Alternative Dispute Resolution

Alternative Dispute Resolution (ADR): Definition and Meaning

What Is Alternative Dispute Resolution (ADR)?

Alternative dispute resolution (ADR) is, in an insurance sense, a number of disparate processes used by companies to resolve claims and contractual disputes. Insured clients who are denied a claim are offered this course of action as a form of recourse. It is employed to avoid expensive and time-consuming litigation and arbitration.

Types of Alternative Dispute Resolution

Many insurance policies contain mandatory alternative dispute resolution clauses, depending on the state. The two most common forms of alternative dispute resolution are mediation and arbitration, though there are other types as well.

Mediation

Mediation occurs when an independent third party steps in to try and find a way for the insured and the insurer to agree on a mutually acceptable outcome. The mediator is not called upon to decide who is right but rather to add structure to communication between the disputing parties, so that they can, hopefully, eventually reach a resolution between themselves.

Arbitration

Arbitration occurs when a neutral independent party called an arbitrator listens to arguments from both sides, collects evidence, and then decides on the outcome of the dispute, similar to a court ruling. Arbitration can either be non-binding or binding. The latter means the decision is final and enforceable, while the former implies that the arbitrator’s ruling is advisory and only set in stone if both parties agree to it.

Negotiation

Negotiation occurs when there is direct contact between the parties to a dispute. In order to arrive at a solution that is acceptable to both parties, it enables the parties to debate their views, interests, and prospective solutions. The parties may choose to negotiate informally amongst themselves or with the aid of lawyers or other representatives.

Collaborative Law

In a collaborative law process, the parties and their separate attorneys agree to settle their differences without going to court by negotiating and coming up with solutions. The emphasis is on collaboration and coming up with original solutions that satisfy the requirements of all parties. In many ways, collaborative law may be seen as negotiation as long as the parties seem to be in stronger correlation to how resolution is to be met.

Mini-Trial

In a mini-trial, each party’s representatives present their case to an impartial third party. That third party is usually a senior executive or an impartial advisor, and this presentation is part of a structured negotiating process. In order to assist the parties in reaching a settlement, the third party offers an assessment or opinion on the likely course of the case. Though this may mirror a formal court proceeding, it is done in a much more private setting with many fewer parties. 

The Bottom Line

ADR refers to techniques for settling disputes that are not handled through traditional litigation. It gives parties a flexible and cooperative method to arrive at agreements that are agreeable to both parties. Mediation, arbitration, and negotiation are the main forms of ADR, and ADR strives to expedite resolutions, cut expenses, and encourage more agreeable agreements. It can be used in a variety of issues, though there are many cases where it is not necessarily appropriate.

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