It’s Not “Just an Arbitration”
This article first appeared in the The Verdict’s Fall 2010, Volume 33:4 issue. The Verdict is published by the Wisconsin Association for Justice.
The vast majority of arbitrations in personal injury actions are triggered by contractual provisions governing uninsured or underinsured motorist claims. These claims are often substantial. In fact, two of the large “verdicts” I have had in my career have been in UIM arbitrations. Despite this, there is a tendency to view arbitration as something to be taken casually. This is a fundamental mistake.
Playing by the Rules
Insurance policy arbitration provisions seldom provide guidance on procedures beyond the selection of arbitrators. Chapter 788 of the Wisconsin Statutes provides some guidelines. The Chapter authorizes courts to stay lawsuits to permit arbitrations to proceed. It also permits arbitrators to issue subpoenas, authorizes the taking of depositions and requires that awards be in writing and signed by a majority of the arbitrators.
Perhaps more significantly, Wisconsin Statute 788.10 lists the circumstances under which an arbitration award can be vacated. This can only occur when:
- The award was procured by corruption, fraud or undue means;
- Where there was evident partiality or corruption on the part of the arbitrators;
- Where arbitrators were guilty of misconduct; or
- When the arbitrators have exceeded their power.
Rules To Live By
The State Bar Committee on Professionalism has published a set of arbitration guidelines for tort litigation. They provide a useful framework for establishing the ground rules in arbitration. Those rules may vary significantly from arbitration to arbitration; it ultimately rests with the parties and arbitrators to adopt rules in each arbitration. It is critically important to be sure that the rules are understood in advance and both parties are playing by these rules.
There are obviously significant differences between rules governing a trial and those applied in arbitrations. There is usually little dispute about what rules govern at trial, although application of the rules may be an issue; rules can and do vary in arbitration.
There are some fundamental differences between most arbitrations and a trial. For example, medical opinions are often provided by a written report or from medical records, rather than live testimony or a deposition. While that is often acceptable at arbitration, it is important to confirm in advance and to understand that medical opinions must still be stated to the requisite degree of probability in order to meet the burden of proof. While arbitration panels are less formal than trials, burdens of proof must still be met.
Rules of evidence are often applied less rigorously than they would be in a courtroom. Fundamental rules, such as the rule against hearsay, are generally adhered to, unless otherwise agreed upon.
The question of whether a party may unilaterally disclose information to the arbitrator he or she selects has come up on a number of occasions. The State Bar guidelines suggests this should not occur.
In cases involving underinsured motorist claims, the parties should agree what information the arbitrators are going to be given about payments received from the underlying carrier. In both UM and UIM cases you need to establish whether coverage limits will be disclosed. In both instances I believe it is better not to provide that information to the arbitrators.
It is also critical to establish what issues the arbitrators are being asked to address. In most instances the arbitrators confine themselves to rulings on liability and damages. Most insurance contracts limit arbitration to those issues and require a court determination with respect to coverage. The parties are, of course, free to depart from this by agreement.
A scheduling conference is held early on in a majority of arbitrations. The panel chair may conduct the conference individually, but I think it is preferable to have all the arbitrators participate. This is the time to ensure that there is a clear understanding of the rules that will govern the arbitration. In many cases, an agreement about whether the panel chair may simply resolve any disputes with respect to discovery or whether all arbitrators will participate in resolving those issues is also reached at this time. The courts have determined that costs are not awarded in arbitrations.
The case law sheds little light on the rules which govern arbitrations. The cases are largely directed at efforts to vacate arbitration awards. In general, those efforts are not favored.
In order for an award to be vacated, the alleged defect must fall in one of the four categories set forth in Wisconsin Statutes 788.10. The courts have also held that the burden of proving evident partiality rests with the party challenging the award and the burden must be met with clear and convincing evidence. Any challenge to the arbitrator’s authority to decide certain issues is waved unless it is raised during the course of the arbitration. An award may be overturned when an arbitrator fails to disclose past employment with a party or related entity or vacated on the basis of a manifest disregard of the law.
Conversely, even when an arbitrator made remarks prior to the hearing exhibiting a strong bias against one of the parties, the court was unwilling to overturn the award finding this simply a preliminary expression of opinion. Arbitration awards are presumptively valid and may not be set aside because one portion could arguably result from intellectually improper consideration. The fact that an arbitrator mistakenly rejected a valid defense does not provide grounds for vacating an award unless the arbitrator deliberately disregarded the law.
On balance, a party challenging an arbitration award faces a distinctly uphill battle.
