A typical reinsurance dispute may develop something like this:
- The Reinsured negotiates his reinsurance program for the coming year, considering the price, terms, coverage of the reinsurance contracts and the security of the proposed reinsurers.
- The broker prepares a cover note.
- The premium is paid, the contract wording is completed and agreed.
- Two years later a claim is made under one of the reinsurance contracts, which is disputed by reinsurers.
- The Reinsured refers the matter to his solicitors.
- After assessing the chances as good, solicitors appoint arbitrators or issue proceedings.
- Statements of case are exchanged, documents are disclosed, witness statements are exchanged, experts are appointed and finally a hearing date is set.
- Both parties appoint senior counsel to represent them at the hearing.
So far, this process has taken 18 months. Both parties have expended substantial amounts in costs and management time. The cost of management time is irrecoverable and the outcome remains uncertain.
Most outcomes are simply ‘win’ or ‘lose’. The process is adversarial and decided by a judge appointed by the courts or arbitrators appointed by the parties. The Reinsured and Reinsurer are distanced from the ownership of the argument, are entrenched in their positions and costs automatically escalate.
The advantages of mediation are:
- It is a confidential;
- It is without prejudice;
- It is successful, around 80% result in a settlement;
- Each side has ample opportunity to be heard and listened to;
- You can not be bound by solution you do not agree too – you retain control of the outcome;
- When agreement is reached and written up it is a binding agreement.
Courts encourage parties to mediate and may award costs against a party refusing to do so (see PGF II SA v OMFS Co & Anr). However, arbitration is still the most popular procedure chosen to resolve reinsurance disputes.
Mediation gives the parties the best opportunity to settle disputes without incurring the considerable costs of litigation or arbitration, which have uncertain outcomes. The parties are encouraged to put their own argument in a non-adversarial environment and remain in control of the outcome. It saves costs, management time and adverse results.
To find out if your reinsurance dispute is suitable for mediation call one of our experts on 0844 879 3166.