April 11, 1999

The Montgomery Advertiser


Arbitration Clauses Buy Potential for Much Injustice

By Greg Breedlove

Let the buyer beware.

Those words were never truer than they are today in Alabama. Consumers in Alabama are facing an unprecedented assault on one of their most basic legal rights: the right to go to court before a jury of their peers. And the insidious nature of this attack makes it all the more compelling for the public to educate itself to the impact that the incorporation of arbitration agreements into consumer contracts will have.

Whether the consumer is trying to buy a car, purchase or maintain insurance coverage, have a pest control company come to their home or any number of other day-to-day, necessary business transactions, Alabama citizens are being forced to sign arbitration agreements in order to secure the products or services they need.

Until just a few years ago, arbitration agreements were considered by Alabama courts to be unenforceable and prohibited by law. Then, in 1995, the U.S. Supreme Court ruled that transactions involving interstate commerce would be governed by the Federal Arbitration Act and, thus, arbitration is permissible in Alabama.

Subsequently, the Alabama Supreme Court has issued opinions that drastically reduce consumer rights in seeking redress in a court of law for virtually any type of misconduct on the part of the contract issuer.

On the surface, this arrangement might sound reasonably fair to both parties. Each side gets to state its case and than a trained arbitrator, after hearing the evidence, renders a ruling that both sides must follow. The dispute doesn't get tied up in court, the parties may avoid the expense of hiring an attorney, and justice will be served. Unfortunately, the reality of arbitration agreements in Alabama today is far from fair to the consumer.

Arbitration agreements are often presented in a "take it or leave it" fashion. If you want to buy a car, you are given the choice of signing the agreement or being denied the car. Many of the arbitration clauses in use today also reserve the right to go to court only for the seller.

Important factors of any arbitration agreement include who sets the arbitration rules, who chooses the arbitrator and who has to pay the cost of arbitration and when. Under rules adopted by the James administration for use by Alabama insurance companies -- rules written by an Alfa Insurance Co. attorney -- the insurance company picks the arbitrator and the claimant pays the cost. And those costs can be as high as $ 1,250 in fees and hourly rates up to $ 1,000 per day. In essence, the insurance companies are rigging the system against all -- even legitimate -- complaints.

Perhaps most punitive of all, in many of these agreements is the requirement -- upheld recently by the Alabama Supreme Court -- that the claimant must prepay the filing fee and the hourly rates of the arbitrator.

What kind of justice do you think is available to the poor or middle class family under this type of requirement? For purely economic reasons they are excluded from having their claims heard.

Couple this with the current standards of arbitration, as set forth by the American Arbitration Association, and the average Alabama consumer is fast being put behind the proverbial eight- ball.

Those standards state that the normal rules of evidence used in Alabama courts do not apply. The arbitrator will be the sole judge of what evidence can or cannot be offered. There is no right of cross-examination, since the arbitrator can decide to only take written testimony. In spite of its alleged cost-saving benefits, the use of arbitration is fraught with potential danger for consumers.

The importance of this issue was not lost on many candidates during the last election who took the position that mandatory arbitration is anti-consumer. Virtually every daily newspaper in this state took the same position and called upon the governor and the attorney general -- as advocates for the people -- to stand up to the insurance companies and other users of arbitration clauses and say that this is against the best interests of Alabama citizens.

I urge every reader of this column to contact their legislator and Gov. Don Siegelman's office and tell them that you are for the American system of justice by jury and against arbitration. Secure a commitment from them to oppose the inclusion of arbitration in Alabama contracts.

And, in the meantime, if you sign any contract, remember to ask the seller or insurance company a very simple question: "Is there an arbitration clause in this contract?" If the company telling you to sign the contract says "yes," ask them outright: "Will you take out the arbitration clause? What is wrong with a jury trial?"

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