Arbitration clauses are contained in all sorts of agreements, but it’s important to carefully consider all the implications, costs, and benefits before committing to this type of resolution in Colorado.

Personal injury cases are legal disputes that involve a person who is harmed due to the negligence of another person. These civil cases may be resolved either through a formal trial or, more commonly, through an informal settlement, which can be reached even before a lawsuit is filed.

One way that lawsuits can be settled out of court is through a method of alternative dispute resolution known as arbitration. Arbitration is sometimes considered to be a more efficient way to settle a legal dispute than litigation because it is private, faster, and more flexible.

Arbitrators usually have more expertise in the subject matter of the dispute than judges do, and also enjoy greater flexibility when making a decision. While arbitration can have benefits and drawbacks for both parties, insurance companies use it to avoid lawsuits whenever possible, because arbitration allows claims to be settled at a fraction of the cost of litigation.

But Is It Binding?

There are generally two types of arbitration: nonbinding and binding. In nonbinding arbitration, the parties are free to accept the decision of a neutral third party called an arbitrator, but if one of the parties chooses not to accept it, it can file a lawsuit or settle the matter through other means.

Binding arbitration is the most formal alternative to litigation, and proceeds when the parties to the dispute present their case to a neutral third party called an arbitrator who makes the final decision that is binding, meaning that the decision is final and may not be appealed in court, or may be set aside only in extremely limited circumstances.

High-Low Agreements and Arbitration

When binding arbitration is used to resolve a personal injury case involving an auto accident, insurance companies commonly require what is called a high-low agreement, and won’t agree to binding arbitration without one. A high-low agreement is a written contract signed by both parties stating that they will agree to accept whatever settlement amount the arbitrator proposes, as long as it falls within the high and low amounts agreed to beforehand.

High-low agreements can benefit both parties: insurance companies are protected from extremely high damage awards, and plaintiffs have a guarantee that they will receive at least a minimum amount of compensation for their personal injury. An arbitrator typically is not aware of the high-low amounts before the process begins.

Arbitration Clauses

If your claim cannot be settled, you may have no choice but to arbitrate the dispute, if your insurance policy includes a clause requiring you to submit to binding arbitration, as some policies do. The actual wording of this clause might vary, and you should read agreements and contracts carefully so that you understand the terms that you will be held to.

Arbitration clauses are contained in all sorts of agreements, but both parties need to carefully consider all the implications, costs, and benefits of committing to binding arbitration. While a judge’s error can be appealed for review, an arbitrator’s ruling is final and there is generally little or no recourse, even if they get things really, really wrong.

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