Insurance law lawyers can tell you to be aware of arbitration clauses in your insurance contract. These usually favor the insurance company. The Austin-American Statesman published an article titled, Consumer Groups Oppose Insurance Company’s Push For Arbitration.
Government and private sector consumer advocates are calling on a state regulator to reject a proposal by Texas Farm Bureau’s insurance division to allow the company to require customers to go to arbitration over policy disputes.
Deeia Beck, head of the state’s Office of Public Insurance Counsel, wrote this week to David Mattax, the state commissioner of insurance, to tell him that arbitration endorsements on homeowner insurance policies can be harmful to Texans, and the Texas Department of Insurance should not approve a proposal by Texas Farm Bureau Insurance Companies.
Arbitration is a process for resolving disputes outside of courts. Contracts can require both parties to abide by the decision of an arbitrator instead of taking the dispute to court.
Arbitration that follows failed mediation often puts average consumers at a disadvantage when it comes to settling disputes with deep-pocketed insurers, Beck said.
“While I am tempted to use the ‘David versus Goliath’ analogy to illustrate my point, sadly it really isn’t appropriate when describing this inequality,” Beck said in her letter to Mattax. “David at least had a sling and five smooth stones. Texas insurance consumers would not have the benefit of any analogous tools in an arbitration proceeding against an insurance company.”
Mike Gerik, executive vice president of Texas Farm Bureau Insurance Companies, said the endorsement, if approved, would allow the insurer to keep doing business in some parts of the state and could offer customers the opportunity to save money on policies.
Gerik said litigation after storms contributed to an environment that makes the endorsement necessary.
“This endorsement will provide a choice for our members who want to continue coverage with our company at a significant premium savings,” he said in a written statement. “We believe an arbitration endorsement is a fair and reasonable choice.”
Beck, who credited Texas Farm Bureau Insurance Companies for generally being an upstanding company, said insurers have legal remedies to deal with fraud and unscrupulous lawyers.
“This is a nuclear option to deal with a very small group” of wrongdoers, and it would have severe ramifications on consumers if approved, she said. Further, it could lead to other companies seeking similar endorsements and could create a completely one-sided system, she added.
Alex Winslow, executive director of Texas Watch, said it would be unprecedented for the Texas Department of Insurance to approve a clause, like the one being proposed, that calls for arbitration before a dispute even arises.
He pointed to a section on the department’s website that states that arbitration should be voluntary and it should be “post dispute arbitration only,” meaning the process cannot be started until there is an actual disputed claim.
Winslow also rejected the insurer’s notion the endorsement would be optional and would come in exchange for a discount on a homeowner’s policy.
In a letter to Mattax, he said that “(i)f policyholders are enticed to accept the endorsement in exchange for a discount, they have not bargained or negotiated in any real sense.”
Jerry Hagins, a spokesman for the state insurance regulator, confirmed that the department was reviewing the matter, but said he couldn’t provide much more detail other than to say the department is under no timeline to make a decision.
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