Settling Disputes Online: Just Another Tool, or are Negotiators, Mediators and Arbitrators Approaching Extinction?

Robert R. Marquardt

Abstract

In recent years, many innovative internet based (online) dispute resolution sites and tools have been established, such as CyberSettle, Virtual Magistrate, ClickNSettle.com and SettleOnline.com. What is their place in the established dispute resolution framework, and what is their probable place in the future? Will these e-tools replace existing forms of alternate dispute resolution (ADR), or are they just faddish gimmicks? Are trial lawyers, negotiators, mediators, arbitrators and other advocates and neutrals approaching extinction, or do they now have additional effective tools at their disposal?

Settling Disputes Online: Just Another Tool, or are Negotiators, Mediators and Arbitrators Approaching Extinction?

The Climate for Online Dispute Resolution

"It's impossible to pick up a newspaper or magazine or to watch television without hearing the "e" word. We're moving beyond e-commerce, e-calendars and e-shopping to a more esoteric vocabulary that includes words like e-tailing, e-culture and e-age. And all of this relies on sellers being able to aggregate eyeballs by dispensing something of real value or "eye candy" (something of questionable value but nice to see.)" (Maciag,1999, p.4). Is the Internet too much with us? Many people are resisting it, perhaps because they believe it is too much for them to learn, a passing fad, or because they are afraid of it, but it has brought a huge wealth of information sources and commercial opportunity to millions of web-surfers. It has changed the way many people do business, and has even spawned thousands of new businesses. One thing for sure, it is not going away simply because some people would like to see things the way they were 20 years ago, or are tired of hearing the e-word. "In five years, there won't be any "Internet companies" per se, because every company will be an Internet company, a leading manufacturer of microcomputer components contends." (Howard, 1999, p.10). And, some feel, there won't be any choice about it. "The Internet is either going to be seized by businesses, industry and services, or it will be forced upon them….You will be an Internet company." (Ibid.). Amazon.com has become the largest book seller in the world, while small bookstores are closing everywhere. The big book store chains like Barnes & Noble and Borders Books have been forced to go online themselves to keep pace with the electronic innovators. Bricks and mortar are being supplanted by clicks and modems.

What has made the Internet so pervasive and all-encompassing that it may change the very way all companies do business? Ease of access, searchability, availability in real time 24 hours per day/any day of the year, increasing bandwidth and connection speed, ability to handle hundreds of transactions automatically without human intervention, ability to connect multiple parties at diverse locations, simplicity, cost, ease of comparison with competitors, capability of a small and local business to suddenly compete for nationwide markets; these are just a few of the many factors driving business, services and communication to the Internet. And computers and their vast electronic network are ideally suited for handling large volumes of transactions in many diverse locations. Traditional services and methods are being constantly challenged by the newer e-methods, as their advantages are being demonstrated, even including safety. Example: fearful of encountering their attackers when leaving Hope House in Independence, Missouri, and coming to court to file their protection requests, battered women needed a safer way to file their requests with the court. Thanks to a federal grant, they can now e-mail their protection requests directly to the judge. Another benefit is the reduction of the protection-approval time to hours instead of days. (Lou, 1999).

Several of these same factors have also caused entrepreneurs and public service entities to establish on-line, electronic ADR facilities (e-ADR). While they vary in their approach, scope and degree of technology employed, they all are seeking to use the Internet in some fashion to enable or enhance dispute resolutions or capture disputants' business for their conventional dispute resolution practices. And well they might, for the number of disputes is overwhelming the conventional systems of the courts, and even the available ADR resources, which are also growing at a tremendous pace. Just looking at insured claims alone, the numbers are staggering. At the end of 1997, there were 6.4 million outstanding auto liability claims, as well as 903,000 claims outstanding against home and farm owners. These open claims may go on for years, with rapidly inflating costs and expenses. (Goch, 1999A). Although some suggest that the "insurance industry is still hoping for the Internet to go away, the exact opposite is happening as more Web users visit insurance sites and a greater percentage turn first to the Internet…a new survey has found." (Maurice, 1999). And, in the last eight years, the use of ADR has more than doubled in some types of disputes. (Goch, 1999A). Professor Ethan Katsh, who is the co-director of the Center for Information Technology and Dispute Resolution, pronounced a considerable increase in e-ADR providers in mid-year 1999, when he said that the interest in online ADR had been as great in the previous four months as it had been over the prior two and one-half years. (Leibowitz, 1999).

