What a Hidden Arbitration Clause Really Means

Arbitration Clause

Arbitration Clause and Consent to Settle

One of the best phrases to see in a Medical Malpractice insurance policy is “Consent to Settle”. This phrase suggests that your insurance company’s defense will seek your approval if a claim settlement is presented by the plaintiff. What if there are other terms in your policy that could change the effects of your Consent to Settle? Consider the Hammer Clause, as we discussed previously in this Consent to Settle blog.  Another term we’ve noticed with more frequency is the Arbitration Clause, which unfortunately, has the potential to wash away your consent.
 

Arbitration Clause Definition

According to Wikipedia, “An arbitration clause is a clause in a contract that requires the parties to resolve their disputes through an arbitration process.”
 
So, in medical malpractice policies, this clause defines the defense process should the claim be brought to arbitration but also redefines your Consent to Settle clause. Let’s take a look at actual defense clauses from two medical malpractice policies.
 

Policy 1 – Does not contain the Arbitration Clause

Defense and Settlement

The Insurer may make any investigation it deems necessary and may, with the written consent of the Named Insured, make any settlement of any Claim.

 
Clearly, within this policy, there is no arbitration so this exhibits pure Consent to Settle. The insurance carrier must obtain your approval prior to settling a claim. Period.

 

Policy 2 – Contains Arbitration Clause

Defense of Claim and Settlement

Insured’s written consent to settle any Claim if the Insurer believes that settlement is proper. If the Insured withholds consent to a settlement recommended by the Insurer and acceptable to the claimant, the issue shall be submitted to binding arbitration pursuant to Section XVI.

 
– – – – Several pages further in the policy . . .
 

Section XVI

Arbitration Clause

Solely in the event that the first Named Insured withholds consent to a settlement recommended by the Insurer and acceptable to the claimant, it is agreed by the Insured and the Insurer that this issue will be resolved by submitting to binding arbitration.

 
The policy goes on to discuss the process of arbitration, then states:
 

Where the recommended settlement is found by a majority of the Arbitration Panel to be reasonable under the circumstances, the Insurer shall have the right to enter into such a settlement without the first Named Insured’s consent. If a majority of the Arbitration Panel determines that the recommended settlement is not reasonable under the circumstances, the Insurer shall not have the right to enter into such settlement without the first Named Insured’s consent.

 

Ramifications of the Arbitration Clause

At first glance, this second policy appears to have the same full Consent to Settle. However, the second sentence states that if you do not consent to the offered settlement, the case will be brought to arbitration, which is an alternative dispute resolution method. The ending of that sentence refers you to another section, where you must search for further in the policy. In reading this section, it indicates that if the Arbitration Panel believes the settlement to be reasonable, that becomes the final decision of the case and your right to consent is withdrawn.
 
When reviewing your policy, we recommend you always read the Defense language carefully. Some policies contain fine print allowing arbitration to settle the dispute, which may favor the insurance company. Always look for your best interest.
 
Do you have any coverage concerns about your malpractice policy or questions about this blog? If so, please comment below.
 

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