New innovations in dispute resolution are helping (re)insurers settle disputes quickly and efficiently. Stephen Netherway reports from Rendezvous de Septembre in Monte Carlo, about how Adaptive ADR is opening up new opportunities for (re)insurers to make successful challenges.
With every (re)insurer seeking ways to extract profit from a soft cycle, the hunt to save legal costs is often a strategic priority.
But what if the default approach in disputes were not the only option?
Many market reinsurance disputes formally default to arbitration only because of the prevalence of agreed arbitration clauses in parties’ reinsurance arrangements. Who is to say ‘pure’ arbitration (or litigation) should be the default choice?
In truth, an adaptive approach can deliver material upsides of cost and time saving along with the preservation of goodwill between the relevant parties.
How does Adaptive ADR work?
Dispute escalation clauses are increasingly common in commercial agreements bringing benefits to contractually obliging parties so they discuss issues very early and before a legal process begins.
In our experience, these most commonly lead to mediation, but should parties exit the process as they are perfectly entitled to do, disputes remain unresolved.
One growing trend is in adaptation of the “pure” mediation process to take the form of ‘Med/Arb’ or Binding Mediations, in which parties choose a mediator but agree that if they cannot consensually procure an agreement in a mediation held first (stage 1), they will proceed to make a binding determination in an arbitral procedural framework (stage2).
The Med/Arb is agreed by the parties not to be susceptible to court legal challenge (save for due process issues), and is thus akin to an arbitration award.
This is something that can work and help generate early resolution and thus become an effective tool in the reinsurance market to resolve claims and other disputes and differences.
The process agreed carries additional pressures on the parties to settle their differences if possible in stage 1 or at least before the conclusion of stage 2.
They know that if they do not, then the mediator will proceed to make a binding decision – but they know that the mediator will have seen their insights, and made assessments on what they’ve heard in the “pure” mediation process.
It also means that within that stage 1, the parties cannot disregard what a mediator then says or reveals if they have to proceed to stage 2: there is no other tribunal or person to whom a party can hope to hold a differing view.
There has to be a lot of trust in such an arrangement – trust in the mediator’s technical and legal knowledge of the substantive issues, that the mediator will do what he needs to do and will do it fairly and competently.
There also needs to be trust between the parties that they are accepting a ‘cards on the table approach’. The mediator’s terms and the agreement for any decision made to be binding need to be carefully drafted and agreed; they will also confer on the mediator more leverage to exert pressure on the parties to settle consensually, permitting them the right to make comments and express views on parties’ strengths and weaknesses.
What are the upsides?
Despite opening up a few vulnerabilities above, the increased settlement pressures on both parties and cost savings that should result are a real upside. As an alternative to formal arbitration or litigation, it also helps to preserve ongoing business relationships.
There is no reason not to consider adaptive ADR procedures to improve settlement outcomes. When getting a problem solved quickly is a real concern, or where a confrontational approach should be avoided, or where sums in issue do not really commend a full blown “pure” arbitral or legal process it provides a cost effective choice.