1. Forms
2. PR
3. PR-24-02

What the form is

The PR 24 02 Binding Arbitration endorsement is an Insurance Services Office (ISO) form used in conjunction with professional liability coverage forms, particularly for health care providers. Its primary purpose is to establish a mandatory and binding process for resolving disputes between the insurer and the insured concerning whether a claim is covered under the policy. If a disagreement arises, instead of resorting to litigation, both parties agree to submit the dispute to a panel of three arbitrators. The decision rendered by a majority of the arbitrators (any two out of three) becomes final and legally binding on both the insurer and the insured, with no option for appeal.

Classes of business it applies to

This endorsement is typically used with professional liability insurance policies for various health care providers. Examples include:

• Hospitals
• Clinics
• Physicians and surgeons
• Dentists
• Other allied health care professionals and facilities

For instance, if a hospital has a professional liability claim denied by their insurer based on a coverage interpretation, and this endorsement is part of their policy, the hospital and the insurer would have to resolve this dispute through the binding arbitration process outlined in the endorsement, rather than going to court.

Special considerations

There are several important considerations regarding the PR 24 02 endorsement:

• Binding Nature: The most critical aspect is that the arbitration is binding. This means that both parties give up their right to appeal the arbitrators' decision in court. This can lead to quicker and potentially less expensive dispute resolution compared to litigation, but it also means the outcome is final.
• State-Specific Rules: The availability and specific wording or applicability of arbitration clauses can vary by state due to differing state laws and regulations regarding insurance and arbitration. For example, the PR 24 02 endorsement, along with the Non-Binding Arbitration endorsement (PR 24 01), was withdrawn in Louisiana for policies written on or after September 1, 1999.
• Voluntary Agreement: While the arbitration is mandatory once a dispute arises under a policy containing this endorsement, the inclusion of the endorsement itself is typically a matter of agreement between the insurer and the insured at the time the policy is purchased or renewed.

Key information for agents and underwriters

Agents and underwriters should be mindful of the following:

• Disclosure to Insureds: Agents should clearly explain the implications of a binding arbitration endorsement to their clients, ensuring they understand they are waiving their right to a court trial and appeal for coverage disputes.
• Risk Assessment: For underwriters, the presence of a binding arbitration clause might be viewed as a tool to manage litigation costs and achieve more predictable outcomes in coverage disputes. However, the inability to appeal an unfavorable arbitration decision is also a risk.
• Regulatory Landscape: It's crucial to stay updated on state-specific regulations concerning arbitration clauses in insurance policies, including any prohibitions or modifications. The withdrawal of this form in states like Louisiana highlights this need.
• Pricing and Underwriting Guidelines: The decision to include or offer this endorsement might be influenced by the insurer's underwriting guidelines for specific classes of professional liability risks. It may impact the perceived risk profile and potentially the premium.