Thursday, September 25, 2008
When an insurance company wrongly denies your claim, or gives you less than you ought to get, you have an arsenal of legal weapons available to you. Fact is, though, that most of these weapons are unrealistic for ordinary people, says Minnesota’s Daniel Schwarcz in a new paper, The British Approach to Consumer Financial Disputes: A Model for Reform in Insurance Law and Beyond.
Schwarcz argues that neither litigation nor alternative dispute resolution does a good job of redressing wrongful denials, and suggests that U.S. policy makers might want to look at a British model instead. Here’s the abstract:
Much of insurance law and regulation is concerned with compensating consumers who have been wrongly denied coverage. But policyholders nonetheless have relatively few realistic options for challenging an insurer's adverse coverage determination. Litigation is often too slow and costly for those who have recently suffered significant financial loss. Meanwhile, the alternative dispute resolution options that do exist - such as the mediation services that insurance regulators offer or the existing variants of insurance arbitration - are generally either ineffective or unavailable for most disputes. This Article proposes a new way forward by looking to the United Kingdom's innovative Financial Ombudsman Service, which operates in parallel to the British regulatory agency and is devoted solely to resolving consumer financial disputes. It argues that the comparative success of the Financial Ombudsman Service is attributable primarily to the ways in which it blends elements of the individual, uncoordinated insurance ADR schemes that are used in America. As such, the Article concludes that American lawmakers can significantly improve insurance compensation by strategically rethinking the institutional architecture of insurance dispute resolution. It also suggests that the British Financial Ombudsman Service may offer a model for improving consumer dispute resolution in realms beyond insurance.