ARIAS 4th Quarter 2013 Quarterly

FOURTH QUARTER 2013

VOLUME 20 NUMBER 4

INSIDE…

In Memoriam: EdmondRondepierre

The ARIAS•U.S. Rules for theResolution of U.S. Insuranceand Reinsurance Disputes

The Revised ARIAS•U.S. Codeof Conduct

REPORT: 2013 Fall Conferenceand Annual Meeting

REPORT: 2013 Fall ConferenceKeynote Address

REPORT: Board of DirectorsElections Results

ARBITRATIONCLAUSES INSPECIALTY LIABILITY POLICIES

While our Editor, Gene Wollan, is recovering from a recent illness, I will offer commentsabout the current issue.

Much has been written and discussed about the extent to which insurance andreinsurance contracts should require arbitration and the extent to which thoserequirements should be detailed in advance as part of the contract. In this issue’s coverarticle, insurance industry veteran James Macdonald presents a thorough discussion ofthe use of such clauses and their nature, both in direct policies and reinsurance contracts.

A great deal of time and effort has been expended in the last several years to addressmeaningfully the concerns in the industry about whether fair arbitration results arebeing adversely affected by arbitrators accepting too many assignments from the samelaw firm or party. Finding ways to address the issue that are fair both to arbitrators andto companies has been featured in recent ARIAS•U.S. conferences, Board meetings, andcommittee meetings. Largely as a result of these efforts, the first finished results wererevealed at the 2013 Fall Conference. The revised ARIAS•U.S. Code of Conduct and thenew ARIAS•U.S. Rules for the Resolution of U.S. Insurance and Reinsurance Disputes werepresented and explained in detail to attendees. In this issue, they are explained to allmembers with articles by the Ethics Discussion Committee and the sub-committee ofthe Arbitration Task Force that addressed the challenge of creating ARIAS•U.S. Rules forthe first time. The new publications, themselves, are online at the ARIAS•U.S. websiteunder the Resources menu.

This issue also reports on all of the activities at the 2013 Fall Conference and includes atranscript of Connecticut Insurance Commissioner Thomas B. Leonardi’s keynote address.

Finally, on page 4, Dick Kennedy, founding Chairman of ARIAS•U.S., shares his recollectionsof Ed Rondepierre and reveals Ed’s instrumental role in the creation of ARIAS•U.S., whichcontributed in a major way to its position as the leading organization in the industrytoday.

EDITORIAL BOARDEditorEugene [email protected]

Associate EditorsPeter R. [email protected]

Susan E. [email protected]

Mark S. [email protected]

Daniel E. Schmidt, [email protected]

Teresa [email protected]

Managing EditorWilliam H. [email protected]

International EditorsChristian H. [email protected]

Jonathan [email protected]

Ex-OfficioJeffrey M. RubinEric S. KobrickElizabeth A. Mullins____________________Production/Art Director Gina Marie Balog

VOL. 20 NO. 4FOURTH QTR. 2014

managingeditor’s

comments

The ARIAS•U.S. Quarterly (ISSN 7132-698X) is published Quarterly, 4 times a year byARIAS•U.S., 131 Alta Avenue, Yonkers, NY 10705.Periodicals postage pending at Yonkers, NY andadditional mailing offices.

POSTMASTER: Send address changes toARIAS•U.S., P.O. Box 9001, Mt. Vernon, NY 10552

ARIAS•U.S.P.O. Box 9001Mt. Vernon, NY 10552914.966.3180, x112914.966.3264 [email protected]

William Yankus

Editor’s Comments Inside Front Cover

Table of Contents

In Memoriam: Edmond RondepierreBY T. RICHARD KENNEDY Page 4

FEATURE: Arbitration Clauses in Specialty Liability PoliciesBY JAMES W. MACDONALD Page 5

News and Notices Page 16

FEATURE: The ARIAS•U.S. Rules for the Resolution of U.S.Insurance and Reinsurance DisputesBY DANIEL L. FITZMAURICE, STEPHEN KENNEDY, AND THOMAS O. FARRISH Page 17

Members on the Move Page 24

Letter to the Editor Page 24

FEATURE: The Revised ARIAS•U.S. Code of ConductBY THE ETHICS DISCUSSION COMMITTEE Page 25

REPORT: 2013 Fall Conference and Annual MeetingBY BILL YANKUS Page 32

REPORT: 2013 Fall Conference Keynote AddressBY THOMAS B. LEONARDI Page 40

REPORT: Board of Directors Election ResultsBY BILL YANKUS Page 44

IN FOCUS: Recently Certified Arbitrators Page 45

Invitation to Join ARIAS•U.S. Page 46

Membership Application Inside Back Cover

ARIAS•U.S. Board of Directors Back Cover

contentsVO L U M E 2 0 N U M B E R 4

3 P A G E

Editorial PolicyARIAS•U.S. welcomes manuscripts of original articles, book reviews, comments, and case notes from our membersdealing with current and emerging issues in the field of insurance and reinsurance arbitration and dispute resolution.All contributions must be double-spaced electronic files in Microsoft Word or rich text format, with all references andfootnotes numbered consecutively. The text supplied must contain all editorial revisions. Please include also a briefbiographical statement and a portrait-style photograph in electronic form. Manuscripts should be submitted as email attachments to [email protected] .Manuscripts are submitted at the sender's risk, and no responsibility is assumed for the return of the material. Materialaccepted for publication becomes the property of ARIAS•U.S. No compensation is paid for published articles.Opinions and views expressed by the authors are not those of ARIAS•U.S., its Board of Directors, or its Editorial Board, norshould publication be deemed an endorsement of any views or positions contained therein.

Copyright NoticeCopyright 2013 ARIAS•U.S. The contents of this publication may not be reproduced, in whole or in part, without writtenpermission of ARIAS•U.S. Requests for permission to reproduce or republish material from the ARIAS•U.S. Quarterlyshould be addressed to William Yankus, Executive Director, ARIAS•U.S., P.O. Box 9001, Mount Vernon, NY 10552 [email protected] .

P A G E 4

T. Richard Kennedy

I suppose the feeling is near universal. Whena good friend unexpectedly dies, we wishdeath were not so final. If only we could talkto them one more time — to tell them howmuch we enjoyed times spent together, howmuch we admired and respected them, howour own life was made better just byknowing them. Such was my feeling when Ilearned of Ed Rondepierre‘s death in May ofthis year.

Ed and I became friends nearly 40 years agowhen we both attended meetings of theNAIC, bar associations and industry groups.We discovered we both had a love of the lawand business, the sea, good books, and finerestaurants. Ed’s lovely wife, Nan, and myCatherine became good friends, and we hadmany happy times together. Over severalsummers, Ed and Nan would overnight withus at Fishers Island on their cruise up theNew England coast with their yacht club.After I acquired my Sabre 36, we sailedtogether to Newport for some fun andrelaxing times. With his maritime trainingand experience, Ed was an accomplishedseaman. I knew better than to challenge himto a race — although I admit on a fewoccasions I nonchalantly tried to pass hisboat, totally without success.

In the early 1990’s, I asked Ed if he would bewilling to join a select industry group tostudy the feasibility of establishing anARIAS•U.S. At first, he was quite negative onthe idea, saying he did not see the need forsuch an organization. However, he agreed toparticipate in the study, and over the courseof two years, not only did he come tosupport the undertaking but also to offersome very good suggestions on such things

as the legal structure of the Society.

In 1994, Ed agreed to serve on the foundingBoard. That Board elected him to be our firstPresident. For me personally as Chairman, itwas a great comfort to have sitting besideme a man as knowledgeable as Ed aboutbusiness organization and procedures.

I remember in particular one of our firstmembership meetings where we were eagerto make a good impression on theprofessionals in attendance. But It appearedwe might not have a quorum, which raisedthe question of whether we couldaccomplish any business. I turned to Ed. Inhis own unflappable way, he quietly advisedme how we could proceed. To the relief of usall, a quorum did show up, so we did notneed to adopt a special procedure.

More importantly, Ed Rondepierre was widelyrespected throughout the insurance andreinsurance community for his ability,honesty and absolute integrity. Hiswillingness to serve as our first President wasa major factor in bringing about earlyrecognition of ARIAS•U.S. as an importantand credible industry organization.

I had not seen Ed in a few years before hisdeath. At his funeral service, his widow Nanadvised me that he had been battling amongother things with Parkinson’s disease. I wish Ihad seen him in those last few years. Sharingin the same battle, I am sure he and I wouldhave found some humor in our situation. Wesurely would have had cause to laugh at ourtremors and the idiosyncrasies of thisidiosyncratic condition.

Farewell, Ed. Thank you for being part of mylife as well as the lives of many others in ourSociety. May you rest in peace.

Dick Kennedy

ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2013

inmemoriam Edmond Rondepierre

Ed Rondepierre

5 P A G E


surprisingly high cost of some arbitrationproceedings is a frequent concern.Contributing factors include: (1) theadditional cost resulting from the privateparties paying for all the expenses of theproceeding (including the two arbitratorsand the umpire), thus losing the benefit ofthe court costs paid by federal or statetaxpayers; (2) the additional cost of specialtylawyers depending on the location of thearbitration and the governing law; and (3)the need for a protracted discovery processand the use of expert witnesses todetermine the intent of the parties or thespecific industry “customs and practices” thatshould be considered. In addition, there areconcerns over possible arbitrator bias andquestions about the fairness of the process,with many standard insurance policywordings arguably creating a less than level“playing field” for insurance buyers.

Binding arbitration clauses may simply notbe a good option for some insurance buyers.Some industry critics strongly question theirpresence in insurance policies, citing “abuses”in five main areas: cost, bias, class actions,discovery, and appeals. Reflecting theseconcerns, critics note that several statesoutlaw or limit the use of pre-disputearbitration clauses in insurance policies.2

Opponents of binding arbitration provisionsalso argue that their normal “confidentialand private” status makes them “two-edgedswords.” The obvious benefit is that privacyand confidentiality allow businesses to avoidnegative publicity and reputational risk. Theless apparent negative aspect is that the lackof any transparency to the media or thepublic may encourage insurers to pursuedisputes that would not be considered if theywere litigated. As one attorney has argued,“Insurance companies, sensing that no one isalert to their arguments, may takeoutrageous or frivolous legal positionsconcerning the interpretation of theirinsurance policies, thinking that sucharguments cannot come back to hauntthem....”3 One could also argue that the lack

feature

James W.Macdonald

James Macdonald is an independentconsultant specializing in insuranceand reinsurance dispute resolution asan expert witness, consultant, or arbi-trator. He is an ARIAS•U.S. CertifiedArbitrator; his complete profile is avail-able on the ARIAS•U.S. website. Thisarticle originally appeared as the June2013 issue of The Risk Report, and isreproduced with permission of thepublisher, International RiskManagement Institute, Inc. (IRMI).Further reproduction without permis-sion of IRMI is prohibited.

James W. Macdonald

Arbitration clauses are becoming morecommon in direct insurance policies.1Although standard in reinsurance contractssince the 1800s, the use of broadly applicablebinding arbitration wordings with verylimited right to appeal is a relatively recentdevelopment in the realm of directinsurance.

There are advantages and disadvantages ofincluding arbitration provisions in directinsurance policies. On the plus side, whencompared to litigation, arbitration offers theprospect of quicker, more confidential, andmore final resolutions to otherwiseirreconcilable disputes, at least in theory.Arbitration also can offer the prospect of amore equitable and fair resolution than anormal jury trial, by requiring the arbitratorsto be experienced and informed oninsurance matters, allowing the finaldecision to consider the “custom andpractices” of the business, and not requiringthe arbitrators to strictly follow “judicialformalities” or the “rules of evidence.” Finally,again, at least in theory, the cost of anarbitration proceeding should be less thanthe cost of litigating the same dispute,assuming only limited discovery is required.

Experience shows that many arbitrations dosucceed in producing resolutions that arequicker, more final, and more confidentialthan comparable matters in litigation. Thefinality of most awards is owing to the factthat, under state and federal law, courts arenot permitted to vacate arbitration awardsexcept in limited circumstances. The relativespeed of the arbitration process is thenatural result of the freedom that thearbitration panel has to follow the timing itsets without interferences and delays thatcourts often experience. Confidentiality isassured by the nondisclosure agreementssigned by all parties.

Unfortunately, not all the news is good. The

Arbitration Clauses in SpecialtyLiability Policies

Experience showsthat manyarbitrations dosucceed inproducingresolutions that arequicker, more final,and moreconfidential thancomparable mattersin litigation.

http://www.irmi.com/products/store/the-risk-report.aspx

http://www.irmi.com/

P A G E 6of the case precedent that litigation createsactually increases costs, with the same orvery similar disputes being tried over andover again in separate arbitration hearings.

The best choice for many commercialinsurance buyers may be to request thedeletion of the arbitration clause. However, ifit is determined that including an arbitrationclause is beneficial for the policyholder, or ifdeleting the arbitration clause is notpossible, there are a number of alternativesto the one-size-fits-all, insurer-friendlywordings that can level the playing field andreduce the costs for an informed commercialinsurance buyer.

This article offers ten suggestions, shown inFigure 1, for negotiating changes to thewording of a pre-dispute, mandatoryarbitration provision, with the goal ofimproving the cost and fairness of thearbitration process. As a word of caution,these suggestions are based on theperspective of an insurer, reinsurer, andexpert witness in policyholder disputes.Therefore, this article does not include all ofthe issues that a policyholder shouldconsider, and consulting with a qualifiedlegal adviser is advised.

Exempt Disputes Contestingthe Validity of PolicyAlmost all direct liability insurance policyarbitrations wordings state that any and alldisputes will be subject to arbitration. Figure2 provides an example. Some, reinsuranceagreements exempt any dispute contesting

the validity of the agreement or arguing forrescission. It seems reasonable to avoidhaving the provisions of a contract govern adispute that contests the validity of the samecontract. In many cases, adding thisexception to the arbitration provision couldimprove its fairness. Even with thisqualification, the parties could elect to solvea dispute about the validity of the policy withbinding arbitration.

Single Arbitrator for Smaller DisputesThe issue of cost is addressed in somereinsurance wordings by stipulating that acertain dollar threshold must be exceededfor the normal three-arbitrator approach tobe required. The provision may state that ifthe threshold is not met, a single, “neutral”arbitrator or “umpire” will be used to resolvethe dispute. In most cases, a prompt decisionis expected on the basis of briefs by eachparty, with no discovery process ordepositions and no formal hearing.Introducing this qualification can help reducethe cost of resolving disputes where theamount demanded makes the normal three-arbitrator panel uneconomical. Figure 3shows sample reinsurance wording thatcombines this modification with theexemption for any rescission claims.

Some industry observers have noted that thisapproach may be counterproductive becauseit may reduce the incentive of the parties tonegotiate settlements involving smallamounts. However, it could be argued thatthis risk is more than offset by the benefit of


FIGURE 1TOP 10 SUGGESTED REVISIONS TO ARBITRATION PROVISIONS

1. Request an exemption for disputes contesting the validity of the policy.

2. Make smaller disputes subject to resolution by a single arbitrator or umpire.

3. Include nonbinding mediation as an alternative or precondition to arbitration orlitigation.

4. Clarify the qualifications for an arbitrator’s eligibility.

5. Specify whether certain costs or damages are within the panel’s authority.

6. Request a favorable location and favorable governing law.

7. Weigh the pros and cons of timing requirements for each phase of the arbitrationprocess, including the final decision.

8. Carefully consider a “baseball” arbitration clause (discussed later).

9. Address the panel’s right to consolidate arbitration proceedings.

10. Specify certain documents that the panel may consider to determine its decision.

This article offersten suggestions,shown in Figure 1,for negotiatingchanges to thewording of a pre-dispute, mandatoryarbitration provision,with the goal ofimproving the costand fairness of thearbitration process.As a word ofcaution, thesesuggestions arebased on theperspective of aninsurer, reinsurer,and expert witnessin policyholderdisputes. Therefore,this article does notinclude all of theissues that apolicyholder shouldconsider, andconsulting with aqualified legaladviser is advised.

managers, even if they are veterans ofmany decades with extensive legal andinsurance training. Also, arbitrator biasconcerns arise when a party-appointedarbitrator receives a large amount ofwork from the appointing law firm orinsurer. The fear is that these arbitratorsmight always decide in favor of the lawfirm or insurer engaging them,effectively leaving the final decision upto the third arbitrator acting as “umpire.”Yet another fairness concern resultsfrom the requirement found in manyclauses that arbitrators be“disinterested,” with no explanation ofhow this term should be interpreted.

