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Arbitration is a method used for resolving disputes outside of the traditional court system, and it is particularly relevant in the context of insurance when there is a disagreement about the amount owed for a covered loss. In this scenario, both the insurer and the insured may have differing opinions regarding the value of a claim resulting from a covered event. By utilizing arbitration, both parties can present their cases to a neutral third-party arbitrator, who will make a binding decision on the matter.

This method is beneficial because it often provides a quicker resolution than litigation, saving time and legal expenses for both parties. It fosters a more streamlined process for settling financial disputes, allowing the insured to receive compensation without the need for prolonged legal battles. Arbitration specifically addresses the quantifiable aspects of the claim, which is a typical situation encountered in insurance disputes regarding compensation for losses.