But not all insurance companies are shying away from the Internet as Maurice suggests; many are looking to the new Internet based solutions to see if they are suitable for reducing their huge volumes of claims and the cost of resolving each claim. Cost is a significant factor to insurance companies, and cost also grows as a function of the length time a case remains open. And, with the huge volume of claims many of the bigger insurance companies have on their books, even a small savings per claim adds up to big money. "If you can come up with a way to save them a dollar a claim, you're employee of the year." (Cohen, 1999).

One of the most successful of the new on-line, e-ADR facilities is CyberSettle, and the great majority of its business comes from large insurance companies, such as American International Group, Travelers and Fireman's Fund, (Ibid.) and self-insured companies and entities including Budget Rent a Car and the Port Authority of New York and New Jersey. (Levin, 1998). CyberSettle already has more than 2,900 claims adjusters signed up to handle their claims online. (Sharpe, Jr., 1999). Further, some insurance companies are sufficiently confident of the merits of these electronic neutrals that they are forming strategic alliances or taking an ownership interest in them. Kaye Group, Inc. is an investor in CyberSettle.com, whose majority shareholder is XL Insurance Ltd. (Sabanos, 1999). There is no reason to expect that e-ADR will growth at a lesser speed than ADR generally, which is:

"underutilized but its use by insurance companies is growing at enormous rates because of the desire by insurance companies to limit transaction costs associated with litigation. Between 1995 and 1998 the American Arbitration Association has seen the growth of arbitrated cases expand from 32,476 to 64,076. Likewise, the Insurance Service Offices, Inc. conducted a study which found that the number of cases resolved nationally through ADR has increased from 7.1 percent in 1991 to 18.5 percent in 1997." (Hays, 1999).

How Does It Work?

Not all of the several Internet based ADR providers operate the same way, and some aim themselves at only certain types of disputes. The chart on the next page lists some of the more prominent e-ADR providers:

Space will not permit discussion of all of the above, and there are also quite a few others, but a few examples will prove informative. Not all of them will survive; one of the earliest e-ADR providers, Virtual Magistrate, was apparently too far ahead of its time when it was founded in mid-1996. It was designed specifically to respond to Internet domain name disputes and resolve Internet service provider subscriber problems. It handled only one case. (Leibowitz, 1999).

clickNsettle.com - and the initial letter is intentionally lower case like the "e" in e-business - utilizes an interactive settlement format that allows disputing parties to enter "blind" and confidential offers and demands, via the Internet, to settle cases. Disputants have the ability to negotiate cases with their adversaries without actually revealing what amounts they would accept for settlement. Parties pay $15 per bid to haggle through clickNsettle.com. The demands and offers are secure and only the final settlement amount is ever revealed. This ensures that neither party loses any bargaining power in the event that a case does not settle. Additionally, disputing parties have the option to auto-submit cases to NAM Corporation, clickNsettle's parent corporation, for traditional arbitration or mediation in the event an online settlement is not reached. (Giuliani-Rheaume, 2000).

