Book Review

It's exciting to find something entirely new and innovative. That's how I feel about the treatise by Richard Jacobs, Lorelie Masters and Paul Stanley, “Liability Insurance in International Arbitration ' The Bermuda Form.”

Thorn Rosenthal of New York's Cahill Gordon & Reindel firm was commissioned to draft a policy in the mid-1980s for Marsh & McLennan, to be used by policyholder-sponsored insurance companies that had been formed for the purpose of increasing capacity in the catastrophic excess casualty market. The policy form Rosenthal created became known as the Bermuda Form. It was the insurance industry's first occurrence-reported general liability form, combining elements of occurrence, accident and claims-made forms. The treatise sets forth in detail the legal and economic forces that stimulated the development of the occurrence-reported form, concluding:

The 'Bermuda Form' policy, as originally drafted and issued by ACE, is properly to be regarded as a balanced policy form, aiming to hold the ring fairly between the interests of policyholders and the interests of investors, as the same industrial corporations were in both roles. Id. at 14, section 1.19.

This treatise is the first comprehensive published analysis of the Bermuda Form, and therefore fills an important void in the literature. The authors have pioneered into an untrodden region.

Most coverage lawyers spend a fair amount of their time looking at forms that have been widely used and repeatedly construed by appellate courts. Often we find ourselves, as researchers and adversaries, plowing through a welter of opinions and commentary to select the most well-reasoned or best-stated interpretation of particular contract wordings, or discerning trends across multiple jurisdictions that have dealt with substantially similar texts.

The Bermuda Form was highly successful and widely used in global excess casualty markets. The Form was adopted by a number of insurers after its introduction in the mid-1980s. There is, however, no published opinion construing it, and precious little written commentary about it. In fact, the published articles of which this writer is aware can be counted on one hand: Dolin & Posner, Understanding the Bermuda Excess Liability Form, 1 Journal of Ins. Coverage 68 (Autumn 1998); Masters, ACE and X.L.: A New 'Batch' of Coverage Issues, 9 Coverage 24 (January/February 1999); Dasteel & Jacobs, American Werewolves in London, 18 Arbitration International 165 (2002) (on the related issue of American lawyers conducting arbitrations under English procedural rules); Masters, A Foreign Experience: Arbitrating Insurance Coverage Disputes in London, 2 Insurance Coverage L. Bulletin 1 (December 2003); Jacobs & Masters, Arbitrating “Bermuda Form” Disputes in London, 14 Coverage 3 (September/October 2004). The reason why authority on the Form is scarce is that the Form provides that any dispute relating to its meaning shall be resolved confidentially, in a London (or sometimes Bermuda) arbitration, with no recourse to the courts.

There is some guidance in the Form's condition that provides it is to be governed by New York law, with certain exceptions. Where applicable, the treatise contains detailed summaries of New York law on similarly worded policy terms that have been construed by New York courts.

In another aspect of the Form's balanced, evenhanded nature, the Bermuda Form accepts New York law yet rejects certain principles of it that were deemed to upset the balance between the parties. The treatise contains a thoughtful and intelligent discussion of the “forbidden canons” that the Form expressly provides are not to be used in its interpretation:

In various respects the interpretation of insurance policies under New York law is affected by what the drafters of the Bermuda Form evidently believed were extraneous and arbitrary considerations ' a public policy to maximise coverage, or to protect the interests of the policyholder specially, or to resolve doubts against the insurer, and so forth. These principles are to be abandoned as, in the drafters' view, they stand in the way of 'evenhanded' interpretation of the contract language itself. Id. at 53, section 4.05.

Thus, for example, the Bermuda Form expressly bans the use of the contra proferentem rule. The insurer need not be concerned that an arbitrator will render a decision against the insurer and favoring the policyholder just because the arbitrator cannot figure out what else to do. In this way, the drafters of the Form properly leveled the playing field between the sophisticated insurance markets and knowledgeable corporate risk managers.

