exchanging information prior to arbitration is almost always quicker than traditional discovery at trial. Further, arbitration agreements provide other streamlined processes. For instance, parties often agree to admit essential documentary evidence, such as medical records in an injury case, without requiring a doctor to testify or any need for foundation or authentication.

2. Costs Using medical records or written medical opinions in lieu of requiring live or deposed expert testimony saves time and money. From an economic perspective, the expense of deposing experts or obtaining live expert testimony will almost always be more expensive than the cost of getting a letter or narrative report from an expert. This approach is not without its drawbacks, however. When you present a document to the arbitration panel, you are able to provide accompanying commentary. In such circumstances, you can assert certain implications that flow from the document, tailoring the medical evidence to fit your argument. Of course, sauce for the goose is sauce for the gander, and you can expect your opponent to present medical documents that support her argument, accompanied by her own spin on what those documents mean for the case. In the end, you will need to ascertain whether your documents and commentary will be stronger than your opponent’s, and then compare that to the efficacy of live or deposition testimony from an expert.

3. Creative Solutions that Save Time or Money

In cases where the parties believe expert testimony is indispensable, there are opportunities to be creative. The effort of doing both a discovery and a de bene esse deposition can be avoided if the parties agree to meet or depose the doctor once, rather than twice, and then memorialize the doctor’s testimony in a writing or brief video. During this meeting or deposition, each party can ask the expert all the questions necessary to preserve the record and lay a foundation. Then, the parties can memorialize the testimony they wish to present to the arbitrators in one of three ways: (1) in a transcript by court reporter, (2) by videotape, or (3) in a letter or other writing that the expert executes or signs. The parties can agree to allow each side the benefit of leading questions that cut to the chase and present only what is relevant. This saves everyone from listening to qualifications, foundation testimony, and other formalities that are unnecessary at arbitration.

Other creative techniques that may save time and money include pre-arbitration devices, such as arbitration agreements, stipulations, or simple handshake agreements. These sorts of pre-arbitration devices can promote information exchange, eliminate repetition, and remove procedural hurdles. Keep in mind that there are few, if any, pre-hearing requirements concerning the exchange of exhibits—unlike those during a pre-trial conference order—so you will want to employ one of these methods to avoid surprises—unless, of course, surprise would be advantageous.

4. Certainty

Unlike superior court “shot gun” calendars that are unpredictable, arbitrations are typically scheduled well in advance and on days when the parties and their attorneys are certain to be available. Barring an emergency, the parties will know exactly when their case will be heard. The parties have more control over who will hear and decide their case. Regardless of the means by which arbitrators are chosen, the parties always have some input in their selection; however, the extent of that input will vary by the method of selection. Unlike at a trial, arbitration allows you to know well in advance who will be deciding your case. This affords you an opportunity to discover background information that may serve helpful. Informal scouting by reaching out to other lawyers should provide you with a general sense of the arbitrator. In fact, this type of scouting may yield information that can be helpful to your specific case. For instance, one you may discover that one of the proposed arbitrators rides a motorcycle, or enjoys a drink now and then, or has personal experience with a particular type of injury. This knowledge will help you choose the right arbitrator for your case, or at least help you avoid the wrong one. The finality of arbitration promotes certainty for both parties. Generally, arbitration awards are final and do not provide a right to appeal. Arbitration awards are difficult to vacate, even if they are unfavorable, irrational, or arbitrary. Accordingly, both parties can expect closure. Of course, this double-edged sword cuts both ways: when the result is good, you can rest assured that the award will withstand attack; when it is not, however, you are left with few remedies for redress.

5. Privacy

Unlike civil trials, which are matters of public record, arbitration hearings can be kept private. Results can be deemed confidential and protected by agreement of the parties. This might be attractive to parties wishing to avoid having publicized their mistakes or the amount of the recovery. 6. Process There are few laws that govern arbitration procedures. The standard policy provides that “arbitration will be subject to the usual rules of procedure and evidence in such County and State” where the insured lives. On the state level, the Revised Uniform Arbitration Act governs; on the federal level, the Federal Arbitration Act does. Reviewing these statutes will provide a foundation for understanding the procedural aspects of arbitration.