CyberSettle, which had earlier roots, was founded as recently as 1998, and is already one of the oldest e-ADR providers. It has perhaps the greatest insurance company participation and the greatest number of resolved disputes which otherwise might have proceeded through litigation. CyberSettle settled its first case in 1998 in New York, "where 'So sue me' could be part of the civic motto," and claims a 41% settlement rate. (Gates, 1999). It works this way: When an insurance adjuster from a CyberSettle member company has reviewed a case received from a plaintiff's lawyer and has enough information to be ready to begin settlement proceedings, he contacts CyberSettle with the case identification information and sets up a file online. He then enters three settlement offers into the online file in the encrypted Internet web site. This costs the insurance company $25.00. These offers are never disclosed directly to the plaintiff or his attorney. The plaintiff's attorney is then advised by e-mail or telephone call from a CyberSettle representative that the insurance company is ready to settle, and is invited to respond online. If the plaintiff's attorney agrees to participate, the insurance company then pays CyberSettle another $75.00. Using the appropriate case identification number and the password he has been given, the plaintiff's lawyer then enters his three settlement offers into the online file, and these numbers are similarly confidential. CyberSettle's main computer then compares the first offer of each of the parties and, if they are within a reasonable, predetermined range - usually within 30% of the original demand or within $5000.00 of each other - a settlement is declared by the computer on the first round, and the settlement is the average of the two numbers. If there is no match, there is a second round, and then a third, if needed. Most settlements take days, sometimes 60 days, but a settlement could happen in minutes. (Goch, 1999A). Presumably, because all settlement offer information is encrypted and not disclosed to the other party, both parties feel free to put in their 'bottom line' number as offer number three, knowing that it will not have been disclosed to the other party if settlement doesn't occur and they later must proceed to litigation or some other form of dispute resolution.

The Disputes.org/eResolution consortium is a very recent combination of two special purpose arbiters. Both were arbiters of disputes arising out of Internet domain names which were held by "cybersquatters," a term used to characterize one whose Internet domain name use impinges on or interferes with the other party's trademarks and servicemarks. The consortium's Website allows the parties to submit complaints, responses and evidence entirely online. The case is then decided by a specialized arbitrator drawn from a panel of 60 arbitrators familiar with both trademark law and Internet domain name disputes. (Katsh, 2000).

Another, CompuJustice, has an attractive web site with a vigorous description of its purpose and service. From its tone and style, you expect to find the cutting edge of e-ADR:

"One of this century's most sweeping reforms in civil litigation and family law matters has been the establishment of mediation and arbitration. Clogged court systems and tedious (and expensive) procedures now give way to more efficient and less expensive processes for dispute resolution. CompuJustice is dedicated to fair and efficient resolution of claims and issues, sparing disputants from the disadvantages of court litigation. Trained, caring mediators carefully listen and assist the parties in finding solutions. Experienced arbitration neutrals meticulously screen evidence and promptly issue decisions." (CompuJustice, 2000).

Upon closer examination, it appears that CompuJustice's ADR is not conducted though the Internet, but is simply an advertising and client collection medium. However, it does provide online contracts which can be downloaded to commence the process of ADR. One other aspect of the site does go beyond advertising and marketing, and allows written disputes to be submitted over the Internet for decision in writing by an arbitrator. "Written arbitration affords certainty for the parties; costs of the proceeding are known up front and the time for issuance of a decision is established at the time of submitting the case to the neutral. Never before have controversies been resolvable in such a convenient fashion." (Ibid.)

The Online Ombuds Office is another service in which Professor Ethan Katsh of the University of Massachusetts has a very active role. The Online Ombuds Office is an online mediation service in which two parties communicate with a mediator via e-mail to try to resolve their claims. It was particularly designed to meet the needs of the large group of 'cyberconsumers' in the explosion of Internet business, and "where there are consumers, there are consumer complaints." (Leibowitz, 1999, p. A20).

For Whom is e-ADR Best Suited?

Just by virtue of the variety of the e-ADR providers sampled above, it can be seen that none of them will be an overall best type of ADR. There probably will never be a 'one-size fits all' solution to settling conflicts; there are simply too many variables. But there definitely is a place for these new tools, as is demonstrated by their usage. CyberSettle claims to have settled over 4000 claims through October, 1999. (King, 1999). The Online Ombuds Office mediated 175 disputes with eBay, the West coast-based Internet auction site in the Spring of 1999. (Leibowitz, 1999).