In laboring to discern the contracting parties' mutual intentions, as New York law requires, one must turn to fundamental canons of contract interpretation ' read the policy as a whole, treat no part as surplusage, find the plain meaning of the language. As all contract lawyers know, however, there are exceptions to most canons, and the power of an argument is in how the principles are applied and whether they surround your document with a cohesive, consistent net of meaning that favors your client's position.

Part of the challenge and fun of the Bermuda Form is that it requires one seeking to interpret it to rely primarily on those fundamental principles learned in the first year of law school.

In my first year of law school, I was fortunate to have Dean Wallace Loh (now Dean of the College of Arts & Sciences at Seattle University) as my contracts professor. Professor Loh used to entrance his students with dramatic readings of some of the more lyrical passages from the opinions of Justice Benjamin Cardozo (1870-1938). Professor Loh would conclude these readings with the suggestion that if we wished to make a successful impression upon a proposed romantic partner, we would be well-advised to bring our casebooks along on a date, and read Cardozo opinions aloud to our intended, while relaxing with a glass of wine in front of a crackling fire. We were of course amused, and many students in the class wrote it off as a joke until the rumor spread that one of us had successfully employed just such a method. At any rate, we all ended up with a reverent admiration for Cardozo. I would venture to say that the authors of this book impress me as candidates for nomination as the new Cardozos of insurance treatises, worthy of reading aloud to one's beloved by the glow of embers. Witness this passage:

Interpretation can never be properly understood as if it were mere decoding. Even after a sentence has been parsed grammatically and syntactically, and the meaning or possible meaning of every word is understood, there is often a choice to be made. Even a simple sentence, Ben likes fish, may mean something different depending on whether it is uttered in the context of a discussion of the relative merits of pets (Brenda likes dogs; Ben likes fish) or of food (Brenda likes beef; Ben likes fish).14 A great deal depends on context.

14 This sort of surprising ambiguity is neatly summarised by the aphorism of computer scientists, derived from some research at Harvard in the 1960s: Time flies like an arrow; fruit flies like a banana. See Steven Pinker, The Language Instinct (London, Penguin Books, 1995) 209.

Id. at 56 & n.14, section 4.11.

Such passages are delightful to those who love language and whose work is about untangling the many ways in which human communication can go awry. The book has a playful, spirited quality one does not often see in an insurance treatise, in which typically the goal (and certainly a laudatory one) is to write in a spare, dispassionate tone, so as not to distract from the business at hand.

I do not mean to suggest that this treatise is not practical. On the contrary, its distinguished authors have managed not only to keep the tone fresh and bright but also to pack in a lot of helpful information. For example, the authors have included cogent discussions of the structure and key provisions of the Bermuda Form, a chapter on choice of law, and several chapters on procedure and discovery in the context of a Bermuda Form arbitration. The authors appear to have taken care to present both sides of an argument, particularly in controversial or unsettled areas. For example, in the discussion of the Form's “maintenance deductible” and the law related to expected/intended injury, the authors acknowledge there is more than one approach to various aspects of the analysis. See id., chapter 7.

The Bermuda Form typically prescribes that any disputes will be resolved pursuant to the English Arbitration Act ' a set of rules that is initially daunting to most American lawyers. Under the Act, the parties have a great deal of leeway in establishing rules such as those regarding the use of experts, extent of discovery, order and timing of presentation, and extent of cross-examination. This book includes a useful description of the English Arbitration Act, including strategic considerations with respect to what procedures a panel of arbitrators making decisions under the Act is likely to accept.

Selection of the arbitrators may also become a battleground. The book discusses the relative merits of selecting an English QC (Queen's Counsel, a senior English barrister), who is likely to know the English Arbitration Act well, versus an American judge or lawyer, who may know more about New York substantive law.

I commend this resource to you. Indeed, you may want to have a copy stowed away near the fireplace for those romantic encounters as well as in a handy location on your office bookshelf.

