Bermuda Form has stood the test of time
First adopted more than 35 years ago, the Bermuda Form has stood the test of time as an efficient means of resolving insurance disputes.
The latest endorsement arrived in the form of a recent panel discussion at the American Bar Association annual insurance coverage litigation committee seminar in Tucson, Arizona.
Kim Wilkerson, senior vice-president and head of claims for Axa XL’s insurance operations in Bermuda, participated in a panel discussion on the topic “Bermuda Triangle – Is the Bermuda Form an Efficient Means of Resolving Insurance Disputes?”.
The panel also included Washington-based lawyer Lorelie Masters and Los Angeles-based mediator, arbitrator and referee/special master Peter Rosen.
The panel was moderated by Peter A. Halprin, of Pasich LLP in New York City,
Ms Wilkerson said: “There was agreement at the end of the friendly debate that the clause works.”
She added that there is “no question” that the Bermuda Form is “more efficient than going to a US court”.
Originally drafted and issued by Bermudian insurance pioneers XL and Ace, the Bermuda Form took root in the mid-1980s.
Among its characteristics are a dispute resolution provision that calls for arbitration, as opposed to litigating matters in open court, and a choice of law provision that calls for New York substantive law to be applied to matters in dispute.
Of the latter point, Ms Wilkerson said: “In the 1980s, we needed to find an established body of law with good precedents and structure around insurance. Also, the original policyholders were US-based companies.”
The preference for arbitration, although it does not preclude mediation as a preliminary step, is also advantageous as disputes are heard and decided by an independent panel of arbitrators with vast experience in the area – as opposed to perhaps having a disputed matter heard by a judge who is not an expert on insurance law.
The location of arbitration is a contractual term – the arbitration could be held in Bermuda, Canada, or London, for example, but New York law is applied as the substantive law.
In the case of a matter heard in London, New York substantive law would apply – but the arbitration would be governed by English procedural rules.
The arbitration process under the Bermuda Form is also handled relatively swiftly compared to US court litigation – and, importantly for insurance companies and policyholders, confidentially.
Because there are few public reports of arbitration decisions due to their private nature, it means that arbitrators are not bound or swayed by earlier decisions.
Ms Wilkerson said: “The benefit of that is you have a ‘fresh go’ at every issue based on the specific facts and evidence of the case.”
Over the years, Ms Wilkerson said, very few matters have gone all the way to arbitration.
In the 36 years since XL was formed, only 12 of its disputes have been heard at a full and final arbitration hearing. And, over that time period, XL has paid nearly $9 billion in claims.
Ms Wilkerson said: “The market as a whole in Bermuda is minded to try to resolve disputes with a policy holder before it gets to full arbitration.
“The fact that a really small number of arbitrations are triggered is further support that the Bermuda Form is efficient.”
Some matters in dispute are also sorted out in mediation, which Ms Wilkerson said “indicates that we are prepared to resolve things early as a market and there is a place for mediation before arbitration.
“The market is always agreeable to mediating a dispute.”
Ms Wilkerson said holding an arbitration hearing in Bermuda can be preferable to doing so in London as it is more convenient for the parties and is also advantageous from a cost perspective.
Not only is travel shorter for both parties to the arbitration and witnesses, but in London the parties would have to hire a lawyer who is familiar with New York substantive law as well as an English barrister to assist with navigating English procedure.
And, of course, both lawyers and clients hardly need to be persuaded to travel to the island to resolve a dispute.
Importantly for the parties, a Bermudian-based arbitration held under the Bermuda International Conciliation and Arbitration Act 1993 would apply the UNCITRAL Model Rules, which are widely known and accepted.
Whether held here or in London, an arbitration panel consists of three members.
Each party nominates an arbitrator – and those two choose the chair of the arbitration panel, who is normally a retired judge or Queen’s Counsel from the United Kingdom.
Ms Wilkerson said: “The benefit here is that the people appointed as arbitrators are highly experienced in re/insurance and re/insurance disputes.”
Plans for a Bermuda Arbitration Centre are currently on hold for financial reasons, but Ms Wilkerson said the delay is “not a deal-breaker for the industry” – arbitrations have been held in the past at Bermuda College, at the Hamilton Princess, and at the Fairmont Southampton.
Ms Wilkerson added: “There is a case for a purpose-built space but there is also a clear acknowledgement that it doesn’t have to cost millions of dollars to do that.
“I have spoken to the Attorney General (Kathy-Lynn Simmons), and she is very supportive of seeing ways of moving more disputes to Bermuda.
“For the industry, it would be to our benefit to have an arbitration centre here, and policyholders would benefit as well.”