NAIC Creates Pre-Dispute Mandatory Arbitration Clauses Working Group

April 13, 2017

The National Association of Insurance Commissioners (NAIC) has created a Pre-Dispute Mandatory Arbitration Clauses Working Group

The group is charged to consider and, if appropriate, amend the Unfair Trade Practices Model Act or develop a new model act prohibiting the use of

  • pre-dispute mandatory arbitration clauses in any individual and commercial insurance policies
  • choice-of-law and choice-of-venue clauses.

Chairs of the working group are Susan Stapp (CA) and TK Keen (OR)

In May 2016, the Consumer Financial Protection Bureau (CFPB) released a 376-page proposed rule to limit the use of mandatory arbitration clauses in certain financial contracts. The proposal focuses on contract provisions that bar consumers from filing or participating in class action lawsuits in the event of a dispute, thereby limiting consumers’ recourse to arbitration. The proposal would allow consumers to bring class action lawsuits against banks and other financial service providers—even if the parties have an existing agreement to waive their right to a trial.

From an industry perspective arbitration is a helpful tool because it is typically less costly, takes decisions out of the hands of juries and puts them in the hands of more impartial and less inflamed arbiters and can help limit spurious class actions suits by making them more costly for plaintiffs.

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