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Arbitration vs. litigation: the endless debate

Two groups

When negotiating a professional services contract, which method of resolution should a firm choose?

The Schinnerer professional liability program strongly supports alternative forms of dispute resolution. One method that aims to reduce the cost and time of a dispute is the use of arbitration. The arbitration of claims, however, is not always in the best interest of design professionals.

In litigation, judges’ decisions are constrained by statutory and case law and the trial is governed by established rules of evidence. Arbitrators do not have similar constraints and may consider whatever evidence they want, including evidence that would be excluded in a trial. Thus, decisions are reached that may not be consistent with the law. Arbitrators also have a tendency to “split the baby”—apportioning some of the liability to each party. This approach reduces the chance of obtaining a complete defense verdict. There is a better chance of obtaining a complete defense verdict in litigation. Lastly, an arbitration award is final and binding, with a limited right of appeal, whereas the ability to request a review of a decision by an appellate court is an important procedural safeguard.

For design professionals, defenses based on statutes of limitations, or statutes of repose, or the professional standard of care tend to be more successful in litigation. In addition, design professionals typically make good witnesses and are well-received by juries.

For more than 20 years, a law firm that works with CNA in defending design professionals has urged clients to opt for litigation rather than arbitration in their contracts. Design professionals insured through Schinnerer do not need our consent to decide which method of dispute resolution to include in their contracts. Remember, however, that once a claim is brought, consent is then required. Once a design professional is involved in a claim, any agreement as to dispute resolution must be discussed with the claims representative and the insured’s attorney.

For more information on arbitration, please refer to our blog post of October 27, 2014, “Considering organizations for your arbitration,” and our Management Advisory,  “Arbitration.

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