2005 ' Cozen O'Connor, All Rights Reserved

It's exciting to find something entirely new and innovative. That's how I feel about the treatise by Richard Jacobs, Lorelie Masters and Paul Stanley, “Liability Insurance in International Arbitration ' The Bermuda Form.”

Thorn Rosenthal of New York's Cahill Gordon & Reindel firm was commissioned to draft a policy in the mid-1980s for Marsh & McLennan, to be used by policyholder-sponsored insurance companies that had been formed for the purpose of increasing capacity in the catastrophic excess casualty market. The policy form Rosenthal created became known as the Bermuda Form. It was the insurance industry's first occurrence-reported general liability form, combining elements of occurrence, accident and claims-made forms. The treatise sets forth in detail the legal and economic forces that stimulated the development of the occurrence-reported form, concluding:

The 'Bermuda Form' policy, as originally drafted and issued by ACE, is properly to be regarded as a balanced policy form, aiming to hold the ring fairly between the interests of policyholders and the interests of investors, as the same industrial corporations were in both roles. Id. at 14, section 1.19.

This treatise is the first comprehensive published analysis of the Bermuda Form, and therefore fills an important void in the literature. The authors have pioneered into an untrodden region.

Most coverage lawyers spend a fair amount of their time looking at forms that have been widely used and repeatedly construed by appellate courts. Often we find ourselves, as researchers and adversaries, plowing through a welter of opinions and commentary to select the most well-reasoned or best-stated interpretation of particular contract wordings, or discerning trends across multiple jurisdictions that have dealt with substantially similar texts.

The Bermuda Form was highly successful and widely used in global excess casualty markets. The Form was adopted by a number of insurers after its introduction in the mid-1980s. There is, however, no published opinion construing it, and precious little written commentary about it. In fact, the published articles of which this writer is aware can be counted on one hand: Dolin & Posner, Understanding the Bermuda Excess Liability Form, 1 Journal of Ins. Coverage 68 (Autumn 1998); Masters, ACE and X.L.: A New 'Batch' of Coverage Issues, 9 Coverage 24 (January/February 1999); Dasteel & Jacobs, American Werewolves in London, 18 Arbitration International 165 (2002) (on the related issue of American lawyers conducting arbitrations under English procedural rules); Masters, A Foreign Experience: Arbitrating Insurance Coverage Disputes in London, 2 Insurance Coverage L. Bulletin 1 (December 2003); Jacobs & Masters, Arbitrating “Bermuda Form” Disputes in London, 14 Coverage 3 (September/October 2004). The reason why authority on the Form is scarce is that the Form provides that any dispute relating to its meaning shall be resolved confidentially, in a London (or sometimes Bermuda) arbitration, with no recourse to the courts.

There is some guidance in the Form's condition that provides it is to be governed by New York law, with certain exceptions. Where applicable, the treatise contains detailed summaries of New York law on similarly worded policy terms that have been construed by New York courts.

In another aspect of the Form's balanced, evenhanded nature, the Bermuda Form accepts New York law yet rejects certain principles of it that were deemed to upset the balance between the parties. The treatise contains a thoughtful and intelligent discussion of the “forbidden canons” that the Form expressly provides are not to be used in its interpretation:

In various respects the interpretation of insurance policies under New York law is affected by what the drafters of the Bermuda Form evidently believed were extraneous and arbitrary considerations ' a public policy to maximise coverage, or to protect the interests of the policyholder specially, or to resolve doubts against the insurer, and so forth. These principles are to be abandoned as, in the drafters' view, they stand in the way of 'evenhanded' interpretation of the contract language itself. Id. at 53, section 4.05.

Thus, for example, the Bermuda Form expressly bans the use of the contra proferentem rule. The insurer need not be concerned that an arbitrator will render a decision against the insurer and favoring the policyholder just because the arbitrator cannot figure out what else to do. In this way, the drafters of the Form properly leveled the playing field between the sophisticated insurance markets and knowledgeable corporate risk managers.

