Reduced dispute frequency is good news for the industry, but it doesn’t mean that industry executives should assume that reinsurance disputes are a thing of the past, ignore important developments that bear on their resolution, or become less proactive in their efforts to prevent them.  Keeping apprised of recent, pertinent reinsurance- and dispute-resolution-related legal, regulatory and economic developments is particularly important today, because there have been – and will likely continue to be – many that may bear on the nature and frequency of future reinsurance disputes.

To that end, a number of experienced industry executives and  in-house counsel, and a small group of outside counsel, have joined forces with HarrisMartin Publishing to put together a two-day conference designed to survey important, recent developments concerning reinsurance and reinsurance dispute resolution.  The conference — entitled “Reinsurance Summit:  Fresh Perspectives on the Reinsurance Front” — is scheduled to take place at the Lowes Philadelphia Hotel on September 22-23, 2011.

It promises to be an excellent opportunity to keep abreast of what’s happening in the world of reinsurance and reinsurance-dispute-resolution, network with friends and colleagues, and earn CLE credits if you need them.  Admission is $895.00, but HarrisMartin is offering a $100.00 discount to those who register by September 2, 2011.  Registration, CLE and hotel information is here (HarrisMartin has negotiated a reduced, $199.00 per night hotel rate for conference attendees).

Here’s the program as described by HarrisMartin:

Day 1, Thursday, September 22, 2011

8:15 a.m. – 8:30 a.m.

WELCOME BY CO-CHAIRS

Edward K. Lenci, Hinshaw & Culbertson LLP, NewYork

Leslie J. Davis, Vice President & Assistant General Counsel, General Re, and Senior Vice President & General Counsel, US Aviation Underwriters, Stamford, CT

Wendy R. Taylor, Vice President and Associate Counsel, Chubb & Son, a division of Federal Insurance Company, Warren, NJ

8:30 a.m. – 9:45 a.m.

STATUTORY AND REGULATORY UPDATE: DODD-FRANK, THE NON-ADMITTED AND REINSURANCE REFORM ACT,  AND THE FEDERAL INSURANCE OFFICE

• Title V of the Dodd Frank Act: A discussion of the major interests lobbying for this legislation and against it, how and when the reinsurance provisions will be implemented and enforced, and the likely practical impact on reinsurance transactions.

• The Non-admitted and Reinsurance Reform Act: A discussion of issues relating to preemption, the future role of the NAIC, the changes to the significance of an insurer’s state of domicile, and how states and ceding companies may respond.

• The Federal Insurance Office: A discussion of this new office, “covered agreements,” the influence of Solvency II and international governing bodies, and the impact on state law, including a discussion of federalism and constitutionality.

Moderator:

A. Lindsay Doering, Law Office of A. Lindsay Doering, Philadelphia

Panel:

Patrick H. Cantilo, Cantilo & Bennett LLP, Austin, TX

Kimberly M. Welsh, Vice President and Assistant General Counsel, Reinsurance Association of America, Washington, D.C.

Daniel Schelp, Managing Attorney, National Association of Insurance Commissioners

9:45 a.m. – 10:45 a.m.

THE JUDICIAL SCRUTINY OF ARBITRAL AWARDS

Over the last few years, courts, including the U.S. Supreme Court, have decided a number of controversial cases concerning the power of courts to vacate arbitral awards on the grounds of excess-of-powers, evident partiality and procedural misconduct. Several of those cases involved arbitrations concerning reinsurance disputes. This panel will discuss recent developments pertinent to judicial review of arbitral awards, including outcome-based review, arbitral authority to award attorney fees and costs, adequacy of arbitrator disclosures, arbitrator qualifications, and arbitral “due process.” Among the controversial cases the panel will discuss are:

• Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp. (U.S. Supreme Court)

• AT&T Mobility v. Concepcion (U.S. Supreme Court)

• Reliastar Life Ins. Co. v. EMC Nat’l Life Co. (2nd Circuit)

• PMA Capital Ins. Co. v. Platinum Underwriters Bermuda, Ltd. (3rd Circuit)

• Dealer Computer Services, Inc. v. Dub Herring Ford, et al. (6th Circuit)

• Trustmark Ins. Co. v. John Hancock Life Ins. Co. (7th Circuit)

• Scandinavian Re Co. Ltd. v. St. Paul Fire & Marine Ins. Co. (S.D.N.Y.) (appeal pending)

• Amerisure Mut. Ins. Co., et al. v. GLOBAL Reins. Corp. of Am. (Ill. App. 1st Dist.)

Panel:

Philip J. Loree Jr., Loree & Loree, Manhasset, NY

John M. Nonna, Dewey & LeBoeuf LLP, NewYork

Richard Faulkner, Blume, Faulkner, Skeen & Northam, PLLC, Richardson, TX

10:45 a.m. – 11:00 a.m.

REFRESHMENT BREAK

11:00 a.m. – 12:00 p.m.

REINSURANCE CONTRACT WORDING: BE CAREFUL WHAT YOU ASK FOR!

