Arbitration is like a trial’s distant cousin. They both come from the same family of adjudicative procedures with an arbitrator and judge or jury rendering a decision after a hearing. Generally, the similarities in their DNA end there.
We asked several personal injury litigators to share their thoughts on this topic, including Pegi McCabe, partner at McCabe Kirshner, P.C., Marilyn Tipsword, house counsel for Farmers Insurance Group, and Bob Walsh, partner at Clifford Law Offices. In addition, we tapped Hon. Jerome M. Orbach, (Ret.) who has served as a senior mediator and arbitrator at ADR Systems for more than a decade.
Why the scuffle between arbitration and litigation?
While binding arbitration in personal injury cases is sometimes seen as a process thrust on parties in a contract clause — this is not the full picture. Unlike in court, parties have a say in arbitration.
“Arbitration offers parties many choices and counsel should take advantage of the inherent flexibility,” said Judge Orbach.
Parties can agree to the rules they use, the arbitrator they want, what issues they will arbitrate, (including restricting it to liability or damages), whether they want to put limits on the arbitrator’s decision, how evidence will be presented, how the arbitration process will unfold and many others.
“In a trial, the trier of fact is assigned and will make rulings on motions and evidence,” explained Judge Orbach. “The process is dictated by the rules of civil procedure. In litigation, parties do not have a say in the process and are not free to make the choices they can in arbitration.”
Litigation offers appealability, whereas there are very limited opportunities to appeal an arbitration award. It also provides a forum for dispute resolution and a forum for law declaration, so that law can evolve. It is not a perfect system, but it has stood the test of time.
“Litigation is here to stay,” said Judge Orbach. “But arbitration is becoming popular again as counsel and parties better understand and use the tools they have to shape the process.”
What types of personal injury cases go to arbitration rather than litigation?
“I find that arbitration works well in cases where you cannot determine valuation or cases with a new or unusual fact pattern,” notes Ms. McCabe. “These cases that go to arbitration may not have resolved in settlement negotiations or mediation. With arbitration, cases can quickly be resolved and finalized.”
Mr. Walsh had a broader perspective: “Arbitration may be appropriate for any type of case because there are some cases that can or should settle. However, sometimes the insurance company or plaintiff are locked in and they will not budge. That is when a neutral arbitrator comes in handy. You are assured of a resolution at the end of the process.”
When is trial preferred?
Ms. Tipsword said she tries cases, but the cases that she takes to trial are typically “smaller cases, where policy limits are not a concern.”
Some counsel prefer litigation because in arbitration, there is no automatic discovery; although, parties usually agree to share evidence in arbitration if this is not provided for in the arbitration contract. When there is a need to know what the other side will offer in evidence, then parties must agree to this in arbitration. If they are litigating, it is automatic.
Another reason attorneys go to trial is the idea of the ‘winner case.’ Sometimes counsel will not go to arbitration because they think arbitrators are more prone to compromise rather than making an award where there is a clear winner or loser. Counsel want to get the win and, therefore, they tend to choose litigation.
While Ms. McCabe mediates most of her cases and uses arbitration occasionally, she views litigation differently.
“For me, trial is always the last resort,” she said. “Costs skyrocket and still you have the complete unknown. I think it’s the least preferred method of resolving cases for both sides.”
When is arbitration preferred?
Arbitration is hardly the new kid on the block, having been used to resolve disputes since the Middle Ages. It became more popular when courts had the power to enforce arbitration awards. The first arbitration statute was the English Arbitration Act of 1889. While the preference for arbitration ebbs and flows, it remains a viable option to litigation for many cases.
“I explain the positive and negative aspects of the case to my clients, including the time and expense they will incur if we go to trial,” said Mr. Walsh. “I also explain options like arbitration. Just as with a trial, during an arbitration the client will be able to tell their story, see me zealously representing them, and in the process, they will still receive their proverbial day in court.”
Ms. Tipsword notes, “Sometimes litigation is not an option because your client is not available for trial. Other times, you may be more focused on saving time and money and contemplate arbitration. For example, the use of an expert is a cost savings because generally in arbitration, there is no deposition and you do not need to bring in the expert.”
In addition, Ms. Tipsword cites the different rules in arbitration as another reason to consider it for specific cases. “By agreement in arbitration, you know what is admissible and not admissible. And you know exactly what evidence will be utilized well in advance.”
“In my experience as a plaintiff’s personal injury attorney, my clients are generally satisfied with an arbitration award. However, if we settle the case prior to a hearing, my clients occasionally have ‘seller’s remorse’ – thinking they could have received more if we had gone to arbitration or trial,” said Mr. Walsh.
Unlike litigation, in arbitration you can choose an arbitrator who knows the facts and the law surrounding your case. The ability to choose your arbitrator, coupled with the potential cost and time savings, make arbitration attractive.
“Certainly, a one-day arbitration (or an arbitration of a several hours) is more cost and time efficient than a week-long trial,” added Mr. Walsh.
Can you mitigate risk in personal injury cases with arbitration?
The simple answer is: ‘Yes.’ Parties can agree to parameters in advance of arbitration to mitigate risk.
“Parties can reduce risk in a variety of ways thanks to the power of contracts,” said Judge Orbach.
Here are some examples: Parties may agree not to execute an award in excess of policy limits, they may agree to put restrictions on rights and remedies and parties may use settlement vehicles, such as a high-low agreement, to limit their risk.
The flexibility of arbitration and the ability to negotiate so much prior to the actual arbitration hearing, helps parties reduce the uncertainty. In arbitration, parties select their own judge, make their own rules and select their own timetable – it’s like a private court system.
“In personal injury trials, there may be some negotiation between counsel, but there certainly is not the opportunity to create your own private court system through contract,” commented Judge Orbach.
While arbitration and litigation may be related and share some DNA, they are two very different procedures. Personal injury lawyers are advised to understand these differences and select arbitration or litigation using a cost-benefit analysis based on the needs of their client, their overall strategy, time and cost constraints.
There are many benefits to resolving multiparty cases through arbitration, and ADR Systems has experienced neutrals and administrative support services to help parties efficiently resolve their cases.
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