Until recently, arbitration clauses have, atmost, normally stated that thearbitrators be “disinterested” persons,have “no financial or personal interest”in the outcome of the dispute, havesome prior experience as an insurance orreinsurance executive, and/or that they“have knowledge of the legal, corporatemanagement, or insurance issuesrelative to the matters at issue.” Manyarbitration clauses stipulate nominimum qualifications or simply statethe arbitrator must be approved orcertified by the institution governing thepreceding, such as American ArbitrationAssociation (AAA) or the AIDAReinsurance and Insurance ArbitrationSociety–U.S. (ARIAS—US).

Since the late 1990s, however, manyinsurers and reinsurers have attemptedto clarify arbitrator qualifications. Figure5 provides two examples. In the firstsample, the reinsurance arbitrationprovision stipulates a minimum of tenyears’ experience for each arbitrator,with no arbitrator “under the control ormanagement” of either party to theagreement. In the second sample, alsofrom a reinsurance agreement, thearbitration provision expressly statesthat the umpire and the party-appointed arbitrators have the “sameobligation” to make fair and unbiaseddecisions. It also includes an interestingfinal sentence that explains what theserequirements do not mean.

Some direct insurance policies haveintroduced similar clarifications toarbitration provisions to improve theimpartiality of the decision-makingprocess. In one of the more detailedprovisions, an AIG management liability

7 P A G E


each party having a more affordableand practical alternative available tosettle problems that are otherwise notreconcilable.

Include NonbindingMediationMany direct insurance policies statethat nonbinding mediation must beattempted prior to litigation or thatnonbinding mediation is available as analternative to arbitration. A nonbindingmediation option is a good alternativeto one-size-fits-all arbitration wording,especially for policyholders with largeand complex liability exposures. In manycases, nonbinding mediation canproduce surprisingly positive results,even when an agreement initially seemshopeless.

Sample 1 in Figure 4 shows anonbinding mediation provision thatserves as an alternative to an arbitrationprovision in a professional liabilityinsurance policy, leaving litigation as apossibility if the mediation is notsuccessful. Some policies offer eachparty the choice of nonbinding

mediation or arbitration, with theinsured given the final say.

Sample 2 in Figure 4 provides samplewording from an employment practicesliability (EPL) policy, in which thepolicyholder is given the flexibility toselect the resolution process that ismost suited for the size and complexityof any irreconcilable dispute.

It is also worthwhile to consider addingwording in the arbitration clause givingthe panel the authority to stay theproceeding if, at any time, both partieswant to attempt mediation. In comingyears, this approach will likely becomeincreasingly common either as areplacement of arbitration requirementsor as an alternative.

Address Arbitrators’QualificationsOne reason for the perception of bias inarbitration provisions is the requirementthat arbitrators be “former or currentexecutives of an insurance orreinsurance company.” This appears tounfairly exclude experienced risk

FIGURE 2SAMPLE ALL DISPUTES SUBJECT

TO ARBITRATION WORDING

Any dispute, controversy, or claim arising out of or relating to this Policy or thebreach, termination, or invalidity thereof shall be finally and fully determined inLondon, England, under the provisions of the Arbitration Acts of 1950, 1975, and1979 and/or any statutory modifications or amendments thereto, for the timebeing in force, by a Board composed of three arbitrators....

Source: XL Insurance Company, Ltd. Form XL XS–004, Condition N

FIGURE 3SAMPLE SINGLE ARBITRATOR LANGUAGE

(with exemption for rescission claims)

The provisions of this Section of the Arbitration Article will only apply if theamount in dispute is less than $______________. The provisions of this Article willnot apply if the arbitration notice includes a demand for rescission of thisAgreement.

1. The dispute will be submitted for decision to a sole arbitrator. Notice requestingarbitration will be in writing and sent certified or registered mail, return receiptrequested, or by a recognized overnight courier.

2. The sole arbitrator will be chosen by mutual agreement of the parties withinfifteen business days after the demand for arbitration. If the parties have notchosen an arbitrator by that date, the arbitrator will be chosen in accordancewith the Neutral Selection Procedures established by the AIDA Reinsurance andInsurance Arbitration Society–U.S. (ARIAS) and in force on the date of thearbitration is demanded.

policy begins with the customaryprovision that the word “disinterested”means that an arbitrator or mediatorhas no “financial or personal interest,direct or indirect” in the outcome of thedispute. However, the insurer continueswith the requirement that the

P A G E 8examples of the constantly evolving,good-faith efforts by insurers andreinsurers to improve the perceivedfairness of alternative dispute resolutionproceedings.

Another possibility for anyoneconcerned with potential bias in the“party-appointed” approach is to use thealternative “neutral party” selectionprocess normally used in England andother countries. Using this approach, thethree panel members are chosen usingthe selection process procedures andservices afforded by an independentparty, such as the AAA or ARIAS—US.Although the “neutral party” approachcannot eliminate the perception ofpossible arbitrator bias, it does at leastpartially address the concerns of manystakeholders.

Specify Costs within Panel’s AuthorityAlmost all arbitration provisions statethat each party will pay for its own costsand share the cost of the mediator orthe third arbitrator (or umpire). However,many fail to state explicitly whether thepanel has the authority to requirepayments in several recurring andpotentially costly areas. The two mostcommon are legal costs (includingexpert witnesses) and whetherprejudgment interest can be awarded(and, if so, the basis for computation).Additional issues include punitive orexemplary damages, and the authorityto require interim payments or collateralduring the course of the proceeding.

Insurance and reinsurance arbitrationclauses vary considerably on this issue.Some wordings are expansive, othersare very limited, and still others at mostrefer to legal costs. For example, the firstsample wording shown in Figure 6, froma reinsurance agreement, grants thepanel broad authority. In a similarfashion, the Bermuda market excesspolicies grant the panel (or “board”) the“sole discretion” to determine “any orderas to the costs of the arbitration” and “towhom and by whom and in whatmanner they shall be paid.” According toEnglish law, this could include the rightto require the losing party to pay whatthe board determines to be the“recoverable” amounts incurred by thesuccessful party. It is also possible that

arbitrator must confirm in writing thathe or she has “not represented or beenan adversary of any Insured or theInsurer in any civil, criminal,administrative, or regulatory orarbitration proceeding ... in the 5 yearspreceding his or her selection.” These are

FIGURE 4SAMPLE NONBINDING MEDIATION WORDING

Sample 1 (Nonbinding Mediation Required Prior to Litigation)

All disputes with regard to coverage for a Claim under the Policy, including adispute over whether any amounts constitute Loss under the Policy, will besubmitted to nonbinding mediation to be administered as mutually agreed bythe parties ... Neither the Insureds nor the Insurer will commence any civilproceeding until sixty (60) days after the conclusion of the nonbinding mediation.

Source: Genesis D&O Policy

Sample 2 (Nonbinding Mediation as an Alternative to Arbitration)

All disputes or differences which may arise under or in connection with this policy,whether arising before or after the termination of this policy, shall be subject tothe alternative dispute resolution process (ADR) set forth in this clause. Either theInsurer or the Insureds may elect the type of ADR discussed below; provided,however, that the Insureds will have the right to reject the Insurer’s choice of ADRat any time prior to its commencement, in which case the Insureds’ choice of ADRwill control.

The Insurer and Insured agree that there will be two choices of ADR: (1)Nonbinding mediation administered by the American Arbitration Association, inwhich the insurer and insured will try in good faith to settle the dispute bymediation under or in accordance with its then-prevailing Commercial MediationRules; or (2) arbitration submitted to the American Arbitration Association underor in accordance with its then prevailing commercial arbitration rules, in whichthe arbitration panel will be composed of three disinterested individuals....

Source: AIG Employment Practices Liability Form 67548 (4/97), Condition 17,“Dispute Resolution Process”

FIGURE 5SAMPLE ARBITRATOR QUALIFICATION LANGUAGE

Sample 1 (Independent and Experienced)

All arbitrators will be neutral and disinterested active or former officials ofinsurance or reinsurance companies or Syndicates of Lloyd’s or lawyers, not underthe control or management of either party to this Agreement, having at least ten(10) years of insurance or reinsurance experience. (Emphasis added.)

Sample 2 (Impartial and Disinterested)

Unless otherwise mutually agreed, the members of the Panel shall be impartialand disinterested. The members of the Panel may not be: (1) in the control of anyParty or its parent affiliate or agent, (2) a former director or officer of any Party or itsparent affiliate or agent, or (3) a likely witness in the arbitration. The requirement ofimpartiality means that all members of the Panel will have the same obligation toapproach the Panel’s duties and decisions with fairness and without considerationfor the fact that panel members may have been appointed by one of the Parties. Therequirement of impartiality does not mean that any arbitrator can have noprevious knowledge or experience with respect to issues involved in the dispute ordisputes. (Emphasis added.)


9 P A G Earbitration boards in Bermuda orLondon may be authorized to awardinterest, post collateral, and pay othercosts. In sum, as noted by one authority,the total additional costs payable maycome as a major surprise tounsuccessful parties not familiar withproceedings in these jurisdictions.4

Some recent policy wordings are moredetailed, as exemplified in Sample 2 inFigure 6, from an AIG D&O policy.Unfortunately, very few insurancepolicies include this level of clarity inthe arbitration wordings.

This is an area in need of improvedconsideration and negotiation. If theseissues are not clarified, both costs anddelays in the process can increase, aseither party contests the breadth ofwhat it feels should be included in thefinal award. A broad “loser pays”requirement may deserve someconsideration, regardless of whetherthe panel selection process is “partyappointed” or “neutral.” At a minimum,it is important for commercialinsurance buyers to assess the potentialcosts that could result from differentinsurance policy forms and venues.

Request Favorable Location and LawMany standard insurance policiesarguably give the underwriter a “homefield advantage” by stating that thelocation of arbitration (or “situs”) will betheir headquarters’ city or state. Asecond advantage that is oftenembedded into the policy is theassignment of the governing lawapplicable to substantive decisions to apreferred, insurer-friendly jurisdiction.For example, European and Bermudamarket excess policies normally statethat New York law will govern thesubstantive legal issues (with English orBermuda laws governing proceduralrules), and that the situs of the hearingwill be either Bermuda or London. Onefairly common way to level the playingfield is to give the policyholder theoption to choose the situs andgoverning law.

At least since the late 1990s, someinsurance policies have offeredpolicyholders flexibility in the situs bygranting a number of options, including

the location of the policyholder, asexemplified in the two excerpts from adirectors and officers (D&O) liability andan employment practices liabilityinsurance (EPLI) policy, as shown inFigure 7.

The selection of New York as thepreferred state for the “governing law”reflects the widespread belief that thisstate is particularly insurer friendly. Asone coverage attorney stated in a 2007article,5 “New York is one of the fewjurisdictions left (at least on this side ofthe Atlantic) where an insurance policyis still likely to be treated as the policy itis and interpreted accordingly ratherthan as an excuse for a court to distorttraditional canons of construction inorder to find coverage.” However, the

application of the selected law isnormally superseded by aninconsistency with the expressed termsof the policy or as respects otherspecified concerns. For example, thestandard Bermuda excess liability policylimits the application of New York’s lawsas respects any prohibition on thepayment of punitive damages, or in theevent the laws are “inconsistent withany provision” of the policy.

It is also important for commercialinsurance buyers to note that, in theseparate “Law of Construction andInterpretation” condition, the Bermudaforms state that, if the policy isconsidered “ambiguous or otherwiseunclear,” the matter will be resolved “inan evenhanded fashion” and without

FIGURE 6AUTHORITY TO IMPOSE COSTS SAMPLE WORDING

Sample 1 (Joint and Several)

Each party will bear the costs of the arbitrator it selected and bear, jointly andequally with the other party, the costs of the third arbitrator. The Tribunal willallocate the remaining costs of the arbitration and may, at its discretion, awardsuch further costs, interest, and expenses as it considers appropriate including,without limitation, legal costs. (Emphasis added.)

Sample 2 (No Punitive, Exemplary, or Multiple Damages)

In the event of arbitration, the decision of the arbitrator shall be final and bindingand provided in writing to both parties, and the arbitrators’ award shall not includeattorneys’ fees or other costs. The award shall not include punitive, exemplary ormultiple damages, or any similar form of damages designed to punish or penalize aparty. Should the arbitrators include punitive damages, or attorneys’ fees or othercosts in the award, then the arbitrators’ decision and award shall be automaticallynull and void and have no effect on the parties in this arbitration, unless all suchparties against whom such damages or fees or costs are awarded agree inwriting, in their sole and absolute discretion, to waive the requirements of thisparagraph. (Emphasis added.)

FIGURE 7SAMPLE INSURED CHOOSES SITUS LANGUAGE

Sample 1 (D&O Policy)

The mediation shall take place in either New York, New York; Cleveland, Ohio;Washington, DC; or the state indicated in Item 1 of the Declarations as the InsuredEntity’s address, unless the parties mutually agree upon another location.

Source: GENESIS D&O Policy

Sample 2 (EPLI Policy)

Either choice of ADR may be commenced in New York, New York; Atlanta, Georgia;Chicago, Illinois; Denver, Colorado; or in the state indicated in Item 1 of theDeclarations page as the mailing address for the Named Entity.

Source: AIG EPLI Policy Form 67548 (4/97)


P A G E 1 0


arbitration clauses for both theprocedural and substantive issues of theproceeding.

Consider ArbitrationTiming RequirementsThere are many timing issues toconsider that affect the cost andfairness of the arbitration process.Perhaps most obvious is the question ofwhether the arbitration clause survivesthe life of the policy. In the currentmarket, most wordings address thisissue in the affirmative, as shown inSample 1 in Figure 8.

A number of other important timingquestions should be expressly stated,including how much time each partyhas to name its arbitrator (often 30days), when these arbitrators need toagree on an umpire, and then howmuch time the panel has to hold itsorganizational meeting. In most cases,once the panel is formed, insurancepolicies permit considerable discretion

to determine the subsequent schedulefor discovery, depositions, and, ifpermitted, expert witness reports andtestimony. The panel is also normallyfree to define the date and timing forthe hearing. Sample 2 in Figure 8 showsan excerpt from a leading Bermudaexcess insurer that exemplifies thisapproach.

In some cases, the opposite approach isused, with the arbitration wordingrequiring each party to submitarguments in a limited timeframe of aslittle as thirty days from the date theumpire is selected. Sample 3 in Figure 8,from a specialty D&O policy for medicalinsurers, reflects this approach.

Reinsurance clauses often containsimilar limited time periods for thecompletion of the opposing briefs priorto the hearing. Sample 4 in Figure 8,from the Broker and Reinsurer MarketAssociation (BRMA), provides anexample of this approach.

Once the hearing is over, almost allarbitration wordings normally requirethat the decision be rendered in writingwithin thirty to ninety days. Forexample, the BRMA reinsurance formcited as Sample 4 in Figure 8 requiresthe arbitrators to provide a decision“within sixty (60) days unless theparties consent to an extension.”Although all final decisions need to be“in writing,” some provisions requirethat the decision be “reasoned.” Asexplained in one insurance policy, a“reasoned” decision requires the panelto state “the facts reviewed, conclusionsreached, and the reasons for theseconclusions.” Although it may seemlogical that these issues are addressed,many reinsurance and insuranceprovisions do not require this degree ofdetail. The two reasons for not requiringa “reasoned award” are reportedly thatnot requiring a detailed writtenstatement results in a faster decision ata lower cost, and a detailed writtendecision may increase the risk of anappeal by the losing party.