Reinsurance contract wording is changing, due in part to the increasingly global nature of reinsurance and the competing regulatory requirements of different jurisdictions around the world. As a result, seemingly straightforward requests may have unintended consequences. Some of the complex clauses and issues that this panel will discuss include:

• Governing Law, Jurisdiction and Venue: Enforceability of choice of law; the legacy of Wasa v. Lexington; the impact on arbitrators’ power; application of procedural law; and the possible collision of governing law with the negotiated and paid for coverage for punitive damages, ECO/XPL.

• Economic and Trade Sanctions: The recent rise in demand for sanction exclusionary language and the ramifications of wordings currently circulating, including a comparison of the traditional territorial exclusion, the US/OFAC exclusionary wording and the London Market exclusionary wording; the counter forces of anti-blocking legislation; and highlights of trade sanction programs, including discussion of particular countries and jurisdictions).

• Claims Cooperation: An examination of different clauses, why they are requested, how they help or hinder the parties, and the differences between the U.S. and U.K/Europe.

• Commutations and Sunset: Loss notice provisions; Mandatory or permissive commutations; formalized contractual commutation methodologies; appraisal provisions; actuarial arbitrations.

Panel:

Wendy R. Taylor, Vice President and Associate Counsel, Chubb & Son, a division of Federal Insurance Company, Warren, NJ

Myra E. Lobel, Managing Director, Guy Carpenter & Company LLC, NewYork

David A. Silva, Mound CottonWollan & Greengrass, New York

David N. Kragseth, Senior Contract Wording Specialist, Munich Reinsurance America, Inc., Princeton, NJ

12:00 p.m. – 1:30 p.m.

LUNCH

1:30 p.m. – 2:30 p.m.

WHAT, EXACTLY, IS BAD FAITH IN REINSURANCE?

The duty of utmost good faith is a two-way street. Two in-house attorneys will explore the duties and obligations of cedents and reinsurers with respect to underwriting, presentation and acceptance of the risk, renewals, claim handling, claim presentation, and arbitration or litigation.

Panel:

Leslie J. Davis, Vice President & Assistant General Counsel, General Re, and Senior Vice President & General Counsel, US Aviation Underwriters, Stamford, CT

Susan Grondine-Dauwer, General Counsel,R&Q USA, Boston

Jeanne M. Kohler, Edwards Angell Palmer & Dodge LLP, New York

2:30 p.m. – 2:45 p.m.

REFRESHMENT BREAK

2:45 p.m. – 3:45 p.m.

DISPUTE RESOLUTION ALTERNATIVES: LITIGATION, MEDIATION, ARBITRATION

In-house counsel will share insights and address the “pros and cons” of the litigation, arbitration and mediation of reinsurance disputes as well as alternative arbitral rules and fora, such as offered by AIRROC.  Moderated by Bina T. Dagar, this panel will deliver a balanced view of cedent and assumed perspectives to ADR. The discussions will include:

• Options available to resolve reinsurance disputes

• Benfits and challenges posed by each alternative

• Ad Hoc vs. institutional arbitration/mediation

• Organizations as clearinghouses – ReMedi, AAA, AIRROC, ARIAS, CPR and JAMS

Attendees will be asked to complete a Zoomerang survey ahead of the Conference to be incorporated into the presentation.

Moderator:

Bina T. Dagar, Ameya Consulting, LLC, Livingston,NJ

Panel: Steven Agosta, General Counsel, XLRe America, Stamford, CT

Scott P. Birrell, Vice President and Associate General Counsel, Travelers Insurance Co., Hartford, CT

Anthony Vidovich, Vice President & Assistant General Counsel, Director of Reinsurance Law, The Hartford, Hartford, CT

Michael Zeller, Vice President, Reinsurance Services Division, AIG, Inc., New York

3:45 p.m. – 5:30 p.m.

THE VERY MODEL OF A REINSURANCE ARBITRATOR: INDUSTRY EXECUTIVES SPEAK OUT

The in-house counsel on our faculty will serve on this panel, to be moderated by Fritz K. Huszagh of Hinshaw & Culbertson in Chicago. Among the issues the panelists will address, from the insurers’ and reinsurers’ perspectives, in this potentially lively session are:

• What qualifications should an ideal arbitrator and umpire have?

• What disclosures should they make?

• Is there any value to “certification” of arbitrators and umpires?

• If so, what factors should be considered in the certification process?

• Should arbitrators accept conflicting assignments?

• What is a fair fee for arbitrators and umpires?

• Which expenses are proper and which are not?

• Should arbitrators and umpires be paid non-refundable retainers?

• Should they be paid hearing cancellation fees?

