In an historic win for American consumers and workers, on September 20, 2019, the U. S. House of Representatives passed H.R. 1423, the Forced Arbitration Injustice Repeal or FAIR Act,1 by a vote of 225 to 186. This groundbreaking bill could be the beginning of the demise of the remedy-stripping, rights-stomping, forced arbitration clauses in contracts of adhesion. Arbitration is often referred to an alternative dispute resolution—meaning an alternative to the litigation of a dispute.
Arbitration has a semblance of a legal forum with arbiters who make binding rulings, but there are no judges to rule on the applicable law or to seek appeal of an arbiter’s ruling; no jury; and no court oversight. The arbitration provision has morphed from a specialized industry, expertise-applying dispute resolution process among merchants to a liability-shielding clause for the drafter, or waiver of future substantive rights or remedies for the non-drafter—a Heads I Win; Tales you Lose deal.
An insurance policy is a contract of adhesion—a non-negotiated, unilaterally drafted contract by the insurer. We are seeing more and more forced arbitration clauses in contracts of insurance buried deep in the policy or endorsement pages. These forced arbitration clauses are sending policyholders to fight their claims in New York, the favored seat of arbitration; are applying New York law, regardless of where the insured property is located; and are imposing unrecoverable costs and expenses upon the policyholder.
One of the biggest problems we see, is the broad language of the forced arbitration clause. Many of these forced arbitration clauses require arbitration of disputes using phrases such as “any claims,” “arising out of,” “relating to,” and “in connection with.” The insurance carriers argue these “broad” arbitration clauses do not limit the claims to those that “arise under the contract,” but include all disputes between the parties, including extracontractual claims, e.g., breach of the duty of good faith and fair dealing; breach of state statutory laws or common laws, and any other “related” tort. The insurance carriers have been arguing the effect of this broad language coupled with the New York statutory limits placed upon the authority of an arbiter prohibiting an award of punitive damages effectively waives the policyholder’s remedies for extracontractual damages. We continue to fight these misguided assertions of the insurance carriers and welcome Congress to act in undoing insurance carriers’ misappropriated Federal Arbitration Act and Convention cloak they have come to openly abuse.
The Bill moved to the Senate on September 24, 2019. We encourage you to reach out to your Senators to restore your rights and remedies.