Mediating insurance coverage disputes

By Charles Gordon

I have been mediating insurance and reinsurance coverage disputes for the last ten years, having practised in that field for many years before that. Forget the idea that these disputes are dry as dust. They are often combined with a disputed underlying third-party claim, contested quantum, and battles between experts.

Moreover, the disputes often arise in exotic and remote locations and involve tricky conflicts between local law-applying to the direct insurance policy and the underlying event - and typically English or New York law applying to any reinsurance. Getting a handle on the local law answer to technical or coverage issues is often about calculating the impact of local court advantage for parties in that jurisdiction.

Here are some of the challenges that I have encountered and how that can be overcome. Not always of course!

• If the underlying liability of the insured is disputed, you really have two parallel mediations-claimant/insured; insurer (and possibly reinsurer)/insured. Although ideally these would be resolved at separate mediations, it is often the case that the insurer has claims control or that the insured simply can’t settle the claim against it-professional indemnity, for example-unless it knows that it will be indemnified by insurers. In these cases, the insurer will usually prefer to maintain a shadowy presence alongside the insured and will generally stay silent in joint sessions, if they attend them. Initially at least, the insurer will sit in the same room as the insured and will debate with the insured the merits of any offers from the claimant. The challenge for the mediator is to spot when some tension between insured and insurer is creating an impasse.

• It will often be the case that multiple insurers are involved, particularly in a large claim. They may not all be represented at the mediation. Despite assurances that appropriate levels of authority have been procured before the mediation, it can be the case that these turn out to have ben wildly unrealistic. Can the absent insurers be contacted (often at antisocial times of day) to get fresh authority?

• Never under-estimate the role of the insurance broker. They can have a decisive influence on both insured and insurer and should be encouraged to participate in the mediation. Brokers control the flow of new business to an insurer or reinsurer and will likely have a continuing relationship with the insurer.

• This brings us to an interesting point. As we all know, the Covid pandemic led to remote mediations becoming standard. Although face to face mediations have now become popular again, the involvement of multiple insurers, often in different locations, can make remote/hybrid mediations really effective where insurance coverage and limits of cover are potentially in issue. In the United States insurers are often located very far from the seat of the underlying dispute and will be reluctant to travel long distances, particularly for a mediation that may be seen as having poor prospects of success. You may also get the involvement of senior decision makers if they can attend a mediation remotely. If the London Insurance market is involved, there will often be a range of underwriters subscribing to different layers of cover and there may will be overseas based insurance on the insurance slip as well.

• Insurers and reinsurers will invariably have applied a reserve to any claim-a figure in their books as the likely limit of their exposure. Broadly speaking, a settlement within that reserve is a win for insurers, above that figure will create internal debate as to why the insurer was under reserved. As mediator, you will never be told what that reserve number is. You have to recognise that the claims handler may prefer for the mediation to fail, rather than try to get authority to exceed the reserve.

Should you approach a coverage mediation differently from other mediations? Fundamentally no, a deal involving compromises and realistic assessment of risk is still the goal. However, in my experience, insurers expect some real engagement with the issues and the law, certainly before any final horse trading. I find that it can be very effective to let the advocates and indeed the principals if they are well informed and engaged, to debate directly, under my watchful eye-rather than rely on me to make the points for them.

Insurers and reinsurers are generally big fans of mediation. They hate the cost, the uncertainty, and the publicity of trials. I very much welcome them as active participants in my mediations.