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Practice Note:
Primer on (Re)insurance Market and Dispute Resolution in England & Wales

by ~ Jason Reeves (Email) (Web Site)

The London market is a key component of the (re)insurance industry and must be understood in context. It is a distinct marketplace and is facilitated by a highly developed legal framework. English legal precedents that address difficult insurance problems are frequently cited in judgments in foreign jurisdictions. And, with London still the center of the (re)insurance world, English law often has the final say in resolving (re)insurance disputes. This article is not a comprehensive review of the London market or English law, but rather provides an overview of interesting and distinct points for Americans to consider when London may become involved in a reinsurance dispute.

Setting the Stage

The United Kingdom includes four countries: England, Wales, Scotland, and Northern Ireland. Within England, the City of London (which, in turn, is within the larger city popularly known as London) is a global center for insurance and reinsurance. The City has the greatest concentration of insurers in the world at Lloyd’s and in the London company market.

England and Wales share a centuries-old common law legal system that is generally referred to as “English law. Note that “British or “UK law does not exist: to an English lawyer, Scotland is as foreign a jurisdiction as France, or Kansas.

The courts of England and Wales routinely hear reinsurance disputes, and London is often the seat of reinsurance arbitrations. Rather than juries (which are used for criminal matters), the outcome of civil trials is decided by the highly competent English judiciary.

Like New York law, English law is often chosen as a “neutral law to govern cross-border commercial contracts. Accordingly, it is not unusual for reinsurance disputes originating from U.S. claims or involving U.S. cedents to be subject to English law or an English forum.

Jargon

Scratches, syndicates, slips, spirals, subscription markets, leads, followers, agreement parties, and Names: the London market is home to a peculiar jargon beyond the infamous Cockney rhyming slang. Understanding London market jargon is not the aim of this article, but if you have a Barney with the jargon use the Dog and we can Rabbit about the flavour of the Frankie.1

The meaning of words is critical in the insurance business, but it is more than a common language that divides the London market and the English legal system from the rest of the global reinsurance industry. London is fundamentally a very different marketplace.

London Market

With its origins in a 17th-century coffee house focused on pooling shipping risks, the London insurance market functions like a medieval bazaar. In London, one can procure insurance for virtually any risk, anywhere. And like a bazaar, the London market features many participants who are highly specialized and who benefit from significant institutional knowledge.

While it is truly a global marketplace, the London market also remains a quintessentially English, relationship business. Most global insurers have offices within a 10-minute walk of the Lloyd’s building. Underwriters, brokers and claims people handle the world’s most difficult (re)insurance problems, eat their sandwiches together at lunch, and buy each other pints after work in a surprisingly small geographic area. Some might call it “incestuous.

Like anywhere, success is linked to talent. And talent in London is provided by a rich tapestry of men and women from a wide range of backgrounds. Some have few, if any, academic qualifications, while others have been educated in the best universities and post-graduate programs in the world. Many are highly specialized with detailed knowledge of technical and sometimes arcane issues, in addition to a sophisticated understanding of insurance. It is not realistic to detail here how the market functions, but it is important to remember that the London marketplace operates very differently from other insurance centers.

Insurance and the Law

Insurance, perhaps uniquely, is a business where dispute is routine, and dispute resolution is highly sophisticated. English law has been deciding insurance disputes for centuries, and the English legal system facilitates the unique features of the London market. Thus, the English legal system is a key part of the global (re)insurance industry.

English Legal Counsel

Hiring legal representation in London can be mystifying for those not accustomed to English dispute resolution. The key is to remember that parties hire (or “instruct) solicitors, and solicitors hire barristers. Solicitors work in firms and most closely resemble U.S. attorneys employed in private practice. Barristers are essentially solo, self-employed trial lawyers with a high degree of specialization. Barristers rarely encounter a legal conflict which would prevent their employment.

Pre-Action Protocol

The pre-action protocol is a compulsory step that must precede all commercial litigation in England and Wales. The pre-action protocol obliges a substantive exchange of arguments and evidence before a formal lawsuit is commenced. The protocol also front loads legal and expert costs. In essence, the process requires both parties to put their cards on the table at the outset of the dispute. Protocol compliance is not normally mandatory for arbitrations.