It is clear that there is a range ofoptions for policyholder to consider. Iflarge amounts are at issue, leaving thepanel with a high degree of discretionregarding timing issues is generallyconsidered to be the best course given

reliance on two common policyholderassertions, i.e., the “reasonableexpectations” of the insured, and any“contra proferentum” positionsregarding the authorship of the policy(such as the “contract of adhesion” rulemaking any ambiguity the fault of theinsurer). The issue of governing law canbe further complicated by the presenceof a separate governing law provisionoutside the arbitration clause.

A full discussion of the resulting issuesexceeds the scope of this article, but it isclear that commercial insurance buyersshould consider requesting the changein the governing law to its preferredjurisdiction. Although Bermuda marketshave been reluctant to consider anysuch requests, several European anddomestic markets have been willing toamend their standard forms. It is notuncommon for manuscript policies tostate that both the situs and thegoverning law will be the home state ofthe policyholder. This reflects a commonapproach in many reinsurance

FIGURE 8SAMPLE WORDINGS ON TIMING REQUIREMENTS

Sample 1 (EPLI Policy)

All disputes or differences which may arise under or in connection with this policy,whether arising before or after termination of this policy ... shall be subject to thealternative dispute resolution process (ADR) set forth in this clause....

Source: Lexington Insurance, EPLI, 1999

Sample 2 (Excess Policy)

The Board of Arbitration shall fix, by a notice in writing to the parties involved, areasonable time and place for the hearing and may prescribe reasonable rules andregulations governing the course and conduct of the arbitration proceeding,including, without limitation, discovery by the parties.

Source: ACE Excess Excess Liability Form 005–3/96, Condition N2

Sample 3 (Medical D&O Policy)

Each party to this Policy shall submit its case with supporting documents to thearbitration panel within thirty (30) days after the appointment of the thirdarbitrator. However, the panel may agree to extend this period for a reasonabletime.

Source: BCS Mutual Insurance Company, Condition N, Form 91.212G (01/07)

Sample 4 (Reinsurance Policy)

The claimant shall submit its initial brief within forty-five (45) days from theappointment of the umpire. The respondent shall submit its brief within forty-five(45) days thereafter, and the claimant may submit a reply brief within thirty (30)days after the filing of the respondent’s brief.

Source: Broker and Reinsurer Market Association (BRMA), Arbitration Form 6B, item 3

1 1 P A G E

the very wide range of issues and thepossible need for extended discovery. Forsmaller disputes, however, a morepredefined timeline for closure, with nowritten decision required, may be an optionworth considering.

“Baseball” Arbitration ClauseCommercial insurance buyers concernedwith the tendency of some panels to seekcompromise solutions, or “split the baby,”may want to consider a so-called baseballarbitration agreement. Under this approach,which reflects baseball salary negotiations,the arbitration panel is required to whollyaccept the final position of one party or theother. The argument against this approach,as explained by one industry source, is thatit is an “extreme approach” which takes thedecision “out of the arbitration panel’shands.”6 It also arguably compromises thetime and expense of retaining industryexperts to try the case. Figure 9 containssample baseball arbitration wording from areinsurance agreement. Note theexceptionally short period allowed for thepanel to make its final decision.

Baseball arbitrations clauses are rarely usedin reinsurance agreements or insurancepolicies. However, much like the loser-paysapproach discussed earlier, this approachmay merit consideration, particularly fordisputes involving relatively small amounts,or for those willing to bet it all, even if hugeamounts are at issue.

Right To ConsolidateProceedingsOne of the most complicated issues for allstakeholders involves the orderly andefficient resolution of disputes of a similarnature involving more than one underwriteron the same policy or reinsurance

agreement. It is not uncommon for multipleunderwriting years to be involved. Forexample, excess liability “towers” ofinsurance or reinsurance totaling $100million or more often involve numerousunderwriters, in some cases sharing thelayers, and in others, writing excess layers.

In the direct insurance market, thecomplexities are increased by some policiesagreeing to “follow form” on the terms ofspecified “controlling” underlying insurance,while others apply on a stand-alone basisabove retained amounts, whether insured ornot. It is also possible for one or more excesspolicies to include an arbitration clause whileothers are silent. Unless expressly clarified,this can result in some or all of the excessunderwriters being granted the right toarbitrate any dispute.

Since the late 1980s, many reinsuranceagreements have included some guidance onhow the panel should address consolidation.The most detailed of these provisionsfrequently address three separate situations:(1) same reinsurance agreement, singlesubscribing reinsurer; (2) multipleagreements, single subscribing reinsurer; and(3) same agreement, multiple reinsurers.

Figure 10 provides an example of areinsurance wording that attempts to clarifythe rights and duties of the panel and theparties to the agreement when the “samedispute” arises.

Direct insurance policy wordings do notregularly address whether a panel canconsolidate the same dispute with multipleunderwriters. Yet there is little question thatthis is often a source of redundant andexcessive dispute resolution costs. Translatedto the realm of direct insurance, the threesituations begging more detailedclarification include the right of an


FIGURE 9SAMPLE “BASEBALL” ARBITRATION WORDING

Within 60 days following the appointment of the umpire, the parties shall exchange theirclaims and underwriting files relating to the reinsurance contract. Within 60 days of eachexchange, each party shall submit, in writing, a settlement offer to the arbitration panelincluding the terms that each party is willing to accept in final settlement of the dispute.Following receipt of each party’s settlement offer, the arbitration panel may, at itsdiscretion, conduct a hearing concerning each party’s offer, at which each party may presentevidence supporting its offer.

The arbitration panel, within 10 business days of the submission by the parties of theirsettlement offers or a hearing after such submission, shall make a final and binding award,and the arbitration panel, in making its final award, shall be limited to awarding only one orthe other of the two settlement offers submitted by the parties.

There are manytiming issues to

consider that affectthe cost and

fairness of thearbitration process.

Perhaps mostobvious is the

question of whetherthe arbitration

clause survives thelife of the policy. Inthe current market,

most wordingsaddress this issue in

the affirmative, asshown in Sample

1 in Figure 8.

P A G E 1 2


arbitration panel to consolidate a disputewhen: (1) the same insurer writes primaryand excess policies in the same year ormultiple years; (2) multiple insurers shareone or more excess layers in one or moreaffected policy years; and (3) multipleinsurers write different excess layers. Inaddition, the impact of different arbitrationclauses, or the absence of alternativedispute resolution clause on some but notall of the excess policies, needs to beconsidered.

A fairly recent decision by the U.S. SupremeCourt, Stolt-Nielsen S. A. v. Animal Feeds Int’lCorp., 559 U.S. 662 (U.S. 2010), has had apositive impact on the rights of arbitrationpanels to consolidate disputes involvingmultiple parties.7 At minimum,consolidation is an important issue toconsider. An expressed statement of intentinserted into the arbitration or mediationclause is worth considering and is rarelypresent in direct policies. If this is notpossible, another route to consider (oftenused in foreign property insuranceplacements for large, global policyholders)would be to ask one insurer to act as the“lead underwriter” for all the otherunderwriters on a given program, with all ofthe other markets reinsuring the lead’spolicy. This approach is fairly rare in thedomestic market and may be a practicaloption only for large, global businesses witha significant commitment to alternativeinsurance market approaches. However, itmay be worth pursuing, as it does offer thepolicyholder the considerable advantages ofhaving one set of policy terms andconditions for all potential losses, and onedirect insurer to manage the claims andpolicy wording issues.

Specify Documents ToConsiderOne of the major differences betweeninsurance and reinsurance arbitrationclauses is that traditional reinsurance

clauses normally require the panel toconsider the agreement to be an “honorableengagement” rather than as a “strictly legalobligation.” Many also expressly state thepanel will consider “the custom and practice”or “usage” of the insurance and reinsuranceindustry and “the evidence presented by theparties.” Still others focus the panel on the“original intent” of the parties.

Insurance policy clauses are significantlydifferent, with few mentioning industry“custom and practice.” Instead, the normalwording states that panel must “construe”the policy at issue “in an evenhandedfashion” between the parties. When thedispute involves the alleged ambiguity of thepolicy wording, excess liability policiestargeting large corporate accounts often addthe provision that “the issue shall be resolvedin the manner that is most consistent withthe relevant provisions, stipulations,exclusions, and conditions (without anyregard to the authorship of the language ...and without reference to parol or to otherextrinsic evidence)” (emphasis added). (Source:ACE Bermuda, Excess D&O Liability Policy03/00, Condition I.)

Despite the differences in these approaches,the scope of the discovery process is arecurring challenge affecting the cost andfairness of both insurance and reinsurancedisputes. In general, arbitration panels tendto give the parties a high degree of flexibilitywhen it is necessary to consider oral orwritten evidence outside the “four corners” ofthe policy or the reinsurance agreement. Insome cases, to clarify the intent of theparties, reinsurance arbitration clausesspecify the forms of evidence that the panelhas the right or the obligation to review. Forexample, one reinsurance arbitration clausestates that, in addition to considering the“terms expressed in this Contract,” the“original intention of the parties to theextent reasonably ascertainable,” and the“customs and usage” of the insurance andreinsurance business, the board has the“right and the obligation to consider

This article presentsa sampling of someinnovativeapproaches thathave been developedby insurers andreinsurers, anycombination ofwhich could presenta “right size”approach addressinga policyholder’sspecific needs. Theseapproaches aresummarized inExhibit 11,“NegotiatingCost-Efficient and EquitableArbitration Clauses.”

FIGURE 10SAMPLE CONSOLIDATION REINSURANCE LANGUAGE

If more than one reinsurer is involved in the same dispute, all such reinsurers shallconstitute and act as one party for the purposes of this Article, and communications shallbe made by the Company to each of the reinsurers constituting the one party provided,however, that nothing therein shall impair the rights of such reinsurers to assert severalrather than joint defenses or claims, nor be construed as changing the liability of theReinsurer under the terms of this Contract from several to joint.

1 3 P A G EUnderwriting and Submission-relateddocuments....” (Emphasis added.)

In another example, a reinsurancewording gives the panel the expressright to hold a separate “evidentiaryhearing, if one is necessary, within 6months of the arbitration demand,unless the Parties otherwise agree.” Thiswording also states that “the Panel shallhave the authority to issue subpoenasand other orders to enforce itsdecisions.”

These reinsurance examples could beworth considering, particularly if someof the other suggestions in this articleare used. For example, if a full three-person panel proceeding is onlyapplicable to disputes involving largeamounts exceeding a stated dollaramount, it could save costs andexpedite the process to clarify whatunderwriting and related documentsthe arbitrators should consider. In thecoming years, as arbitration wordingscontinue to develop, there is a strongpossibility that this issue will be clarifiedin arbitration provisions.

ConclusionIn closing, although includingarbitration provisions in direct insurancepolicies is a relatively recentdevelopment, it is becoming morecommon to encounter them in specialtyliability policies. Careful considerationshould be given to whether having anarbitration clause in the policy is in theinsured’s best interest. If it isdetermined to be beneficial, or ifdeleting the arbitration clause is notpossible, there may be alternatives tothe one-size-fits-all, insurer-friendlywordings that can level the playing fieldand reduce the costs for an informedcommercial insurance buyer. This articlepresents a sampling of some innovativeapproaches that have been developedby insurers and reinsurers, anycombination of which could present a“right size” approach addressing apolicyholder’s specific needs. Theseapproaches are summarized in Exhibit11, “Negotiating Cost-Efficient andEquitable Arbitration Clauses.” ▼

FIGURE 11NEGOTIATING COST-EFFICIENT AND EQUITABLE ARBITRATION CLAUSES

Issue Concern Options To Consider

Applicability “Any dispute,” or is therea limitation?

By monetary damagesclaimed

By nature of dispute

Option to mediate priorto or instead of arbi-trate?

Is the panel decision“final and binding”?

Expressed waiver of rightto appeal?

• Limit arbitrations todisputes greater than acertain amount.

• Utilize mediation orsole arbitrator/umpireon disputes under dollarthreshold.

• Require nonbindingmediation as alternativeto arbitration.

• Exempt disputesdemanding rescission.

Arbitrator Selection andQualifications

Many direct wordingscontain no minimumqualifications andimplicitly rely on therules of the governinginstitution. However,many include terms thatcould present bias in thearbitrator selectionprocess.

• Neutral or partyappointed?

• Is the word “disinter-ested” defined?

• Limited to “insurance orreinsurance” profession-als? Is a former or currentrisk manager eligible?

• Basis for third arbitra-tor (or umpire) selectionif arbitrators unable toagree (courts, coin toss,lots drawing, institutiongoverning process)

• Consequences of arbi-trator death or disabilityduring proceeding

Location of Mediation orHearing

Standard wordings oftengive insurers the advan-tage of the mediation orarbitration situs beingtheir home state or city.

• Request a change tomake the namedinsured’s domicile thelocation for the hearingor mediation.

Governing Laws Does the contract speci-fy separate laws for thearbitration proceedingand the substantiveissues?

Is there a separate gov-erning law clause out-side the arbitrationclause?

Are the designated juris-diction(s) acceptable?

Domestic insurers:

• State laws

• Federal Arbitration Act

• Institutional procedur-al rules (e.g., AAA, JAMS,ARIAS—US or ARIAS—UK)


P A G E 1 4This article originally appeared as theJune 2013 issue of The Risk Report, and isreproduced with permission of thepublisher, International RiskManagement Institute, Inc. (IRMI).Further reproduction withoutpermission of IRMI is prohibited.

Footnotes:1. An arbitration clause is a provision in a contract

that either authorizes or mandates the use ofarbitration, rather than the judicial system, as ameans of settling disputes under the contract.In an arbitration proceeding, typically the twoparties each select an arbitrator and the twoarbitrators select a third to act as an umpire;these three arbitrators, often referred to as the“panel,” decide the dispute. In binding arbitra-tion, the parties must abide by the outcome. Innonbinding arbitration, if either party does notagree with the outcome, the matter may betaken up in the court system. If the arbitrationclause requires the parties to use binding arbi-tration to settle any disputes under the contract,it is referred to as a pre-dispute or mandatoryarbitration provision.

2. Public Citizen, “Arbitration Clauses in InsuranceContracts: The Urgent Need for Reform,” 2010,Available at:http://www.citizen.org/congress/article_redi-rect.cfm?ID=6561.

3. Joshua Gold, “Insurance Policy ArbitrationClauses: Perils and Considerations forPolicyholders,” 2007, The Corporate Counsel.Available at:http://www.andersonkill.com/webpdfext/cor-poratecounsel-december2007.pdf.

4. Richard Jacobs, Lorelie S. Masters, and PaulStanley QC, Liability Insurance in InternationalArbitration: The Bermuda Form, Second Edition,Hart Publishing 2011, Chapters 19 and 22.

5. Eugene Wollan, “New York, New York (It’s aHelluva State),” John Liner Review, Volume 21,No.1, Spring 2007.

6. James H. Foster, “Reinsurance ArbitrationClauses Through the Looking Glass: PracticalQuestions Raised by Newer Contract Terms,”2008 ARIAS—US. Available at:http://www.arias-us.org/mp_files/img_ftp/arias2008-Q3.PDF.

7. For a detailed discussion on consolidation issuesand the impact of Stolt-Nielsen, see Charles H.Schoenberg and Brian O’Sullivan, “TheApplication of Stolt-Nielsen to the Issue ofArbitral Consolidation,” ARIAS Quarterly, FourthQuarter 2011, Volume 18, Number 4. Available at:http://www.arias-us.org/mp_files/img_ftp/4q-2011.pdf.

© International Risk Management Institute, Inc.



Governing Laws (cont.d) European or Bermudamarkets (proceduralonly):

• London, England, underthe provisions of theArbitration Acts of 1950,1975, and 1979

• Bermuda InternationalConciliation and Recon-ciliation Act of 1993

Costs Does panel have authori-ty or limitation in certaincost-related areas?

The absence of specificguidance can result inavoidable delays andincreased costs as eachparty argues theseissues.

Specific costs/issues toconsider:

• Attorney’s costs

• Expert witness costs

• Pre- and post-judgmentinterest

• Punitive damages

• Exemplary damages

• Treble damages

• Posting of security

• Interim payments

• Nonmonetary claims—injunctive relief

Consolidation Disputes involving multi-ple policy years and/ormore than one primaryand excess insurer canraise complex questionsregarding whether thedisputes can be combinedand the discretion of apanel to consolidate dis-putes as it deems appro-priate. Many reinsurersaddress this issue, but itis not normally men-tioned in standard directpolicies.