Moderator:

Fritz K. Huszagh, Hinshaw & Culbertson, Chicago

Panel:

Steven Agosta, General Counsel, XL Re America, Stamford, CT

Scott P. Birrell, Vice President and Associate General Counsel, Travelers Insurance Co., Hartford, CT

Ali E. Rifai, General Counsel, Zurich Insurance CMB Division, and former Interim General Counsel, Zurich Insurance Middle East Region

Susan Grondine-Dauwer, General Counsel, R&Q USA, Boston

Leslie J. Davis, Vice President & Assistant General Counsel, General Re, and Senior Vice President & General Counsel, US Aviation Underwriters, Stamford, CT

Thomas Freudenstein, COO, GLOBAL Reinsurance Corporation of America and Director and Attorney at GLOBALE Rückversicherungs-AG, New York and Cologne, Germany

Myra E. Lobel, Managing Director, Guy Carpenter & Company LLC, NewYork

Anthony Vidovich, Vice President & Assistant General Counsel, Director of Reinsurance Law, The Hartford, Hartford, CT

Michael Zeller, Vice President, Reinsurance Services Division, AIG, Inc., NewYork

5:30 p.m. – 7:00 p.m.

NETWORKING COCKTAIL RECEPTION

Day 2, Friday, September 23, 2011

7:30 a.m. – 8:30 a.m.

CONTINENTAL BREAKFAST

8:30 a.m. – 9:30 a.m.

ETHICAL CONSIDERATIONS FOR LAWYERS SERVING AS UMPIRES AND ARBITRATORS

An interactive talk on how state rules concerning the ethical obligations of lawyers impact lawyers who are serving as umpires and arbitrators.

Daniel E. Tranen, Hinshaw & Culbertson LLP,Boston

9:30 a.m. – 12:30 p.m.

DEVELOPMENTS IN REINSURANCE AROUND THE WORLD

In an ever-increasingly globalized economy, businesspersons and lawyers need to know what’s happening around the world. Each panelist will cover a different region of the world, providing crucial information about current market trends, governmental regulations, resolution of disputes and the like. (A Refreshment break will be held during this panel from 10:30 – 10:45 a.m.)

Panel:

UK: Peter W. Ambler, Managing Director, Towers Watson (Re)Insurance Brokers Ltd., London

Europe: Thomas Freudenstein, COO, GLOBAL Reinsurance Corp. of America and Director and Attorney at GLOBALE Rückversicherungs-AG, New York & Cologne, Germany

Latin America: M. Machua Millett, Senior Vice President, Senior Advisory Specialist and Global GPL Team Leader, Marsh USA Inc., Boston

Middle East: Ali E. Rifai, General Counsel, Zurich Insurance CMB Division, and former Interim General Counsel, Zurich Insurance Middle East Region

Canada: Stuart S. Carruthers, Stikeman Elliott, Toronto

I hope to see you there!

The group, which was formed in May 2009, is now 900 members strong and is growing by the week.  Many different industries are represented, including the insurance and reinsurance industry.  The group enables members to share information; discuss and debate issues; directly access numerous excellent ADR-related blogs; and network with others in the domestic and international ADR community. 

The group welcomes new members, and encourages (but does not require) active participation.  The only requirement for membership is a bona fide interest in ADR.  The group is not a forum for, and does not permit, advertising or blatant self-promotion, so our members need not be concerned about being subject to sales pitches and the like. 

If you are already a member of LinkedIn, please click here to apply for membership in the group.  If you are not a LinkedIn member, click here, and you will be guided through the process of creating a profile (which does not need to be completed in one step).  Once your profile is started, and you have a user name and password, you can apply for membership in the group (which entails no more than clicking on a button).  Joining LinkedIn is free, as is joining the group. 

We hope you’ll join up!

The Founding Members of ReMedi, including Peter, Kathy and Andy, are hosting a cocktail reception in New York city to celebrate the establishment of the new organization. The reception will be held on November 11, 2009, from 5:30 p.m. to 7:30 p.m., at the offices of Chaffetz Lindsey LLP, 1350 Avenue of the Americas, New York, NY 10019 (6th Avenue and 55th — enter at 55th).

Peter asked the Forum to let those interested in reinsurance and insurance mediation know that, if you have not received an invitation, but wish to attend, then you should contact him at (215) 369-4329. Alternatively, you can contact me via e mail  (pjl1@loreelawfirm.com) or telephone ((516) 627-1720), and I will be happy to let Peter know that you are interested in attending.   

The event is sponsored by Chaffetz Lindsey LLP and Cozen O’Connor, and is free of charge.   The Founding Members of ReMedi (other than Peter, Kathy and Andy) are Paul Dassenko, Larry Monin, Jonathan Rosen, Jim Shanman, Jim Stinson, Kevin Tierney, Liz Thompson, David Thirkill, Vince Vitkowski, and Richard Waterman. 

Peter, Kathy, Andy and I hope to see you at the reception.

Congratulations and good luck!

From what I have heard (and I am not a mediator) state regulation of mediators is a controversial subject.  And it should be. 

Mediation is a highly competitive field.  Victoria Pynchon, blogmaster of the highly-regarded Settle it Now Negotiation Blog, recently posted an interesting piece about whether ADR is a rescession-proof industry, which is available here.  One thing she said really stuck in my head:  “[l]et me give a word to the wise:  [a mediation practice is] .  .  .  70% marketing and 30% paying work during a good year.”  I am willing to wager that building such a practice is 110% marketing and 0% working for paying clients.  Let’s face it, making a living as a mediator is no walk in the park.

