A key U.S. House panel takes up insurance industry-opposed legislation this week that would cancel most predispute arbitration clauses in consumer contracts.

The House Judiciary Committee is set to move as early as July 16 on the Arbitration Fairness Act, a bill reported out of the panel's Subcommittee on Commercial and Administrative Law. Sponsored by Rep. Henry C. Johnson, D-Ga., H.R. 3010 would make significant changes to the 83-year-old Federal Arbitration Act.

The measure bans predispute arbitration agreements from being enforced in employment, consumer and franchise disputes, as well as any disputes arising under civil rights law or under laws intended to "regulate contracts or transactions between parties of unequal bargaining power." If passed, the law also would leave determinations on the enforceability of arbitration agreements to federal courts, rather than private arbitrators.

In a letter to Subcommittee Chairwoman Loretta Sanchez, D-Calif., and Ranking Member Chris Cannon, R-Utah, American Insurance Association President Marc Racicot said close to 100,000 claims are resolved through arbitration each year, and that the bill would have the effect of denying consumers "a cost-effective means of recourse for routine or small claims."

"The use of arbitration has been found to benefit consumers in many ways ? including cost and time savings over litigation. Furthermore, as drafted the bill is overly broad and appears to implicate contracts beyond those contracts it is purported to affect," Racicot wrote.

The bill, which has 100 co-sponsors, is one of the three arbitration-related pieces of legislation advanced by the subcommittee. In addition, the Judiciary Committee will take up H.R. 6126, the Fairness in Nursing Home Arbitration Act, and H.R. 5312, the Automobile Arbitration Fairness Act. All three are opposed by a coalition that includes the AIA, Financial Services Roundtable, American Bankers Association, U.S. Chamber and other groups.

A Senate version of the bill is sponsored by Sen. Russ Feingold, D-Wis., as S.1782. That bill is currently before the Senate Judiciary Committee, which held hearings on the measure in December 2007.

(By R.J. Lehmann, Washington bureau manager: 
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