Arbitration and Product Liability Claims

When defective products cause harm, consumers seek ways to hold the manufacturer or seller accountable. Litigation is a common remedy if serious injuries or property damage occur and the seller or manufacturer refuses to provide adequate compensation. However, a lawsuit isn’t the only method of dispute resolution.

Arbitration is common in product liability cases due to clauses tucked away in contracts and warranties. While it can provide a quicker alternative to court, arbitration may also limit your rights and options.

Talk to a product liability lawyer for legal guidance on arbitration.

What Is Arbitration?

Arbitration is one of several means of alternative dispute resolution (ADR). The others are mediation and settlement. Arbitration is a private process where a neutral third party (arbitrator) decides the outcome instead of a judge or jury.

Many companies include mandatory arbitration clauses in their consumer contracts. If a product defect causes harm, you must resolve the dispute through arbitration instead of filing a lawsuit. In addition, companies often specify that the arbitrator’s decision is binding. This restriction limits your options for appeal if you don’t like the arbitrator’s decision.

Mandatory arbitration can be hard to escape. One study released in 2008 found mandatory arbitration clauses in 93% of the employment contracts it surveyed and 77% of the consumer contracts it surveyed. Making matters worse, most consumers are unaware they have agreed to mandatory arbitration.

The Arbitration Process

An arbitration is similar to a trial. Some describe arbitration as “informal litigation.”

At the arbitration hearing, each side tells its version of events. Arbitrations are often held on evenings and weekends, around a conference table, via Zoom or some other form of electronic conference. You can present witnesses and evidence, such as documents and receipts. After the evidence is presented, the arbitrator decides the case.

You’re allowed to have an attorney present. You can hire an attorney to represent you during your arbitration hearing.

The arbitrator is an impartial but experienced person whom both parties select to handle the dispute. The arbitrator is usually a retired judge or lawyer mutually agreeable to you and the other side. The arbitrator applies the law to your dispute.

The arbitrator’s decision is entered as a judgment after confirmation by the court. The court approves the vast majority of arbitration decisions.

Most arbitrations are legally binding. This means the arbitrator’s decision can only be appealed in rare circumstances.

Advantages and Disadvantages of Arbitration

There are positives and negatives to arbitration, which must be carefully weighed.

Arbitration Advantages

Arbitration is cheaper than litigation. Resolving a case through arbitration is usually less costly than litigation because arbitration is quicker and generally less complicated than a court proceeding. In addition, some arbitrators charge fees based on a sliding scale based on the size of the dispute. Here are some further advantages worth considering:

• Confidentiality: This can be beneficial if the dispute causes embarrassment or reveals private information. Most companies specify in advance that arbitrations are binding and confidential.
• Quicker than litigation: Getting a court date for a lawsuit can take anywhere from 18 months to 3 years. An arbitration can be held and wrapped up in a matter of months.
• Flexible scheduling: Unlike court cases, arbitration hearings can be scheduled on weekends and evenings. Also, some people prefer that arbitration take place around a table.
• Simpler rules: In arbitration, most matters, such as who will be called as a witness, are handled over the phone. Thus, the rules of evidence and procedure tend to be simpler. 

Arbitration Disadvantages

This process is not without drawbacks. Here are some disadvantages to arbitration that you should consider:

• Damage awards: Consumer damage awards are lower in arbitration than in litigation. While consumers may win more often in arbitration, the average damage award is lower than in litigation. On average, consumers are awarded $79,945 in arbitration compared to $71,354 in litigation. 
• Less judicial oversight: You lose access to courts. Many consumers simply aren’t given a choice whether to litigate or arbitrate. Sometimes, you might prefer a jury trial rather than letting the matter go before a retired judge or lawyer.
• Potential bias: Some have expressed concerns about the impartiality of the arbitrator. If the same company repeatedly hires an arbitrator, there is a concern that the arbitrator will issue decisions favorable to the company to continue to get work.
• No appeals: An appeal is unlikely in a binding arbitration. A final decision generally cannot be appealed if you get an unfavorable decision.

Many arbitration clauses bar class action lawsuits, which are an essential right for consumers. Historically, each claim has been worth relatively little. However, companies take notice when hundreds of consumer claims are bundled together in a lawsuit. Legal experts say class action lawsuits can cause corporations to change their business practices, preventing future harm.

Can You Refuse Arbitration?

An agreement to arbitrate may be challenging to avoid. Often, simply by purchasing a product or using a service, you have agreed to the company’s terms and conditions, which include mandatory arbitration of disputes and specify enforceability.

The answer depends on the arbitration agreement’s specifics and your claim’s circumstances. You may be able to refuse arbitration in certain instances. For example, if the arbitration clause is excessively unfair, you did not knowingly agree to the arbitration clause, or the clause violates state consumer protection laws.

Reviewing Arbitration Clauses

Arbitration provisions generally specify that disputes between you and the company must be resolved through arbitration rather than product liability litigation. Before agreeing to any terms, it’s crucial to review arbitration clauses to understand your legal options carefully.

You can find arbitration clauses in contracts and agreements, product warranties, and online terms and conditions. When reviewing an arbitration clause, pay attention to whether arbitration is mandatory or optional, the scope of the arbitration clause, the costs and fees, how arbitrators are selected, and whether there is a class action waiver.

Of course, you also want to check for a provision that allows you to opt out of arbitration.

Understanding the terms of arbitration clauses can help you make informed decisions about purchases and protect your rights in the event of a dispute.

How To Handle an Unfavorable Decision

Arbitration is typically binding, but there are some actions you can take if you don’t like the arbitrator’s decision.

The first step is to determine whether your arbitration was binding or non-binding. If the arbitration is binding, the arbitrator’s decision is final and legally enforceable. Binding arbitration can be appealed, but only in a very narrow range of circumstances, such as arbitrator misconduct, the arbitrator’s failure to apply the law, or corruption influencing the arbitration process. If this is the case, you should discuss your legal options with an attorney.

Arbitration challenges are complex to win. Courts are reluctant to overturn arbitration awards.

If arbitration is non-binding, then the arbitrator’s decision is a recommendation. If you disagree with the outcome, you may have the option to take your case to court.

Need Legal Help?

Product liability claims are complex. Personal injury or property damage because of a defective product can be devastating. Even if you’re facing mandatory arbitration, a product liability lawyer can help. An experienced product liability lawyer can explain your options and represent you during arbitration.