Hunton Insurance Recovery Blog

In this post in the Blog’s Bermuda Form Insurance Arbitration Series, we discuss the use of London-based arbitration to resolve disputes involving the Bermuda Form.

As stated in earlier posts, one of the key features of the Bermuda Form is its dispute resolution provision. Most versions of the Bermuda Form specify that disputes be arbitrated in London under the English Arbitration Act, with the substantive law of New York applying.  The 004 version of ACE’s Form and some policy forms that follow the Bermuda Form required arbitration of disputes in Bermuda under the Bermuda Arbitration Act, often with the law of Bermuda applying.  Those provisions have not proven popular with the insurance marketplace and largely have been replaced or superseded, and policyholders should take care to avoid such provisions if they can as arbitration in Bermuda is logistically more difficult.  In addition, while the London/New York law arbitration provisions of the traditional Bermuda Form were (and often are) perceived to be more insurer-friendly than litigation in United States courts, Bermuda arbitration is considered a step (or perhaps several steps) further toward the insurer side of the scale.

Initiating the Arbitration

As in litigation in a United States court, the policyholder typically is best served when the process takes place in as short an amount of time as possible. First, an insurance company is most likely to consider serious settlement overtures when a final hearing date looms.  Second, expense for both parties likely will be minimized if the process is shorter rather than longer.

Either party may initiate the arbitration simply by invoking in writing the arbitration clause in the insurance policy. In initiating arbitration, a policyholder may help expedite proceedings by naming its arbitrator in the arbitration demand, as stated in the arbitration clause.  Doing so will activate the insurance company’s obligation to name its party-appointed arbitrator within 30 days.  As a practical matter, the insurance company may seek an extension.  However, the sooner the policyholder names its arbitrator, the sooner the proceedings will begin in earnest.

What advantages are to be gained by initiating arbitration? The primary advantage that is available to the plaintiff is the same as it would have in court: The ability to open the case and submit rebuttal after the respondent’s case is presented. This advantage may carry over into pretrial hearings, or the final hearing, where the plaintiff is entitled to proceed first.

Selection of Arbitrators

The arbitration clause in a typical Bermuda Form gives little direction about the considerations that go into the all-important process of selecting arbitrators. For example, should the policyholder select an American lawyer or jurist, who is schooled in the American federal system and principles of New York insurance law? Should the policyholder select an experienced practitioner in the area of insurance coverage litigation or a retired judge? How will a non-London based arbitrator or other possibly atypical choice be treated by the other wing arbitrator and ultimately the Chair?

A traditional English viewpoint is that policyholders should select a well-respected English barrister, called a Queen’s Counsel or QC. The argument is that, because the other two arbitrators on the panel likely will also be QC’s, policyholders should appoint another member of this select “club.”  Conversely, policyholders are well advised in our view to consider “de-Anglicizing” the arbitration panel by selecting an American arbitrator.  A retired judge or an experienced and well-respected lawyer with expertise in the American judicial system, and also perhaps well-versed in New York law (particularly New York insurance law), can provide to the other arbitrators important insight on how the liabilities involved developed in the United States courts and on issues of the American court system and substantive law presented in the proceeding.  English lawyers are less likely to fully appreciate the authoritativeness of an unreported New York state trial decision versus a well-reasoned decision by the United States Court of Appeals for the Second Circuit, applying New York law.  They also may not appreciate the importance of legislative history or other features of American legal analysis taken more for granted on this side of the Atlantic.  Particularly in situations where the New York Court of Appeals has not addressed an issue that is central to the dispute, it is our experience that the policyholder often is better served by having an American arbitrator in the hearing room, as that lawyer will be able to speak authoritatively about these distinctions.

Typically, once the parties have appointed their “party-appointed” or “wing” arbitrators, those two arbitrators select a Chair, or “neutral,” for the panel. To minimize controversy and expedite the proceedings, the parties may seek to agree on the choice of a Chair.  Because arbitration generally proceeds more smoothly when the parties are able to reach consensus, the two party-appointed arbitrators, in our experience, are happy to abide by the parties’ choice of a proposed Chair.