Insurance Companies Have the Biggest Stake

We have seen that the insurance companies - at least some of them - have taken a great interest in these e-ADR providers, including taking an equity ownership position. The possibility of cutting case closure time and lowering overall costs is too great a magnet for them to ignore this medium, even if it only helps in a fraction of their cases, because the population of cases is so huge. In 1998, the insurance industry spent $34 billion in claims administration, which doesn't include the cost of the settlement. (MacCallum, 1999). Too, insurance companies want to avail themselves of any means to settle cases early, if they are to settle at all. The costs of litigation discovery and trial preparation are often more than the ultimate settlement, so the sooner the case can be settled in the process, the better the financial result. The insurance adjusters hope that online settlements will be "so simple, quick and cheap that it could make a flesh-and-blood mediator weep." (Thompson, 1999). And only a tiny fraction of the cases ever actually go to trial, by anyone's reckoning, so a great portion of the preparation costs are just that, costs with no benefit. Roy Israel, president of National Arbitration and Mediation has been quoted as saying: "Ninety-six percent of plaintiffs never get their day in court. The cases are settled on the courthouse steps. Why not settle it today?" (Borchmann, 1999). His competitors at CyberSettle.com think only ½ of 1% of the cases filed actually go to trial. (MacCallum, 1999). Either way, the vast majority are resolved outside the courtroom.

Plaintiff Attorneys

It would probably surprise many people to hear it said that plaintiff attorneys have an interest in common with their age-old opponents, the insurance companies, but they do. The contingent fee arrangement that is almost the standard plaintiff attorney compensation package has probably been the major cause of litigation proliferation in recent years, but contingent fees are likely to be a fact of life for years to come. Whether making your attorney your partner in the lawsuit tempts the bending of ethical rules or not, he still has a great financial interest in the outcome, and is often bearing all of the costs of the case through the trial. Most often, the fee will be 1/3 of the recovery if settled before trial, but 2/5 if the case is tried. An early settlement with as few attorney hours expended as possible means not only avoiding the expense and burden of the discovery process and of trial preparation, but also allows the attorney to use that saved time in pursuing other revenue producing matters. Also, no matter how good your case looks, there is always a chance of a loss or of a small verdict.

Others

Others may also feel that e-ADR may is right for them. It seems better suited for those negotiations where there is no need for facilitating a continuing relationship between the disputing parties. Also, e-ADR might be an ideal solution for fixed-sum disputes where there are no other issues and interests to provide give and take. Certainly, e-ADR can be a lot cheaper than hiring an attorney, which may not be economical for a small or even medium sized disputes. Not everyone feels comfortable going into small claims court, or even confronting an adversary across a mediator's conference table. Whether a party is an abused wife or just someone who can't face confrontation, e-ADR may be ideal. For that type of person, any medium that allows dealing with an impersonal screen rather than a hostile adversary will be a definite plus. And, in many cases, egos and personalities can impede settlement, and may even make things worse. "I'm not going to bid against myself…I haven't heard back from you since we made our last demand…Sorry, but I can't recommend that my client accept that figure." (Sharpe, Jr., 1999). The telephone tag and jousting can be endless, as each attorney or party tries for every single point or nuance. And some feel that there are just two factors in settling a case - the egos of the attorneys. California attorney West Seegmiller says these egos "stop the process of setting a reasonable value when it comes to settlement." (Drake-Maurer, 1999). Just the impersonal, detached nature of the e-ADR forum minimizes these traditional problems.

For Whom is e-ADR Not Suited?

There are always some who resist change, so there will be some who will resist or avoid e-ADR even if it would otherwise be a very good solution for them. On the other hand, there might be those who will try anything new, even if it isn't suitable, simply because it is new. And, there are many who mistrust or are even afraid of technology, or do not trust the security of the Internet. But there are quite a few for whom e-ADR will be unacceptable for more substantive reasons.

