London Ready to Solve Claims Disputes by Use of Mediation (Insurance Day)

Friday, November 17, 2006

By: Peta Miller

INTEREST in resolving insurance disputes cheaply and quickly using mediation has swept through the London market following the launch of an initiative to settle reinsurance disputes.

Lloyd’s members have heard a panel of experts debate the best way to resolve disputes, following the October 23 launch of the International Reinsurance Industry Dispute Resolution (IRIDR) protocol into the market.

Asked to vote for one of three dispute-resolution mechanisms at a seminar titled The battle of the forums; litigation, arbitration or mediation?, an overwhelming majority of Lloyd’s members (more than 100 out of a total of 130) were in favour of mediation.

A panel of experts including Commercial Court judge dame Elizabeth Gloucester, former chairman of Arch Group Bryan Kellet, chief executive of the Centre for Effective Dispute Resolution Eileen Carroll, and head of the insurance and reinsurance group at law firm Lawrence Graham Nick Bradley, then debated whether these mechanisms were serving the London market.

“There is a debate at the moment in the market as to whether it is being properly served by its dispute-resolution mechanism,” said Bradley, whose firm sponsored the seminar.

“It is looking for a better way to resolve its disputes either through a streamlined, more efficient route to court or by bringing in increased use of mediation. There is growing understanding and recognition in the insurance and reinsurance market of the benefits of mediation but there is concern that it is not abused by sophisticated parties,” he added.

The seminar built on existing interest in mediation following the launch of the IRIDR protocol. Developed by the International Institute for Conflict Prevention and Resolution (CPR) in co-operation with companies including Lloyd’s and QBE, the protocol consists of a statement of intent to follow certain procedures in the event of disputes arising between reinsurers and cedants and an account of the procedures that are to be followed.

QBE’s head of claims, Paul Moss, one of the architects of the IRIDR protocol, said that there was already huge market interest in mediation due to the impact of hurricane Katrina claims and contract certainty.

“Katrina was such a great learning curve for the industry. When it happened, lawyers were rubbing their hands together with glee but [the litigation] just didn’t happen because the insurance industry had to grow up overnight,” Moss said.

“As a result, we are a much more informed claims community than 15 years ago. We are taking control of these disputes.”

The push for contract certainty – ensuring the terms of an insurance contract are in writing before the policy begins – is also a factor, said Moss.

“Almost 99% of contracts at the moment have arbitration clauses in but contract certainty gives us the opportunity to ensure mediation clauses are overlying arbitration clauses in the contract,” said Moss.

“The expectation is that underwriters should look very seriously at talking with their wordings people to incorporate mediation wordings into contracts of reinsurance.”

In April 2005, a group of insurance companies attended a meeting at the offices of QBE International in London to pinpoint the most costly areas of dispute, which would be ripe for reform and co-operation.

The group chose disputes between reinsurers and ceding companies, and in the following months worked alongside CPR to devise best practice that would be applicable throughout the world.

New York-based CPR was chosen because of the importance of the US as a market for Lloyd’s and London and because its members include many of the largest insurance companies and global corporations in the US, said Moss.

Arbitration and mediation are similar methods of resolving a conflict in that they are alternatives to litigation and employ a neutral third party. They differ because mediation tends to be non-binding whereas arbitration is usually binding.

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