Chad Caplan and Janelle Pelli | Hinckley Allen
The American Arbitration Association (AAA) has launched a new tool, called the AI Arbitrator, that is expected to render binding decisions the AAA expects will be enforceable in court like any other arbitration award. Its use is currently limited to construction disputes between two parties that can be resolved on the documents, where there will be no witness testimony, and the amount in dispute is $25,000 or less. The AAA intends to expand the tool to commercial disputes by the summer of 2026 and to increase the monetary threshold.
As AI use becomes widespread across virtually all industries, companies should start considering how they might leverage these advancements. AI dispute resolution promises real efficiencies and cost savings, particularly for low-dollar claims, where the cost-benefit proposition of pursuing them through traditional mechanisms like court or arbitration often does not make sense. The advantages of this new technology, however, are also accompanied by risks. Here, we explain the AI Arbitrator, its potential use cases, some of the primary benefits and risks of relying on AI to resolve disputes, and where we might be headed next.
How the AI Arbitrator Works
The AI Arbitrator is not a “push-button” instant answer tool, at least not yet. It takes time to deliberate, analyze submissions, weigh evidence, and ultimately issue a reasoned decision, much as a human arbitrator would. There is still also human oversight in the process along the way. As it is currently implemented, the tool features:
Mutual Consent. The use of AI Arbitrator is opt-in only. Both parties must agree to proceed under the AAA’s AI-Led Arbitration Rules, and if either party declines, the case proceeds as a normal AAA arbitration.
User Generated Input. Once the AI Arbitrator is selected, users submit written position statements and supporting documents much like they would in a standard arbitration. Users can also upload legal authority (case law, statutes, etc.) for the tool’s consideration.
Intelligent Decision-making. The AI Arbitrator uses the information provided by users to render a decision, along with extensive training from awards issued by real arbitrators in AAA construction cases, case studies, and internally generated manuals that AAA created to educate the tool on how to operate as an experienced arbitrator. These materials help the AI Arbitrator mimic industry-specific, human arbitrator logic and reasoning. The AAA aims for parity with human decision-making, targeting a 75–85% match rate with what a human arbitrator would decide if presented with the same facts and law.
Human Oversight. Parties are given the opportunity to review and confirm that AI Arbitrator has correctly summarized their claims and arguments during the submission process. In addition, a human arbitrator trained in AI oversight reviews the AI-generated award before publication and makes corrections as needed. AAA monitors human intervention throughout the process to see where correction is required, so it may improve the tool’s accuracy moving forward.
Fast Resolutions. The results are not instantaneous, but they are significantly faster than what a human arbitrator can deliver. For construction disputes, where delays hold up projects and payment, that speed often equates to real cost savings.
Enforceability. Because the final award is issued and signed by a human AAA arbitrator, the idea is for it to carry the same legal weight as any other arbitration award. Under the Federal Arbitration Act (FAA), judicial review of an arbitration award is limited to narrow, difficult to prove statutory grounds, including fraud, evident partiality, or an arbitrator exceeding their powers.
Potential Use Cases and Risks
The current iteration of the tool is not yet ready to resolve large or complex construction disputes, and the AAA’s limitations on its usage recognize this reality. Residential construction cases, certain fit-out or tenant issues, subcontractor and material-supplier payment disputes, and smaller warranty claims, however, may all be amenable to resolution by AI Arbitrator at a fraction of the time and expense of standard dispute resolution mechanisms.
Indeed, contractors with claims smaller than $25,000 have historically faced a dilemma where the constraints of the judicial system and the cost of moving a claim through it may make it more cost-effective to drop the claim rather than pursue it. By placing a provision in your contracts stating that both parties consent to the use of the AI Arbitrator in the event of a qualifying dispute, contractors can create a recovery mechanism where, at least practically speaking, there previously was none.
On the flip side, contractors should carefully review the dispute resolution clauses in their contracts before signing and consider whether AI arbitration is right for their company. Where contracts are presented on a take-it-or-leave-it basis, as they often are, contractors, and soon other businesses, may find themselves locked into mandatory AI arbitration clauses without the opportunity for meaningful negotiation.
