Should We Agree to Arbitration in a Contract?

Arbitration is the process of using a third party to settle a dispute instead of taking the case to court. Both sides rely on the arbitrator – an unbiased individual or panel – to come to an appropriate decision based on the facts of the case. The resulting judgment is called an arbitration award. It is legally binding and includes all of the information about the case, along with the arbitrator’s decision regarding fees, damages, or disciplinary actions to resolve the case. 

In a binding arbitration, both parties agree the arbitration award cannot be appealed – no matter the circumstances. That means that a court cannot overturn the decision since both sides committed to supporting the arbitrator’s decision in advance.

A non-binding arbitration is used when both parties wish to retain control over how the dispute is resolved. It allows either party to appeal the arbitrator’s award if they are dissatisfied with the outcome. If that occurs, the case may then go to court.

Arbitration is mandatory in cases where a contract dictates that arbitration will be used to resolve a dispute, such as when a client signs a commercial contract for a service. It is voluntary when both parties opt for arbitration to settle a dispute, such as when a company decides to settle out of court.

For more information, please contact your agent at Professional Underwriters.