The Lawlessness of Arbitration

Abstract:     
This Essay identifies and analyzes the problems that may arise when insurance coverage disputes are subject to mandatory, binding arbitration. We argue that arbitration often involves a form of contractual "lawlessness" that is especially undesirable in claims that involve new legal issues. This lawlessness not only adversely affects the parties to each dispute, but the legal system as a whole. As a consequence, in our view insurance policyholders should be reluctant to purchase policies that require binding arbitration of coverage disputes. In addition, since the problems that we identify are likely to arise not only in insurance, where new, cutting-edge issues have regularly emerged for decades, but also in other kinds of disputes posing new legal issues, the legal system should reconsider the highly favorable stance that it takes toward mandatory, binding arbitration in general, so as to take account of the negative effects of arbitration lawlessness. A neutral legal and judicial stance toward binding arbitration would be more appropriate.

Working Paper Series