Connecticut Gov. Ned Lamont has signed into law a measure that changes how disputed auto insurance claims are resolved through arbitration, with provisions requiring insurers to absorb some of the process-related expenses previously covered by the state.
House Bill 6435, now codified as Act 25-131, establishes a mandatory arbitration process focused solely on the amount in dispute. According to the law’s text, issues involving liability or coverage will not be addressed through this procedure.
Arbitration will be overseen by the state’s Division of Consumer Affairs and will only be available when previous mediation efforts involving the division have failed.
Under the statute, insurers must pay the undisputed portion of the claim upon receiving written notice that the matter has been referred to arbitration. This requirement does not prevent the claimant from continuing to pursue the disputed portion through arbitration.
The law directs the state insurance commissioner to compile a list of 10 arbitrators eligible to conduct the hearings. Arbitrators must issue written decisions within 15 days of the hearing. These rulings will include appropriate remedies and may require carriers to pay a 15% annual interest rate on the disputed amount, retroactive to the date the undisputed amount was paid.
This 15% interest provision is a key component of the act. If the arbitrator finds in favor of the claimant, insurers must pay interest on the disputed amount beginning from the date the undisputed payment was made.
Arbitrators may also require insurers to reimburse the state insurance department for costs incurred in administering the arbitration. This reimbursement requirement will not apply if the policyholder previously declined a settlement offer equal to or greater than the final arbitration award. In cases where the insurer prevails, the department will continue to bear the arbitration costs.
Historically, both parties to arbitration have paid a $20 filing fee since 1989. However, the department’s costs have increased significantly over the years.
According to Insurance Commissioner Andrew Mais (pictured above), the average cost to conduct a hearing now totals approximately $3,075. This amount includes $925 for administrative handling, $1,350 in arbitrator fees, and $800 in final administrative costs when hearings move forward.
Despite these expenses, the number of arbitration cases remains relatively limited. In fiscal years 2022 through 2024, the department handled an average of 29 hearings annually. Of these, approximately 15 resulted in decisions favorable to the claimant.
Lawmakers have noted that while the caseload is modest, the fiscal implications of the arbitration process can be meaningful for both insurers and the state.
Legislative analysts have estimated that the new structure could result in reimbursements to the state of approximately $35,000 in fiscal year 2026. This figure is expected to rise to around $50,000 annually in subsequent years, assuming arbitration volume remains consistent.
Industry trade associations objected to the legislation, arguing that insurers already fund the insurance department through regulatory assessments. In a joint letter, several organizations said that arbitration-related costs should continue to be included in the agency’s regular operating budget rather than through additional fees or reimbursements.
Still, the groups described their concerns as limited due to the small number of arbitration hearings. In 2023, 20 hearings were held, with 15 outcomes favoring the claimant.
The average cost per hearing was reported to be approximately $3,075, meaning insurers would have collectively paid $46,125 under the new reimbursement structure.
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