by ~ Steven Torres (Email) (Web Site)
The mid-morning panel at this year’s MReBA Symposium provided an insightful glance into the minds of current arbitrators and umpires. The session featured panelists W. Mark Wigmore, Jonathan Rosen and Eugene Wollan with John Harding moderating the lively discussion. The panel shared their knowledge, wisdom and practical advice on a wide array of topics, with a focus directed to three “hot button” issues currently at the forefront of reinsurance practice: (i) panel neutrality – does it exist and is it a good idea?; (ii) the role of fee and cost awards; and (iii) the role of “custom and practice” in reinsurance arbitration, including the issue of who determines what qualifies as “custom and practice.”
As one panelist remarked, the topic of arbitrator neutrality is an issue that comes up at every reinsurance conference. Yet despite the frequent debate as to whether to move away from party-appointed arbitrators and towards a truly neutral panel, there are indications that the actual participants in reinsurance arbitrations prefer the current process and its use of party-appointed arbitrators. As one panelist observed, the option to assemble an entirely neutral panel through the “Neutral Selection Procedure” offered by ARIAS has been generally ignored. The reason for that, the panelist suggested, is the tension between a party’s recognizing the abstract value of a process that is inherently fair and that party’s need to win each particular case. And that need to win one’s case, according to another panelist, renders a litigant unwilling to relinquish the perceived advantage of being able to select its party appointed arbitrator.
One panelist suggested that the clamoring for neutrality may come from arbitrators themselves – not parties – because it would easier for the arbitrators if they could feel truly neutral. Parties tend to view their seeking to assemble a panel that would be receptive to their arguments as being no different from selecting a particular court or judicial forum that they believe will be more be receptive to their arguments. Summing up the recurring dialogue on a more objectively neutral system, one panelist noted that people have been debating the benefit of neutrality for the last twenty years and are likely to still be doing so twenty years from now.
The discussion then turned to the question of whether (and when) arbitration panels should award arbitration-related fees and costs. The panelists discussed the traditional “American Rule” of dispute resolution under which each party typically pays its own litigation expenses, pointing to recent case law in which an arbitration panel departed from that traditional rule in rendering an award. The panelists concurred that, while the American Rule generally applies, arbitrators have been known to award costs and expenses against a perceived “bad actor” in order to send a message to that party not to conduct itself in such a manner in the reinsurance marketplace. The panelists noted that some may argue that such awards are similar to punitive damages, raising a conundrum because the panelists also indicated that an award of punitive damages may run afoul of the express terms of the parties’ arbitration agreement.
The final “hot topic” the panelists addressed was the use of custom and practice in reinsurance arbitrations. One panelist described reinsurance custom and practice as “the unwritten principles that help to define the environment in which reinsurance is undertaken.” As the panelists noted, custom and practice may come into play in numerous instances, including whether the follow the settlements and follow the fortunes doctrines apply if not expressly included in the reinsurance contract and whether a reinsurance arbitration is subject to confidentiality absent an express clause establishing confidentiality.
The panelists also distinguished custom and practice from course of dealing. While custom and practice includes conduct that spans across the entire industry, course of dealing relates to how particular parties have conducted business with each other. In particular, a panelist noted that an established course of conduct between two parties can “trump” industry custom and practice where they differ.
The panelists concurred that the arbitration panel members typically can identify custom and practice themselves without the assistance of expert testimony.
The discussion was lively, and as is so often the case when arbitrators sit on panels, the audience appeared eager to learn their perspective.
Steven J. Torres, CPCU, is a partner at Torres, Scammon & Day, LLP in Boston. He may be reached at firstname.lastname@example.org.
© 2012 Torres, Scammon & Day, LLP. All rights reserved.
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