Parties should also carefully consider the impact an AI Arbitrator decision might have not only on their present dispute, but potential future disputes. Courts have, in certain circumstances, applied the doctrines of res judicata (claim preclusion) and collateral estoppel (issue preclusion) to arbitration awards. This means decisions on claims and issues decided by AI Arbitrator can potentially be construed as binding on future related claims or issues between the same parties, even if those later disputes involve higher dollar amounts or issues to which the parties did not intend for AI Arbitrator to apply.
There are other contractual implications to consider beyond simply agreeing to use the tool. What, for example, would happen if parties agreed to have the AI Arbitrator resolve “all” disputes, but a dispute of more than $25,000 arises, and AAA says AI Arbitrator is unavailable? What if parties want to limit claims they are bound to submit to the AI Arbitrator to a lower monetary threshold than $25,000? What if parties have a disagreement about whether an issue is a “construction” dispute to which AI Arbitrator applies in the first place? Or what if a contractor-subcontractor agreement requires sending certain disputes to AI Arbitrator, but the subcontractor does not have a parallel provision in its agreement with the vendor who caused the issue?
It would be wise to pre-empt as many of these issues as possible with express contractual language. For example, parties can specify how non-AI Arbitrator disputes will be resolved, which specific types of claims (value and content) will be submitted, and whether a flow down provision, binding subcontractors to the contractor’s preferred dispute resolution mechanism, makes sense (right now, AI Arbitrator is limited to two-party disputes, but that may change, and your contract can address that possibility). Your attorney can help you tailor an AI Arbitration provision that suits your companies’ needs, especially as standard-issue contract terms evolve to keep up with such novel dispute resolution processes.
As with any new technology, there are also questions and concerns surrounding implementation. The results of the tool are largely unproven, and the enforceability of its awards has not yet been tested in court. Moreover, if you are unhappy with your award from AI Arbitrator, like with all arbitration awards, there are limited grounds to appeal. Parties can consider layering on AAA’s “Optional Appellate Arbitration Rules,” which allow for AI-Arbitrator and all other awards to be reviewed by a three-arbitrator panel for certain errors of law or fact. Otherwise, parties are left to challenge an award in court under the FAA or applicable state law on exceedingly narrow grounds.
What is Coming Next
Resolution Simulator. AI arbitrator is just the start. The AAA is aiming to release a “Resolution Simulator” later this summer, which is a companion tool powered by the AI Arbitrator’s underlying technology. The Resolution Simulator will generate a nonbinding simulated decision based on user-uploaded information, illustrating how an arbitrator might analyze and resolve a dispute based on the user’s submissions. It is designed to be a strategic tool to allow legal teams to assess claims, counterclaims, and potential exposure before deciding whether to escalate claims to arbitration, mediation, or litigation. Users will need to consider and discuss with their attorney, however, whether the outputs from this tool will be privileged and shielded from disclosure, particularly given a recent Southern District of New York case that found a party’s written exchanges with a publicly accessible generative AI platform were not protected by the attorney-client privilege or the work product doctrine, and under the Federal Rules of Civil Procedure.
Cautious Expansion. The AAA has indicated that commercial disputes are the next frontier. As the technology matures and the AAA gathers performance data, we can expect incremental expansion to higher-dollar claims, additional industries, and more complex fact patterns. Looking ahead, if the AAA expands its use of AI to assist in credibility determinations for testifying witnesses, such usage could raise bias and fairness concerns. The AAA has stated that it intends to approach multi-party proceedings, cross-border disputes, and matters involving credibility determinations with caution, expanding only after “thoughtful design and testing.”
The Bottom Line
We are many years away from AI significantly displacing our legal system, and AI Arbitrator is not replacing human judgment in complex, multi-party disputes. For certain straightforward, two-party claims, however, it may offer a fast and cost-effective path to resolution. The AAA’s forthcoming Resolution Simulator also promises to be a useful tool for parties in evaluating the strengths and weaknesses of their case. Now is a great time to reach out to your attorney to think about how you can take advantage of these tools and protect against their risks in your contracts.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 801.641.8304, or email experts@adviseandconsult.net.