Of course, this choice of the Chair of the Tribunal is also crucial. The Chair should be an experienced arbitrator with the stature to command the respect of both the two party-appointed arbitrators and the parties and their counsel. Experience and force of personality also are factors to consider.  In addition, particularly if a relatively quick resolution of the dispute is desired, it is worth considering the arbitrator candidate’s schedule and whether the proposed arbitrator will be able to find the time in his or her busy schedule for the hearings (especially the final hearing) in the desired time frame.  It can be challenging to find times that work for three busy arbitrators – and the counsel and witnesses – involved in a final hearing.  Delay often occurs because of the difficulty in finding a time that works for all involved.

Finally, an ideal Chair will be collaborative, willing to solicit input from the wing arbitrators. A Chair ideally will also ensure that the proceedings run smoothly and fairly for both parties, and will be completed in the shortest amount of time possible.

Selection of Counsel

In the British system, lawyers have traditionally been either solicitors or barristers. Solicitors traditionally prepare the case for trial, while barristers act as trial lawyers.  Parties need not pursue the traditional English model in international arbitrations.  For example, a United States law firm can act as the solicitor, instructing an English barrister, QC, or solicitor advocate at the trial, or “final hearing.”  Alternatively, American lawyers may act as trial counsel, or split those duties with an English lawyer or QC.  In our experience, it is helpful to have the advice and expertise of an English barrister, QC, or solicitor advocate in preparing the case for trial or final hearing, at a minimum.  The decision on whether to retain a barrister to help with presentations at a final hearing may depend on several factors, including cost, the composition of the Tribunal and the lead trial lawyer for the insurance company.

An English lawyer can advise a policyholder’s trial team on the differences between American and English practice. For example, oral arguments differ from the advocacy taught to United States lawyers.  In English arbitrations, the practice is to lead the arbitrators, step by step, through the important authorities supporting an argument, with copies of the decisions in hand over the course of lengthy (by American standards) opening and closing arguments.  This practice seems odd to American lawyers; however, an effective English-style presentation of substantive legal principles may help decide the case in your favor.

Notably, policyholders will benefit from utilizing counsel with expertise in New York insurance law. While it is generally recognized that New York law largely favors insurers, that assumption is not true in every context.  For example, the New York Court of Appeals rejected a literal application of the “total pollution exclusion” in Belt Painting v. TIG Insurance Co.,^[1] and held that the exclusion does not preclude coverage for injuries caused by inhalation of paint or solvent fumes. Other tools are likewise available to policyholders under New York law to rebut common strategies employed by insurers.  In responding to an insurer’s misrepresentation or rescission defense, for example, policyholders may invoke New York’s statute applicable to misrepresentation defenses to require the insurance company to produce underwriting manuals and other related documents.²  Counsel familiar in the nuances of New York insurance law can assist the policyholder to exploit those provisions of New York law that may favor policyholders over insurance companies.

This post is part of the Blog’s Bermuda Form Insurance Arbitration Series.

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A partner in Hunton & Williams LLP’s insurance coverage practice, Lorelie Masters is a member of the American Bar Association’s Board of Governors and a founder and former President of the American College of Coverage and Extra-Contractual Counsel.  She is co-author, with English Barristers, Richard Jacobs QC and Paul Stanley QC, of Liability Insurance in International Arbitration: The Bermuda Form (Hart Publishing, 2d ed. 2011) (“The Bermuda Form”), which won the 2012 Book Prize of the British Insurance Law Association for outstanding contributions to the literature on insurance coverage.

Paul Moura is an associate attorney in Hunton & Williams LLP’s insurance coverage practice, where he represents clients from a diversity of industries in insurance recovery and related commercial disputes. Prior to joining Hunton & Williams, Paul was a policy researcher at a think tank based at the London School of Economics, where he helped to develop a network of policymakers, academics, and lobby groups collaborating in areas involving consumer protection and digital rights.

¹ Belt Painting Corp. v. TIG Ins. Co., 763 N.Y.S.2d 790, 100 N.Y.2d 377, 795 N.E.2d 15 (2003).
² See N.Y. Ins. Law § 3105(c).