• Request deletion of arbi-tration clauses.

• Require all insurers touse the same wordingon policies exposed tothe same loss or claims.

• Include a statement inthe arbitration clauseexplaining what discre-tion the panel has to con-solidate the same disputeinvolving multiple policiesand/or insurers.

• Determine whether theprimary or first excessinsurer is willing to actas the sole issuing insur-er and “lead insurer” withother insurers reinsuringthe policy.


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1 5 P A G E




Timing Deadlines for the completion of eachtask may ensure a speedy decision, butfairness may be compromised. Oncethe panel is formed, it normally has thediscretion to determine what schedulefor the pre-hearing and hearing isappropriate given the size and com-plexity of the matters in dispute. How-ever, many reinsurance agreements andsome insurance policies contain shorttime frames for each party to submit itsfinal position. This can compromise thefairness of the proceeding.

• Does the arbitration clause apply afterthe policy has expired? (Normally stat-ed in first sentence.)

• Panel selection process—is timingreasonable? (30 days for each party-appointed and another 30 days for theumpire selection.)

• Does panel have discretion to deter-mine timing tasks, including whetherexperts may be used?

• If not, is the stipulated time periodrealistic for possible large and compli-cated disputes?

• Does the panel have a reasonableamount of time to issue the final decision?(60 days is normal.)

• Does the panel decision need to be“reasoned” or “in writing”?

Risk of Compromise Decisions Many critics of the arbitration approachhave argued that panels too often seekcompromise solutions or “split thebaby.”

• Consider a “baseball” arbitration word-ing requiring the panel to accept theposition of either party in its entirety.

• Consider a “loser-pays” requirementthat certain costs (as listed above) willbe added to any reward and be payableby the unsuccessful party.

• Require the deletion of the insurer’sarbitration clause.

Documents Subject to Discovery Reinsurance agreements normallystate that the panel will consider theagreement to be an “honorableengagement” and that “custom andusage” may be considered in determin-ing the resolving the dispute. Somereinsurance agreements mention thespecific underwriting documents andproposals that the panel may consider.

Insurance policies emphasize an “even-handed” treatment of the issues with afocus on the specific matters at issue.

Consider the merits of adding a state-ment that the panel may consider doc-uments other than the insurance poli-cy itself needed to determine theintent of the parties. Examples include:draft versions of any relevant manu-script policy or endorsement; meetingand call notes; the underwriting appli-cation, any changes to the policy word-ing on renewal or during the policyyear; all e-mail and other written com-munications between the buyer, broker,and/or the insurer; and the insurer’sunderwriting file.

P A G E 1 6


ARIAS•U.S. Requests Proposalsfor Management ServicesThe current contract between ARIAS•U.S.and CINN Worldwide, the company that hasmanaged ARIAS•U.S. for the past 20 years,expires on December 31, 2014. The ARIAS•U.S.Board of Directors has elected to seekproposals for the organization’s continuingmanagement. CINN intends to submit aproposal.

The details of the bidding process areavailable on the website through a yellowbutton on the home page, www.arias-us.org. All proposals must be submitted byFebruary 15, 2014.

ARIAS•U.S. Introduces NewUmpire QuestionnaireThe ARIAS Board recently approved a newUmpire Questionnaire that was prepared bythe Forms and Procedures Committee. Thisupdated questionnaire contains manyimprovements, including the following:

• Is user friendly - the recipient can tabthrough each question

• Is consistent with the new Code ofConduct

• Identifies all representatives to assist in thedisclosures

• Provides a quick overview of a candidate’sfee schedule

• Allows candidates to utilize their ARIASweb-site as a reference and/or in responseto certain questions

• Provides guidelines or definitions forseveral areas such as the description of thecase, affiliates, and business, professional,and social relationships

• Provides a high-level chart of thecandidate’s prior appointments andhis/her relationship to the various partiesand counsel involved

• Revises some questions to ensure clarity,and

• Allows the parties to add additionalquestions.

It is now located on the Forms page of thewebsite. This “New Umpire Questionnaire”replaces the form called “Arbitrator andUmpire Disclosure Questionnaire.”

If you have any questions or commentsabout the form, please contact Forms andProcedures Committee members.

John Parker is CertifiedArbitratorAt its meeting on September 12, 2013, theBoard of Directors approved John M. Parkeras an ARIAS•U.S. Certified Arbitrator, bringingthe total number to 222. Mr. Parker’s sponsorswere James Rubin, Daniel Schmidt, andJames Sporleder. His biography is on page xxof this issue.

Commissioner Leonardi WasFall KeynoteThomas B. Leonardi, Connecticut InsuranceCommissioner, gave the keynote address atthe opening of the Fall Conference onThursday morning October 31. CommissionerLeonardi’s agency has jurisdiction over thelargest life insurance industry in the UnitedStates and the second largest overallinsurance industry in total written premium.

His address, focusing on the changingregulatory structure of the industry, in theU.S. and globally, was very well received byconference attendees. A transcript of theaddress is on page 40 of this issue.

Crowell & Moring Argued inWorkshopsCrowell & Moring LLP fielded three teams ofattorneys to present arguments beforestudent arbitrators in the September 18mock arbitration panels that were part of theday-long Intensive Arbitrator TrainingWorkshop.

The workshop took place at the CrownePlaza Hotel in White Plains, New York.

new andnotices

1 7 P A G E

Daniel L. FitzMauriceStephen KennedyThomas O. Farrish

One of six objectives listed in the By-Laws ofARIAS•U.S. is “[t]o propose model rules ofarbitration proceedings.”ii Unlike its Englishcousin,iii ARIAS•U.S. has nevertheless existedfor nearly twenty years without proposingany arbitral rules.iv That all changed recently,when the Board of Directors adopted theARIAS•U.S. Rules for the Resolution of U.S.Insurance and Reinsurance Disputes (“Rules”).The Rules originated as recommendationsfrom the ARIAS•U.S. Arbitration Task Forcev

and were drafted by a panel consisting ofStephen Kennedy of Clyde & Co US LLP andThomas Farrish and Daniel FitzMaurice ofDay Pitney LLP (the “Project Team”). Thisarticle will describe the Rules, which areavailable on the website under theARIAS•U.S. Resources menu.

The Practical Guide Precededthe Rules and Serves aDifferent FunctionBefore the Rules came the Practical Guide toReinsurance Arbitration Procedure (“PracticalGuide”). ARIAS•U.S. first published thePractical Guide in 1998, and it published arevised version in 2004. The Practical Guidecurrently spans six chapters covering theprocess from agreeing to arbitrate andinitiating proceedings up through to thefinal hearing and award. The sixth chaptersuggests streamlined procedures for smallerdisputes.vi The Practical Guide consists ofrecommendations and commentary aboutthe arbitration process. The Practical Guidealso includes sample forms designed for useprimarily in connection with arbitratorselection and the organizational meeting,including questionnaires, an agenda for theorganizational meeting, hold harmless andconfidentiality agreements, and ascheduling order. Parties, arbitrators, and

practitioners have found the Practical Guideinvaluable, and courts have used it as areference.vii Despite its utility, however, thePractical Guide is not a set of arbitral rules.

The Practical Guide offers suggestions andadvice; the Rules are prescriptive. For exam-ple, Rule 5.1 provides, in part, that after receiv-ing an arbitration demand, the Respondent“shall respond, in writing, within thirty (30)days, and such Response should contain . . .[the] designation of the Respondent’s Party-appointed arbitrator, . . . a short and plainresponse to the Petitioner’s statement of thenature of its claims and/or issues . . . [and] ashort and plain statement of any claims ofthe Respondent.”viii By contrast, Section 1.3 ofthe Practical Guide states: “The respondentshould submit a formal written answer to thedemand within the appropriate time periodby (1) designating an arbitrator and enclosinga copy of the arbitrator’s curriculum vitae;and (2) specifically identifying any counter-claims.”ix Thus, unlike the Rule 5.1 , Section 1.3of the Practical Guide speaks in normative,rather than mandatory, terms and sets nodeadline for the response. As discussedbelow, there are other examples of this samedistinction between the Rules and the Practi-cal Guide, which is characteristic of the differ-ing roles these two resources play.

The Rules provide a set of procedures togovern the way in which the arbitration willtake place. Where parties have not agreed toa set of governing rules, each arbitration inwhich they engage requires them toestablish how that arbitration will proceed.Although this approach offers the flexibilityof customizing each proceeding, it comes atthe price of inefficiency and uncertainty. ThePractical Guide and the collective experienceof the parties, counsel, and the arbitratorshelp to identify choices and shapeexpectations. Nevertheless, the absence ofprescriptive rules leaves significant issuesopen for negotiation and dispute. The Rulesestablish the basic protocols to frame theprocess, while allowing for some flexibility –particularly with respect to scheduling.


feature

Daniel L.FitzMaurice

The ARIAS•U.S. Rules for theResolution of U.S. Insurance andReinsurance Disputes

StephenKennedy

Thomas O.Farrish

This article willdescribe the Rules,which are available

on the websiteunder the

ARIAS•U.S. Resources menu.

P A G E 1 8

Instructions for Adoption andApplicationThe Rules begin with prefatory remarksrecognizing the consensual nature ofarbitration and addressing the ways inwhich the parties may agree to adoptprocedures governing their arbitrationsincluding, but not limited to, the Rules. Thissection provides a sample of a basic clauseunder which the parties agree to arbitrate inproceedings conducted in accordance withthe Rules. The parties may alter or embellishany or all of the provisions in the Rules. Thissection identifies as an alternative to thebasic clause the addition of languagedirecting the arbitrators to interpret thecontract as an honorable engagement andto apply the custom and practice of theinsurance and reinsurance industry. Othersuggestions for possible additions includethe following: specifying the location of thearbitration; choosing governing law;addressing consolidation; and directingsurvival of the arbitration agreement beyondthe termination of the contract.

In drafting the Rules, the Practical Guide andmany of the Procedures for the Resolution ofU.S. Insurance and Reinsurance Disputes(September 2008 Regular Panel Version) (the“Procedures”) served as useful frames ofreference. Accordingly, the authors extendtheir sincere thanks to all of those whocontributed to the Practical Guide and to themembers of Insurance and ReinsuranceDispute R---esolution Task Force for all of thetime, hard work, and effort they devoted overthe years.

Set out below is a description of the Rules,numbered to correspond to the sixteensections of the Rules.

1. IntroductionThe Introduction to the Rules identifiesimportant, over-arching principles. Asidefrom stating the official name of the Rules,this section explains the relationshipbetween the Rules and express, writtenagreements between the parties to alterthe Rules. The Rules (where adopted by theparties) apply by default in the absence ofany specific written alteration by theparties. The Introduction also explains theprimacy of the Rules over the explanatorynotes, and the authority of the arbitratorsto resolve any issue concerninginterpretation of the Rules. Lastly, theIntroduction provides that the panel “shall

have all powers and authority notinconsistent with these Rules, theagreement of the Parties, or applicable law.”

2. DefinitionsSection 2 contains several definitions of keyterms used elsewhere in the Rules. Forexample, Paragraph 2.3 defines a“disinterested” arbitrator as one who is not“under the control of either Party,” and wholacks “a financial interest in the outcome ofthe arbitration” – a definition which isconsistent with the Practical Guidex andapplicable case law on the topic. Paragraph2.4 likewise defines a “neutral” arbitrator asone who is “disinterested, unbiased andimpartial,” but not necessarily as one who“has no previous knowledge of or experiencewith respect to issues involved in thedispute.” Additionally, Paragraph 2.2 defines“decision” in a way that brings interim ordersor awards within the ambit of the term.

3. Notice and Time PeriodsThe Rules spell out procedures for notices inmore detail than the Practical Guide. InParagraph 3.1, the Rules provide that notices– including arbitration demands or counter-demands – are deemed made if delivered tothe address designated by the opposingparty in the insurance or reinsuranceagreement, or to the address on file withregulators in the opposing party’sdomiciliary jurisdiction. In Paragraph 3.2, theRules provide that notices are deemed givenupon the date on which they were receivedin the case of regular or certified mail, or onthe date on which they were transmitted inthe case of electronic mail. Finally,Paragraph 3.3 contains provisions forcalculating the running of the time periodsset forth elsewhere in the Rules, much likeFederal Rule of Civil Procedure 6 containsprovisions for calculating the running of thetime periods in the other Federal Rules.Under Paragraph 3.3, time periods beginrunning on the day after the relevant noticeis given, and are counted with reference tocalendar days rather than business days. Ifthe day on which the time period wouldotherwise expire is not a business day in therecipient’s domiciliary jurisdiction, the periodis deemed extended until the first followingbusiness day.

Section 3 differs somewhat from thecorresponding section in the Procedures. TheProcedures, for example, deem notices to begiven if they are delivered to the recipient’s


The parties mayalter or embellishany or all of theprovisions in theRules. This sectionidentifies as analternative to thebasic clause theaddition of languagedirecting thearbitrators tointerpret thecontract as anhonorableengagement and toapply the customand practice of theinsurance andreinsurance industry.

1 9 P A G E“principal place of business.” Theformulation used in the Rules reflects thefact that transmitting parties may havedifficulty determining the “principal place ofbusiness” of the receiving party, particularlygiven the fact that courts have had troubleapplying this concept.xi The Procedures alsodeem notices to be given if they are sent byfax, but the Rules do not adopt thisprovision in light of the increasingobsolescence of fax machines. TheProcedures further provided that timeperiods were automatically extended if theyotherwise lapsed on “a non-business day inthe country of the recipient,” potentiallygiving rise to disputes over the effect ofstate or local holidays in federal countries.The Rules change the formulation to “non-business day in the domiciliary jurisdictionof the recipient.”

4. Commencement of the ArbitrationIn Section 4, the Rules describe theprocedure for commencing an arbitration.Under Paragraphs 4.1 and 4.2, an arbitrationis commenced by the delivery of a writtendemand to the respondent. The writtendemand should set forth the petitioningentity’s name, and also the contactinformation of the person to whomresponsive communications are to beaddressed. The demand should also identifythe respondent entity against whomarbitration is sought, and also the contractor contracts under which arbitration isdemanded.

Section 4 also discusses the circumstancesunder which an arbitration demand may beamended. Paragraph 4.1 provides that anarbitration demand may be amended as ofright at any time before the opening of theorganizational meeting. After that point, ademand may not be amended except byleave of the panel. These provisionsrecognize that, after the organizationalmeeting has taken place, a number ofdecisions have likely been made based onthe scope of the demand (e.g., schedulingorders, discovery plans) – decisions whichshould not be subject to change based onthe unilateral action of one party.

Finally, Paragraph 4.3 requires the petitionerto name its party-appointed arbitrator inaccordance with Section 6.3. Paragraph 6.3,in turn, requires that both party-appointedarbitrators be appointed within thirty daysof the initial demand. Taken together, theseprovisions mean that as a practical matter,

respondent and petitioner will each likelyappoint one party-appointed arbitrator onthe thirtieth day after the demand. This issomething of a departure from the mostcommon current practice. Under manyhistorical contracts, the petitioner issues itsdemand; the respondent appoints a party-appointed arbitrator within thirty days ofreceiving the demand, and requests that thepetitioner appoint an arbitrator within thirtydays thereafter; and the petitioner appointsthe second arbitrator by the sixtieth day afterits demand. Under the Rules, the time spentin appointing the two party-appointedarbitrators will be reduced from up to sixtydays, to up to thirty days.

