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Arbitration Explained (What an Arbitration Clause Means for You)

Definition of Arbitration in Dictionary

Arbitration Explained

The term “arbitration clause” seems to be used a lot lately, but how many of us actually understand what this means or how it impacts our own life?

What is an Arbitration Clause?

Arbitration clauses in contracts or other agreements force you to give up your right to file a lawsuit or seek justice from a judge or jury.  Instead resolution in court, you will be required to resolve all disputes via arbitration.  As discussed below, there are several different forms this can take, but the essential difference is that your case will be decided by an arbitrator rather than a judge or jury.  An arbitrator is usually a lawyer.

The Arbitration Process: A Streamlined Trial

In arbitration, there are often relaxed evidentiary rules, many times allowing written reports into evidence instead of live sworn testimony.  Obviously, because there are no juries, there is no questioning of potential jurors (voir dire).  While there are no fixed rules on how an arbitration is conducted, they are a streamlined version of a trial.

Does Arbitration Favor Corporations?

Most of us trial lawyers and consumer advocates view arbitration clauses as a way for large, wealthy, and powerful corporations to exploit the consumer and limit their exposure or expense for errors and disputes.  Conversely, most business groups consider arbitration clauses to be great money savers (since arbitration is typically cheaper in cost than court and because arbitration awards are usually lower) and protections of certainty.

Binding Arbitration

Binding arbitration is, quite simply, a way to resolve a dispute forever and finally at the arbitration stage.  Whatever the result at arbitration, both parties agree to waive any right to file a lawsuit, appeal the decision, or otherwise seek justice from the decision or award.

Non-Binding Arbitration

Non-binding arbitration allows the parties to either accept the arbitration award or proceed to trial in a court of law.  Other options are a variety of ways to appeal or review the award.

Types of Arbitration in Illinois—Any of These Can be Either Binding or Non-Binding

Three Person Panel

This type of arbitration relies upon a panel of three to decide the case.

  • In the State of Illinois, many contract and personal injury cases that are seeking $30,000 or less must pass through a non-binding arbitration. Either party may pay $200 within 30 days of the award to reject the award and proceed to trial in court.
  • In this system, the three arbitrators are chosen randomly by the court system. I regularly serve as a chairperson on these panels due to my extensive litigation experience.
  • Other versions of a three-person panel will have each side select his or her own arbitrator, and then have those arbitrators select the third panel member from a list of neutral arbitrators. This is commonly used in auto insurance arbitration.

One Person Arbitration

Here, the parties agree to one “neutral” arbitrator.  Often, this is the model used by for-profit entities such as ADR or Resolve.  It is often a retired judge who is agreed to by the parties to preside over the case.  The administrator charges a fee for the facilities and such, and the arbitrator charges for the time he or she spends on the case. 

AAA-American Arbitration Association Arbitration

This is a particular entity that administers arbitration according to specific, strict rules.  It costs money to file for AAA arbitration, but it is often the only way to force many insurers to move a case forward.

“High-Low” Agreements

A “High-Low” Agreement may be used in almost any form of arbitration. Parties (usually their attorneys) negotiate a high award/low award ceiling and floor.  Let’s say an insurance policy is $100,000.  The plaintiff believes his case is worth $100,000 or more, but the defendant posits there is a problem proving liability and the medical connection to the incident and only values the case at $40,000.  The parties can agree to a $25,000 low and a $100,000 high.  That means whatever award is given by the arbitrator, the most that the plaintiff will get (and the defendant will pay) is $100,000 and the least the plaintiff will get is $25,000.

Contact Chicago Personal Injury Lawyer Stephen Hoffman

As with any legal questions, your best option is to contact a lawyer immediately.

As in all cases involving injury and potential liability, immediately get medical treatment, report the crash to police and your own insurance company, and contact a personal injury lawyer.

If you've been in an accident and have questions, contact Chicago personal injury attorney Stephen L. Hoffman for a free consultation at (773) 944-9737. Stephen has nearly 30 years of legal experience and has collected millions of dollars for his clients. He is listed as a SuperLawyer, has a 10.0 rating on Avvo, and is BBB A+ accredited. He is also an Executive Level Member of the Lincoln Square Ravenswood Chamber of Commerce.

Stephen handles personal injury and workers' compensation claims on a contingency fee basis, which means you don’t pay anything upfront and he only gets paid if you do. Don’t wait another day, contact Stephen now.

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