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).

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