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Arbitration clauses will continue to dominate in reinsurance contracts

  • Market Insight 30 December 2019 30 December 2019
  • Americas

  • Insurance & Reinsurance

Insurers to consider arbitration as an effective strategy in 2020.

Arbitration clauses will continue to dominate in reinsurance contracts

Insurers and insurance attorneys have a love-hate relationship with arbitration in insurance and reinsurance contracts. Generally, they love arbitration about as much as they love the last result in the last arbitration they had.

Having said that, arbitration is favored over court litigation in reinsurance contracts and we will continue to see this in 2020. One reason for this is arbitration clauses also are more likely than not to be found in insurance contracts where the parties are companies from different countries. Arbitration under a neutral arbitration framework, perhaps with special rules about the neutrality of the arbitration panel, provides comfort to both parties that there will not be a “home court advantage” for either party. 

Robust debates often ensue about the pros and cons of arbitration versus court litigation. Those favoring court litigation note that there is no meaningful right to appeal from arbitration awards and that sometimes arbitration panels get it wrong. Those favoring arbitration respond that if you won at arbitration, you are glad that there is no right to appeal, and that courts too “sometimes get it wrong.” 

The debates will continue, but it is clear that reinsurers benefit from a well-crafted arbitration clause in its policies, especially a clause which contains language to the effect that no rules of construction will be applied against the insurer, and also provides that the arbitrators have no authority to award punitive or exemplary damages. Looking ahead to 2020, insurers should look to level the playing field and consider arbitration as an effective strategy.

Read the rest of our insurance predictions here.


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