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.