Connecticut Law Revises Arbitration Costs and Interest in Insurance Disputes

Connecticut has enacted a new law reforming the arbitration process for insurance disputes where parties agree on the owed payment but not the amount. Effective immediately, these cases must proceed through arbitration after failed state-run mediation, focusing solely on payment amounts rather than coverage or fault issues. The state's Division of Consumer Affairs will oversee arbitration, which requires insurers to pay undisputed amounts promptly, allowing claimants to receive partial payments while disputes continue. Approved arbitrators, selected by the state's insurance department, must issue rulings within 15 days of hearings.

The law introduces financial accountability for insurers by imposing potential 15% annual interest on delayed payments of disputed amounts and shifting some arbitration costs to insurers if decisions rule against them. However, if claimants reject settlement offers matching or exceeding the arbitrator's award, insurers are exempt from these costs. Arbitration fees have increased significantly since 1989, currently averaging over $3,000 per hearing, although the number of hearings remains low, with approximately 29 per year and about half favoring claimants.

The new statute is projected to generate additional revenue for the state, with estimates of around $35,000 in 2026 rising to $50,000 annually, based on consistent hearing volumes. Industry groups expressed concern over cost shifts, arguing insurers already contribute to departmental funding and that arbitration costs should remain state expenses. Nonetheless, due to the low volume of hearings, opposition is tempered.

This legislative change aims to expedite claim payments, reduce insurer delays, and provide clearer mechanisms for disputing outstanding amounts. By attaching interest penalties and cost responsibilities, the law encourages insurers to resolve payments promptly and may deter protracted disputes over owed sums. The reform represents a policy shift towards enhanced efficiency and accountability in Connecticut's insurance arbitration landscape.