III. DECIDING WHETHER TO ARBITRATE

The first question one should ask in determining whether to arbitrate or try a case should almost always be: “Will my client be better served by trial or by arbitration?” At its core, this question requires a comparison of likely outcomes at trial versus arbitration. However, it should also include considering which forum best meets your client’s non-economic objectives.

A. Is Arbitration a Good Choice for Your Client?

Initially, the inquiry centers on your client (i.e., their personal characteristics, likability, and demeanor) and then broadens to encompass the case and forum as well. For these latter considerations, you will need to consider the nature of the case; the types of damages at issue; the level of certainty each forum provides; and each forum’s cost, time, and logistics. While the value placed on each factor will be case-specific, each factor should be examined whenever arbitration is an option.
1. Matching Clients with the Right Forum
Good clients can make great cases, but trying or arbitrating a case with the wrong client can be a disaster. Many of us have gone to trial or arbitration confident that our client would be well-received, only to be greatly disappointed. If every client were likeable, articulate, educable, pure, and entirely deserving, then whatever means (i.e., litigation, arbitration, mediation, or claims handling process) or ends (i.e., trial verdict, arbitration award, or settlement) were chosen would make little difference; we would find success in every forum. However, when representing clients who lack some of these desirable characteristics, , success or failure often turns on our ability to match our client with the forum that best aligns with their case.

To determine what is the best forum for your client, you must have a clear, objective view of your client and their case, as well as some general knowledge about each forum. While getting an accurate, objective assessment of your client and their goals may seem easy, difficulty arises from the inherit bias many of us develop in favor of our clients or our cases. As lawyers, we give our clients the benefit of the doubt.  Further, we have a vested interest in seeing the value in their case. We assume others see it the same way, but often we are wrong.

  1. Getting an Objective View of Your Client

To gain an objective view of your client and her case, you need to take a step back, a step aside, and a step forward. Take a step back by remembering when you first met your client.  What were your initial thoughts about your client and her case? At this beginning stage, we are usually more discerning, cynical, and suspicious. Once we decide to take a case, we can easily rationalize away or even ignore certain problems.

Step aside by removing yourself from your client and her case. Informally videotape your client in your office or at her examination under oath (EUO). Most operating systems offer user-friendly video editing programs that allow you to edit video into short segments that can show your client’s demeanor or isolate an important issue in the case.

Step forward by actively seeking opinions about your client. Informally, you can begin by requesting that staff members who have never met your client attend a case meeting with her. You can seek a potential juror’s perspective by showing a spouse, friend, or coworker a few minutes of video – after addressing any confidentiality or ethical issues, of course – and gain some valuable information without imposing greatly on their time. More detailed results can be obtained from focus groups, which can range from a handful of folks compensated by a few bucks and pizza, all the way to focus groups organized and handled by professionals. If you seek an arbitrator’s perspective of your client, show those same clips to lawyers with similar views as those who might be selected as arbitrators.

  1. Archetypal Clients

“All generalizations are dangerous, even this one.”
― Alexandre Dumas-fils

A few rules of thumb about certain types of clients and cases may provide guidance in determining when arbitration is a good or bad choice. If nothing else, certain clients should prompt more inquiry than others when it comes to arbitration. Some examples include the highly compensated client, the articulate client, the stoic client, the whiner client, and the ne’er-do-well client.

4. Client Objectives Other Than Money

A client’s desire to tell their story; to be proven right; to prove the other side wrong; to gain a sense of validation, inclusion, or control; or to be treated fairly and with respect, are just a few examples of clients’ goals that transcend monetary compensation. While the award or verdict can emphasize or validate some of those objectives, so, too, can the process. However, the process can also undermine those goals. Therefore, it is important to consider your client’s objectives when determining which forum is best.