The Right Person for the Job
In most cases, each party picks an arbitrator and those two select the third. It is common practice to consult with the arbitrator you have chosen concerning the choice of the third. This third arbitrator builds a consensus.
As the State Bar guidelines note, arbitrators should not be an advocate for either side. In reality, however, plaintiffs choose plaintiff lawyers and defendants choose defense lawyers. While the majority of arbitrators may make a sincere effort to be reasonably objective, each side has an inevitable bias. This may lead a lawyer to believe that he will be served by choosing someone who will be a super advocate for the plaintiff’s viewpoint. In reality, however, it is critical to choose an arbitrator who can work effectively with the others, particularly the third arbitrator. The dynamics of deliberation often result in the third arbitrator rejecting a position that he or she views as extreme in gravitating toward the other position. Arbitration panels are generally collegial, and the lawyers who cannot fit in that role will not serve you well.
It is important to pick an arbitrator you know personally or by reputation. If you are not familiar with arbitrators, consult a lawyer in that area. Be sure you choose wisely. On one memorable occasion a young plaintiff’s lawyer chose an arbitrator who had apparently been recommended as a nice guy. Unfortunately he was a dyed-in-the-wool defense type. In the course of the deliberation that arbitrator took such an extreme position against the party who had selected him that even the arbitrator selected by the defense demurred and suggested the award should be higher.
The third arbitrator is also crucial. There is a relatively small number of lawyers who serve regularly as thirds and their reputations are generally well-known. Objectivity is certainly important, but you also want someone who is not going to simply split the difference between positions staked out by the arbitrators for the plaintiff and defendant. Achieving consensus is fine, but ultimately a third arbitrator needs to be willing to come down on one side or another if that is appropriate on the evidence.
There are some former judges who serve as third arbitrators. This can be a problem because judges are less accustomed to debate and more accustomed to dictating the result. If you choose a former judge, you increase the odds of one person controlling the decision.
Well Begun is More Than Half Done
One of the most significant differences between arbitration and trial is providing medical records and other relevant materials in advance Position papers are also generally exchanged, but that should be the subject of discussion at the initial scheduling conference.
Lawyers are busy folks and submitting materials in an organized, easily-referenced form is far more effective than simply sending an undifferentiated mass of material. It is helpful to provide each arbitrator with a binder containing key records, opinion letters, summaries of depositions, and any critical exhibits. That allows the arbitrators to review those materials in advance and then determine whether there are particular records or other exhibits that they want to reference in greater depth.
A second binder should contain all of the medical records in chronological order by provider. The ability to focus the arbitrator’s attention on the most significant materials in advance of the arbitration is a unique and powerful tool. Arbitrators are all too human and will gravitate towards materials that are well organized and easy to access. The person who does the best job of that is likely to gain an advantage.
Each party submits their position paper before the arbitration. The position paper allows the party to lay out the theory of the case and the facts which support that theory. The paper should highlight the critical issues in the case and evidence supporting the plaintiff’s position on those issues. Most arbitrators will read the position paper and then review the documents that they believe are most germane to the arguments they consider critical. While arbitrators will try to withhold judgment, any lawyer given a set of arguments and materials which support them is likely to form some relatively strong opinions that will not be easily disturbed.
Witnesses Are Key
Because so much is given to the arbitrators in advance, there is a tendency for lawyers to believe the witness testimony is less important than the case at trial. In my experience, that is simply not true. In nearly every injury action the testimony of the plaintiff remains pivotally important. Arbitrators, like jurors, want to hear from the person and understand the impact the injury has had on their lives. The medical records, and even position papers, are simply not as effective as the person’s testimony.
While it may be true that the range of outcomes in an arbitration is somewhat more limited than it would at trial, the ultimate outcome will still be influenced significantly by the plaintiff’s testimony.
In my view, the testimony of lay witnesses who can substantiate the impact an accident can also be incredibly valuable. In two of the best outcomes I have had in arbitrations those witnesses were critical. They take some of the burden off the plaintiff and, while they may have a bias in favor of the plaintiff, they are extremely difficult to cross-examine and do a great deal to boost the plaintiff’s case.
As in a trial, witness preparation is important. In arbitration you can certainly cut to the chase with witnesses because of the amount of materials the arbitrators will already have. The fact that the examinations may be somewhat streamlined does not make them any less important.
The Awards Must be in Writing and Signed by Two of the Three Panel Members
The parties should agree on the form of the award in advance. In some cases the parties prefer that the panel simply award a lump sum. In others, the award is broken down in much of the same manner as a special verdict. If there is a question on liability, it is better practice to have the panel specify their findings with respect to liability. If there is a question as to what medical expenses are being awarded, that should be set forth in detail in the award.
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