Apparently, some mediators believe that their ability to obtain new business would be enhanced by state regulation of mediation.  It is tempting  to believe that one’s own ability to attract potential clients would be aided if the state put its imprimatur on your practice.  It is also easy to understand why certain mediators may believe that state certification will materially decrease the number of competitors in the local market for mediation services.   And perhaps state certification, and the attendant power of the state to enforce through discipline a code of ethics for mediators, might lend some comfort to consumers of mediation services that the selected mediator will not engage in some sort of unspecified misconduct and will not be entangled in conflicts of interest. 

We do not believe that state regulation of mediation will be the boon to business that some mediators apparently think it could be.  First, we do not believe that a state license to mediate would be a meaningful marketing tool.  It may be that, if state certification is enacted, the mediators who are able to get certified first may get more clients while everyone else scrambles to get certified.  In time, however, everyone will be certified and state certification will be no more of marketing tool than bar admission is for lawyers.  

Second, we do not believe that licensing will materially decrease the competition pool, at least as far as local business is concerned.  We suppose that proponents could argue that only “serious” mediators will get certified, and that competition will be limited to a pool consisting of such mediators.  That may well be true, but it is beside the point:  we would be surprised if the business-getting ability of serious mediators has ever been threatened by the not-so-serious, so removing the not-so-serious from the competition pool is not going to affect competition much.

Third, we do not believe that a significant number of potential consumers of mediation services are shying away from mediation because they fear that unlicensed mediators are likely to engage in unethical or improper conduct.  Certainly, mediations are confidential affairs and it may be difficult to assess whether improper conduct on the part of mediators is a significant risk.  We have not seen too much written about actual or alleged misconduct on the part of mediators, and we certainly do not perceive much concern that significant numbers of mediators are engaging in improper or unethical conduct, at least in commercial and industry mediation.  

There are already in place some market checks against such misconduct.  Reputation is an important factor in selecting a mediator, and those who engage in unethical conduct take a very serious risk that their reputations may be sullied, thereby diminishing their ability to obtain future business.   The presence of a disciplinary system for mediators arguably might increase public confidence in mediators, but we do not see sufficient evidence that public confidence is lacking, let alone evidence that unethical or improper conduct is a widespread problem in commercial and industry mediation. 

There is a caveat here:  it may be that certain court-sponsored or court-ordered mediation may be conducted by persons who do not have the requisite skills to help the parties, and we suppose participants in such programs could suffer harm as a result.  Ms. Pynchon has indicated that this is a real problem in her home state, especially as respects small claims matters and civil harassment disputes.  (See post here.)  Problems like these are within the power of the courts to address, and address them they should. 

Apart from the debate over whether mediator licensing would enable mediators to obtain more business, we believe that state regulation would, if anything, impair the ability of the better  mediators to compete for  business.   If a significant number of states — particularly contiguous ones – start imposing certification requirements, balkanization will result, and the geographic market in which each mediator can compete will shrink.  The flip side of state regulation is that states will likely exclude unlicensed mediators from mediating disputes within the state or perhaps from mediating in any state a dispute pending in the court of the certifying state or to be heard before an arbitration panel in that state.  Just as certain states have imposed residency or in-state office maintenance requirements on attorneys as a condition of admission to the bar, so too might some or all states impose similar requirements on mediators. 

Suppose New York and Massachusetts both decide to regulate and certify mediators,  impose a residency or office maintenance requirement on certified mediators, and require that mediators must be certified to mediate cases that are pending in their home courts or are to be heard by arbitrators within the state.  Suppose that parties to a litigation pending in Massachusetts want to hire a well-known and highly-regarded mediator that is certified to mediate in New York, but not Massachusetts.  The parties will not be able to use the mediator of their choice  and the preferred mediator  will not get the business unless the parties are willing to pay for the added cost of also having a state-certified mediator present at the mediation. 

The customer and the better mediators would suffer as a result.  The effective geographic market of every mediator would be reduced, and the better  mediators who, in the absence of regulation would be able to compete freely in a national market, would find their ability to compete hampered by the need to hire “local mediators.”  The real loser would be the customer, who would  have to pay two mediators to obtain the one mediator it really wants.  The winners would be the mediocre mediators, whose competition would be reduced to in-state mediators and who would benefit from having additional, “local mediator” assignments when an out-of-state mediator is called in.

These are not the only issues raised by the spectre of state regulation of mediation, and we may return to the subject in a future post….

