AIA In Support of Mandatory Arbitration to Hold Down Litigation Costs

In testimony over the weekend during the National Association of Insurance Commissioner’s (NAIC) summer meeting, the American Insurance Association (AIA) supported the continued availability of mandatory pre-dispute arbitration instead of litigation.

“AIA strongly believes that arbitration plays an important role in holding down the skyrocketing costs of the U.S. tort system,” said Stephen Zielezienski, AIA assistant general counsel. “During the last 30 years, American businesses, including insurers, have experienced an unprecedented increase in litigation, which has had a marked effect on the U.S. economy. A report by Tillinghast-Towers Perrin found that U.S. tort costs are equivalent to a five percent (5 percent) tax on wages, which costs each American citizen approximately $721 every year. By comparison, each U.S citizen paid an inflation-adjusted average of $87 in tort costs in 1950,” explained Zielezienski.

Addressing the NAIC’s Consumer Protection Working Group Zielezienski said, “Not only is litigation costly and time-consuming, but the strong adversarial nature of the process tends to erode relationships between the parties. Because it is generally less formal and more ‘user-friendly,’ arbitration tends to minimize hostility and to emphasize post-dispute relationships.”

“Rather than limiting the use of arbitration in insurance disputes, the NAIC should be promoting its many benefits. Some states already authorize the use of binding arbitration for certain disputes, and there is wide-spread use of the practice for disputes between property-casualty insurers. Insurers use binding arbitration because it is an effective, efficient, and speedy means of resolving disputes without destroying business and customer relationships,” said Zielezienski.

A number of consumer representatives testified about this issue in Atlanta last March during the NAIC’s spring meeting, arguing that arbitration panels are skewed toward the industry because corporate defendants are “frequent players.” But Zielezienski noted that there is reportedly no evidence to back up their statements..

“Property-casualty insurers use binding arbitration ourselves and we strongly urge the NAIC to embrace the practice as a streamlined, effective, and consumer-friendly tool to preserve tort rights without causing the U.S. economy to buckle under the weight of an inefficient, out-dated litigation system,” concluded Zielezienski.