AAI Troubled with Arbitration Language in Several States

Legislation with language that corrupts the primary purpose of alternative dispute resolution is pending in three states so far this year and others could be forthcoming, according to the Alliance of American Insurers (AAI).

The states are Connecticut, Minnesota and West Virginia. The bills are based on the Uniform Arbitration Act, which was created by the National Conference of Commissioners on Uniform State Laws (NCCUSL). While otherwise favorable, each of these bills reportedly goes too far in permitting arbitrators to make decisions on the awarding of punitive damages and attorneys’ fees.

“The Alliance has always supported arbitration as an efficient, equitable and less confrontational means of dispute resolution,” Kirk Hansen, Alliance director of claims, said. “However, the changes in the Uniform Arbitration Act proposed by NCCUSL to permit arbitrators to make decisions on punitive damages and attorneys’ fees introduce unnecessary hostility, formality and expense to the process, thereby undermining arbitration’s speed and cost-effectiveness.”

Hansen noted that the Alliance would continue to support arbitration by seeking amendments that would eliminate the objectionable language, which gives an arbitrator discretionary powers similar to that of a judge.

“The purpose of arbitration is to provide a forum for less formal and less confrontational alternative dispute resolution,” Hansen said. “If punitive damages and attorneys’ fees were available, it would no longer be an alternative to the trial courts and would promote forum shopping by the trial bar.”

The bill numbers are; Connecticut SB 51, Minnesota SB 100 and West Virginia SB 138 and HB 2053. Versions of the NCCUSL model bill were enacted in 2001 in Hawaii, New Mexico, and Nevada. In 2002, the bill was considered in several states but enacted only in Utah.