On July 14, 2009 the NAF Blog posted a “Top-Five Tuesdays” submission by master-blogger Diane Levin, entitled “5 New ADR Blogs to Add to Your Reading List.”  (Available here.)  Diane is, among other things, the blog master of the excellent and immensely popular ADR blog, Mediation Channel, and “unofficial taxonomist of the ADR blogosphere” at her popular worldwide blog directory,  ADRBlogs.com.   Noting that she “track[s] and catalog[s] bloggers world-wide who write about ADR, negotiation, and conflict resolution,” Diane said:     

It gives me the ability to introduce new and worthy ADR blogs to readers – like the following five blogs. I hope you enjoy them: 

1. Loree Reinsurance and Arbitration Law Forum provides discussion and insights on reinsurance litigation and arbitration and is published by New York-based boutique commercial and industry arbitration firm Loree & Loree. This blog demonstrates quality writing on newsworthy topics that distinguish the top ADR blog; a recent example is “The AAA Commercial Rules and the Pig in a Poke: Gilbert Street Developers, LLC v. La Quinta Homes, LLC“.
2. Business Conflict Blog provides perspectives on managing the business disputes that companies around the globe face, a focus reflected in posts such as “Contract Drafting for Dispute Management“, aimed for the transactional lawyer seeking to protect the value of the deal. This blog is written by F. Peter Phillips, a commercial arbitrator and mediator based in New Jersey.
3. Mediation Matters is published by California lawyer and mediator Steve Mehta, who has translated his experience litigating and mediating complex cases into engaging posts that share his reflections on ADR practice, including this one on his experiences going green to conserve energy at his office.
4. Cross Collaborate serves as a learning resource for all those involved in shaping or influencing governmental decisions, offering commentary on leading issues and innovative practices. It is published by John Folk-Williams, a practitioner and writer in the field of public policy collaboration and interest-based negotiation. His thoughtfulness as a practitioner is evident in posts like “Power Differences, Consensus Building & Collaborative Networks“.
5. Disputing: Conversations about Dispute Resolution is a dependable source for news, updates and commentary on the law pertaining to arbitration, with a special focus on Texas demonstrated by posts such as “Texas HB 2256 Makes Possible a New Mediation Procedure for ‘Balance Billing‘”.

We thank Diane for having included us not only in her blog directory, ADRBlogs.com, but also in “5 New ADR Blogs to Add to Your Reading List.”  We also thank Diane for including our friends Karl Bayer, Victoria VanBuren and Holly Hayes at Disputing, and for featuring the other three excellent blogs listed above.   

For the benefit of readers who may not know Diane, she is a mediator, dispute resolution trainer, negotiation coach, writer, and lawyer based in Marblehead, Massachusetts.  She has instructed people from around the world in the art of negotiation and mediation.  Since 1995 she has assisted clients in resolving tort, employment, business, estate, family, and real property disputes, and has served on numerous mediation panels, including the United States Equal Employment Opportunity Commission (a/k/a “the EEOC”).  She has a passion for training and coaching and has taught thousands of people to resolve conflict, negotiate better, or become mediators – from Croatian judges to Fortune 500 executives.

Characterizing herself  — tongue in cheek — as “a geek at heart,” Diane also consults on web design and social media for professionals.  She writes about issues pertinent to ADR at the intersection of law, science and popular culture at Mediation Channel, which is regarded (deservedly so) as one of the world’s top ADR blogs.  She tracks and catalogues ADR blogs around the world at ADRblogs.com, where she has created a community for bloggers writing about alternative dispute resolution.  

Thanks again, Diane!

Don Philbin and Randall Kiser explained a theory of mediation based on a combination of brain science, psychology, statistical analysis, and computer graphics, which we thought was as inspiring as it was fascinating.  They discussed the results of empirical studies of decisional errors in litigation, comparing last settlement positions of parties who failed to settle to the ultimate outcome of the proceeding.  They explained who did better, who did worst, and what the cost of the error was.  They also described a technique that can overcome psychological barriers to settlement that uses graphically-depicted outcome-scenarios.  Randall discussed a book he is writing, which will explain and advocate a scientific approach to decision making, and which will delve into the legal malpractice considerations associated with poor decision making.  Randall’s book will hit the shelves this fall.

Once upon a time I thought mediation was, to a significant extent, based on “touch” and “feel,” but Don and Randall have proved me wrong.  To some extent it is certainly an art, but science plays an important role, especially when the mediators are trained to use it properly.  

Katherine Billingham discussed a scientific approach to resolve through mediation complex multi-insurer, multi-layer, multi-year asbestos-related insurance coverage disputes, using excellent graphics.  She explained how these disputes can be mediated in a multi-phase process that takes into account nearly every one of the myriad of variables that must be considered.  Her methodology can also be applied to complex reinsurance disputes, which she also mediates.

All in all, there was much useful information packed into the one-hour presentation, and we view it as a springboard for further research and study.  Kudos to all involved!

The program is sponsored by The American Bar Association Section of Litigation Alternative Dispute Resolutions Committee, Pretrial Practice & Discovery Committee, Trial Practice Committee, and Commercial & Business Litigation Committee and the ABA Center for Continuing Legal Education. 

As readers may know, Don is an arbitrator, mediator, negotiator, attorney, and business consultant, whose website is here.  In addition to his other work Don frequently writes and speaks on topics pertinent to ADR, and is an adjunct professor at Pepperdine University Law School’s prestigious Straus Institute for Dispute Resolution.  Katherine Billingham is an attorney, reinsurance consultant, an ARIAS-U.S. certified arbitrator and mediator, and principal of KB ReSolutions, Inc, whose website is here.  She also holds ADR certifications at the American Arbitration Association and the Reinsurance Association of America.  Randall Kiser is the principal analyst at DecisionSet®, a decision services company, whose website is here.  He designs quantitative models for DecisionSet® and works with attorneys, litigants, insurers, and advisors in assessing risks and evaluating litigation alternatives.   

