Few relish the idea of doing battle in the US courts. A long-running jury trial, treble damages and unlimited document disclosure is not for the faint of heart. It represents an uncertain and potentially costly matrix for the wary litigant.
In the mid-1980s, excess liability insurers such as ACE and XL sidestepped the jurisdiction of the US courts by fleeing to the more convivial environment of Bermuda. Reinsurance is now a primary component of Bermuda’s economy, only rivalled by tourism.
In the 1980s, the excess liability insurance sector in the US was on its knees, not helped by the US courts and their apparent propensity to favour the interests of policyholder at the expense of the insurer. This perception that the policyholder has the sympathetic ear of the court still exists today.
For ACE, XL and others, Bermuda represented a much kinder climate in both the meteorological and business sense, giving birth to the Bermuda Form insurance policy.
These policies allow for a unique form of dispute resolution, using New York substantive law but English procedural rules. London-based arbitration is the normal mode of dispute resolution, though some cases go through the English courts such AstraZeneca Insurance Company Ltd v XL Insurance (Bermuda) Ltd and Ace Bermuda Insurance Ltd, which was heard in the Commercial Court last year. In essence, the combination of New York law and English procedure is thought to be a happy union.
Bermuda Form is now widely used by large corporates looking for excess liability protection above and beyond their mainstream policies. It often covers product liability, personal injury and property damage claims.
Richard Jacobs QC, co-head of Essex Court Chambers and an expert in Bermuda form liability insurance disputes, says that the system is well liked: ‘New York law has well-developed and respected principles of insurance law, and London has a well-developed and respected arbitration system.’
Bermuda Form "more popular than ever"
Peter Rogan, (pictured) a JAMS International panel member, a specialist in insurance and reinsurance and former Ince & Co senior partner, believes that Bermuda Form arbitration is more popular than ever. Despite the fact that US attorneys must travel to London and retain local counsel, he believes that the cost is not a big deterrent. When taking into account the alternative - an expensive and time consuming US trial - London-based arbitration looks much more containable and attractive.
There is much to be said for this friendly coalition of New York substantive law and English law procedure. Practitioners and arbitrators alike enjoy the clarity of New York law when assessing the contract between the disputing parties.
Rogan enthuses about the ability to look at the contract in the wider context, taking into account conversations and correspondence leading up to the contract itself: ‘The New York approach to construing contracts allows you to take more account of extraneous evidence as to what the parties intended. English law is more limiting in that pre-contractual negotiations, drafts of agreements or matters known only to one party may not be relied upon.’
In the insurance sector, London-based arbitration is thought generally preferable to US arbitration, because of London’s tradition of neutrally composed tribunals and reasoned awards. By contrast, the non-neutral tradition of arbitration remains prevalent in US insurance disputes. In such arbitrations, a three-person tribunal will include two party-“hired guns,” meaning only the chairman or umpire can be considered impartial. Those arbitrators sitting as wings are often dependent on their appointer attorneys for income and will normally argue the case on behalf of their appointer. The result is that there is no opportunity for the chair’s to be objectively second guessed, and confidence in the process and the veracity of the awards is diminished.
In 2011, ARIAS US, the body that promotes the improvement of insurance and reinsurance arbitration proceedings, established a task force to look at, among other things, the arbitrator selection process and the use of ‘neutral panels’. There is an acknowledgement that the system has its flaws. London-based arbitration is different in that all arbitrators on the panel are expected to be dispassionate and nonaligned.
London-based arbitration is also preferred to US litigation thanks to the enforceability of judgments via The Convention on the Recognition and Enforcement of Foreign Arbitral Awards(The New York Convention). Enforcing US judgments can be problematic particularly in jurisdictions and regions where diplomatic and political tensions exist. US court decisions may have little value in places such as China and certain parts of the Middle East.
A Bermuda Form arbitration provides a different proposition with the New York Convention making this enforcement process significantly more straight forward in a vast number of jurisdictions around the world. With the clarity of New York substantive law and the certainty of English law procedure, it is a marriage that has withstood the test of time.
This post was written by Chris Crowe who is a freelance journalist. He can be contacted at firstname.lastname@example.org