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How we resolve our disputes

Entries in bad faith (1)

Tuesday
Jun292010

Shocking arbitration award reinstated

The ninth circuit court of appeals has reinstated a $6.4 million arbitration award against Lloyds of London for bad faith refusal to pay a medical doctor’s claim for benefits under a disability insurance policy. The case is yet another example of experienced attorneys overplaying their hand. All three arbitrators on the panel agreed that the insurance company had clearly breached the contract, but the company apparently believed its liability was nowhere near what the plaintiff was demanding. The insurance company challenged the award in the federal district court, which set aside the award because it was “shocking.” The ninth circuit held that was not grounds for setting aside an award under the Federal Arbitration Act.

A major 2008 study concluded that plaintiffs tend to make more errors more frequently in their estimates of the value of a case, but defendants do so with greater severity. The study found that when plaintiffs rejected a pre-trial settlement offer that was higher than the ultimate verdict or award, they were off by an average of $43,100. But when defendants rejected a pre-trial settlement demand that was lower than the ultimate verdict or award, they were off by an average of $1.14 million. Lloyds of London and other insurers might want to consider that before taking their chances in litigation or arbitration. A good mediator should be familiar with this study in order to make both parties fully aware of their risks and alternatives to a negotiated settlement.