Check out the coverage in Disputing, here, which features links to two of Don’s recent articles, including one published in the Harvard Negotiation Law Review.  Find out more about the event, and how to register, here.

I am very pleased that Phil Loree Jr. asked me to guest blog for the Loree Reinsurance and Arbitration Law Forum.  I have known Phil for quite some time and have worked with him on various matters over the years.  Phil suggested that I write something about my experiences mediating reinsurance disputes.  This guest post is a revised version of an article I published in the September 2006 edition of JTW News, a popular, U.K.-based reinsurance trade publication.    

As the aggravation, expense and amount of time required to arbitrate or litigate escalate, parties to reinsurance disputes are beginning to opt either by contract or ad hoc agreement to mediate reinsurance disputes. For them, depending upon the case, less is more; that is, compared to arbitration or litigation, mediation is a less aggressive, less costly, less damaging and less divisive alternative to tip the balance of power and opportunity in both parties’ favor.  A careful, experienced and patient mediator views disputes between parties, not as a battle, but as an opportunity to empower them to structure a resolution that best meets their respective short and long term needs. 

Despite this trend, many still claim mediation is unnecessary, expensive and unproductive — complaints based mostly upon its non-binding nature and prior “bad” experiences with ineffective mediators.  From my discussions with many satisfied client and lawyer participants and my own work mediating cases, I have found that parties and their counsel can and do benefit in many ways — even if no settlement immediately results – from mediating their reinsurance disputes before an effective mediator. 

To illustrate how this works in practice, I will use an example based on a reinsurance mediation I successfully conducted.  For confidentiality purposes, some details were changed and the names withheld.  I have set forth the narrative in the third person:

Retrocedent C sought to collect $5MM in life reinsurance losses ceded to Retrocessionaire D under a retro treaty. The disputed losses arose out of three reinsurance claims made against Retrocedent C by Reinsurer B. The three claims emerged from a large block of life reinsurance business Reinsurer B had originally reinsured and which it had assumed from Insurer A, the quality of which Retrocedent discussed in placing information provided to Retrocessionaire when it agreed to participate in the retro treaty.  In denying the three claims, Retrocessionaire D asserted underwriting errors, reporting delays, and other issues arising out of the underlying block of assumed business. The parties agreed to mediate rather than arbitrate the dispute.

The Essence of the Mediation Process

In its classic form, mediation enlists an impartial, trusted facilitator to help parties explore, respect and react to the narrow and broad objective, subjective and psychological factors creating conflict between them, enhancing their ability to perceive and communicate positions.  The goal of the process is an inexpensive, voluntary resolution of the dispute on the parties’ own terms.  The technical aspects of the factual and legal issues in dispute are not necessarily the most important elements of the process. 

In both joint meetings and private caucuses, parties (a) work with an experienced, professional mediator with no formal power to issue rulings (unless otherwise agreed by the parties), and (b) use an informal, confidential process (no rules of evidence or transcript) designed to suspend judgment and promote candor.  This enables them to (c) identify and understand each side’s interests and goals underlying the dispute, which (d) ultimately empowers them to structure  the terms of a mutually-acceptable settlement. 

In most, but not all, cases, the parties are represented by counsel.  It is critical, however, that each client sends an officer, employee or principal with authority to settle the dispute, preferably the business person with principal, day-to-day responsibility for the disputed transaction(s).  Depending upon the case and sophistication of the client, it may also help to have representatives from each party’s in-house legal department present.   

In mediation, success is measured on various levels, in carefully planned and timely executed steps:  

Step One.  Before the mediation session, the mediator (a) obtains the parties’ mediation statements which contain documents and information revealing the salient facts and specific issues in dispute and (b) most importantly, works with them individually by phone or in person to help “set” the precise problems to be addressed which may go well beyond the narrow issues noted in their mediation statements.  This step cannot be emphasized enough.  If the mediator does his or her job, the parties and counsel walk into the mediation room understanding that the real problems may involve other factors, such as each side’s as yet undisclosed, underlying needs and interests.

In our case, in addition to mediation statements, the mediator asked each party to provide to him (and only him) a Confidential Settlement Statement, designed to elicit (a) the history and end point of any prior settlement discussions; (b) the underlying interests and needs they wished the mediation to address; and (c) ideas for acceptable alternative paths to settlement. While Retrocedent C basically discussed initial, acceptable percentage discounts to the $5MM claim balance, Retrocessionaire D requested that the mediation explore its concerns with the underlying, assumed block of business (e.g., lack of underwriting, accommodation underwriting, sloppy claims handling).

Step Two.  In the opening joint session, the mediator sets the stage by convincing each party to actively listen to, understand and acknowledge the other side’s arguments.  It is not enough that the parties nod their heads.  Each party must be able to repeat the other party’s position back and believably communicate their appreciation and respect for the other party’s views (even though they may disagree with them).  This often overlooked but incredibly powerful step builds trust, breaks down barriers and makes the parties less defensive and more candid, giving the parties and the mediator valuable information to use in the mediation process — information which, as noted in Step One above, helps define the proper scope and depth of the issues the participants must address and, if possible, resolve.