Section 4 differs from the correspondingsection in the Procedures in several respects.First, while both the Rules and theProcedures provide that the arbitrationdemand should discuss the nature of thepetitioner’s claims or issues, Section 4 of theRules adds that this should be by way of a“short and plain statement.” By importingthe “short and plain statement” formulationfrom the Federal Rules of Civil Procedure – aterm that arbitral parties are likely to befamiliar with – the Rules provide guidepostsfor what is and is not a sufficient discussionof the petitioner’s “claims and/or issues,”thus reducing the potential for disputes overthe sufficiency of the initial demand. Second,the Rules account for the fact thatarbitrations are sometimes brought againstentities (e.g., brokers) that are not expresslynamed as parties in the relevant contract.Accordingly, the Procedures’ requirementthat a demand identify the “Respondent, asidentified in the reinsurance contract,” wasreplaced with a reference to the “Respondentagainst whom arbitration is sought.” Finally,in recognition of the decreasing use of faxmachines, the Rules do not require that thearbitration demand include the petitioner’sfax number.

5. Response by the RespondentIn Section 5, the Rules outline the proceduresfor responding to an arbitration demand.Section 5 requires the respondent to respondto the demand in writing within thirty daysof valid delivery. It identifies information thatshould be included in the response, in termsthat mirror Section 4’s requirements forinitial demands. Specifically, Section 5provides that responses should include theidentity of the entities on whose behalf theyare sent; the name and contact information


The written demandshould set forth the

petitioning entity’sname, and also thecontact information

of the person towhom responsive

communications areto be addressed.

The demand shouldalso identify the

respondent entityagainst whomarbitration is

sought, and also thecontract or

contracts underwhich arbitration is

demanded.

P A G E 2 0


of the person to whomcommunications are to be addressed;the identity of the respondent’s party-appointed arbitrator; a short and plainresponse to the petitioner’s statementof its claims and issues; and a short andplain statement of any of therespondent’s claims.

The requirement of a short and plainresponse to the petitioner’s statementof claims and issues is a departure fromthe Practical Guide and the Procedures.The requirement is designed topromote communication between theparties and to enhance the panel’sability to understand the issues at theearliest possible juncture. Like thecorresponding portion of Section 4, the“short and plain statement” formulationin Section 5 is designed to minimizedisputes over the sufficiency of theresponse by importing a term from theFederal Rules of Civil Procedure that isgenerally familiar to arbitral parties.

As Section 4 does with initial demands,Section 5 provides that responses maybe amended as of right until theopening of the organizational meeting.After the organizational meeting, theresponse may be amended only by leaveof the panel. Section 5 provides a non-exclusive list of factors for the panel toconsider in deciding whether to grantleave to amend, which is identical to thecorresponding list in Section 4.

6. Appointment and Compositionof the Panel

Arbitration clauses in insurance andreinsurance contracts are notoriouslybrief and open-ended, often offeringlittle guidance on exactly how theprocess will be conducted. Typicalarbitration clauses do, however, definethe number and qualifications of thearbitrators, often in terms of industryexperience, and provide a selectionprocess. The Rules call for threearbitrators – two party-appointedarbitrators and one umpire. Theyspecify that all of the arbitrators shall be“current or former officers or executivesof an insurer or reinsurer, and shall beARIAS-certified as of the date of theirappointment.” Thus, the Rules addARIAS certification to the commonexperiential component in thequalifications of the arbitrators.

The selection process in the Rules isdetailed and scheduled. The partiesname party-appointed arbitrators, pre-sumably simultaneously, within thirtydays of the commencement of the arbi-tration. If either party fails to appoint,the non-defaulting party appoints forthe defaulting party. Within thirty daysof the appointment of the party-arbitra-tors, they are to appoint the umpire. Par-ty-appointed arbitrators may consultwith their respective parties about theumpire selection. If the arbitrators can-not agree upon an umpire within thethirty-day period, they proceed withinthe next seven days to exchange lists ofcandidates, each identifying five individ-uals chosen from the list of ARIAS•U.S.certified umpires. In response to a jointrequest from the arbitrators, the umpirecandidates are to complete and returnquestionnaires within twenty days. Inthe event that a candidate refuses toserve or fails to respond to the question-naire, the nominating party replaces thecandidate. Within seven days of the par-ties’ receipt of completed questionnairesfrom ten candidates, each party strikesfour names from the opponent’s list andthe umpire is chosen by lot from theremaining two candidates. The partiesand arbitrators may not unilaterally con-tact any candidate.

The Rules also provide for a situationthat most arbitration clauses do notaddress – namely, the process forreplacing party-appointed arbitrators orumpires who are unable or unwilling toserve. In the case of a party-appointedarbitrator, the appointing party hasfourteen days to name a replacement.For umpires, the party-appointedarbitrators have fourteen days to agreeupon a replacement or resort to theprocess of exchanging lists of fivecandidates for each side.

The Rules also specify that, unlessotherwise agreed in advance by theentire panel, all members of the panelwill participate in reaching everydecision. In addition, the Rules providefor majority rule in that each and everydecision “shall be made by casting of atleast two of three possible votes.”

7. ConfidentialityThe Rules establish confidentiality as adefault. Unless the parties agree or the

panel orders otherwise, all meetings andhearings are private and confidential tothe parties. The Rules specify that onlythe authorized representatives of theparties and others participating in thehearing may attend.

The familiar form of ConfidentialityAgreement included in the PracticalGuidexii is not necessary under theRules. Rule 7.2 sets forth the general ruleof confidentiality and identifies fiveexceptions: “(a) as necessary inconnection with judicial proceedingsrelating to the arbitration or anyDecision; (b) as otherwise required bylaw, regulation, independent accountingaudit or judicial decision; (c) if thearbitration proceedings relate to a directinsurance dispute, then to support theinsurer’s reinsurance recoveries; (d) if thearbitration proceedings relating to areinsurance dispute, then to support thereinsurer’s retrocessional recoveries; or(e) as otherwise agreed by the parties.”These reasons are similar to those in theConfidentiality Agreement in thePractical Guide, though they are wordedin a somewhat different manner.xiii ThisRule also obligates the parties to usetheir best efforts to maintainconfidentiality when pursuing any ofthe exceptions.

8. Interim DecisionsThe Rules expressly confirm the panel’sauthority to issue Decisions for interimrelief and to impose sanctions forfailure to comply with any interimDecision or for a discovery-relatedabuse. Without limiting the types ofsanctions a panel may order, the Rulesoffer the following examples: striking aclaim or defense; excluding evidenceon an issue; drawing an adverseinference against a party; and imposingcosts, including attorneys’ fees.

9. Location of the Proceedings Section 9 provides that all arbitrationproceedings shall take place at thelocation specified in the arbitrationagreement, or at the location otherwiseagreed to by the parties. Where theparties have failed to specify a locationin their agreement – and cannot agreeotherwise – Section 9 provides that thepanel shall choose the location. Incontrast to the Procedures, which weresilent on the point, the Rules provide a

2 1 P A G Enon-exhaustive list of factors for the panelto consider in deciding where to hold thearbitration proceedings. Those factorsinclude the convenience of the panel andthe parties, and the avoidance ofunnecessary expense or delay. Additionally,in recognition of some of the FederalArbitration Act case law limiting the scopeof the panel’s subpoena powers,xiv Section 9directs the panel to consider “the availabilityof process to compel attendance by (or theproduction of materials from) non-parties”in choosing an arbitral location. Section 9also instructs the panel to consider “theeffect of the proceedings’ location onconfirmation or vacation proceedings,” aswell as “such other factors as the panel maydeem relevant.”

10. Prehearing ProcedureUnder the Rules, the precise components ofthe prehearing process remain to bedetermined in each arbitration – much aspretrial conferences and orders in litigationset the particular approach that will apply ina given case.xv The Rules provide anorganized and timely process for setting thepretrial procedure in each case. They firstrequire that, in advance of theorganizational meeting, the parties conferand seek to agree on all of the issuesexpected to be addressed. Theorganizational meeting may be conductedin person, by telephone, or video conferencebased either on the agreement of theparties or by direction of the panel. Theorganizational meeting under the Rulesfollows a familiar format, beginning withdisclosures by the arbitrators of anyconnections to the parties, counsel, otherarbitrators, and the issues. The disclosure bythe party-appointed arbitrators include theexistence – but not the content – of any exparte communications and furnishing of anydocuments examined, followed byacceptance of the panel by the parties. Theumpire is also directed to augment any pastdisclosures, including indicating whethereither party or counsel have offered theumpire any other work for compensation.The Rules emphasize the ongoing nature ofthe duty to disclose and include any offersmade for any arbitrator to serve on anarbitration panel in another matter.

The Rules allow the panel to require eachparty to submit a concise written statementof position at least seven days before theorganizational meeting. The position

statement may include the issues each partyanticipates, the facts and evidence theparties intend to present, and the basis forthe relief requested. The Rules providefurther that, regardless of whether the panelrequired position statements, it may allowthe parties to address these same matters ina brief overview at the organizationalmeeting. The Rules also specify that thereshould be a written transcription of theorganizational meeting, with the costs splitbetween the parties.

Rule 10.7 provides an extensive list of topicsto be resolved at the organizational meeting.Aside from the customary hold harmlessagreement, this section calls for the panel toaddress a confidentiality agreement, adeadline for cutting off ex partecommunications, procedures for interimDecisions, the nature and extent of discoveryto be allowed, and the extent to which thepanel will permit expert evidence. The finalportion of this rule sets forth eleven specificissues to be covered in the arbitrationschedule, including: discovery deadlines;status reports; a deadline for resolvingdiscovery issues; deadlines for discoveryrelating to experts; deadlines for disclosingwitnesses and designating hearing exhibits;the briefing schedule; and the length, datesand location of the final hearing. This rulealso specifies that, unless there is somereason otherwise, the agenda for theorganizational meeting should include thetopic of mediation.

11. DiscoveryThe costs, burdens, and delays of discoveryhave been a frequent source of criticism andproposed reform in arbitration.xvi The Rulesprovide that, in advance of the organizationalmeeting, the parties are to confer and seek toagree on an exchange of all relevant docu-ments and the confidentiality to apply to thedocuments. Paragraph 11.2 grants the panelthe power to order the disclosure of “suchdocuments or class of documents relevant tothe dispute as it considers necessary for theproper resolution of the dispute.” Likewise,Paragraph 11.3 grants similar authority to thepanel with respect to depositions or “otherdiscovery.” This power, however, hinges uponthe panel’s assessment of what “is reason-ably necessary in light of the issues in disputeas well as the nature and size of the dispute.”Thus, the Rules expressly direct the panel toevaluate necessity not just in terms of rele-vance but also in reference to the nature and


Under the Rules, theprecise components

of the prehearingprocess remain tobe determined in

each arbitration –much as pretrialconferences and

orders in litigationset the particularapproach that will

apply in a givencase.xv The Rules

provide anorganized and

timely process forsetting the

pretrial procedure in each case.

P A G E 2 2size of the dispute. Rule 11.5 elaborates onthe panel’s discretion over discovery. Thisrule allows the panel to limit discovery “onvarious grounds, including burdensomeness,expense, duplication, privilege, work productor lack of relevance.” Furthermore, this ruleprovides that nothing in the Rules may beconstrued as a waiver of privilege or of sever-al other objections to discovery, nor as awaiver of any position available to any partyrespecting the authority of the panel toorder the production of attorney-client privi-leged or work product information.

12. Mediation or SettlementIn recognition that mediation may be avaluable tool for the resolution of disputes,Section 12 requires the panel to includemediation as a subject to be discussed atthe organization meeting unless there is anexplicit reason not to raise it such as eitherparty’s objection to its inclusion. This is achange from the Practical Guide, which hasattached to it a sample organizationalmeeting agenda that does not includemediation as a proposed topic.

Section 12 also provides that the panelshould consider raising mediation with theparties at later stages in the arbitrationproceeding, such as at the close of discovery,when pre-hearing briefs are exchanged, orupon motion for summary disposition (butbefore commencement of the hearing).Additionally, the Section states that theParties may agree to submit to mediation atany point in the arbitration.

13. Summary Disposition and Ex Parte Hearing

Rule 13.1 provides that the panel may decidea motion for summary disposition concern-ing any claim or issue upon reasonablenotice and opportunity to respond. The Noteto this Rule makes clear that neither partywaives its right under the Federal ArbitrationAct or other applicable law to challenge apanel’s decision on summary disposition.Under Paragraph 13.2, if a party fails toparticipate in the pre-hearing proceedingsand the panel reasonably believes that theparty will continue not to participate, thepanel – on thirty days’ notice – may proceedwith a hearing on an ex parte basis, or maysummarily dispose of some or all of theissues in dispute consistent with Section 13.1.

14. Arbitration HearingSection 14 sets out the rules concerning the

arbitration hearing. Many of the provisionsof this Section memorialize powers andpractices of the panel familiar to experiencedarbitration practitioners and panel members,including: (1) the panel’s discretion todisregard strict rules of law and evidence; (2)the panel’s ability to question witnesses atthe hearing; (3) the panel’s authority to issuewitness and document subpoenas; (4) thepanel’s latitude in permitting hearingwitnesses to attend the entire hearing ascompany representatives or to reviewhearing transcripts prior to giving testimony;and (5) the panel’s authority to limittestimony that would be immaterial orunduly repetitive with the caveat that allparties be given the opportunity to presentmaterial and relevant evidence.

Other powers of the panel set forth inSection 14 include the panel’s authority toaccept into evidence, on good cause shown,testimony of a party’s witness whom theother side does not have a chance to cross-examine. The panel may also accepttestimony by telephone, affidavit, transcript,videotape or other means. Section 14requires that when the panel decides that ithas heard all relevant evidence andarguments, it must declare that theevidentiary hearing is closed. At theconclusion of the evidentiary hearing theparties must submit a proposed order thatspecifies the relief it seeks from the panel.After the panel hears closing argumentsand/or considers post-hearing briefs, it isrequired to close the arbitration hearing.

15. Final AwardUnlike the Practical Guide, Section 15 of theRules mandates that a final award berendered within a specified time – namely,thirty days from the close of the hearing or, ifthere was no hearing, after the panel hasreceived all submissions on the merits by theparties. Section 15 states that a final awardshall consist of a written statement signedby a majority of the panel and require thepanel to furnish a written rationale if bothparties request one. If only one partyrequests a written rationale, the panel mayissue one in its discretion.

Under Section 15, the panel is authorized toaward any remedy permitted by theagreement of the parties and, if notprohibited by the parties’ agreement, anyremedy allowed by applicable law. Thesemay include, but not necessarily be limitedto, monetary damages, equitable relief, pre-or


In recognition thatmediation may be avaluable tool for theresolution ofdisputes, Section 12requires the panel toinclude mediation asa subject to bediscussed at theorganization meetingunless there is anexplicit reason notto raise it such aseither party’sobjection to itsinclusion. This is achange from thePractical Guide,which has attachedto it a sampleorganizationalmeeting agenda thatdoes not includemediation as aproposed topic.

2 3 P A G Epost-award interest, costs of arbitration, andattorneys’ fees.

With respect to ex parte communicationswith the panel, they are prohibited until thepanel issues a final award or, if a writtenrationale is issued separately, until the panelrenders both. Section 15 also provides thatneither party nor its representatives shouldrequest that the arbitrators reveal thecontents of the panel’s deliberations.

16. SeverabilityFinally, the Rules contain a severabilityprovision in Section 16. That sectionprovides, in substance, that if any provisionof the Rules is held to be invalid, thatholding will not alter any other provisions ofthe Rules that can still be given effect in theabsence of the invalid portion.

