When parties have elected to participate in an arbitration, they may choose to take advantage of a guarantee for recovery based on high-low arbitration. The practice has grown in popularity in personal injury and medical malpractice arbitration but is still relatively new to the alternative dispute resolution world.
Some critics of the process believe that the high-low agreement undermines the authority of the chosen arbitrator and can directly impact the validity and enforceability of the award. On the other hand, proponents often argue that it helps give the parties peace of mind knowing that they will have a guaranteed amount that will not exceed a set amount. However one looks at the process, it is vital to understand the basics of high-low arbitration and evaluate the benefits and drawbacks of putting this process into practice.
High-Low Arbitration Defined:
- High End: This is the highest that the parties have agreed that an arbitration award can go for their dispute. If an arbitrator awards more than the high end to a party, the award will be adjusted down to the agreed-upon maximum.
- Low End: This is the lowest point that a party would be willing to accept out of the award. If an arbitral award is below this threshold, it will be raised to meet the minimum.
- Agreement: This agreement surrounding the high and low end must be explicitly agreed to by the parties. The parameters will not be honored or enforced if the parties have not consented. It should be in writing to protect the parties involved. The agreement allows the parties to set their boundaries and ensure that the result is fair.
- Confidential: The parties will often set these parameters up to ensure that they receive a fair award, so they usually do not share these parameters with the arbitrator but adjust later. This helps the parties confirm that they are not giving the arbitrator the ability to follow what they would like but to issue a ruling that she sees as fair.
- Adjustment: Once the award has been granted, it will be adjusted based on the range. If it is under the minimum, the parties will increase it. If it is above the maximum, it will be lowered to meet it.
High-low arbitration does not need to have all of these characteristics at once, yet most of them will need to be present to find a high-low arbitration.
Benefits:
High-low arbitration can bring many benefits to the parties participating in it, including more surety and a higher rate of satisfied parties. The benefits of high-low arbitration are:
- Guarantee: If a party is a receiving party, they are guaranteed a certain minimum amount of the money that the parties have previously agreed on, regardless of the arbitrator’s award. The party that will be paying will guarantee that they will not need to pay over a certain amount, which can help keep companies and other parties from draining money in lawsuits.
- No Effect on Process: Because the parties usually will not alert the arbitrator to their arrangement, the arbitrator will be free to make the same award they would have without the agreement. The parties will sort it out later. This allows the arbitrator to continue to see the case objectively and make a ruling they believe is fair.
- Time: In many cases, the parties will be able to save time by reaching this agreement and not having to convince the arbitrator to award a very high or meager amount.
- Policy: This practice does allow many insurance providers to keep their payouts lower and make them more predictable. When this happens, insurance premiums may drop. This benefits insurance companies and those who use them, but it may not benefit everyone, especially those entitled to a higher payout having to push the peak range.
This process allows the parties to be sure about the possibilities while going into arbitration, which can help more people feel at ease about the use of arbitration.
Drawbacks:
While high-low arbitration can help produce awards that everyone can agree on, it has some drawbacks. These include:
- Fault: Because high-low arbitration is most commonly used in situations where the parties debate the responsibility surrounding an injury, there is a risk that the agreement to pay something indicates some admission of fault. This can be overcome, but it can be an essential consideration.
- Policy: Some critics of the process state that the practice undermines the arbitrator’s authority and undercuts their position. This can lead to decreased trust in the arbitration system and a lower acceptance of the awards and the process entirely.
- Forfeiting: To participate in arbitration, a party gives up their right to a trial on the issue. As a result, when there is a high-low agreement, the parties risk losing out on the larger or smaller awards to which they may be entitled, which can be difficult for some parties.
Like any dispute resolution practice, high-low arbitration is not for every dispute. However, it can be a valuable tool in reaching a resolution that all parties can agree on when it works for the parties.
Mark holds a Ph.D. in Leadership (Alliant's Marshall Goldsmith School of Management), an MBA in Finance (Pepperdine’s Graziadio School of Business), a Master's in Dispute Resolution (Straus Institute for Dispute Resolution, at Pepperdine Caruso School of Law) and a BSc in Urban Planning (Cal Poly Pomona).
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