When the coronavirus shut down most of the nation’s courts in March 2020, arbitrators flooded my inbox with reminders that they were still open for business to resolve disputes. The legal press filled with articles heralding the coming boom in arbitration.
Six months went by and from my perspective, the arbitration boom was more akin to a bust. In this article, I’ll go over the reasons why that instead of resolving disputes through arbitration, many people are stuck waiting for the courts to reopen.
What Is Arbitration?
For people not familiar with it, arbitration is an alternative way to resolve disputes. It exists outside of the courts. The easiest way to think of it as a private court that both parties to a dispute agree to use, instead of going to court. Rather than let a judge or jury resolve a dispute, both sides select an arbitrator to hear and weigh the evidence, and they agree to give the arbitrator the final word on the matter.
The main advantage of arbitration is that it saves time and money. Since arbitration is a matter of contract, outside of exceptional circumstances, both sides forego their access to the courts in return for a quicker decision. The main benefit of arbitration is also the primary reason that arbitration isn’t booming during the coronavirus. Both sides must quickly want to resolve a controversy.
How Did Coronavirus Transform Aribtration’s Biggest Strength into it’s Crippling Weakness?
Speaking from my own experience, once it became apparent that the coronavirus and measures to fight it were going to cause serious economic disruptions, businesses, notably insurance companies I litigate against, adopted extreme measure to survive.
Unless it was absolutely unavoidable, many insurance companies simply stopped making offers to injured accident victims. They could do this secure in the knowledge that the only entity that could compel them to pay accident victims was the courts, and they shut down.
Without the incentive to make a deal, many victims were left hanging, their day in court delayed indefinitely. The money that insurance companies would have normally paid to victims, instead stayed with the company. This likely helped many to weather the storm, but made matters worse for the injured and people who lost loved ones in accidents.
This strategy takes advantage of courts being closed to stretch out paying money to victims as long as possible. The appeal of arbitration is that it resolves cases faster than the courts. That’s a great selling point, unless a company decides that its interests lie in avoiding a payout as long as possible. In short, overnight, arbitration’s main selling point transformed into a liability.
Arbitration Only Works if Both Sides Want to Resolve a Dispute
Every email I get suggesting that I use arbitration to settle my client’s disputes, makes the bold claim that until the courts re-open, arbitration is the only game in town. The problem is that in order to enter into arbitration, both sides must agree to it.
Some of my clients are open to the resolving their cases through arbitration, but every time I reach out to an insurance company, they tell me they’re not interested. While I find their decision questionable on a number of grounds, it’s happened too often not to be a strategy.
Why on earth would they want to find a way to resolve a case faster, when their strategy is to hoard cash until the courts reopen? They’ll end up paying in the end, but by the time that happens the economy should be out of the woods and the company will be in a better position. In fact, some desperate victims might take pennies on the dollar, just to get something.
From Boom to Bust in 6 Months
It makes perfect sense that arbitrators would expect a boom when the courts are shut down. After all, without the courts, they’re the only dispute resolution mechanism left.
Unfortunately, absent the courts, resolving a dispute can only occur if both sides want it resolved. I don’t blame arbitrators for failing to foresee that many businesses, particularly insurance companies, were just fine without resolving cases. Just add one more unforeseeable thing to 2020’s tally.