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  • March 28, 2019

    Using Alternative Dispute Resolution for Professional Liability Cases

    Dispute resolution is a useful tool in resolving professional liability cases. Perry Granof explores various dispute resolution procedures, including their efficacy and advantages and disadvantages.

    Perry S. Granof

    Professional liability insurance policies provide coverage to corporate directors and officers (D&O), attorneys, insurance and real estate brokers, architects, and engineers, as well as to a host of non-medical professionals operating in different fields. All have an elevated level of duty to the customers and clients they represent.

    Perry Granof Perry Granof, U.W. 1978, is the managing director of Granof International Group LLC , in Glencoe, Illinois, where he provides insurance consulting and claims resolution services.

    The likelihood and type of alternative dispute resolution (ADR) used can vary, depending upon the nature of the professionals insured, the benefits of the specific ADR method, the strength of the professionals’ case, and whether the parties are engaged in a direct liability claim, or a coverage dispute.

    For example, an attorney who believes they have a strong defense may opt to try a direct malpractice claim to maintain their reputation and professional standing.

    On the other hand, directors and officers of American corporations sued in a direct U.S. securities class action (along with their insurers) will likely opt to settle the case through one of several ADR mechanisms.

    Dispute Resolution Forms

    In the U.S., the most common forms of ADR are voluntary or court-ordered mediations, arbitrations, and court-ordered settlement conferences.


    Mediation is perhaps the most popular form of ADR. It offers several advantages over the others.

    First, it is nonbinding. Unless it is by a court order, parties typically come to a mediation table on a voluntary basis, and if a settlement can’t be achieved during the mediation session, the parties are free to continue talking, or may elect to walk away.

    Second, it is cost efficient. Other than the cost of a mediator, the parties’ legal representatives, and the legal costs for preparing mediation briefs as well as opening arguments, mediation is a relatively inexpensive procedure.

    Finally, mediation affords the parties a measure of control over the resolution of the claim. The parties in mediation are not compelled to settle the case. The mediator helps to facilitate a settlement between the parties by, among other things, presenting the strengths and weaknesses of each party’s position.

    However, at the end of a mediation process, unless there is no resolution, the parties in the dispute compromise their respective positions upon the terms they stipulate.


    With arbitration, the parties contractually agree to be bound by the decision of a tribunal, consisting of a single or panel of three arbitrators. The parties can agree to some flexibility stipulating to the nature of the evidence that will be presented, including the presentation of documentary evidence, fact witnesses, and the use of experts. At the arbitration’s conclusion, the panel typically renders an award, which is enforceable by a court with jurisdictional authority.

    Arbitration is typically much more expensive than mediation, because it requires the presentation of evidence.

    Further, the parties have little recourse to challenge an award rendered by the tribunal with only 10 grounds to vacate an arbitral award. Unlike a trial, an award rendered by an arbitral panel is typically not appealable. Arbitral awards are confidential, however, so an arbitral award has no precedential effect.

    Court-ordered Settlement Conferences

    Court-mandated settlement conferences can be held in the presiding judge’s chambers by a judge not assigned to the case, a magistrate, or an outside court appointed neutral. Typically, settlement conferences are not voluntary. Rather, they are held at the direction of the presiding judge to explore settlement possibilities.

    The parties are certainly not obligated to settle. However, where there is a court-appointed judge, a magistrate, or a neutral, the party presiding at the conference will likely be required to report back to the judge as to whether the parties appeared at the conference with good faith intentions.

    Depending on how the mediation was handled, the judge’s attitude toward one or both of the parties could be impacted.1

    Nature of the Dispute

    As stated above, certain professional liability claims and coverage disputes, such as legal malpractice cases, are more likely to be resolved at trial, rather than through an ADR proceeding.

    Direct D&O claims are usually settled through an ADR procedure more often than not by mediation. Possible exception to this practice may be condo association and not-for-profit D&O claims, where a claimant wants to retain the right to have their day in court.

    However, the prospect of allowing an arbitration panel to render a confidential award may be attractive to an insurer when faced with a coverage dispute over policy language that may be one of multiple disputes across the country, all involving the same language.

    Also, where the amount of discovery produced in a dispute is limited by virtue of an agreement, arbitration can be significantly cheaper than litigation. As such, arbitration is an appealing alternative to litigating professional liability coverage disputes involving smaller policy limits, with the only outstanding issue being one of policy interpretation. Arbitration may be especially practical to settle residential real estate and insurance broker coverage disputes.

    Many professional liability policies often require that if there is a coverage dispute, the policyholder and insurer will engage in some form of ADR prior to asserting their claims in a court of law. Typically, the policy requires the parties to mediate before filing suit. Should the mediation fail, some polices require arbitration to resolve their coverage dispute.

    Insurance Carriers and the Dispute Resolution Process

    Several D&O carriers have established somewhat different ADR protocols in their respective policies.

    For example, AIG’s Portfolio Select policy gives the policyholder the first opportunity to choose between mediation and arbitration. Other D&O policies allow the policyholder the exclusive right to elect arbitration including the St. Paul Travelers Companies, Directors and Officers, and Company Liability Policy.

    Unlike direct insurance disputes, arbitration is particularly efficient in the reinsurance world, especially where the arbitrators are highly familiar with the disputes at issue and the insurer/reinsurer community can avoid the adverse precedents that may be rendered by a court of law.

    In addition, ARIAS is a U.S. arbitral-based organization established by the insurance/reinsurance industry to resolve reinsurance disputes. Its heyday was during the asbestos crisis, when reinsurance disputes abounded. Now that such disputes have subsided, ARIAS is looking for new opportunities.

    One such opportunity is to become a resolution agency for insurance coverage disputes. One of the problems ARIAS faces is the challenge of developing a neutral panel of arbitrators so policyholders can get a fair hearing. One obvious challenge is training a new panel of neutral arbitrators who are not necessarily insurance professionals enmeshed in the process of evaluating insurance coverage issues.

    However, a sophisticated and well-trained panel of neutrals may ultimately evolve into a well-recognized ADR institution for direct professional liability claims and coverage disputes. It remains to be seen who would provide such training and at what cost.

    An Effective Means of Resolving Claims and Disputes

    In conclusion, depending upon the parties involved, the exposures at issue, and the operative policy language, ADR is an effective method of resolving many, if not most professional liability direct claims and coverage disputes.

    With the rise and diversification of such organizations as ARIAS, the alternative dispute resolution process for professional liability claims may be becoming even more popular.

    This article was presented at the Chartered Institute of Arbitrators, Seminar or Professional Liability, London, U.K., on March 14, 2019.


    1 See Resolving Insurance Claim Disputes Before Trial (ABA, 2018), p. 211.

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