Step Three.  After hearing the parties’ positions in joint session, the mediator meets separately with each side in private caucuses.  Caucuses are used to encourage parties to suspend judgment and accept an environment where they can comfortably and critically evaluate the strengths and weaknesses of their positions, creatively explore options to resolve their differences and ultimately use the mediator to develop proposals designed to get what they need — not necessarily what they want — from a mutually-acceptable settlement.

In the first caucus, Retrocessionaire D expanded the discussion beyond the three claims and expressed grave concern over deviations between the quality of claims handling and underwriting performed in the assumed block and that represented in the placing information. If Retrocedent C did not acknowledge and attempt to address these problems, Retrocessionaire D was prepared to “walk” and serve an arbitration demand seeking rescission.

Step Four.  Applying the old adage that “diplomacy is the art of letting someone else have it your way,” the mediator slowly and deftly helps parties develop, discuss and respond to successive financial and non-financial proposals and counterproposals — each supported by an articulated rationale — which satisfy both the offering and responding party’s needs and interests.  Simply put, party X must offer party Y something that party X knows will help party Y convince his or her company that the proposal makes good business sense.  This is the heart of the process: an unscripted, evolving and changing dynamic which requires a perceptive, inventive and focused mediator; patient, calm and committed parties; and an open exchange of ever-broadening proposals that accentuate agreement and seek to eliminate disagreement.

In our case, through several caucuses and carefully timed steps, the mediator moved the parties to accept terms that addressed (a) Retrocessionaire D’s need to identify and resolve potential problems with the assumed block; (b) Retrocedent C’s need to maintain its ongoing relationship with Reinsurer B on other business and to collect balances legitimately ceded under the retro treaty; and (c) the parties’ joint need to cooperate on steps designed to implement their settlement.  The mediator was able to facilitate agreement on two key points. 

First, to provide information both parties needed to assess the legitimacy of claims ceded to the retro treaty, Retrocedent C and Retrocessionaire D agreed to work together to design, conduct and share the expenses of an audit of Reinsurer B’s questionable block of assumed business.

Second, based upon the results of the audit, Retrocessionaire D would pay any and all undisputed losses and, through Retrocedent C, challenge any allegedly illegitimate cessions made by Reinsurer B to Retrocedent C.  If Reinsurer B disagreed and commenced arbitration or legal proceedings, Retrocessionaire D would pay 50% of Retrocedent C’s legal and arbitrator fees, expenses and costs.

Having cooperated throughout this process, the parties were primed to return to productive discussions addressing the $5MM balance allegedly due on the three retro claims. While their cooperative mood allowed them to identify, discuss and produce documents to narrow the substantive issues and financial gap between them, certain process adjustments noted below were necessary to achieve a final settlement.

Bridging the Gap

Often, despite everyone’s best efforts, a financial or non-financial gap leaves parties with a choice between an agreed settlement and a disappointing walk from the table.  Here, the mediator must maintain a positive, trusting relationship with the parties and continue moving the parties to propose alternatives and reframe the problem.  He or she must keep the parties focused on re-evaluating barriers between them and brainstorming on ways to eliminate them.  Very often, new alternatives uncover new forms of “value” that lead to acceptable compromises and settlement. 

In our case, two of the three retroceded claims made up most of the $5MM. In the original joint cession, the Retrocessionaire had alleged improper, accommodation underwriting of serious medical issues. Since the parties’ prior achievements had built a spirit of cooperation and trust, Retrocedent C agreed to immediately retrieve from both its and Reinsurer B’s files additional underwriting and claims records which were shared with both the mediator and Retrocessionaire D. Through additional caucuses, the mediator helped the parties and counsel translate the substantive assessment of such records into rational, realistic and reasonable adjustments to the $5MM claim, narrowing the once “$5MM vs. rescission” gap to within $500,000.

And even if a financial gap remains, the mediator can propose final alternatives.  Here are just a few examples:

First.  If a financial gap remains, the mediator can ask the parties if they wish to give him or her privately their best, final good faith offer and further agree that (i) if the numbers overlap, the mediator can split the difference within the overlap and announce a settlement; or (ii) if the numbers do not overlap, the mediator can split the remaining gap between them and announce a settlement; or (iii) if the parties like (ii) but fear the gap might be too large, they set a smaller dollar limit on the gap within which the parties’ last, best offers must fall and agree that, if they do, the mediator may split the difference and announce a settlement. Under all scenarios, if no settlement is reached, the mediator does not disclose the offers to the parties.

In our case, the parties agreed to option (iii) and gave the mediator their last, best offers, which fell within the narrowed gap, allowing the mediator to split the difference and announce a final settlement.

Second.  The mediator can ask if the parties wish him or her to “cross the line” and, in separate caucuses, provide his or her opinion on their case.  Often, especially after hours of mediation, parties desire finality and, if they trust the mediator, welcome his or her opinion to help them mediate across the final gap.