ConclusionBy prescribing model rules of arbitrationproceedings, the Rules fulfill one of thelongstanding objectives of ARIAS•U.S. Thedrafting project is not over, however. TheBoard of Directors has approved or isconsidering a number of other elementsthat may be added as other modules for theparties to consider. These include: a set ofexpedited procedures for smaller disputes; aprocess of industry mediation; an industryguidance panel to provide non-bindingadvice to parties; and a private process forarbitral appeals. Like the Rules themselves,the potential additions reflect the vibrancyand diligence of the ARIAS•U.S. ArbitrationTask Force, the leadership of the Board ofDirectors, and the contributions andsuggestions of many members of ARIAS•U.S.

i Stephen Kennedy is a partner with Clyde & Co. LLP.Thomas Farrish and Daniel FitzMaurice are partnerswith Day Pitney LLP. Any commentary in this articleshould not be attributed to these law firms or theirclients.

ii By-Laws of ARIAS•U.S., Art. 1, §1.e. (available athttp://www.arias-us.org/index.cfm?a=6).

iii ARIAS (UK) published model arbitration rules in 1994and revised those rules in 1997. The ARIAS (UK) arbi-tration rules can be downloaded athttp://arias.org.uk/arbitration-rules-and-clause/.

iv As described in this article, the ARIAS•U.S. PracticalGuide to Reinsurance Arbitration Procedure differs inseveral respects from model rules.

v See D.L. FitzMaurice & E.C. Brady, ARIAS•U.S. AnnouncesCompany Project to Improve Arbitration, ARIAS•U.S.Quarterly, Vol. 18, No. 2 (3d Qtr. 2011) at 2. A list of thecurrent members of the Arbitration Task Forceappears at http://www.arias-us.org/index.cfm?a=8.

vi The Arbitration Task Force has also recommendedsome expedited procedures for smaller disputes

which the Board will consider in early 2014.vii See, e.g., Trustmark Ins. Co. v. John Hancock Life Ins. Co.,

631 F.3d 869, 872-73 (7th Cir. 2011) (citing to the defini-tion of “disinterested” in §2.3 of the Practical Guide(rev. ed. 2004) as reflecting the “[n]orms of insurance-industry arbitration”); Ario v. Cologne Reinsurance(Barbados), Ltd., No. 1:CV-98-0678, 2009 U.S. Dist. LEXIS106133, 2009 WL 3818626 (M.D. Pa. Nov. 13, 2009) (cit-ing to the definition of “disinterested”); Sphere DrakeIns. Ltd. v. All Am. Life Ins. Co., No. 01 C 5226, 2004 U.S.Dist. LEXIS 3494, 2004 WL 442640 (N.D. Ill. March 8,2004) (citing the Practical Guide’s description of aposition statement).

viii Rule §5.1 (emphasis added).ix Practical Guide §1.3 (emphasis added).x See Practical Guide §2.3; Trustmark Ins. Co., 631 F.3d at

872-73; Ario, 2009 U.S. Dist. LEXIS 106133.xi See, e.g., Hertz Corp. v. Friend, 559 U.S. 77 (2010).xii See Practical Guide §3.8, Comment D, ARIAS•U.S.

Sample Form 3.3 (a link to the ConfidentialityAgreement is available at: http://www.arias-us.org/index.cfm?a=40)/.

xiii See Practical Guide §3.8, Comment D, ARIAS•U.S.Sample Form 3.3 (the exceptions in the Sample Form3.3 are as follows: “(a) to the extent necessary toobtain compliance with any interim decisions or thefinal award herein, or to secure payment from retro-cessionaires; (b) in connection with court proceed-ings relating to any aspect of the arbitration, includ-ing but not limited to motions to confirm, modify orvacate an arbitration award; (c) as is necessary incommunications with auditors retained by any party,or federal or state regulators; (d) as is necessary tocomply with subpoenas, discovery requests or ordersof any court; and (e) to the extent ArbitrationInformation is already lawfully in the publicdomain.”).

xiv See, e.g., Dynegy Midstream Servs., L.P. v. Trammochem,451 F.3d 89 (2d Cir. 2006).

xv See Fed. R. Civ. P. 16(a).xvi See, e.g., P. Scarpato, Let’s Break the Mold . . . or at Least

Reshape it a Bit, ARIAS•U.S. Quarterly, Vol. 19, No. 1 (1stQtr. 2012); C. J. Moxley, Beyond the “Discretion of theArbitrator”: Applying the Standard of “ReasonableNecessity” to Determine the Appropriate Scope ofDiscovery in Insurance/Reinsurance Arbitration,ARIAS•U.S. Quarterly, Vol. 16, No. 1 (1st Qtr. 2009).


By prescribing modelrules of arbitration

proceedings, theRules fulfill one ofthe longstanding

objectives ofARIAS•U.S. The

drafting project isnot over, however.

The Board of Direc-tors has approved or

is considering anumber of other

elements that maybe added as other

modules for theparties to consider.

These include: a setof expedited proce-

dures for smallerdisputes; a processof industry media-

tion; an industryguidance panel to

provide non-bindingadvice to parties;

and a privateprocess for arbitral

appeals.

P A G E 2 4In each issue of the Quarterly, this columnlists employment changes, re-locations, andaddress changes, both postal and email thathave come in during the last quarter, so thatmembers can adjust their addressdirectories.

Although we will continue to highlightchanges and moves, remember that theARIAS•U.S. Membership Directory on thewebsite is updated frequently; you canalways find there the most currentinformation that we have on file. If you seeany errors in that directory, please notify usat [email protected].

Do not forget to notify us when your addresschanges. Also, if we missed your changebelow, please let us know, so that it can beincluded in the next Quarterly.

Recent Moves andAnnouncementsAfter 43 years in the Law & RegulationDepartment of Allstate Insurance Company,Northbrook, Illinois, James G. Sporlederretired at the end of November. Mr.Sporleder, a Vice President and AssistantGeneral Counsel of the company, has been along-time member of ARIAS. He willcontinue to offer his services as an ARIAS

Certified Arbitrator. His new contactinformation is 20 Lakeside Lane, NorthBarrington, IL 60010, phone 847-277-1533,email [email protected].

Eric S. Kobrick’s new address is AmericanInternational Group, Inc., 80 Pine Street, 35thFloor, New York, NY 10005, phone 212- 458-8270, fax 866-371-7209, [email protected].

Caleb Fowler has relocated to 6 QueenStreet, Onancock, VA 23417, phone443.735.5554, [email protected], websitewww.calebfowlerarbitrator.com.

Glenn J. Waldman has relocated his office toBroward Financial Center, Suite 1700, 500East Broward Boulevard, Fort Lauderdale, FL33394. His office telephone/fax numbers andemail remain the same.

John Walsh has relocated to John HancockLife Insurance Company, 601 CongressStreet, Z-8, Boston, MA 02210, phone 617-572-4638.

Email ChangesJames W. Macdonald’s new email address [email protected]


memberson themove

The ARIAS-U.S. Fall Meeting and Conference wasin many ways a historic point in the life of theorganization and in U.S. reinsurance arbitration.The Board, leadership, and relevant committeesshould all be thanked and congratulated. At the meeting, thenew ARIAS-U.S. Rules for the Resolution of U.S. Insurance andReinsurance Disputes (the “ARIAS Rules”) and the new ARIAS-U.S. Code of Conduct (the “Code”)were revealed and presented.Both these developments, along with proposals about neutralarbitration, mediation, private rights of appeal and others,demonstrate that ARIAS-U.S. is moving in the direction ofenhancing and strengthening the arbitration process.

While many people have many comments about variousaspects of the new Rules and Code, the point is that after 20years of just having a Practical Guide and Ethical Guidelines,

ARIAS-U.S. now has actual rules, including mandatoryrules for arbitrators (which should be adhered to byparties and counsel) on whether to declineappointments. The debates will continue and the Rules

and Code will be modified, enhanced, and refined. Neutralprocedures may be approved and other processes may comeabout.

But now with real rules, parties can write the ARIAS-U.S. Rulesinto arbitration clauses. Now with a real Code, the appearanceof impropriety and bias hopefully will be lessened. To my view,these are good developments for the process and for ARIAS-U.S.

Larry P. Schiffer Patton Boggs LLP

Letters to the Editor may be sent to Eugene Wollan at [email protected]

To the Editor…

2 5 P A G E

By The Ethics Discussion Committee

I. Background and History The Ethics Discussion Committee (“EDC”)completed the first ever comprehensivereview of the ARIAS•U.S (“ARIAS”) Guidelinesfor Arbitrator Conduct (Code of Conduct)(“Code of Conduct” or “Code”). The revisedCode, as approved by the ARIAS Board ofDirectors, was presented to the membershipat the 2013 Fall Conference. The changes inthe revised Code take effect January 1, 2014,and apply to conduct taking place after thatdate. It has been installed on the ARIAS•U.S.website for availability to members and theindustry.

The ARIAS Code of Conduct was firstadopted in June 1998. An objective of ARIASsince its inception has been to promote theintegrity of the arbitration process ininsurance and reinsurance disputes. To thatend, shortly after its formation the ARIASBoard established an Ethics Sub-Committeeto draft a model Code of Conduct. The Sub-Committee, consisting of James Rubin,Daniel Schmidt, and Richard Waterman,Chair, developed a set of ten Canons withexplanatory comments. There were nomandatory rules at that time.

The Canons and Comments remained inplace unchanged for many years. Over theyears, various initiatives, articles anddiscussions explored whether developmentsin custom and practice over time shouldcause modifications to the Code to addadditional clarity. For example, in 2005Rhonda Rittenberg and David Thirkillreported on the results of a survey thatexplored industry positions on the hotlydebated issues at the time. Moreover,various conferences devoted time to issuessuch as the extent to which multipleappointments from one party should berestricted, and whether a sitting umpireshould be prohibited from accepting partyarbitrator appointments from either of theparties in that matter.

In 2010, the Long Range Planning Committee(“LRPC”), consisting of Mark Gurevitz (Chair),Paul Dassenko, Ann Field, Daniel FitzMaurice,Eric Kobrick, Mark Megaw and EugeneWollan recommended, and the ARIAS Boardof Directors approved after making somerevisions, several new guidelines thatelucidate and expand upon the ethicalconsiderations embodied in the existingCode of Conduct. These additional guidelinesrelated to: 1) the party-appointed arbitratorpre-appointment interview; 2) arbitratordisclosures; 3) whether to accept anappointment as arbitrator or umpire; and 4)ex parte communications (collectively“Additional Guidelines”). These Guidelinescontained some mandatory prohibitions,including, for example, a prohibition onaccepting an appointment if a prospectivepanel member has a material financialinterest that could be substantially affectedby the outcome of the dispute. The LRPC alsorecommended the formation of a standingethics committee.

The EDC was created by the Board in 2011,consisting of Eric Kobrick (Chair), MarkGurevitz, Ed Krugman, Mark Megaw, JamesRubin, Larry Schiffer, and Daniel Schmidt.The EDC was charged with providinginformation and education about ethicalissues and concerns, tasked withincorporating the Additional Guidelines intothe Code of Conduct, and asked to considerany other updates that may be warranted.The process involved the integration of textand concepts from the Additional Guidelinesinto the Code of Conduct, an overall updateof the Code with further significant updatesand amendments to the original Code andthe Additional Guidelines, and revision of theIntroduction and Purpose sections of theCode. As described below, the changes areboth stylistic and substantive. They includeupdates, clarifications and elimination ofredundancies across the Code of Conductand the Additional Guidelines. Canons 3, 7, 9and 10 are unchanged except for stylisticchanges.


featureThe Revised ARIAS•U.S. Code of Conduct

The process involvedthe integration oftext and concepts

from the AdditionalGuidelines into the

Code of Conduct, anoverall update of the

Code with furthersignificant updates

and amendments tothe original Code

and the AdditionalGuidelines, andrevision of the

Introduction andPurpose sections of

the Code.

P A G E 2 6

II. The New Code ChangesIntroductionThe new Introduction states:

ARIAS·U.S. is a not-for-profitcorporation organized principally asan educational society dedicated topromoting the integrity of thearbitration process in insurance andreinsurance disputes. Throughseminars and publications,ARIAS·U.S. trains knowledgeableand reputable professionals forservice as panel members inindustry arbitrations. The ARIAS·U.S.Board of Directors certifies asarbitrators individual members whoare qualified in accordance withcriteria and procedures establishedby the Board.

The continued viability ofarbitration to resolve industrydisputes largely depends on thequality of the arbitrators, theirunderstanding of complex issues,their experience, their goodjudgment and their personal andprofessional integrity. In order toproperly serve the parties and theprocess, arbitrators must observehigh standards of ethical conductand must render decisions fairly.The provisions of the Code ofConduct should be construed toadvance these objectives.

The Introduction was changed to reflect thefact that the changes impose newmandatory rules as to when an arbitrator orumpire candidate must refuse to serve. Assuch, the Committee deleted the followingfrom the old Introduction:

Nothing in these Guidelines isintended to or should be deemed toestablish new or additional groundsfor judicial review of arbitrationappointments or arbitration awardsnor establish any substantive legalduty on the part of arbitrators.

The deletion of this disclaimer is consistentwith the requirement since 2010 that allARIAS arbitrators “agree to abide by and besubject to” the Code of Conduct. Thechanges here reflect the mandatory natureof certain provisions and the clear intent ofthe EDC and the Board to make the newCode binding on all certified arbitrators

going forward from January 1, 2014.Moreover, the EDC and Board did not believethat they could or should meaningfullyinfluence whether or how the changesmight impact the courts as they interpretthe Code of Conduct.

PurposeBeyond the stylistic changes, the Purposesection was amended to add the following:

Though these Canons set forth con-siderations and behavioral standardsonly for arbitrators, it is expectedthat the parties and their counselwill conform their own behavior tothe Canons and will avoid placingarbitrators in positions where theyare unable to sit or are otherwise atrisk of contravening the Canons.

This was added by the EDC to prevent manip-ulation of the process and to address the con-cern that in some cases the harm to be pre-vented, i.e., the improper influence ofarbitrators, could still occur without a Code ofConduct violation. For example, Paragraph 3of Canon I provides that a candidate forappointment must refuse to serve where thecandidate sits as an umpire in one case and issolicited to serve as a party-appointed arbi-trator by one of the parties in the first action.In this example, the Canon prevents the arbi-trator from accepting the second appoint-ment, but does not preclude the offer frombeing made in the first instance. The addi-tional wording is designed to address thisconcern by informing the parties and theirattorneys that they should not put arbitra-tors in a position to violate the Code. Whilethe Code does not directly control the con-duct of lawyers and parties, as it does certi-fied arbitrators, the lawyers, at the least, haveethical obligations to respect the rules of tri-bunals before which they appear.

DefinitionsA new definitions section was added:

1. Affiliate: an entity whose ultimate parentowns a majority of both the entity and theparty to the arbitration and whoseinsurance and/or reinsurance disputes, asapplicable, are managed by the sameindividuals that manage the party’sinsurance and/or reinsurance disputes;

2. Arbitrator: a person responsible toadjudicate a dispute by way of arbitration,including the umpire on a three (or more)person panel of arbitrators;


The deletion of thisdisclaimer isconsistent with therequirement since2010 that all ARIASarbitrators “agree toabide by and besubject to” the Codeof Conduct. Thechanges here reflectthe mandatorynature of certainprovisions and theclear intent of theEDC and the Boardto make the newCode binding on allcertified arbitratorsgoing forward fromJanuary 1, 2014.

2 7 P A G E


3. Party: the individual or entity that isnamed as the petitioner or respondent inan arbitration, as well as the affiliates ofthe named party;

4. Umpire: a person chosen by the party-appointed arbitrators, by an agreed-uponprocedure, or by an independentinstitution to serve in a neutral capacity aschair of the panel.

The definition of Affiliate was designed toaddress the reality that multiple books ofbusiness may be owned and managedwithin a single corporate holding structure –even though they are separate corporatesubsidiaries. The touchstone of thedefinition requires common ownership, anddoes not extend – for these purposes (and atthis time) – to management or reinsuringrelationships that do not include commonownership.

Canon I – IntegrityParagraph 2 was amended to expand on theduties of arbitrators and to clarify that theseduties extend to procedural and interimdecisions, not only the final award:

Arbitrators owe a duty to the parties, to theindustry, and to themselves to be honest; toact in good faith; to be fair, diligent, andobjective in dealing with the parties andcounsel and in rendering their decisions,including procedural and interim decisions;and not to seek to advance their owninterests at the expense of the parties.Arbitrators should act without beinginfluenced by outside pressure, fear ofcriticism or self-interest.

New Paragraph 3 sets out circumstanceswhere a candidate for appointment mustrefuse to serve. These circumstances aresubstantially expanded beyond theAdditional Guidelines. Unlike other rulesthat highlight factors for the candidate toconsider, but are subject to the discretion ofthe candidate, these are mandatory rulesthat require the candidate to decline theappointment.