Arbitration is more civilized and personalized than trial; clients wishing to tell their story and to be treated respectfully will usually find a better environment at arbitration. By contrast, a trial’s formality and the rigors of cross-examination may cause your client to feel insignificant and beaten up. Even if a larger recovery is more likely at trial, your client may be more satisfied with the overall process of arbitration and may be happier with you as a result.

Those clients who just want to “win” and prove they are right, or seek to prove the other side wrong, may need to hear the stark reality of a jury verdict in order to get closure. An arbitration award that reflects a compromise simply will not satisfy these clients. For clients like these, the arbitration process may seem too collegial.

Recent Insurance Company Efforts to Deter UM/UIM Arbitration

Recently, North Carolina insurance companies sought to change standard personal auto policy UM/UIM arbitration clauses. The change was from provisions that were unilateral, elective, binding—those within the insured’s power to control—to provisions that were bilateral and elective, those requiring the insurance company’s consent. The North Carolina Rate Bureau (NCRB) actually approved these requests, which were made by member insurance companies and buried among numerous other technical changes. Fortunately, the Commissioner of Insurance withdrew his approval for these changes when he became aware of them. Such a change would have tipped the balance of power strongly in favor of the insurance industry. This is but one example of an effort by the insurance industry to use arbitration provisions as a tool to diminish consumer choice.
UIM carriers are litigating a variety of issues that also aim to prevent an insured from being able to demand arbitration. For instance, some UIM carriers have contended that if they advance payment in an amount equal to the amount tendered by the liability carrier, this is not an exhaustion of liability coverage. Others have raised defenses based on the statute of limitations or have argued that an insured has waived his or her right to demand arbitration by participating in discovery, or by waiting too long to demand arbitration. Some of these arguments were based on policy language in the standard auto policy before the 2008 and 2009 amendatory endorsements (Appendix A) came into effect. However, similar arguments may be advanced under current policy language or policy language that existed after the 2008 endorsement came into effect but before the 2009 endorsement superseded it. These efforts will be discussed in Section IV.

There are rumblings that new efforts are again underway.  We will see.

Current Arbitration Provisions in standard NC personal auto policies

  1. UM and UM/UIM Arbitration Provisions

The UM and UM/UIM arbitration provisions contained in standard North Carolina personal auto policies are identical and provide an example of a unilateral, mandatory, binding arbitration clause:

ARBITRATION

If we and an insured do not agree:

  1. Whether that insured is legally entitled to recover compensatory damages from the owner or operator of an uninsured motor vehicle; or
  2. As to the amount of such compensatory damages;

then the insured may demand to settle these disputed issues by arbitration[.][1]

Under such a provision, only the insured may demand arbitration, but it is not mandatory. Therefore, the insured can still choose to sue and try the case. But whatever the insured decides, she is bound by the verdict or award, which can be reduced to a judgment.

  1. Med Pay and Property Damage Arbitration Provisions

Both the Med Pay and property damage arbitration provisions in the standard auto policy are examples of bilateral, elective, binding arbitration clauses. The Med Pay provision provides:

ARBITRATION

The amount due under this coverage shall be decided by agreement between the insured and us. If there is no agreement, the amount due shall be decided by arbitration upon written request of the insured or us. . . . The written decision of any two arbitrators shall be binding on us [and] the insured . . . .[2]

Thus, while either party may demand arbitration, once demanded arbitration is the sole remedy available for resolving disputes and it is binding.. Provisions like these typically favor the insurer, because the costs of arbitration can be higher to the insured than the benefits of winning the dispute. This is especially true for low-valued disputes typical of Med Pay claims. Bilateral mandatory arbitration clauses remove an insured’s power to threaten a lawsuit because insurers can respond by triggering mandatory arbitration.

