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Removing barriers to settling complex reinsurance claims

by Matthew Rushton on 03 Jul 2014

complex (re)insurance claims

Three senior members of JAMS International’s insurance and reinsurance team – Peter Rogan, Charles Gordon and Lawrence Pollack – revealed key suggestions for managing complex insurance disputes at an event in London on 5 June.

As the London Market puts ever greater emphasis on maintaining commercial relationships, collaborative processes to mange disputes and safeguard reputations are becoming more commonplace.

Mediation offers flexibility of procedure and outcome, and has often proved successful in resolving complex, multi-party international insurance disputes. Using the process to best effect requires careful planning, and consideration of a wide range of factors. Below are some suggestions based on the experiences of JAMS International’s leading insurance mediators.

Timing is an important factor

One of the most important questions for parties is when to enter mediation. While mediating early with a limited view of the facts can prove an obstacle to settlement, in substantial cases the panel felt that an initial mediation hearing can narrow the issues, and provide a “road map” for future settlement following further disclosure. Later mediations where the parties are in possession of the facts, and have taken good legal advice, can often prove the most productive in terms of reaching settlement. Where mediation on the steps of the court can prove difficult is where the legal costs on both sides are of a scale that they become an impediment to settlement.

In conclusion, Peter Rogan observed that, “The sooner you enter the mediation process the sooner all parties can focus on the key issues of a case. It is an effective way to discount all the unimportant factors and provide the foundation for future resolution.”

It’s not a race against the clock

The panel noted a shift in attitudes away from mediation being a one, or two-day tightly circumscribed event. All mediators preferred wherever possible to meet parties, or at least have a conference call, before the mediation hearing. Settlement on the day, while desirable, is not always achievable, and nor should it be viewed as a governing factor in the success or otherwise of the day. The reality is that many mediations generate momentum towards settlement which continues after the day itself. Thus, the panel stressed the importance of following up with parties and remaining engaged in the process in the weeks and perhaps months that follow. The idea of formally terminating a mediation - unless required to do so by the terms of an escalation clause – was thought by the panel to be an unnecessary and counterproductive step.

“Parties rarely want to settle on the first day,” Charles Gordon added. “Mediation is not seen as one-day-only opportunity but a chance to review the issues, assess the merits and weaknesses of a case and create a roadmap to reach settlement further down the line.”

Shift out of neutral

What insurers want from mediators is a vexed question, and again, the panel noted a shift in expectations. Conventionally, the role of the mediator has been to facilitate discussion, independently and impartially. The mediator should not influence the outcome, but rather guide the parties to a mutually beneficial result. Insurers and their counsel, however, have consistently voiced their desire to be challenged on the merits of their case by the mediator, and to be presented with an alternative view to consider. They do so in the hope and expectation that the mediator will take the same approach to the other side(s). This more robust reality testing requires a high degree of sector and legal expertise of the mediator, and needs to be conducted with finesse to bring the parties together, rather than alienate one or other.

Count the cost

There is a political desire to encourage more mediation, notably through the Jackson reforms on civil litigation, and insurers need to be aware of the risks in not doing so. A number of recent cases have shown that parties that did not engage in mediation were hit with adverse costs orders, including parties those that were successful in subsequent litigation. Refusal to mediate at your peril, was the clear message from the panel.

Order out of chaos

Larry Pollack highlighted the complexity in managing mediation with large groups. Each insurer may have a different perspective on the offer, levels of liability and cover, future claims, etc. Insurers in multi-party cases must be willing to consolidate to agree the framework for negotiations before engaging with the negotiations.

“You have to establish structures and concepts that everyone can agree on in terms of how to proceed,” he remarked. “Once you create the plan, everyone is moving in the same direction.”

Try to bridge the gap

Money is often the final barrier to reaching a settlement. The gap between what one party demands and the other party is willing to pay can be hard to bridge. There are various “give and take” techniques that can help find the common ground but the panel said that it was important for parties to “eliminate the greed factor” and be reasonable in negotiations. Larry Pollack had enjoyed recent success with a novel way to re-direct parties away from an unproductive offer, counter-offer scenario towards a less confrontational path. Having agreed with the claimants to drop an unduly optimistic claim, he offered the parties the opportunity to pick from a defined range of percentages a number that they would be prepared to pay. Without formally shifting from their stated positions, the parties made a hypothetical leap to towards a gap which made no sense for either party to refuse to close. Settlement quickly followed.

Maintain healthy commercial relations

Commercial relations are important for businesses, especially when the economy is still in a delicate position. Therefore, when disputes arise, consider the benefits of an amicable agreement. Mediation can help secure on-going business relations between parties, perhaps lucrative future clients or contracts, without the confrontational approach – and legacy – of the “winner and losers” concept of litigation.

Don’t panic about authority

Conventionally mediators have insisted that unless parties have “full authority” to settle a claim, mediation was pointless. Examined a little further, however, and in the context of a large insurance or resinsurance dispute, the concept of “full authority” begins to collapse. There are always limits on what a party can and will pay without needing further authorisation. When taken with the view that mediation should no longer be considered a single-day event, the process of getting authority is merely another stage in the process.

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Topics: Insurance

Matthew Rushton

Written by Matthew Rushton