In laboring to discern the contracting parties' mutual intentions, as New York law requires, one must turn to fundamental canons of contract interpretation ' read the policy as a whole, treat no part as surplusage, find the plain meaning of the language. As all contract lawyers know, however, there are exceptions to most canons, and the power of an argument is in how the principles are applied and whether they surround your document with a cohesive, consistent net of meaning that favors your client's position.

Part of the challenge and fun of the Bermuda Form is that it requires one seeking to interpret it to rely primarily on those fundamental principles learned in the first year of law school.

In my first year of law school, I was fortunate to have Dean Wallace Loh (now Dean of the College of Arts & Sciences at Seattle University) as my contracts professor. Professor Loh used to entrance his students with dramatic readings of some of the more lyrical passages from the opinions of Justice Benjamin Cardozo (1870-1938). Professor Loh would conclude these readings with the suggestion that if we wished to make a successful impression upon a proposed romantic partner, we would be well-advised to bring our casebooks along on a date, and read Cardozo opinions aloud to our intended, while relaxing with a glass of wine in front of a crackling fire. We were of course amused, and many students in the class wrote it off as a joke until the rumor spread that one of us had successfully employed just such a method. At any rate, we all ended up with a reverent admiration for Cardozo. I would venture to say that the authors of this book impress me as candidates for nomination as the new Cardozos of insurance treatises, worthy of reading aloud to one's beloved by the glow of embers. Witness this passage:

Interpretation can never be properly understood as if it were mere decoding. Even after a sentence has been parsed grammatically and syntactically, and the meaning or possible meaning of every word is understood, there is often a choice to be made. Even a simple sentence, Ben likes fish, may mean something different depending on whether it is uttered in the context of a discussion of the relative merits of pets (Brenda likes dogs; Ben likes fish) or of food (Brenda likes beef; Ben likes fish).14 A great deal depends on context.

14 This sort of surprising ambiguity is neatly summarised by the aphorism of computer scientists, derived from some research at Harvard in the 1960s: Time flies like an arrow; fruit flies like a banana. See Steven Pinker, The Language Instinct (London, Penguin Books, 1995) 209.

Id. at 56 & n.14, section 4.11.

Such passages are delightful to those who love language and whose work is about untangling the many ways in which human communication can go awry. The book has a playful, spirited quality one does not often see in an insurance treatise, in which typically the goal (and certainly a laudatory one) is to write in a spare, dispassionate tone, so as not to distract from the business at hand.

I do not mean to suggest that this treatise is not practical. On the contrary, its distinguished authors have managed not only to keep the tone fresh and bright but also to pack in a lot of helpful information. For example, the authors have included cogent discussions of the structure and key provisions of the Bermuda Form, a chapter on choice of law, and several chapters on procedure and discovery in the context of a Bermuda Form arbitration. The authors appear to have taken care to present both sides of an argument, particularly in controversial or unsettled areas. For example, in the discussion of the Form's “maintenance deductible” and the law related to expected/intended injury, the authors acknowledge there is more than one approach to various aspects of the analysis. See id., chapter 7.

The Bermuda Form typically prescribes that any disputes will be resolved pursuant to the English Arbitration Act ' a set of rules that is initially daunting to most American lawyers. Under the Act, the parties have a great deal of leeway in establishing rules such as those regarding the use of experts, extent of discovery, order and timing of presentation, and extent of cross-examination. This book includes a useful description of the English Arbitration Act, including strategic considerations with respect to what procedures a panel of arbitrators making decisions under the Act is likely to accept.

Selection of the arbitrators may also become a battleground. The book discusses the relative merits of selecting an English QC (Queen's Counsel, a senior English barrister), who is likely to know the English Arbitration Act well, versus an American judge or lawyer, who may know more about New York substantive law.

I commend this resource to you. Indeed, you may want to have a copy stowed away near the fireplace for those romantic encounters as well as in a handy location on your office bookshelf.

2005 ' Cozen O'Connor, All Rights Reserved