Let's look at how arbitration works in the context of a personal injury claim, the kinds of cases that might go to arbitration, and why plaintiffs almost always want to avoid committing to binding arbitration.
How Arbitration Works
Arbitration is a binding, essentially unappealable, procedure in which a claim is presented to either a single arbitrator or a board of three arbitrators. The rules of arbitration are usually fairly flexible. In general, some pre-hearing investigation (i.e., discovery) is allowed, and there will usually be actual testimony by the parties and witnesses at the arbitration hearing. But the loser of an arbitration has very limited rights on appeal. The loser generally has to prove that the arbitration result was arbitrary and capricious. “Arbitrary and capricious” is a legal phrase that means more or less that the arbitration result was not merely wrong, but not at all based on the evidence and applicable law.
How does arbitration differ from mediation? There are a few key differences. Mediation is a voluntary, non-binding, procedure in which the parties to a lawsuit or claim meet with a mediator to try to resolve the claim. The mediator can be either a private professional or a judge or magistrate appointed by a court. Mediation is a very informal procedure. The lawyers for the parties will customarily prepare written mediation summaries for the mediator to read, and will make brief presentations at the mediation. There is no testimony at the mediation, although the mediator will generally welcome the parties to make brief statements themselves. After the opening presentations, the parties will go to separate rooms, and the mediator will then conduct “shuttle diplomacy,” going back and forth between the rooms to try to get the parties to settle the case. If the mediation succeeds, then the case is settled, and it is over. If the mediation fails, then the case proceeds to trial.
What Kinds of Cases Go to Arbitration?
The answer here is, "Not many," and that's usually a good thing for personal injury claimants. If you're making a medical malpractice claim against Kaiser Permanente's system of health care providers in California, you'll likely need to go through the arbitration process (it's part of the fine print in your contract).
The other kind of injury-related claim that usually goes to arbitration is one that is specific to certain car accident cases, where the injured person files a claim under the underinsured motorist (UIM) or uninsured motorist (UM) provision in his or her own car insurance policy, and a dispute arises. Most car insurance policies require that a dispute over UIM or UM coverage be sent to binding arbitration.
Why Should I Avoid Arbitration?
Why not have your lawyer send your personal injury case to arbitration? Arbitration is probably faster than waiting around for trial in a lawsuit, and it might even be cheaper if you don’t have to pay for the arbitrator or arbitrators. That's all true, so why avoid the process?
The number one reason is because, at arbitration, you lose the prospect of getting your case in front of a jury, and you lose all the leverage that comes with that prospect. Arbitrators are logical. They decide cases based on the law and the evidence. Insurers like that. But juries are emotional. While they usually decide cases based on the law and the evidence, that is not always the case. They can be inflamed, aggravated, and/or angered because of the defendant’s conduct. And if that happens, the defendant better watch out. That's often how plaintiffs walk away with huge verdicts, -- sometimes called “runaway” verdicts. Insurers hate runaway verdicts. And it is the fear of a bad verdict or a runaway verdict that causes them to settle cases for good money.
If you've signed a contract that requires you to submit your dispute to binding arbitration, you likely need to honor that provision. But if you have a choice, as a personal injury claimant you never want to agree to arbitration and waive the prospect of a jury trial.