How To Resolve Insurance Coverage Disputes

Disagreements can arise between businesses and insurers over what a policy covers or how much an insurer should pay on a claim, potentially leading to financial strain and operational challenges. To mitigate these risks, business leaders must understand the steps to resolve them, including alternative dispute resolution (ADR) options and litigation.

Alternative Dispute Resolution (ADR) Options for Business

ADR provides an avenue for businesses to resolve insurance coverage disputes. It is generally a faster and more cost-effective option than litigation. Common types of ADR are:

• Mediation is a proceeding where a mutually agreed-upon third-party mediator facilitates communications between the insurance company and the insured. It is a nonbinding process, meaning the mediator does not issue a final ruling but instead helps the two parties reach a voluntary agreement. Mediation allows for creative solutions and is often less adversarial, which can help preserve business relationships.
• Arbitration is a more formal proceeding where the business and the insurance company present their arguments to an agreed-upon arbitrator, who ultimately renders a decision on the matter. Arbitration can be voluntary or mandatory, and the decision can be either binding or nonbinding. In binding arbitration, the decision is legally enforceable and final, with limited options for appeal. Nonbinding arbitration, however, allows the parties to pursue further legal action if they are unsatisfied with the outcome.
• Negotiation is the most flexible and informal form of ADR. It involves direct communication between the parties as they attempt to settle. This process can be handled directly by the business and insurer or involve attorneys or other representatives. Negotiation allows the parties to retain control over the outcome without involving third-party decisionmakers.

ADR offers the parties more autonomy in the dispute resolution process, allowing them to select the procedure and who will conduct the proceedings. It can often be less adversarial, allowing the parties to maintain their relationship after the dispute is settled.

However, ADR does have disadvantages. The dispute may still escalate to litigation if a settlement is not reached. Additionally, ADR processes lack some of the legal protections present in court trials, such as formal rules of evidence. While binding arbitration provides a conclusive outcome, it generally does not allow for appeals, making it difficult to challenge a decision. Moreover, enforcing an ADR outcome, especially in nonbinding cases, may present challenges if one party does not adhere to the agreement.

Litigation

If ADR methods fail and the two parties are unable to reach a satisfactory agreement, litigation may become necessary to resolve the dispute. Through litigation, courts can review the policy language, interpret its language, determine the intent of the contract and rule on what is legally required under the terms of the policy. Going through the legal system also ensures the right to appeal exists.

Before business leaders escalate the dispute to this level, they should carefully consider the time, cost and potential operational impacts of the litigation process. Working with legal counsel is crucial in this stage, as an experienced attorney can advise them on whether litigation is in the business’s best interest and help navigate the complexities of the court process.

For more information about business insurance and a review of your current insurance coverages, contact us today.

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