Professional Objections to e-ADR

Some attorneys have expressed strong opinions that their representation of the client would falter with the mechanized approach of e-ADR. David Mastagni, an attorney in Sacramento, California, feels that reducing the case to numbers will prevent a good attorney from addressing his client's real needs, or at least all of his needs other than money. Some people just have a "need to go into court and say what they feel to other people." (Drake-Maurer, 1999). Other attorneys and law firms will not be able to make the shift from traditional ways of practicing law. They will feel reluctant to put their professional reputations and income at risk by radically changing the manner in which they practice law. (Pruner, Mark, 1999). The tongue-in-cheek comment that the law is "hundreds of years of tradition, unhampered by progress" (anonymous) is more truth than fiction. It is the same professional attitude one might have if asked to be the first attorney to change a pleading from the standard format that the judge has seen his entire career to something she has never seen before. Some, too, are concerned about the enforceability of any agreement reached in electronic media. While this area is still new, the courts have been enforcing contracts made by telegraph, telex and facsimile machine for years. The National Conference of Commissioners on Uniform State Laws has already promulgated legislation that will specifically address many of those concerns: the Uniform Electronic Transactions Act. 27 pages long, it is quite comprehensive, and has already been adopted by several states. (Kury, 1999)

Impersonality

While e-ADR has many attributes, it probably will never entirely replace face-to-face negotiations, especially if a case has many issues to be resolved. Many negotiators want the opportunity to size up their opponent and determine the value of his position personally. While a claims adjuster with 2000 cases to manage may not feel this way, a small claimant with a big claim might well have a need to look the other side in the eye. Stanley Levine, claims executive for the DeWitt Stern Group, feels that the Internet lacks the human touch. When he has a client dealing with a claims adjuster, "I have one thing in mind and he has another. We're both trying to change the other's mind. Negotiating on the Internet seems very cold." (Goch, 1999B, p.104)

Security

Many persons have valid concerns about the confidentiality and security of their data and communications over any electronic medium. While it would be inappropriate to generalize, security technology has vastly improved in the past few years. The same individuals that would never give their credit card number to Amazon.com over the Internet to buy a book (but will, for some reason, give it to them over the telephone,) will probably not have confidence in the security of the net when it comes to confidential negotiations. Encryption of data can now be sufficiently secure that no one need fear a breach of security from a site that is properly protected. As with any Internet site, each has to be individually assessed before entrusting sensitive data.

Multiple Parties

Another are where valid concerns can be found is attempting to negotiate the settlements involving several parties. Even if it is a fixed sum negotiation, if there are three or more parties with uneven interests, none of the e-ADR facilities now available can manage that feat, except those which just use e-media for information input that is managed and facilitated by a live, human neutral. If the e-ADR systems have difficulty with multiple issues, how much less suited are they to multiple parties which each have multiple issues?

Conclusions

e-ADR is an excellent tool which can be used by thousands of disputing parties to resolve their disputes. But as noted above, there probably will never be a 'one-size fits all' solution to settling conflicts. Many of us who have tried 'one-size fits all' garments have found that the 'one-size fits somebody else' and not us. The key, then, is for the advocate, neutral or party to evaluate all of the tools available in light of the particular problem and situation. Clearly, CyberSettle.com, however successful, will not be of much help in resolving a custody battle between two parents and four grandparents. But it may well be of great benefit to both insurance companies and claimants in minor impact soft tissue injury cases where liability is not a dispute, and the amounts in issue are not large enough to warrant a jury trial. To many of us, it seems that the civil courts have just become the 'next step' after a negotiation impasse, but if the plaintiff attorneys can come to trust online technology and accept e-ADR as a viable and cost effective means of resolving some of the millions of claims, and the insurance industry generally adopts e-ADR as some of their members have, the courts might once again be places where only a few lawsuits are litigated because they really need to be decided there. (Eidsmoe, 1999) And, no, trial lawyers, negotiators, mediators, arbitrators and other advocates and neutrals are not approaching extinction. They now have additional effective tools at their disposal, if used selectively and judiciously. These tools will become more frequently used as they become more sophisticated and responsive to the needs of parties to conflicts. Negotiators, mediators, arbitrators and other neutrals will still have a considerable workload facing them, as long as people have conflicts.

