When to Use Mediation and Arbitration

Alternative dispute resolution (ADR) can be an effective way to reduce the time, expense and stress of resolving professional liability disputes when used thoughtfully and in suitable circumstances. Mediation and arbitration are forms of ADR that can significantly reduce the cost and the emotional roller-coaster ride of disputes when used appropriately.

The major distinction between these two ADR solutions is the degree of control the disputing parties have over the outcome. Mediation uses a neutral advisor to assist the parties in voluntarily resolving their dispute. In arbitration, the neutral evaluator assesses both sides’ positions and makes a determination that is binding on each party.

Consider the following step-by-step approach when incorporating mediation and arbitration as part of your risk management:

  • When to use mediation and arbitration:
    • Mediation for all disputes: Our CAMICO claims experience has shown that mediation is often an effective tool in many professional liability disputes and engagements. It may lead to quicker resolutions of small matters and is often a productive tool in furthering settlement efforts in large claims. CAMICO therefore recommends mediation for all disputes and engagements.

    • Binding arbitration for fee disputes only: Our claims experience indicates that binding arbitration is often beneficial to CPAs in successfully resolving disputes over fees, but it is NOT advantageous (and often disadvantageous) to CPAs in high-dollar, complex accounting professional liability disputes, particularly attest engagements involving banks and other third parties. Why? Because the best defenses (lack of reliance, lack of causation) available to CPAs often require extensive discovery which is usually limited in arbitration.

      Consequently, CAMICO has found that binding arbitration for all disputes often exposes firms to substantially greater risk. Best practice is to NOT give up your ability to litigate disputes that could be significant in nature and to limit the firm’s use of binding arbitration to fee disputes only.


  • Establish an understanding with the client regarding how disputes will be handled. Addressing this topic on a pre-dispute basis is a proactive step toward open dialogue. Document the terms of a pre-dispute agreement in your engagement letter. In some states, ADR is only effective if stipulated as part of an engagement letter or a separate contract signed by the client.

    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. The goal of the above step-by-step approach is to encourage a collaborative resolution to disputes. You should confirm with your legal counsel, as appropriate, the applicability of ADR in your state as well as the proper legal language.




Share this post

Latest Articles

  • 24 Jun

    Indemnification: Understanding Your Risks

    By Suzanne M. Holl, CPA

    CPA firms are experiencing an uptick in clients trying to embed indemnification and hold harmless clauses in various agreements with the firms. Many of the clauses are inappropriate for CPA services or overly broad – even to the point of s... read more

  • 18 May

    Plan Ahead: Practice Continuation for Small Firms

    By Suzanne M. Holl, CPA

    No one likes to think about it, but as we age, some of us will become critically ill or injured, and some of us will experience a long-term disability. Family emergencies and obligations can also call CPAs away from their businesses for long pe... read more