The Department of Insurance is considering a rule restricting forced arbitration in insurance policies and has asked for input. Mandatory, pre-dispute arbitration limits the legal rights of consumers by forcing them into a costly, secret, unappealable process that favors big insurance companies over policyholders. Ensuring that policyholders maintain their full legal protections by formally banning forced arbitration is crucial.
Here are our comments to the Department of Insurance:
“The Texas Department of Insurance (TDI) should be commended for seeking to find ways to preserve policyholders’ substantive legal rights. Nine other states, primarily in the South and West, have already taken action to eliminate arbitration in insurance contracts. Moreover, Texas courts have already underscored the state’s authority to regulate the use of arbitration by insurance carriers.
TDI’s duty to the public calls for an unambiguous ban on the use of forced arbitration by insurance carriers. Failure to do so is a betrayal to the millions of Texas families who count on their regulator as the first line of defense against predatory practices.
Insurance consumers occupy a uniquely vulnerable position. Presented with non-negotiable, take-it-or-leave-it contracts of adhesion written in opaque legalese, forced to part with their dollars up front in exchange for a promise of performance in the future should a peril occur, and required to purchase insurance products to drive legally, mortgage a home, or navigate the necessities of life, they have no leverage over – or bargaining power with – their insurance carrier. Demand is artificially ensured for insurance products, and carriers are paid up front. It isn’t just that policyholders face a stacked deck so much as the fact that industry holds the entire deck.
The last and most direct line of defense that policyholders possess against abuse by the insurance industry are the rights and remedies provided by Chapters 541 and 542 of the Texas Insurance Code. These carefully considered statutes protect policyholders from unfair insurance practices and deliberate delays in the payment of legitimate claims. Policyholders have been beset by rising premiums and shrinking coverage for too long. The last thing these consumers need is for industry to eviscerate their remaining substantive legal protections through the imposition of pre-dispute mandatory binding arbitration clauses.”
Read Full Comments (PDF)