Arbitration clauses are becoming much more common in property insurance policies. On January 25, the Kentucky Department of Insurance noted that arbitration clauses in property insurance policies will generally be void:1


The Department has experienced a recent increase in form filings containing various references to ‘arbitration‘ or other procedures for out-of-court dispute resolution between an insurer and its policyholder.

Consistent with KRS § 417.050 (”Validity of arbitration agreement — Exempt agreements”) and controlling court decisions, the Department will reject insurance policy forms that require arbitration of a dispute (”mandatory arbitration”) as void and misleading per se. Surety contracts containing arbitration provisions are specifically exempt from this prohibition under the authority of Buck Run Baptist Church, Inc. v. Cumberland Sur. Ins. Co., 983 S.W.2d 501 (Ky. 1998).

Policy provisions offering – but not explicitly requiring — arbitration (”voluntary arbitration”) will be subject to disapproval if they contain misleading or ambiguous language or headings. Additionally, Kentucky’s Uniform Arbitration Act does not recognize “non-binding arbitration.” Therefore, policy forms containing this term may be subject to disapproval under KRS § 304.14-130 (‘Grounds for disapproval‘).

The commissioner’s approval of a policy form does not insulate an insurance provision from judicial review. Bishop v. Allstate Ins. Co., 623 S.W.2d 865, 867 (Ky. 1981). Insurers are encouraged to review their own policy forms for compliance with applicable law.

We have noted the fight about arbitration clauses trying to be placed into policies by insurers and the removal of appraisal clauses in a number of posts:

Still, the trend is clear—some members of the insurance industry are now trying to write contracts with the most favorable language they can to exclude their customers from being able to use the local state judicial system and favorable consumer protection laws. They are doing so in part through the use of arbitration clauses which pick law and arbitration tribunals in their favor.

Quote of The Day

“When the end of the world comes, I want to be in Kentucky because it’s always twenty years behind the times.”
—Mark Twain
1 Insurance Bulletin 2019-1, Kentucky Department of Insurance.

  • Edward Fako

    That is a good affirmative recognition that the Venue for Appraisal where ADR provides less restrictive choices of law and a potentially slightly more favorable Judiciary to lean upon for Declaratory Action interpretive support.

    My question is;
    Since Illinois has case law that the Majority of influential Rulings have determined that Appraisal Is Analogous To Arbitration, how could this Kentucky decision be utilized to more favorably continue to support the Appraisal Process on Illinois?

    Is Appraisal Set In Stone for Illinois, since the State is one that has adopted the NY Standard 165 Line Fire Policy as the basis of minimum standards to exist in Insurance Policies?

    Lastly, I personally do sense a possibility that Arbitration, even if not deemed Mandatory in Illinois, will be utilized, forced or sternly pushed by the Insurance Carriers, therefore I would like to become a Certified Arbitor and Referree or Umpire in anticipation of Arbitration becoming more aggressively asserted by particularly uncooperative Insurance Carriers, particularly State Farm Insurance, whom has the regional distinction of refusing to move ahead with any Policy Holders Demand For Appraisal? Lastly then, which Arbitration Association and Rules should be pursued to follow through with this goal in mind? AAA, JAMS, UAA, or FAA, amongst others.

    Chip, do you have a recommended source of gaining this distinctive Certification? The letters of recommendation will be the simplest hurdle to overcome. I sincerely wish to hone my negotiating and mediating skills, with a focal point of ensuring that any ADR Panel observes strict adherence to existing Statutes and Precedential Case Law Rulings, typically by referring to articles written by your staff of well spoken Attorneys from the MLG Blog to avoid any pretenses of erroneously being charged with any Unlicensed Practice Of Law allegations.


    Ed Fako