When to Use Mediation and Arbitration

Mediation for all disputes

Claims experience has shown that mediation has a high success rate when used as a first step to resolve all disputes, regardless of the engagement. CAMICO therefore recommends mediation for all disputes and engagements, except when the anticipated cost of a mediator exceeds the fees owed.

Arbitration for fee disputes only

Claims experience has also shown that arbitration is successful in resolving basic disputes over fees, but it is not as successful in consistently achieving fair resolutions to high-dollar disputes involving complex engagements. Decisions over whether to litigate versus arbitrate in high-dollar, complex professional liability cases can be difficult and fraught with unpredictability.

Confirm with your legal counsel and liability insurer the applicability of agreements for mediation and arbitration (also known as Alternative Dispute Resolution) in your state. In some states these agreements are effective only if they are used as part of an engagement letter or a separate contract signed by the client.

Establish an understanding with a client for how disputes will be handled.

Addressing this topic on a pre-dispute basis is a proactive step towards encouraging honest and open dialogue during the course of your engagement. An ideal place for this type of pre-dispute agreement would be your engagement letter.

Take the time to understand your rights and obligations under the pre-dispute agreement.

Many firms relying on the advice of others use language within the engagement letter stipulating the use of mediation and/or arbitration without truly understanding the impact of the language to their practice. For example, attorneys who may or may not understand the nuances of the professional accounting services rendered by a CPA firm might provide guidance that could put the CPA in a position of greater risk, as opposed to the goal of minimizing risk.

Don’t assume that conflicts will never happen to you.

Unfortunately, conflicts are inevitable at some point in our professional career. Coping with the dynamics of our changing profession requires a proactive approach of establishing processes to deal with such conflicts and to avoid the possible expectation gaps in our business relationships.

Don’t give up your ability to litigate disputes that could be significant in nature—don’t limit yourself to binding arbitration for all disputes.

The arbitration process, by design, is different from litigation in that the arbitrator has considerable discretion in the admission of evidence and can limit the rights to discovery, cross-examination, and testimony. Based on CAMICO’s claims experience and the large dollar amounts spent to date on specific claims stemming from the inappropriate use of binding arbitration, we have found that binding arbitration for all disputes is unwise and can expose you to considerable risk. However, mediation for all disputes is a useful tool for encouraging the parties to voluntarily resolve their differences.

When to Use Mediation and Arbitration

When to Use Mediation and Arbitration

The goal of the two-step program of mediation and arbitration is to encourage a collaborative resolution to disputes without either party giving up the right to litigate the more significant (high-risk) disputes.

Again, confirm with your legal counsel and liability insurer the applicability of Alternative Dispute Resolution agreements in your state.

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