The six circumstances where a candidatemust refuse to serve are set forth in Canon I,Comments 3 a) – f):

a) where the candidate has a materialfinancial interest in a party that could besubstantially affected by the outcome ofthe proceedings;

b) where the candidate does not believe thathe or she can render a decision based on

the evidence and legal argumentspresented to all members of the panel;

c) where the candidate currently serves as alawyer for one of the parties (where thecandidate’s law firm, but not thecandidate, serves as lawyer for one of theparties the candidate may not serve as anarbitrator unless the candidate derives noincome from the firm’s representation ofthe party and there is an ethical wallestablished between the candidate andthe firm’s work for the party);

d) where the candidate is nominated for therole of umpire and is currently aconsultant or expert for one of the parties;

e) where the candidate is nominated for therole of umpire and the candidate wascontacted prior to nomination by a party,its counsel or the party’s appointedarbitrator with respect to the matter forwhich the candidate is nominated asumpire; or

f) where the candidate sits as an umpire inone matter and the candidate is solicitedto serve as a party-appointed arbitrator ina new matter by a party to the matterwhere the candidate sits as an umpire.

Paragraphs 3 a) and b) were the only twomandatory prohibitions included in theAdditional Guidelines on Whether to AcceptAppointment as Arbitrator or Umpire.Paragraphs 3 d) and f) were not mandatoryprohibitions under the Additional Guidelines.Rather, they were included in the list offactors of potential influence for a candidateto consider in deciding whether to accept anappointment. They are now mandatoryprohibitions under the new Code.Paragraphs 3 c) and e) were not addressed inthe Additional Guidelines, but were newlydeveloped by the EDC.

The Additional Guidelines also identified alist of factors and circumstances a candidateshould consider before accepting anappointment to determine if any of thefactors would likely affect his or herjudgment, and thus cause a candidate todecline the appointment. New Comments 4a) – k) of Canon I incorporate theseconsiderations into the new Code as follows:

4. Consistent with the arbitrator’s obligationto render a just decision, before acceptingan appointment as an arbitrator thecandidate should consider whether any ofthe following factors would likely affecttheir judgment and, if so, should decline

Though theseCanons set forth

considerations andbehavioral standardsonly for arbitrators,

it is expected thatthe parties and theircounsel will conform

their own behaviorto the Canons andwill avoid placing

arbitrators inpositions where theyare unable to sit or

are otherwise at riskof contravening

the Canons.

P A G E 2 8


the appointment:

a) whether the candidate has a financialinterest in a party;

b) whether the candidate currentlyserves in a non-neutral role on a panelinvolving a party and is now beingproposed for an umpire role in anarbitration involving that party;

c) whether the candidate previouslyserved as a consultant (which termincludes service on a mock or shadowpanel) or expert for one of the parties;

d) whether the candidate hasinvolvement in the contracts or claimsat issue such that the candidate couldreasonably be called as a fact witness;

e) whether the candidate has previouslyserved as a lawyer for either party;

f) whether the candidate has previouslyhad any significant professional,familial or personal relationships withany of the lawyers, fact witnesses orexpert witnesses involved such that itwould prompt a reasonable person todoubt whether the candidate couldrender a just decision;

g) whether a significant percentage ofthe candidate’s appointments as anarbitrator in the past five years havecome from a party involved in theproposed matter;

h) whether a significant percentage ofthe candidate’s appointments as anarbitrator in the past five years havecome from a law firm or third-partyadministrator or manager involved inthe proposed matter;

i) whether a significant percentage of thecandidate’s total revenue earned as anarbitrator, consultant or expert witnessin the past five years has come from aparty involved in the proposed matter;

j) whether a significant percentage of thecandidate’s total revenue earned as anarbitrator, consultant or expert witnessin the past five years has come from alaw firm or third-party administrator ormanager involved in the proposedmatter; and

k) whether one of the circumstances setforth in paragraph 3 above applies toan affiliate of a party not within thedefinition of “party,” or to an entityhaving the same third-party

administrator or manager as a party, inwhich event the arbitrator shouldpresumptively decline to serve unless itis clear that the other entity’srelationship to the party is sufficientlyattenuated that the policies underlyingparagraph 3 are not implicated.

Several of the changes to Paragraph 4 requireadditional discussion. First, while theexistence of a material financial interest in aparty, as described, requires a candidate todecline the appointment, the existence of anyfinancial interest remains a factor for acandidate to consider as to how it may affecthis or her objectivity under Paragraph 4 a).Second, Paragraph 4 c) clarifies for the firsttime that service as a consultant includeswork on a shadow panel. Third, Paragraph 4k) is entirely new. Even if acceptance of anappointment is not precluded underParagraph 3, Paragraph 4 k) provides that thecandidate consider “whether one of thecircumstances set forth in paragraph 3 aboveapplies to an affiliate of a party not withinthe definition of “party,” or to an entity havingthe same third-party administrator ormanager as a party, in which event thearbitrator should presumptively decline toserve unless it is clear that the other entity’srelationship to the party is sufficientlyattenuated that the conceptual ideas behindparagraph 3 are not implicated.” Here, thenew definition of “affiliate” in the Definitionssection of the Code should be consulted.

Comment 5 to Canon I is also new andprovides that parties, by agreement andwithout the knowledge, involvement orparticipation of the umpire or candidate forarbitrator, may waive the provisions of CanonI, Comments 3 c), d), e) or f) and 4 k).Comment 5 provides: “The parties to aproceeding in which an individual is sitting asan umpire or is being proposed as umpiremay, by agreement reached without theinvolvement, knowledge, or participation ofthe umpire or candidate, waive any of theprovisions of paragraphs 3 (c), (d), (e), or (f)above and 4 (k). The umpire or candidate shallbe informed of such agreement.”

Finally, new Comment 6 further incorporatesconcepts from the Additional Guidelinesregarding expert testimony:

Consistent with the arbitrator’sobligation to render a just decision,an arbitrator should considerwhether accepting an appointmentas a consultant or expert in a new

Several of thechanges toParagraph 4 requireadditionaldiscussion. First,while the existenceof a materialfinancial interest ina party, asdescribed, requiresa candidate todecline theappointment, theexistence of anyfinancial interestremains a factor fora candidate toconsider as to howit may affect his orher objectivity underParagraph 4 a).

2 9 P A G Ematter by a party to the arbitrationwhere the person sits as anarbitrator would likely affect his orher judgment in the matter wherehe or she sits as an arbitrator.

Canon II - FairnessThe amendments here essentially reflect thechanges necessary to incorporate theAdditional Guidelines for Party-AppointedArbitrators in the Context of the Pre-Appointment Interview.

New Comment 1 to Canon II is based on theAdditional Guidelines and reflects theadmonition that candidates should acquiresufficient information to determine that noconflicts exist before accepting anappointment:

Persons contacted to serve as anarbitrator should ascertain beforeaccepting an appointment theidentities of the parties, includingas appropriate and to the extentknown, present and formeraffiliates, predecessors andsuccessors; identities of counsel;identities of other arbitrators;identities of witnesses; generalfactual background; and theanticipated issues and positions ofthe parties.

Also based on the Additional Guidelines, anew first sentence is added to Comment 2(previously Comment 1): “Arbitrators shouldrefrain from offering any assurances, orpredictions, as to how they will decide thedispute and should refrain from stating adefinitive position on any particular issue.”The original Comment is further modified toadmonish arbitrators that all decisions, notjust final judgments, should be made onlyafter both sides have presented theirarguments and the panel has deliberated:“[arbitrators] should avoid reaching ajudgment on any issues, whether proceduralor substantive, until after both par ties havehad a full and fair opportunity to presenttheir respective positions and the panel hasfully deliberated on the issues.”

New Comment 3 is based on the AdditionalGuidelines and provides: “Party-appointedarbitrators should not offer a commitmentto dissent or to work for a compromise inthe event of a disagreement with themajority’s proposed award. Party-appointedarbitrators may advise the party appointingthem whether they are willing to render a

reasoned decision if requested.”

Comment 4 is old Comment 2.

Canon IV – DisclosureThe changes here incorporate concepts fromthe Additional Guidelines for ArbitratorDisclosures as well as the AdditionalGuidelines for Party-Appointed Arbitrators inthe Context of the Pre-AppointmentInterview, as well as new changes developedby the EDC.

Comment 1 to Canon IV expands on theconcept in the Additional Guidelines that thedisclosures also apply to the candidate’scompany (intending to include Lloyd’sSyndicates) if the candidate is a currentemployee and adds specific wordingformulated by the EDC to require, for anactive company arbitrator, disclosure ofinformation about the candidate’s employerthat others could reasonably believe wouldbe likely to affect the candidate’s judgment:

Such disclosures should include,where appropriate and known by acandidate, information related tothe candidate’s current employer’sdirect or indirect financial interest in the outcome of theproceedings or the currentemployer’s existing or past financial or business relationshipwith the parties that others couldreasonably believe would be likelyto affect the candidate’s judgment.

Comment 1, at the suggestion of the EDC,also makes clear that the effort to disclose allrelevant interests and relationships shouldbe a “diligent” one.

Comment 2 reinforces concepts, developed inthe Additional Guidelines, that the specificsof prior expert testimony, prior appointmentswith the parties or law firms, and pastinvolvements with the specific contracts orclaims at issue must be disclosed:

2. A candidate for appointment as arbitratorshall also disclose:

a) relevant positions taken in publishedworks or in expert testimony;

b) the extent of previous appointmentsas an arbitrator by either party, eitherparty’s law firm or either party’s third-party administrator or manager; and

c) any past or present involvement withthe contracts or claims at issue.


The originalComment is further

modified toadmonish

arbitrators that alldecisions, not just

final judgments,should be made only

after both sideshave presented theirarguments and the

panel hasdeliberated:

“[arbitrators] shouldavoid reaching ajudgment on anyissues, whetherprocedural or

substantive, untilafter both par ties

have had a full andfair opportunity to

present theirrespective positionsand the panel has

fully deliberated onthe issues.”

P A G E 3 0It should be noted that Comment 2 b)includes TPAs, reflecting the proliferation andinvolvement of TPAs in arbitrations today.This emphasis was identified and added bythe EDC.

Comments 3 and 4 incorporate conceptsfrom the Additional Guidelines for ArbitratorDisclosures:

3. No later than when arbitrators first meetor communicate with both parties,arbitrators should disclose theinformation in paragraphs 1 and 2 aboveto the entire panel and all parties. Whenconfronted with a conflict between theduty to disclose and the obligation topreserve confidentiality, an arbitratorshould attempt to reconcile the twoobjectives by providing the substance ofthe information requested withoutidentifying details, if that can be done in amanner that does not breachconfidentiality and is not misleading. Anarbitrator who decides that it is necessaryand appropriate to withhold certaininformation should notify the parties ofthe fact and the reason that informationhas been withheld.

4. It is conceivable that the conflict betweenthe duty to disclose and some otherobligation, such as a commitment to keepcertain information confidential, may beirreconcilable. When an arbitrator isunable to meet the ethical obligations ofdisclosure because of other conflictingobligations, the arbitrator shouldwithdraw from participating in thearbitration, or, alternatively, obtain theinformed consent of both parties beforeaccepting the assignment.

Comment 5 to Canon IV expands on originalComment 2 addressing arbitratorwithdrawal from a panel and addsadditional wording newly developed by theEDC to caution against voluntarywithdrawal absent good reason:

After the Panel has been acceptedby the parties, an arbitrator shouldrecognize the consequences to theparties and the process of adecision to withdraw and shouldnot withdraw at his or her owninstigation absent good reason,such as serious personal or familyhealth issues. In the event that anarbitrator is requested by all partiesto withdraw, the arbitrator must doso. In the event that an arbitrator is

requested to with draw by less thanall of the parties, the arbitratorshould withdraw only when one ormore of the following circumstancesexist.

a) when procedures agreed upon by theparties for resolving chal lenges toarbitrators have been followed andrequire withdrawal;

b) if the arbitrator, after carefullyconsidering the matter,- determinesthat the reason for the challenge issubstantial and would inhibit thearbitrator’s ability to act and decidethe case fairly; or

c) if required by the contract or law.

Comment 6 expands on original Comment 3to Canon IV recognizing the continuingobligation to update disclosures. The mainaddition is that the arbitrator should add astatement to explain why a new disclosurewas not made earlier.

Canon V – Communication with thePartiesChanges here generally involve incorporationof the Additional Guidelines for Party-Appointed Arbitrators in the Context of thePre-Appointment Interview and AdditionalGuidelines on Ex Parte Communications.

Comment 1 is unchanged.

Old Comment 2 is split into new Comments2 and 3. A new sentence is added to newComment 3: “A party-appointed arbitratorshould not review any documents that theparty appointing him or her is not willing toproduce to the opposition.”

New Comment 4 (old Comment 3) adds theunderlined clarifying language: “Except asprovided above, party-appointed arbitratorsmay only commu nicate with a partyconcerning the dispute provided all partiesagree to such communications or the Panelapproves such communications, and thenonly to the extent and for the time peri odthat is specifically agreed upon or ordered.”

Comment 5 is old Comment 4 and isunchanged.

Expanding on The Additional Guidelines, newComment 6 reads:

Where communications arepermitted, a party-appointedarbitrator may (a) make suggestionsto the party that appointed him or


New Comment 4 (oldComment 3) addsthe underlined clari-fying language:“Except as providedabove, party-appointed arbitra-tors may onlycommu nicate with aparty concerning thedispute provided allparties agree tosuch communica-tions or the Panelapproves such com-munications, andthen only to theextent and for thetime peri od that isspecifically agreedupon or ordered.”

3 1 P A G Eher with respect to the usefulnessof expert evidence or issues he orshe feels are not being clearlypresented; (b) make suggestionsabout what arguments or aspectsof argument in the case toemphasize or abandon; and (c)provide his or her impressions as tohow an issue might be viewed bythe Panel, but may not disclose thecontent or substance ofcommunications or deliberationsamong the Panel members. Anarbitrator should not edit briefs,interview or prepare witnesses, orpreview demonstrative evidence tobe used at the hearing.

Comments 7 and 8 (previously Comments 5and 6) are changed for consistency to reflectnew definitional references but aresubstantively unchanged.

Canon VI – ConfidentialityThe changes here are in Comment 3 onlyand are mostly stylistic, except to create anexception for an arbitrator dissent asunderlined:

Arbitrators shall not inform anyoneof an arbi tration decision, whetherinterim or final, in advance of thetime it is given to all parties, orassist a party in post-arbitralproceedings, except as is requiredby law. Except as may be necessaryin order to dissent from a majoritydecision, an arbitrator shall not (a)inform anyone concerning thecontents of the deliberations of thearbitrators or (b) disclose written orelectronic communications amongthe arbitrators.

However, following member comments atthe Fall Conference, this underlined changehas been removed and will not take effect inJanuary while its potential implications arestudied further. The Code of Conduct,effective January 1, 2014, on the ARIAS•U.S.website does not contain the underlinedlanguage, leaving the second sentence ofthis section with the mandatoryprohibitions set forth in (a) and (b).

Canon VIII – Just DecisionsThe sole change here is the addition of anew sentence to Comment clarifying thatan arbitrator may use a clerk or assistant toreview the record in the first instance. Thefull text of Comment 3 (with the new

sentence underlined) reads as follows:Arbitrators should not delegate theduty to decide to any other person.Arbitrators may, however, use a clerkor assistant to perform legalresearch or to assist in reviewing therecord.

Next StepsThe new changes take effect January 1, 2014,and have prospective effect for conducttaking place after that date. It is notintended that an existing Panel constitutedin a manner that would not be permittedunder the Code be disbanded, but the Codeprovisions dealing with the conduct ofarbitrations will affect existing Panels. TheEDC will consider suggestions for furtherchanges to be made in the future. Membersasked several questions and made severalcomments at the Fall Conference. Thesehave been noted for consideration by theEDC as it continues its work. As previouslynoted, one comment did cause the EDC andBoard to take immediate action. UnderCanon VI, an exception to the confidentialityof panel deliberations was created inComment 3 to allow an arbitrator to disclosesuch deliberations as may be necessary tosupport a dissent. Having considered theconcern that this exception could have achilling effect on panel deliberations andcreate potential unintended exceptions tothe sanctity of panel confidentiality, the EDChas agreed to table this change to the Codewhile it considers the issue further. The EDCalso plans to take up the issue of changes tothe Ethics Course in light of the Codechanges and development of a form forsignature by arbitrators confirmingknowledge of and intent to be bound by theCode changes as well as any latermodifications as may be adopted.


