Amy Bach, Executive Director of United Policyholders (“UP”), has shared with me the letter she sent to David Mattox (Texas Commissioner of Insurance) on the issue of mandatory arbitration provisions in homeowner policies. Here is a link to that letter for you to read.
We know an insurance company has submitted to the Texas Department of Insurance (“TDI”) a policy that requires mandatory arbitration if a dispute on a claim occurs. TDI won’t tell anyone which carrier submitted the new policy form or provide a copy of the proposed form on the basis of “trade secrets,” which is total bull corn. The bait and switch in this mandatory arbitration scheme is that the homeowner pays a lower premium if she agrees to waive her constitutional right to trial by jury and go to arbitration instead. The problem is that most people have no idea what a hellish and unfair experience arbitration can be. And the problem is that arbitration is final and not appealable. Therefore, the homeowner is stuck with a bad result.
We believe the insurance company who submitted the mandatory arbitration provision for approval by TDI is Texas Farm Bureau (“TFB”). We have seen an explanatory memo from Texas Farm Bureau to TDI about this proposed policy form. That memo indicates that TFB selects who the arbitrator will be—through a company called Conflict Solutions of Texas—and TFB pays the entire tab. The reason TFB agrees to pay the entire tab is that they know that if the homeowner had to pay for half the arbitration the arbitration clause would not be enforced by the courts. And it makes TFB look like good guys. But let’s get real. I don’t know about you, but if I walked into an arbitration where my arbitrator was hand-picked by the insurance company and was being paid 100% by the insurance company, I would feel like a fat calf heading for slaughter.
Another frightening aspect of the TFB mandatory arbitration scheme is that it gives the arbitrator the authority to “reform the agreement if any term is found to be unenforceable.” In a court of law the rule is that because the carrier wrote the policy it will be interpreted against the carrier and in favor of the policyholder. Any ambiguity in the policy is interpreted in favor of the policyholder. But under the mandatory arbitration scheme, an arbitrator hand-picked by the insurance company and paid 100% by the insurance company has the power to unilaterally change the wording of the policy in favor of the insurance company. This is crazy, crazy, crazy. This is why this scheme is patently unfair to Texas citizens.
If you have not done so already, please send a letter to the Texas Department of Insurance opposing any mandatory arbitration scheme.