Question

Cathy obtains from Depend Insurance Company a policy that provides that if a dispute arises between the parties concerning the settlement of a claim, the dispute must be submitted to an impartial third party, not a court, for resolution. This is an:

a. arbitration clause.
b. incontestability clause.
c. antilapse clause.
d. appraisal clause.

Answer 1

Cathy's policy includes an arbitration clause, which is an agreement to resolve disputes through an impartial third party rather than in court. Arbitration is an accessible form of alternative dispute resolution aimed at providing fair, timely, and community-reflective outcomes.

Step-by-step explanation:

Cathy obtains a policy from Depend Insurance Company that includes a clause requiring disputes concerning the settlement of a claim to be resolved by an impartial third party rather than through the court system. This type of clause is known as an arbitration clause. Arbitration is a form of alternative dispute resolution (ADR) where both parties agree to be bound by the decision of an appointed arbitrator. This process is generally more accessible, quicker, and less formal than legal proceedings, and it is often selected to provide an impartial resolution to contractual disagreements. It's also designed to reduce the moral hazard by ensuring due process without the steep costs of a court trial, which can lead to more equitable outcomes that reflect the communities they serve. Furthermore, to encourage fair use of insurance policies without over-utilization, policies can include deductibles, copayments, and coinsurance, requiring policyholders to pay a portion of their claim costs.