Binding Arbitration Clauses: GB Auctions, Inc. v. Old Republic Insurance Co.

A federal district court in Washington recently analyzed whether an insurance policy contained an enforceable appraisal provision or an unenforceable binding arbitration provision. In the present case, plaintiff, GB Auctions, Inc., argued the policy provision at issue contains a binding arbitration clause, and is thus unenforceable in accordance with Washington state law. On the other hand, defendants, Old Republic, argued that the provision is enforceable, merely requiring appraisal.

Ultimately, the court found the provision at issue was an unenforceable binding arbitration provision under Washington state law, noting that binding arbitration provisions deprive state courts of original jurisdiction over the underlying claims. The court highlighted the policy language which stated “[i]f there is damage or loss to your aircraft and we cannot agree with you on the amount of the loss . . . to settle the agreement. . . [e]ither you or we can request in writing that the dispute be submitted to arbitration.” Lastly, the court noted that such a process was problematic because it required more than advisory appraisal, and rather, compelled “a form of binding arbitration” that included appraisal to guide the settlement procedure.