Similar mechanisms that weaken an insured’s power exist in provisions concerning property damage. The “Appraisal-Diminution in Value” provision,[3] which refers to and is further delineated by statute,[4] is designed to resolve certain claims involving diminished value and accelerated depreciation by means of a process paramount to the process created by bilateral, mandatory, binding arbitration provisions. The section entitled “Coverage Damage to Your Auto,” which concerns claims regarding the amount of loss to a covered auto for collision and comprehensive damage, provides an example of this type of clause.[5]

  1. Statutory Arbitration Provisions

Arbitration clauses codified by statute apply to certain civil actions[6] with damages that range between $100 and $15,000.[7] These clauses provide for non-binding arbitration awards.  As a result, neither party loses their right to a trial. When faced with a court-ordered arbitration, review the Rules for Court-Ordered Arbitration in North Carolina,[8] which provides a start for research and usually covers most issues that may arise. Additionally, court-ordered arbitration is covered aptly in law review articles[9] and case law.[10]

[1] NCRB Amendatory Endorsement NC 00 13 (ed. 1-14), p. 3.

[2] NCRB Form NC 00 01 (ed. 6-05), p. 6.

[3] NCRB Amendatory Endorsement NC 00 13 (ed. 1-14), p. 2.

[4] See N.C. Gen. Stat. § 20-279.21(d1) (2013).  (Note:  even though this is not technically binding, after the typically long and expensive appraisal process, few would file suit given the small amount of recovery that would typically be at stake.)

[5] NCRB Form NC 00 01 (ed. 6-05), pp. 12-15.

[6] N.C. Court-Ordered Arb. Rule 2 (2012) (This rule exempts, among other claims, those involving class actions; a preliminary injunction, or a temporary restraining order; family law or real estate matters; and special proceedings).

[7] N.C. Gen. Stat. § 7A-37.1 (2012).

[8] N.C. Court-Ordered Arb. Rule 1, et seq. (2012).

[9] See, e.g., Thomas L. Fowler, Court-Ordered Arbitration in North Carolina: Selected Issues of Practice and Procedure, 21 Campbell L. Rev. 191 (1999).

[10] See, e.g., Mohamad v. Simmons, 139 N.C. App. 610, 534 S.E.2d 616 (2000) (holding that the defendant who skipped arbitration cannot appeal award).

A. Arbitration Clauses in North Carolina Personal Auto Policies

North Carolina insurance companies were quick to jump on the arbitration bandwagon, particularly to resolve disputes concerning UM/UIM coverage. For at least 45 years, personal auto policies in North Carolina have contained some type of arbitration provision for UM coverage,[1] and for nearly as long, arbitration provisions have also been included in  policies offering UIM coverage.[2]

Over the last decade, insurance carriers have inserted, and our courts have permitted, arbitration clauses into other types of insurance coverage policies as well.   For instance, the standard North Carolina personal auto policy now includes arbitration provisions for certain first- and third-party property damage coverage, as well as for medical payments (“Med Pay”) coverage. The insertion of these clauses reflects an effort by the insurance industry to use arbitration clauses as a tool to reduce or avoid litigation costs. While this effort appears to benefit all parties involved, consumers suffer.  Arbitration clauses provide consumers fewer rights for redress and, therefore, erode a consumer’s bargaining power. Recent attempts by insurance companies to change current UM/UIM arbitration provisions—from ones that provide for a unilateral trigger by the insured to ones that require mutual consent between the insured and insurer—demonstrate that insurers have no problem sacrificing consumer rights in favor of expediency.

While arbitration clauses present in many varieties, three variables significantly affect the rights and remedies of the parties. These variables concern whether the arbitration provision: (1) can be triggered by one party (“unilateral”), either party (“bilateral”), or requires both parties’ consent (“mutual”); (2) is the exclusive means of resolving disputes (“mandatory”) or can be chosen among other remedies (“elective”); (3) leads to awards that are legally enforceable (“binding”) or ones that are not (“non-binding”). Arbitration provisions found in standard policies will be used to illustrate these variables.

[1] Wright v. Fidelity & Casualty Co., 270 N.C. 577, 155 S.E.2d 100 (1967).

[2] Wheeless v. St. Paul Fire & Marine Ins. Co., 11 N.C. App. 348, 181 S.E.2d 144 (1971).

