Thursday, February 1, 2007
In 2006, acting at the request of insurance and reinsurance companies, the CPR International Institute for Conflict Prevention and Resolution developed and propounded its International Reinsurance Industry Dispute Resolution Protocol (the “Protocol”). Most fundamentally, the Protocol serves as a statement of intent by companies to follow certain procedures in the resolution of reinsurance disputes. Next, it provides a framework for a graduated exchange of information and documents, unfacilitated negotiations, and if necessary, non-binding mediation. All this is completed within approximately six months or less from delivery of a Notice of Negotiation.
Use of the Protocol would not cause delay, because the parties are free to commence and defend arbitration or litigation at any point. But whatever else they do, the parties agree to engage in a process that will permit a commercially reasonable assessment of the issues and encourage an early and possibly creative resolution, before they incur the expense and animosity of protracted adversarial proceedings. For example, an early resolution could encompass matters such as the payment of a claim, the effect on retentions and aggregates, the future interpretation of a provision, and the continuation or expansion of trading relationships.
Companies may either incorporate the Protocol in all their contracts, or adopt it unilaterally as a statement of their policy. In addition, parties to a specific dispute may adopt it solely for use in that dispute.
The Protocol is not a legally binding agreement, and a company choosing to adopt it waives no right, defense or privilege, and no cause of action arises from not following it. It creates no rights in third parties.
There have long been some undercurrents of dissatisfaction with arbitration as a means of resolving reinsurance disputes. Some think it is too long and too expensive. Alternatively, there is sometimes a sense that not every dispute requires the full and customary arbitration process, especially the expensive and contentious phase which includes depositions.
These concerns have led various companies to consider whether some disputes could be better addressed through structured negotiation and mediation. A particularly energetic group within the industry enlisted the support of the CPR. That is the most interesting aspect of the Protocol. It was created at the request of users of dispute resolution services to address concerns specifically related to the reinsurance industry, and was tailored accordingly. An Advisory Committee was formed, a drafting committee emerged, consultations occurred within and outside the committees, and competing considerations were taken into account.
III. The Process Established By The Protocol
A party initiates the process by serving a Notice of Negotiation, accompanied by certain information and documents. The Notice of Response is due 30 days later, accompanied by certain information and documents.
Upon the exchange of Notices, the parties meet and agree on what further information and documents shall be made available for copying and inspection. All reasonable requests for further information are to be honored.
The Protocol identifies certain documents that, without limitation, are “presumptively accessible, non-privileged and relevant and should be made available.” These are as follows:
a. All underwriting files relating to the underlying claim, including those relating to the direct policy giving rise to the loss.
b. All underwriting files relating to the Agreement of Reinsurance pursuant to which the claim is being made by the ceding insurer.
c. All claims files of the ceding Insurer that relate to the underlying claim, except for any opinions from in-house or outside counsel addressing the underlying claim or the reinsurance claim.
d. All documents that would be relied upon by any reinsurer to support its denial of coverage in whole or in part.
e. All documents, including policies of insurance, that may inure the benefit of any reinsurer who is a party to the dispute.
Protocol, Appendix B, para. 3.
These were carefully selected. Note especially the exception in item “c,” “opinions from in-house or outside counsel addressing the underlying claim or the reinsurance claim.” That exception was meant to avoid pre-judging the availability of those documents, because that is often a highly-contested matter in arbitrations.
No later that 45 days from the Notice of Negotiation or 15 days from the last Notice of Response, the parties are to meet to attempt to resolve the dispute. If the exchange of information and meeting of the Parties has not led to settlement within 14 days from the beginning of negotiations, the parties go to non-binding mediation. The parties are free to chose their own mediator. If they do not agree on a mediator promptly, they contact the CPR. For a reasonable and customary fee, the CPR confers with the parties, and within fourteen days thereafter, submits five mediator candidates and their qualifications. The parties then have seven calendar days to agree to a candidate. If they do not, on the next business day they are to rank all five candidates in order of preference, and the candidate with the best ranking is chosen. The CPR will break any tie. At any point in this stage the parties can agree to any mediator, even if not on the CPR’s list. The parties negotiate the mediator’s rate directly, enter into a retention agreement with the mediator directly, and pay the mediator directly.
The mediator and parties set most of the procedures. The Protocol provides only a few parameters. First, the mediator will normally hold an initial joint meeting with all parties. At least seven days before that first meeting, the parties provide their Notices of Negotiation and Responses, supplemented by relevant information and documents the party may consider appropriate. The parties are encouraged, but not required, to exchange with each other everything provided to the mediator. Except as agreed by the parties, anything submitted to the mediator is confidential. If one party believes further information is required, and the other disagrees, they can raise this with the mediator, but the mediator has no power to compel further production.
After that, the mediator can meet with the parties separately or jointly. At the mediation, no record is kept, and formal rules of evidence do not apply. The entire process is confidential except as to legal or contractual reporting requirements to regulators, auditors or reinsurers. The mediation is treated as an offer of compromise under any applicable rules of procedure, and the information is inadmissible in future proceedings unless offered on an independent ground. The mediator can have no role as representative, witness, consultant or expert in any future proceedings.
If the matter is not settled, the mediator, with the consent of all parties, may proffer an evaluation, in writing if the parties choose, of either:
(i) the mediator’s view of the likely outcome of the dispute if it were brought to final award before an arbitrator or final judgment before a court, or (ii) the mediator’s final proposal for a settlement on terms that the mediator considers fair and equitable in light of the interests of all parties.
Protocol, Appendix B, para. I.
If the parties fail to settle and do not agree otherwise, the mediation is deemed terminated if:
a. (i) Ninety days have expired from the date of selection of the mediator, and (ii) a written resolution has not been agreed upon by the parties, and (iii) a party has given written notice to the mediator and the other parties of its intention to withdraw; or
b. The mediator concludes that further efforts would not be useful.
Protocol, Appendix B, para. F.10
On the whole, the Protocol is a user-generated, thoughtful effort, broadly preserving party autonomy while providing a usable framework for early dispute resolution. It also provides ample opportunity for innovation in a given case. As just one example, on a particularly difficult discrete issue, the parties could conduct a non-binding miniarbitration before a specially constituted panel, not including the mediator.
IV. For Further Information
The complete Protocol is available in booklet form, or on-line at www.cpradr.org/pdfs/reinsurance06.pdf. This author served on the Advisory Committee that assisted and advised in framing the Protocol. Any questions about the Protocol or the mediation of reinsurance disputes in general can be directed to him at firstname.lastname@example.org, tel. no. 212.912.2828, or to Peter Phillips of the CPR at email@example.com, tel. no. 212.949.6490.
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