DATE: March 5, 1998
RE: Approval of Arbitration Agreements Departmental Guidelines and Requirements
This Bulletin is written to advise all insurance companies, health maintenance organizations
or any other corporation filing policies with this state containing arbitration
provisions, certain guidelines and requirements must be complied with before approval
will be granted. The guidelines, which are available from the Department, address
the style of type, notification to the insured, cost of arbitration, location of
the arbitration, rules governing the proceedings and the fact non-binding mediation
be used as a prerequisite to arbitration. Other factors are included in the guidelines
which should be reviewed carefully prior to submitting policies for approval containing
binding arbitration provisions. No binding arbitration provisions will be approved
unless they comply specifically and exactly to the guidelines.
These policy guidelines do not affect any arbitration agreements previously approved.
The policy guidelines only affect the following:
- New submissions with arbitration clauses;
- Adding arbitration to existing policies;
- Any changes or modifications to existing arbitration agreements;
- Any modification to a policy which contains arbitration agreements, regardless of
whether the modifications affect arbitration, shall include the policy guidelines.
The notice disclosure shall be implemented within thirty (30) days of receipt of
The Department of Insurance will approve the use of pre-dispute arbitration agreements
in connection with life, health and annuity, and property and casualty policy forms
covering residents of Alabama subject to the following requirements:
The terms and conditions of a policy of insurance that requires the binding
arbitration of disputes and prescribes the procedure for arbitration
(hereinafter "the arbitration provision") must be set forth in either the
policy or on a separate endorsement. The arbitration provision must be
displayed in at least 12 point type, capitalized and in bold print.
Whenever the policy contains an arbitration provision, at the time the
application is taken the policy application or a separate disclosure statement
must contain an appropriate disclosure that the policy contains the arbitration
requirement (hereinafter "the arbitration disclosure."). The arbitration
disclosure must be worded in plain English and be unambiguous. It must be
displayed in at least 12 point type, capitalized and in bold print. At the
minimum it must contain the following disclosures if applicable:
The policy includes a binding arbitration agreement.
The arbitration agreement requires that any disagreement related to this policy
must be resolved by arbitration and not in a court of law.
The results of the arbitration are final and binding on the insured and the
In an arbitration, an arbitrator, who is an independent, neutral party, gives a
decision after hearing the positions of the parties.
When the insured accepts the insurance policy the insured agrees to resolve any
disagreement related to the policy by binding arbitration instead of a trial in
court including a trial by jury.
Arbitration takes the place of resolving disputes by a judge and jury and the
decision of the arbitrator cannot be reviewed in court by a judge and jury.
The policy application or a separate disclosure notice containing these
required disclosures must be signed at the time of the application. Use of the
form contained as Exhibit A to these guidelines will satisfy this requirement.
The arbitration provision in the policy may provide for non-binding mediation
as a prerequisite to arbitration.
The arbitration provision must either set forth or reference the rules that
will govern the arbitration proceedings.
The arbitration provision must clearly state whether or not, and if so, the
extent to which the arbitration award is subject to court review.
The arbitration provision must state that the cost of all arbitration
proceedings shall be borne by the insurer, with the exception of the cost of
representation of the policy applicant/owner. The arbitration provision shall
also clearly indicate that should the arbitrator find that the dispute is
without substantial justification, then the arbitrator shall have the authority
to order that the cost of the arbitration proceedings be borne by the policy
The arbitration provision shall require that all arbitration proceedings shall
be conducted in the county of residence of the policy applicant/owner unless
another location is mutually agreed upon by both parties.
The arbitration provision shall require that arbitration proceedings shall
commence within a fixed time after the first notification of one party by the
other as to their election to arbitrate a dispute regarding the policy.
Compliance with arbitration guidelines:
Nothing contained herein shall be deemed to require the amendment of, or
require notice to the policyholder, or to affect the validity of any policies
of insurance, applications or forms containing arbitration provisions the
Department has previously approved.
A policy previously approved which contains an arbitration provision may be
amended to conform the arbitration provision to these guidelines and should be
submitted for approval.
A policy containing an arbitration provision that is amended for any reason
other than to bring it into compliance with these guidelines, must also be
amended to bring it into compliance with these guidelines.
A policy that is being amended to add an arbitration provision must comply with
Compliance with these guidelines under the circumstances described in (a), (b),
and (c) of this item will be satisfied if the arbitration provision of the
policy conforms to the requirements of Items 1, 4, 5, 6, 7, 8, and 9 of these
guidelines and the "arbitration disclosure" prescribed in Item 2 as set out on
a separate document included with the notice to the policyholder of the
amendment to the policy to add the arbitration provision.
Effective thirty (30) days after you receive this bulletin all future
applications and renewals shall include the required disclosure.