A recent article about the 9/11 reinsurance contracts caught my attention.
For me, the interesting point about the article was not that a court had upheld an arbitration award, but the implication that in other circumstances (and perhaps with a different arbitration clause wording) the court might have been able to declare that the arbitration tribunal was incorrect on a point of law and effectively overrule the award.
In my 40 years in reinsurance I have seen a great number of arbitration clauses in reinsurance contract wordings. They generally contained such statements as:
- “Arbitration shall be a condition to any action at law”
- “The arbitration tribunal shall be relieved of judicial formalities and shall decide upon the reference based on accepted reinsurance practice rather than the strict rule of law”
- “The arbitration panel shall be composed of active or retired insurance or reinsurance officials, having at least 10 years’ experience of the class of insurance relevant to the disputed matter”
- “The decision of the arbitration tribunal shall be final and binding upon both parties”
The idea, as I thought, was to settle disputes quickly, avoiding the cost of expensive lawsuits.
A few days later, I attended internal training focussed on the proper drafting of reinsurance contracts (Old habits die hard, so we still call them slips). Part of the course was given by our Head of Legal and I mentioned the article.
Costs: The Only Way is Up
It appears that there has been a tendency in recent years for parties going to arbitration to appoint lawyers as their arbitrators, which often leads to the arbitration process closely mimicking litigation procedure. This has led to a spiralling of arbitration costs with the result that it is often just as expensive and time consuming to arbitrate as to litigate.
Our “legal eagle” then went on to say that arbitration clauses are beginning to disappear from some contracts, but with an increasing use of mediation as an alternative method of short-circuiting legal disputes and thereby avoiding legal costs. More often than not, mediation will still involve the use of lawyers, so it is not without expense.
But don’t have nightmares. I have never had first-hand experience of a dispute that has ended up in arbitration and although disputes can and do happen, they do at least appear from my perspective to be quite rare in the field of reinsurance. Having said that, our legal man does have the final say as to whether this blog gets published.