A Foreign Experience: Arbitrating Insurance Coverage Disputes in London

The policy form that began the London arbitration trend is the “Bermuda form” sold by companies like ACE Insurance Company, Ltd., and XL Insurance Company, Ltd. Except for a brief time when some Bermuda insurance policies required arbitration in Bermuda, the Bermuda form, since its inception in the mid-1980s, has included a London arbitration provision. Although, for many years, most disputes arising under the Bermuda form were settled, insurance disputes arising under the Bermuda form increasingly, in my experience, are arbitrated, either because Bermuda insurers, like insurers of yore, decide to litigate disputes or because the policyholder is unable to obtain redress (or even a response) otherwise.

Unlike arbitration of other disputes, arbitration of insurance disputes is not necessarily a cheaper or less expensive means of resolving disputes than litigation. Arbitration clauses in insurance policies are written by insurance companies, for the benefit of insurance companies. Arbitration in London requires “setting up shop” in London where many policyholders do not have operations and putting up witnesses in an expensive (though interesting) capital of foreign arbitration. In addition, in large losses, policyholders may find themselves in a series of arbitrations, forced to engage in one proceeding after another to go up the “chain” of insurance companies, with the attendant risk of inconsistent litigation results and increased cost.