DEFINITION of Alternative Dispute Resolution

Alternative dispute resolution is an insurance sense, a number of disparate processes used by insurance companies to resolve claim and contractual disputes. Insured clients who are denied a claim are offered this course of action as a form of recourse. It is employed to avoid expensive and time-consuming litigation and arbitration.

BREAKING DOWN Alternative Dispute Resolution

Alternative dispute resolution can take many forms. Examples of this type of resolution are non-binding arbitration and simple, direct negotiation between the insured and the carrier. In some cases, a neutral third party can be brought in to act as a mediator, if necessary.

Mandatory Clauses

Many insurance policies contain mandatory Alternative Dispute Resolution clauses, depending on the state. This can be time- and money-saving for consumers, but not always, especially when a substantial and complex claim is under dispute and there are widely differing views of how the facts are interpreted. It's wise to first exhaust all your appeals within the insurance company and or hire a public adjuster to represent you before considering dispute resolution.

Public adjusters will make their own assessment of the case with a report you can then submit to your insurance company.  A benefit of using public adjusters though is that, similar to insurance attorneys, they are paid a commission off of the recovery. In other words, they only get paid if you do, which encourages them to work in your best interest. Public adjusters are also hired to assess the work done by the independent adjuster to assure corners have not been cut and that the homeowner is receiving as much as they can.

Mandatory arbitration is only as good as the mediator or mediators who hear the case. Many mediators come from the insurance industry, so there may be a built-in tilt toward the insurers' point of view. They may interpret clauses in the policy by the norms and standards of the industry, which could be quite different from what a policyholder or typical consumer might read into a clause in the boilerplate.

But civil suits are expensive to pursue and if you can get an attorney to take your case on a contingency basis, you'll typically give up at least a third of any money you are awarded.

Mediation is usually a voluntary process to see if the two sides can come together. Arbitration is binding on both parties and there's no right to appeal. Depending on the situation, in arbitration the laws of another state may prevail.