Arbitration Trends

II.ARBITRATION TRENDS

Arbitration is here to stay. The momentum behind resolving disputes by arbitration is only increasing. North Carolina courts recognized decades ago that arbitration has advantages over traditional civil litigation.[1] Benefits of arbitration include the following: reducing court dockets; increasing speed and economy; promoting finality; and allowing the parties more control over who will resolve their disputes.[2] The North Carolina General Assembly has found that “court-ordered, nonbinding arbitration may be a more economical, efficient, and satisfactory procedure to resolve certain civil actions than traditional civil litigation” and authorized its use in various civil actions.[3]   Furthermore, our courts have explained that “[p]ublic policy favors arbitration because it represents an expedited, efficient, relatively uncomplicated, alternative means of dispute resolution, with limited judicial intervention or participation, and without the primary expense of litigation—attorneys’ fees.”[4]

While judicial and legislative enthusiasm for arbitration has continued to rise, the real groundswell in arbitration is in the business world.  Arbitration has long been used in business, but it has not been used anywhere near the extent it is today. Professor Katherine Van Wezel Stone of Cornell Law School, in an extensive law review article that addressed, among other things, the proliferation of private arbitration clauses into consumer transactions, notes that “[a] major reason for the surge in consumer arbitration is widespread dissatisfaction with the civil justice system, with its problems of delay, expense, technicality, and judicial gridlock.”[5] A business world grown disillusioned with the courts is attempting to cure a moribund legal system by injecting arbitration into nearly every aspect of consumer life. Mandatory arbitration clauses are now routinely found in residential and commercial rental agreements, banking and credit card applications, and stock listings agreements, as well as within a variety of insurance policies.

[1] See, e.g., Cyclone Roofing Co., Inc. v. David M. LaFave Co., Inc., 312 N.C. 224, 229, 321 S.E.2d 872, 876 (1984). (noting the “strong public policy in North Carolina favoring arbitration[.]”).

[2] Crutchley v. Crutchley, 306 N.C. 518, 523, 293 S.E.2d 793, 796-97 (1982).

[3] N.C. Gen. Stat. § 7A-37.1 (2013).

[4] Elliot v. KB Home North Carolina, Inc., __ N.C. App. __, __, 752 S.E.2d 694, 697 (2013) (internal quotation marks and citation omitted).

[5] Katherine Van Wezel Stone, Rustic Justice: Community and Coercion under the Federal Arbitration Act, 77 N.C. L. Rev. 931, 934 (1999).

Arbitration

I. WHY ARBITRATION MATTERS

Arbitration is about choice. The arbitration provision for uninsured and underinsured motorist (UM/UIM) coverage found within the standard North Carolina personal auto policy[1] provides an insured with a choice:[2] whether or not to demand mandatory binding arbitration. This choice gives them power. When arbitration is an option, it can wield great advantage. As a sword, it can strike and weaken an opponent; as a shield, it can to defend and protect vulnerabilities. This chapter  guides practitioners through arbitration.

In order to put this in perspective, one needs to understand general arbitration  trends in North Carolina.  Insurance companies have been inserting mandatory arbitration provisions into their standard auto policies at an alarmingly increased rate.  Such provisions usually reduce the number of choices an insured can make to resolve insurance disputes. When arbitration is no longer one option among many, but becomes the only option, insureds suffer. Consumers stripped of the right to a jury trial lose not only a remedy—they suffer an erosion of underlying rights.

[1] This is part of what is referred to in North Carolina Rate Bureau [hereinafter NCRB] circulars as the “North Carolina Personal Auto Policy Program.” NCRB is a non-profit, unincorporated rating bureau created by the General Assembly of North Carolina under the provisions of Article 36 of Chapter 58 of the General Statutes of North Carolina on September 1, 1977. NCRB provides services and programs for the insurance industry in North Carolina for automobile, property, and workers’ compensation.

[2] This chapter only discusses the arbitration provisions contained in the standard personal auto policy but similar and in some ways less restrictive arbitration provisions are also contained in business auto policies issued in North Carolina. See, e.g., CA 21 16 (ed. 4-10), p.4.