London Arbitration

The Arbitration Act 1996 is similar to the Federal Arbitration Act in the United States. Within certain parameters, parties may agree to any procedures they wish for the conduct of their arbitration. The Arbitration Act 1996 also permits English courts to support arbitrations, including by ordering them to proceed and confirming awards. However, unlike U.S. arbitrations, English courts can overturn arbitrations where they believe the award is premised on an error on a point of law.

English arbitration tribunals have wide discretion. Save for party agreement to the contrary, the default arbitration procedure in London is similar, often identical, to the English Civil Procedure Rules (“CPR). The main differences between the CPR and the U.S. Federal Rules of Civil Procedure are the scope of discovery, how witness evidence is taken, and costs.

As in any other arbitration, picking the right arbitrator and tribunal is a key step. But English arbitration is a truly neutral process. Choosing the right arbitrator for complicated disputes does not involve an interview. Rather, it demands knowledge of the elite group of suitably qualified arbitrators and their skills, expertise, and likely predilections and biases. There are virtually no ex parte communications with arbitrators either before or during an English arbitration.

Further, reasoned awards are the norm, and if “the baby is split, which is rare, there is normally a sound and articulated legal basis for the arbitration award.

Disclosure

The CPR provides for a narrower scope of discovery, or “disclosure, than typical U.S. discovery. In the U.S., parties may discover any document which may lead to a document which is relevant. U.S. discovery is often costly, and it can be punitive. English disclosure, however, compels only the discovery of relevant documents. Disclosure must be reasonable and proportionate in the context of the nature, complexity, and quantum of the proceedings. The Arbitration Act 1996 permits parties to agree to wider, or narrower, parameters of discovery.

Evidence

Witness evidence in the U.S. is normally taken by deposition and cross-examination. Under the CPR, witness evidence in England and Wales is taken by witness statement and cross examination at trial. Each party prepares its own witness statements pursuant to an order of the court or directions of an arbitration tribunal. Witness statements contain the evidence that each person will be allowed to give orally. Witnesses are then cross-examined during the trial or hearing before the tribunal. By contrast, the Arbitration Act 1996 permits parties to agree to take depositions rather than exchange witness statements.

Costs

In English litigation, costs “follow the event. When costs “follow the event, the loser pays the winner’s costs of the litigation, including attorneys fees. This is a complicated area of English law and satellite costs litigation in special courts is common.

Generally, costs are decided on an issue-by-issue basis, and they can be affected by unreasonable conduct and by conduct with respect to settlement offers. For example, if a party unreasonably refuses to mediate or its conduct is otherwise subject to criticism, it may face an adverse costs order even if successful. Courts make costs awards for interim motions (“applications) and again at the conclusion of a trial. Typically, a successful party recovers approximately 70% of its legal costs from the losing party.

Save for contrary agreements between the parties, costs also follow the event in arbitrations. Arbitration costs include the tribunal’s costs as well as legal (attorney) and expert costs. In arbitration, parties may agree that costs will be borne by each party, but the English view is that parties, and outside legal counsel, should stand behind their positions, meaning that they are prepared to pay costs if their positions are not adopted by the tribunal.

Conclusion

The London market is a unique insurance environment. Most U.S. insurers now have a London presence, and they may find London to be both familiar and foreign. The London market is modern but rooted in its own history. Reinsurers outside of the London market should be familiar with how the London market works. English law has a symbiotic relationship with the London insurance market, and it also continues to provide the intellectual framework for large parts of the global insurance industry.

Jason Reeves is a Solicitor of the Supreme Court of England & Wales and a U.S. attorney. He practiced English law in London for nine years before joining Zelle Hofmann's Dallas office where he continues to handle English litigation and arbitration on behalf of insurers and reinsurers. Wearing a nice bag out with friends and carry mulberry bags,replica watches,replica rolex watches and replica omega watches to work is an amazing thing.

Jason Reeves may be reached at jreeves@zelle.com.
 2011 Zelle Hofmann Voelbel & Mason LLP. All rights reserved.

*****

1 Barney Rubble = Trouble; Dog and Bone = Phone; Rabbit and Pork = Talk; colour = color; flavour = flavor; Frankie DeTory = Story.

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