By Andrea M. Alonso and Kevin G. Faley 

In 1943 the casualty insurance industry sought to foster arbitration as an alternative to litigation in New York.   They reasoned that by reducing litigation and its costs companies could improve intercompany relationships and pass savings on to policy holders.  Arbitration Forums (hereinafter AF) is a not-for-profit corporation that was created for this purpose.  It is the nation’s largest arbitration provider.  In 2021 the company members filed 869,000 arbitrations disputes and 2 million subrogation claims that together were worth over 17.6 billion dollars.

The Special Arbitration Agreement Program was created in the 1950’s.  In accordance with the Special Arbitration Agreement, Article First, insurance companies who are signatories to the agreement must submit claims to Arbitration Forums where a claim is settled and:

a) Each has issued a policy of casualty insurance covering, or as a self-insured covers, one or more parties asserted to be legally liable for an accident, occurrence, or event out of which a claim or suit arises; or 

b) Each has issued separate policies of property or casualty insurance providing, or as a self-insured provides, concurrent coverage to the same party or parties asserted to cover an accident, occurrence, or even out of which a first or third-party claim or suit for bodily injury or property damage arises (excludes first-party automobile concurrent coverage).

AF rules require as a condition precedent the parties “attempt to settle the subject dispute prior to filing arbitration”.  Arbitration is compulsory if an insured is one of two parties responsible to a third-party for bodily injury or property damage to another.  Mandatory arbitration would also apply for a first or third-party concurrent or overlapping coverage dispute.

In order to trigger the mandatory submission to arbitration for apportionment of liability parties can utilize one of the following methods:

Split the settlement amount equally.
Settle the claim in full and seek contribution from the other parties.
Secure consent of all potential tortfeasors without a settlement and send the consent to AF.

Compulsory arbitration is applicable to a maximum of $250,000 in the Special Arbitration Forums.  (AF Rules, §1-1 hereinafter AF§).

In an automobile case, the Special Arbitration could be trigged when two vehicles collide into a third vehicle resulting in injuries to the driver of the third vehicle.  If the signatory carriers cannot agree on the apportionment of liability , they can settle on behalf of both vehicles and submit the case to AF Special Arbitration to apportion liability and damages.  If both companies are signatories, arbitration is mandatory.  One party may also settle, secure a release for all parties and proceed to arbitration with the signatory companies.  Alternatively, with consent and without a settlement, all may consent to arbitration by AF.

Products liability cases are also appropriate for Special Arbitration.  For example: a worker is injured by a machine and brings a case against the manufacturer and a company who made recent repairs.  The carriers for the manufacturer and repair company cannot agree on liability.  They may settle the case and submit the issue of liability to Special Arbitration.  In cases of products liability, reasonable accommodations should be made for inspection of the alleged defective products (AF §2-11).

New York Cent. Mut. Fire Ins. Co. v. Farm Family Mut. Ins. Co., 231 A.D.2d 722 (2d Dept. 1996) illustrates the use of Special Arbitration in a general liability case.  The plaintiff, a college student, was injured when her classmates pulled a prank on her.  She sued her three classmates who were each covered by separate policies of insurance.  All three insurers were signatories to the Special Arbitration Agreement which provides that any signatory insurer could settle a claim without the consent of the other signatory insurers and then submit the apportionment of liability to Special Arbitration.

One insurer reached an agreement with the plaintiff using a high/low arbitration and secured a general release from the plaintiff in favor of all the defendants.  The non-settling defendants objected to the use of the high/low arbitration claiming it did not satisfy the condition precedent of the Special Arbitration agreement that the claim be settled.  The Appellate Division disagreed and held that the high/low arbitration was the functional equivalent of a settlement as defined by the agreement between the insurers.  Accordingly, it triggered the provision of the Special Arbitration Agreement to arbitrate the apportionment of liability.

Special Arbitration should be considered in coverage disputes.  As an example: an insured is involved in an accident with another vehicle.  A dispute arises between the insured’s personal automobile carrier and a ride share company’s carrier as to whether the insured was an employee at the time of the accident.  The other driver’s personal injury claims are settled.  Special Arbitration can be triggered to resolve the concurrent coverage dispute between the carriers.

The procedure for filing for Special Arbitration is simple and set forth in the AF Rules.  All filing is on-line via AF’s website and must be done within 180 days of payment to the claimant (AF §2-1).  All answers are submitted on the AF website  (AF §2-2).  Any legal fees must be included in the filing (AF §2-3).

One arbitrator is typically utilized however, a three party panel may be requested if the total amount sought is over $15,000 (AF §3-3).  Arbitrators are experienced claims professionals.  All decision are based on jurisdictional law and accepted claims practices.  (Special Arbitration Agreement, Article Third).  The advantage of submission to arbitration is that the hearings are informal and confidential.  Settlement is not an admission of liability.  Formal rules of evidence do not apply and no recording of the proceeding in any form is allowed (AF §3-6).  Parties my appear telephonically but an insured or witness may not appear without a company representative being present (AF §3-7).

Decisions are posted on the AF website (AF §4-3).  Decisions are not precedent for other cases as they do not constitute Res Judicata nor Collateral Estoppel.  They are, however, final and binding.  All decisions are held in strict confidence.

All parties must pay the award within 30 calendar days and if the award remains unpaid, the prevailing company may request AF’s assistance with the award payment (AF §5-1, 5-2).

Most major insurance companies are signatories to the Special Arbitration Agreement.  Arbitration Forums is extremely helpful in responding to inquiries regarding the Special Arbitration Forums.  Despite this, the Special Arbitration Agreement is not well known and sorely underutilized by insurance carriers.  Settling underlying claims and resolving disputed liability or coverage disputes through the Special Arbitration Forums is enormously beneficial to member companies.  It reduces litigation costs, including attorneys’ fees, through faster closings.  The Special Arbitration Forums may be utilized by adjusters without attorneys.  It is simple and easy to use.  In this age of nuclear verdicts, severity is reduced by capping exposure through intercompany arbitration.

Andrea M. Alonso and Kevin G. Faley are partners of Morris Duffy Alonso Faley & Pitcoff.