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Geoff Trachtenberg
Geoff Trachtenberg
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Arizona Considering Unconstitutional Changes to Compulsory Arbitration Procedure To Benefit Insurers

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In the past I have written about the compulsory arbitration procedure in Arizona.

Currently, there is a bill, SB1054, in the Arizona Legislature amending ARS 12-133, i.e., changing the mandatory arbitration procedure.

While I could care less about the bulk of main charge of the amendment (i.e., to raise the permissible arbitration limits to $65,000 and modestly raise arbitrator pay), it also includes a proposal to reduce the “Rule 76(f) appeal penalty” from 25% to 23% (by the way, if you follow the link to SB1054, the current version of the bill does not show this change, but if you select “Adopted Amendments,” then you will see the change was made by the Commerce and Judiciary Committees).

This change is going the wrong direction, and guess who’s pushing it? Insurers, of course.

Why? Because insurers routinely appeal these matters and, therefore, are exposed to significant penalties for failing to improve their position by 25% from the arbitration award. Insurers have an institutionalized program of appealing these matters to wear down parties, thereby encouraging them to accept low ball offers, and to discourage good attorneys from taking on such matters since they are not economical.

The current appeal penalty provides a better balance, forcing insurers to be more realistic about settlement and fairly compensating claimants who are needlessly put through the exhausting appeal process.

Aside from this bill being a bad idea, it is also likely unconstitutional.

ARS 12-133 has always been a riddle wrapped in an enigma. The Rules attorneys all follow are the “Rules of Civil Procedure 72-76,” not ARS 12-133.

How can the Legislature tell the Supreme Court to change those “Rules of Civil Procedure” when such procedural rules are exclusively promulgated by the Supreme Court? This is a clear unconstitutional attempt to make a procedural rule, in violation of Article 6, Section 5(5) of the Arizona Constitution, and is a violation of the separation of powers.

Effectively, ARS 12-133 has been nothing but a public policy endorsing a system that the Supreme Court is clearly responsible for setting up and regulating. The Legislature’s micro-managing de novo appeals is inappropriate and sets a dangerous precedent by politicizing the compulsory arbitration process to favor special interest groups (i.e., insurers).

Today it’s 23% percent; tomorrow we’ll be back to 10% (which is what it was when the system was first put in place). Rule 76(f) is an important hammer for obtaining fair, expedient and economical results smaller cases and, while this is a small change that will probably not affect many cases, it is not a good change and signals that more changes are to come.