Third.  In lieu of the second option, above, the mediator can ask if the parties wish him or her to become an arbitrator and decide the dispute based upon the briefs, exhibits and parties’ positions disclosed during the mediation.  The difference between the second option and this third option is that the second option requires the parties to mediate to a settlement or walk away, whereas the third option enables the mediator to issue a final and binding decision resolving the dispute.  If the third option is used, the parties should enter into a written arbitration agreement complying with applicable arbitration law.  

The Results of the Process        

Since this process often lasts one or two days, its benefits are obvious, even if parties fail to reach agreement. Without the aggravation, time and expense of lengthy discovery, pleadings, motion practice and legal and consulting fees, parties can work with a mediator well-versed in the complexities and nuances of the reinsurance business.   This can enable them to:

1. Gain an informed, enlightened perspective on both their own and their opponent’s case;
2. Acquire insights into the strengths and weaknesses of their substantive positions and the goals and interests of the other side;
3. Test each other’s desire to settle and measure the qualitative and quantitative gaps between their “bottom lines;”
4. Hear from, and  test the credibility of, the other side’s key witness(es); and   
5. Set the stage to comfortably resume settlement discussions later if and when discovery enhances or diminishes the probability of a given party succeeding on the merits. 

Statistics have shown that parties who mediate, even unsuccessfully, have a greater chance of settling cases earlier, more knowledgeably and less expensively than those who do not.

Conclusion

For certain reinsurance disputes, the mediation process allows parties to maintain relationships, reduce hostilities, avoid unpredictable panel or court decisions, assert more control over the terms of their settlements and lower litigation costs. In a world dominated by what will likely be an increasing number of arbitrated disputes, mediation is certainly a viable, beneficial and cost-effective option.

[Editor's Note:  This post is based on an article that appeared in issue 108 of JTW News - September 2006.  If you have any questions or comments concerning this post, please use the comments feature provided or e mail the author at peter@conflictresolved.com.  Copyright 2009, Peter A. Scarpato, Conflict Resolved (www.conflictresolved.com).]

Currently the President of Conflict Resolved, LLC, Peter is a full-time ADR professional who has extensive experience as an arbitrator, umpire, counsel, mediator and negotiator in hundreds of reinsurance and other commercial disputes, settlements and commutations.  He is a run-off specialist for all forms of property and casualty insurance and reinsurance; warranty; surety; and various types of program business.  He is an ARIAS-U.S. certified arbitrator and mediator who also holds ADR certifications or positions for FINRA Dispute Resolution (formerly the National Association of Securities Dealers (NASD));  Executive Mediator Services; Reinsurance Association of America (RAA); Construction Dispute Resolution Services LLC; the United States District Court for the Eastern District of New York; New York State Supreme Court – Commercial Division; and Case Closure, LLC. 

From the time he joined American Centennial in the fall of 1985 through the end of his tenure at AIG in 2005, and to date, Peter has accumulated more than 20 years of experience handling and managing every phase of the run-off process.  As in-house counsel, General Counsel, Run-Off Manager, Chief Operating Officer and Senior Vice President, he has been responsible for the negotiation and resolution of billions of dollars in run-off collections, commutations and liabilities; the prosecution of high-profile and high-stakes arbitrations, litigations and mediations; and the management of dozens of professional insurance and reinsurance run off specialists, including attorneys, accountants, actuaries, claims technicians, systems specialists and underwriters.  He is a frequent author and lecturer on the reinsurance and ADR circuit; serves as Editor-in-Chief of AIRROC Matters, the newsletter of the Association of Insurance and Reinsurance Run Off Companies; and graciously donates his time to serve as mediator for New York University School of  Law‘s  Lawyering Program. 

Peter has acted as a party-appointed arbitrator in 66 reinsurance-related matters, an umpire in 13, and a mediator in over 75 disputes.   He has also acted as an executive coach for persons starting and managing small insurance and non-insurance businesses.  You can learn more about Peter and his practice at http://www.conflictresolved.com/. 

Peter’s guest-blog feature is entitled “Mediating Reinsurance Disputes:  A Case Study.”   Peter has taught me that, for certain United States reinsurance disputes, mediation is an available, effective but often misunderstood and underused process for companies seeking an efficient, cost-effective alternative to arbitration or litigation.  His guest-blog post takes the reader step-by-step through the key phases of a reinsurance mediation and explains the importance of each phase from the perspective of the mediator.  To illustrate his points, he uses an example based on a reinsurance mediation he conducted.  Naturally, he does not disclose the identity of the parties or any other confidential information about the mediation.  But he gives the reader enough so that he or she is left with a working understanding of how reinsurance mediations are conducted and why they can work. 

Peter’s post is recommended reading for clients, mediators, arbitrators, and counsel.  It is based on an article Peter published in Issue 108 of JTW News – September 2006, a well-known U.K.-based reinsurance trade publication.  If you have any questions about Peter’s guest-blog  post, please use the “Comments” feature provided, or e mail Peter at peter@conflictresolved.com.