References

Borchmann, Phil (1999, July 19). Web Sites Help End Bad Posturing by Lawyers, Insurance Companies. Chicago Tribune, p. B2.

Cohen, Alan (1999, April 19). Settling Disputes On-Line; Using the Net to Resolve Insurance Claims and Avoid Litigation. New York Law Journal, p. T2.

Drake-Maurer, Debi (1999, October 15). New Web Site Helps Lawyers Settle Claims Online. Sacramento Business Journal, p. 32.

Eidsmoe, Daniel C. (1999). Online Dispute Resolution: Priceline.com or King Solomon? The Iowa Lawyer, 59(12), 8-11.

Gates, Bruce (1999, November 24). CyberSettle.com takes the Courtroom Song and Dance Out of Property Claims. National Post, p. E02.

Giuliani-Rheaume, Patricia (2000, January 6). New York Post Picks clickNsettle.com as One of the Top 25 Internet Companies to Watch in 2000 [On-line]. Available: http://www.prnewswire.com

Goch, Lynna (1999, March 23). Cybersettle Reduces Outstanding Claims. A.M. Best Company, Inc. Bestwire, 1.

Goch, Lynna (1999, March). Splitting the Difference. Best's Review P/C, 103-104.

Hays, Daniel (1999, May 17). Insurers Look to Avoid Courtroom Battles. National Underwriter Property & Casualty/Risk Management & Benefits Management Edition, 17.

Howard, Lisa S. (1999, October 11). Internet Companies to be the Norm, Not Exception. National Underwriter Property & Casualty/Financial Services Edition, 10-11.

Katsh, Ethan (2000, January 4). Company Press Release - Disputes.org/eResolution Consortium [On-line]. Available: http://www.disputes.org

King, Julia (1999, November 1). Infomediary. Computerworld, p. 58.

Kury, Franklin L. (1999, December). Pennsylvania Starts the Millennium Under an Electronic Commerce Act. Columns, 99-28, 1-7.

Leibowitz, Wendy R. (1999, July 5). Let's Settle This, Online. The National Law Journal, p. A20.

Levin, Amanda (1998, November 9). Online Claim Settlement Services Hit the Net. National Underwriter Property & Casualty/Risk Management & Benefits Management Edition, p. 5.

Lou, Linda (1999, August 29). Justice at Light Speed. USA Weekend, p. 12.

MacCallum, Martha (1999, December 2). Market Watch - Cybersettle.com - CO-CEO - Interview. CNBC/Dow Jones Business Video (12:00 a.m. ET) Transcript, pp. 1,2.

Maciag, Gregory A. (1999, April 19). Had Enough of the E-Commerce Feeding Frenzy and Net Vision Du Jour? National Underwriter Property & Casualty/Risk Management & Benefits Management Edition, 4-19.

Maurice, Alex (1999, May 10). Insurers Found Lacking Online. National Underwriter Property & Casualty/Risk Management & Benefits Management Edition, 5-10.

No Author, (2000, January 24). Introduction to CompuJustice [On-line]. Available: http://www.compujustice.com

Pruner, Mark (1999, April). How to Stay Alive Against the 'Big 5'. The Internet Newsletter: Legal & Business Aspects, p. 8.

Sabanos, Michael P. (1999, December 14). Kaye Announces E-Commerce Strategy; Plans Include Interactive Websites and Investments [On-line]. Available: PR Newswire, http://www.prnewswire.com

Sharpe, Jr., Robert L. (1999, August 31). Internet Negotiations Eliminate Egos and Accusations. The Legal Intelligencer, p. 1.

Thompson, Mark (1999, April 26). Watch on the Media. Federal & State Insurance Week, Vol. 13, Section 17. No Pagination.

Copyright 2001 Stephen R. Marsh
Copyright asserted as to navigation aids only.
As to this essay Copyright 2001 Robert R. Marquardt.

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