Complexities of Bermuda Insurance Arbitration
While American risk managers can find much-needed insurance capacity in Bermuda what they can also find is a lengthy and expensive arbitration process should coverage disputes arise, a leading industry trade journal said yesterday [Feb. 16].
And “Risk & Insurance” legal affairs correspondent Douglas Cameron warns risk managers and their legal advisers who purchase catastrophic liability coverage from Bermuda re/insurers need to better understand the complexities involved before initiating arbitration to ensure they get the insurance to which they believe their companies are entitled.
“Insurance policy forms drafted by those [Bermuda] companies … require arbitration of disputes in London, which presents hurdles to securing coverage that may not be fully appreciated at the point of purchase,” said Mr. Cameron. “A Bermuda Forms insurance company typically selects an English lawyer as its arbitrator, and insists that the chair be an English QC, meaning that, even if the policyholder picks a prominent lawyer or retired judge from the United States, English lawyers will be a majority on the three-person panel.
“This raises two points of concern to risk managers more familiar with resolution of coverage disputes under US law. One, English lawyers come from an environment which is significantly less policyholder friendly than the United States. Two, English lawyers frequently find it difficult to understand the realities of litigating tort cases before US juries. They may ascribe monstrous judgments or large settlements to the bad (i.e., uninsurable) conduct of the policyholder. As such, it is critical for US policyholders and their counsel to partner with English lawyers to ensure the case is packaged for an English audience.”
Mr. Cameron said although one of the supposed benefits of arbitration in disputes involving Bermuda re/insurers is that it is a quicker process than litigation, this is not always borne out — with some arbitrations in London taking several years to be resolved.
He added while US risk managers are well aware Bermuda coverage is enormously complicated and expensive, so, too, is the art of perfecting claims under such coverage.
“Forewarned is forearmed: policyholders prepared for the differences of London arbitration and steeled for its cost and timing stand a far better chance of securing the coverage for which they have paid,” he said.
