We know an insurance company has submitted to the Texas Department of Insurance (“TDI”) a policy that requires mandatory arbitration in the event of a dispute on a claim. TDI won’t disclose which carrier submitted the new policy form or provide a copy of the proposed form on the basis of “trade secrets”… a response that makes no sense. What really makes no sense is that TDI would even consider allowing a mandatory arbitration clause into an insurance policy in Texas. Many states, like Georgia, prohibit arbitration clause in insurance policies.

Thank you to Ray Choate for pointing me to Lam v. Allstate Indemnity Company,1 which cited in its footnote 5 the case of McGowan v. Progressive Preferred Insurance Company.2 In McGowan, the court cited Section 9-9-2(c)(3) of the Code of Georgia Annotated, which is the arbitration statute within the Georgia Civil Practice Code.3 That provision says:

This part shall apply to all disputes in which the parties thereto have agreed in writing to arbitrate and shall provide the exclusive means by which agreements to arbitrate disputes can be enforced, except the following, to which this part shall not apply…(3) Any contract of insurance…however, that nothing in this paragraph shall impair or prohibit the enforcement of or in any way invalidate an arbitration clause or provision in a contract between insurance companies

Georgia understands the implication of allowing arbitration clauses in insurance policies. Georgia prohibits arbitration clauses in all insurance policies, but not in a contract between two insurance companies. Why is that? Georgia knows what the Texas Office of Public Insurance Counsel knows…

Arbitration can be appropriate and beneficial in resolving disputes between parties who are on an equal footing with respect to power, money and sophistication. When parties are not equals in these respects, arbitration proceedings place the less powerful at an extreme disadvantage

Therefore, if two insurance companies or banks or stock brokerage companies want to duke it out in arbitration, so be it. Let them at it. Those are sophisticated companies who have the same bargaining power when the contract is negotiated and the arbitration clause is agreed to. Not so for you and me and every other policyholder. Our insurance company doesn’t negotiate with us as to what provisions our insurance policy will have in it. We pay a premium and we get a booklet, which is out policy. We can’t change anything in the policy. We have to take it or leave it. Either have insurance with the policy the insurance company wrote or don’t have insurance at all. Do you think any insurance company would “negotiate” the policy language with you? Absolutely not! We are stuck with whatever the insurance policy says and we have no bargaining power to change it. And TDI is supposed to protect us by requiring carriers to get policies approved by them, but that is not happening. Instead we have TDI and Farm Bureau engaged in secret, back-room, good ole’ boy discussions and nobody is allowed to know what is proposed or voice opposition to it.

Everyone should stop what they are doing right now and call or mail or email their state representative and state senator and tell them to enact the same law Georgia has (and Louisiana too). Tell them to enact a law that makes arbitration clauses in insurance policies illegal in Texas.

1 755 S.E.2d 544 (Ga. App. 2014).
2 637 S.E.2d 27 (Ga. 2006).
3 The Texas Civil Practice and Remedies Code also has a provision dealing with arbitration, but it does not prohibit arbitration clauses in insurance policies.