The new changestake effect January

1, 2014, and haveprospective effectfor conduct taking

place after thatdate. It is not

intended that anexisting Panel con-

stituted in a mannerthat would not be

permitted under theCode be disbanded,but the Code provi-

sions dealing withthe conduct of arbi-

trations will affectexisting Panels. The

EDC will considersuggestions for fur-ther changes to bemade in the future.

P A G E 3 2


Nearly 400Turn Out forJeweler’s EyeExaminations

3 3 P A G E


In spite of the first day of the 2014Fall Conference falling on Halloween,392 ARIAS•U.S. members arrived at

the New York Hilton Midtown to learnwhat a “fine-lens examination” was.Before Hurricane Sandy cancelled lastyear’s event, there were 401 registered.Considering that there were manyreports of members passing up theevent for “trick or treating,” the turnoutwas excellent. Next year, the conferencewill be well away from such distractionson November 13 and 14.

The conference took place on Thursdayand Friday, October 31 and November 1.Entitled “Through a Jeweler’s Eye: Fine-lens examinations of emerging,critically important procedural, ethical,and substantive issues facingarbitrators and arbitration,” theconference was billed as primarilyfeaturing a probing review of analternative neutral arbitration processwith proposed criteria for service byarbitrators and umpires. And it wasfeatured! Three of the sessions werededicated to the neutral process, withan opening morning explanation of thenew proposal, an afternoon breakout ofseparate groups of arbitrators, companyrepresentatives, and attorneys, and aFriday morning report on how thedifferent groups reacted to the concept.

Before any of that began, attendeesreceived an update on the efforts beingmade by U.S. regulators who areworking to achieve greater globalstability in financial fields, especiallyinsurance. Connecticut InsuranceCommissioner Thomas B. Leonardi isalso chair of the National Association ofInsurance Commissioners InternationalCommittee. In his several roles, he hasbeen deeply involved, among otherinitiatives, in efforts to establishcomprehensive reporting procedures,both inside the U.S. and outside, thatcan give early warnings aboutpotentially “too-big-to-fail” companiesthat are increasing their risk levels. Atranscript of his address follows thisreport.

In the opening session on thealternative neutral arbitration process,members of the Arbitration Task Force,Jeffrey M. Rubin, Scott Birrell, David M.Raim, and Peter J. H. Rogan laid out in

ALTERNATIVE NEUTRAL ARBITRATION PROCESS

Jeffrey M. Rubin Scott Birrell

David M. Raim Peter J. H. Rogan

P A G E 3 4


KEYNOTE ADDRESS

Mary Kay Vyskocil introduces keynote speaker. Commissioner Thomas B. Leonardi

Pierre CharlesModerator Debra J. Roberts Nasri Barakat

INTERNATIONAL ARBITRATION ISSUES

Eridania PerezDetlef A. Huber

great detail the criteria that panelistswould be required to meet to be eligiblefor an appointment under the neutralprocess. The criteria were different forarbitrators and for umpires, but in bothcases, their past involvements withparties, law firms, and other arbitratorsare closely defined as to number ofoccasions and time periods involved.The Friday morning results from thebreakouts revealed widely-sharedopinions among the groups that thecriteria were too restrictive, especiallyfor party appointed arbitrators.

Also on the opening morning, theInternational Committee provided a

3 5 P A G E


ALTERNATIVE NEUTRAL ARBITRATION PROCESS BREAKOUTS

comprehensive update on developmentsthroughout the global reinsurancemarkets, with specific emphasis onreinsurance business and disputeresolution in Europe, Asia, Latin America,and the Middle East. Debra Robertsmoderated the discussion by committeemembers Nasri Barakat, Pierre Charles,Detlef A. Huber, and Eridania Perez.

Thursday afternoon brought a heavyschedule of smaller group discussions.After lunch, the neutral process

breakouts lasted 65 minutes; then in fiveminutes, attendees had to get to thefirst workshop session, which meantsome quick stepping if that room wason the other side of the second floor(especially for those who had to sign inand out of each session for CLE credit).Later, the transit between the twoworkshop sessions was easier, since therefreshment break came in between.

Reactions to the six workshops was verypositive. A varied offering with much

substantive discussion ranged acrossthese topics: Res Judicata / CollateralEstoppel, Legislative and RegulatoryDevelopments, Life (Re)insurance Issues,Arbitrator Authority, and two sessionswith Experienced Arbitrators who gavetheir ideas for enhancing and improvingthe arbitration process.

Closing out the day, at the 2013 AnnualMembership Meeting, outgoingChairman Mary Kay Vyskocil explainedthe new nominating process and, as

Alexandra D. Furth

Thomas L. Forsyth

Elizabeth M. Thompson

Andrew P. Maneval

Lawrence S. Greengrass

Michael A. Knoerzer

Breakout attendees were divided into two roomseach of arbitrators, attorneys, and company represen-

tatives, each with a leader to focus the discussion

P A G E 3 6


WORKSHOPSAttendees were assigned to thetwo workshops that they hadchosen in advance.

Res Judicata / Collateral Estoppel– Benjamin L. Hincks, Mark G.Sheridan, Mary Ann D’Amato

Chairman of the Nominating Committee, announced thenominees. Members then elected one new Boardmember, Deirdre G. Johnson, and re-elected one, Eric S.Kobrick. Ms. Vyskocil also informed the meeting that themanagement services contract with CINN was set toexpire in 2014 and that ARIAS•U.S. was opening theaccount up for competitive bids. The ARIAS•U.S. financialresults for the last fiscal year (ended June 30, 2013) werepresented by Treasurer Peter Gentile. He pointed out thatthe cancellation of the Fall Conference had seriouslyimpacted last year’s results. For the year, there was a netloss of $1,970, instead of a budgeted net contribution tothe reserve of $132,000. The slides from this presentationare available in the Members Area of the website,accessed through the Membership menu.

Friday morning brought a myriad of new ideas toattendees. Not only did the six Alternative NeutralProcess discussion leaders report back, but also twocompletely new elements of ARIAS•U.S. were presented.From the early days of the Society, the ARIAS•U.S.

Experienced Arbitrators I – Jonathan Rosen, DianeM. Nergaard, Lawrence O. Monin

Experienced Arbitrators II – Thomas M. Tobin, Mary EllenBurns, Paul E. Dassenko

Legislative & Regulatory Developments – Daniel B. Schelp,Robert A. Whitney, Stephen Schwab

3 7 P A G E


WORKSHOPS

Life (Re)insurance Issues – Thomas M. Zurek, Denis W.Loring, Thomas D. Cunningham

ANNUAL MEETING

Arbitrator Authority – Jonathan Sacher, John T. Andrews,Robert Sweeney

Eric Kobrick called the meeting to order. Mary Kay Vyskocil summarized a productive yearas Chairman.

A grateful membership applauded her efforts. Treasurer Peter Gentile revealed the impact of HurricaneSandy.

P A G E 3 8


Alexandra D. Furth, Thomas L. Forsyth, Andrew P. Maneval, Elizabeth M. Thompson, Lawrence S.Greengrass, Michael A. Knoerzer, Moderator Cynthia Koehler

Guidelines for Arbitrator Conductdocument has provided the essentialframework for ethical behavior ofarbitrators. However, the EthicsDiscussion Committee has beenworking with the Board to bring ethicsto a new level. The new ARIAS•U.S. Codeof Conduct presents a stricter set ofparameters that address issues peoplein the industry have complained aboutas well as others that just make sensetoday. The website now provides thedetails. They were explained during thesession by the panel of CommitteeChairman Eric S. Kobrick and membersJames I. Rubin, Larry P. Schiffer, andDaniel E. Schmidt, IV.

Also, a subcommittee of the ArbitrationTask Force has worked for well over ayear to discuss, draft, consult with theBoard, and re-draft new ARIAS•U.S. Rules

for Resolution of Insurance andReinsurance Disputes. These rules areoffered to the industry to use to theextent that parties choose to use them.They are more prescriptive than TheARIAS•U.S. Practical Guide to ReinsuranceArbitration. That guide offers a moreflexible alternative approach that somemay prefer. They are both available onthe website. Either the Rules or theGuide may be specified in a contract orat the initiation of arbitration.

Other Task Force initiatives were alsopresented in this Friday morning session,namely, an alternative procedure forresolution of “small arbitration” disputes,a private right of appeal, and an industryreferral process. Moderated by task forceCo-Chair Daniel L. FitzMaurice, the panelconsisted of ATF members Glenn A.Frankel, Michael A. Frantz, Aluyah

Imoisili, and Beth Levene.

In his closing comments of theconference, new Chairman Jeffrey Rubinpresented a meritorious service award, acrystal trophy, to retiring Chairman MaryKay Vyskocil. The award was inrecognition of her outstandingleadership, support, and guidance as amember of the Board of Directors,President, and Chairman of the Society.

The clothing drive for disadvantaged jobseekers was continued this year.Volunteers from Mound Cotton Wollanand Greengrass staffed the collectionstation on Thursday morning. Asignificant number of contributionswere made by attendees. Five largeboxes of clothing were sent to Dress forSuccess (women) and CareerGear(men).▼

REPORT FROM NEUTRAL PROCESS BREAKOUTS

3 9 P A G E


RECEPTION

David Thirkill, Olga Thirkill, MaxChester, Yelena Chester

Jim Schacht, Jim Corcoran, John Cashin

Wesley Sherman, Alison Shilling, Linsey Routledge,Peter Cridland

Steve Acunto, Bill Yankus, Peter Gentile

Tom Wamser, Cliff Hendler, RyanRussell

Larry Greengrass, Dennis Loring,Peter Scarpato

P A G E 4 0

By Thomas B. Leonardi

Connecticut Insurance CommissionerThomas Leonardi gave the keynote addressat the opening of the 2013 Fall Conferenceon Thursday morning October 31.Commissioner Leonardi’s agency hasjurisdiction over the largest life insuranceindustry in the United States and the secondlargest overall insurance industry in totalwritten premium. His address focused onthe changing regulatory structure of theindustry in the U.S. and around the World. Atranscript is included here with hispermission.

Transcript Thank you, Mary Kay, for that very kindintroduction and thanks also to all of yourcolleagues at ARIAS for inviting me to behere with you this morning. Many of you areprobably not aware that I was actually amember of ARIAS for several years andattended a number of events andeducational sessions. So I am very familiarwith just how fantastic this organization is.You have been and continue to be leaders inthe alternative dispute resolution arena on aglobal basis, and I am proud to have been apart of such a fine organization.

I must confess though, that I would havebeen astounded if you told me as recentlythree years ago that I would be here beforeyou this morning, returning to thisorganization and giving a keynote address,speaking as a worldwide expert on theissues of global insurance regulation. Butwhile very unexpected, I can assure you thatI am delighted that I am here. And I have tothank you all for my current position asInsurance Commissioner. You’re probablythinking, what is he talking about? Well, yousee, my success rate of being selected as anARIAS arbitrator was less than stellar. I wasonly selected one time…and by the time theappointment notice letter reached me, thecase had already been settled! So if I had

been wildly successful doing arbitrations inmy retirement, I would probably never havegiven a moment’s thought to becoming anInsurance Commissioner! But it really is agreat thrill to be back amongst all of you,some of whom I have known for a long time.

I have been asked to speak for about 30minutes, and the number of topics that Icould choose to speak about is nearlyunlimited. PBR, TRIA, NFIP, Reinsurancecollateral, the role of FIO, Solvency 2 andEquivalence, and on and on. But since I amthe chair of the NAIC’s Internationalcommittee, and due to the fact that there isso much going on in the world ofinternational insurance regulation, I thoughtwhat I would do is focus my remarks on thevery recent developments that are ongoingin the international arena.

Before I get started however, I thought Iwould share with you a little bit about who Iam and how I got here to provide somecontext to my comments.

I am now in my third year as InsuranceCommissioner for the state of Connecticut.The likelihood that I would be chosencertainly appeared to have long odds. I hadnever met the Governor; never contributed toany of his campaigns, and althoughConnecticut is very much a Blue state,Governor Malloy was the first Democratelected governor in 24 years, while I havebeen a registered independent for nearlythree decades; and if that wasn’t enough tocreate very long odds…I was no longer aConnecticut resident, having retired to ourvacation home on the shores of LL in theAdirondack Wilderness of Upstate NY almostsix years earlier. Yet in spite of all of that,after a two-hour meeting with his chief ofstaff, followed three days later by a two-hourmeeting with the Governor himself, heoffered the job to me on the spot, and Iimmediately accepted.

Many of my family and friends, including my25-year-old daughter, asked somewhatincredulously: Why in the world would youcome out of retirement and leave the perfect


feature

Thomas B.Leonardi

Fall Conference Keynote Address

Although insurancecompanies andconsumers faredreasonably well, thefinancial crisis leadto a recognition thatwe as regulatorsneed to do a betterjob in how wecollaborate,cooperate, andcoordinate ourefforts in thesupervision of IAIand RGs.

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lifestyle behind to go work for thegovernment? In fact, it was one ofGovernor Malloy’s first questions to meas well. Sure, living in the wilderness,traveling at will and having my timeand schedule entirely my own all hadtheir benefits. But the need for a newand exciting challenge had anirresistible allure. Plus, in my 30 years inthis industry, I couldn’t think of a timewhen the regulatory environment hasever been this fluid and dynamic.

The backdrop of course was that wehad just barely made it through theharrowing experience of the meltdownof the financial services industry andthe biggest economic dislocation in ourlifetimes. In addition, Congress passed,and the President signed into law,perhaps the two most ambitious piecesof federal legislation since the 1960s.Both PPACA and Dodd-Frank have had,and will continue to have, a significantimpact on the insurance industry andthose tasked with insurance industryregulation. And if that wasn’tcompelling enough, add in the fact thatthe Insurance Commissioner inConnecticut regulates the secondlargest insurance industry of any statein the nation...one that if it were astandalone country, would putConnecticut as the 8th largestinsurance producer in the world. Thiswas far too compelling for me not towant to do it.

Our industry, as you all well know, hasbecome increasingly global andinterconnected

This trend towards globalization isaccelerating. And will affect not onlythose companies with significantinternational presence, but ultimatelyall companies. They will impact thecost of capital, product offerings,market vibrancy, solvency, liquidity,have an impact on a groups’ worldwideemployees, on the economies of thejurisdictions in which those groupsoperate, and most importantly, onconsumers everywhere.

Although insurance companies andconsumers fared reasonably well, thefinancial crisis lead to a recognition thatwe as regulators need to do a better jobin how we collaborate, cooperate, andcoordinate our efforts in the

supervision of IAI and RGs. All theregulations in the world mean nothingif you don’t have effective enforcementand adequate supervision. As a U.S.regulator, I need to be able to lookacross a wide landscape - beyond ourborders - to understand the risks in agroup that affect our domesticcompanies, wherever those risks mayoriginate and to make sure there are nogaps in supervision. During the crisis,AIG became the poster child for theserisks…that a small Financial productsgroup operating out of an office inLondon, not regulated by any insuranceregulator in the U.S. or the U.K., couldwrite a large number of credit defaultswaps that when they went bad, notonly took down the largest insurancecompany the world has ever known, butthreatened to take down the entireworld economy with it is almostinconceivable! But it did happen....andwe…regulators and industry…can’t letsomething like that happen again.

As a result of the financial crisis, thereare a number of initiatives ongoingthroughout the world that are criticallyimportant to our insurance andreinsurance companies. These issuestake up about 75% of my working hoursmeeting with policymakers andregulators, discussing openly andcandidly our goals, objectives,similarities and differences, in anattempt to reach a common ground ofunderstanding that will ultimatelybenefit all of our companies andconsumers. These include discussionsabout international accountingstandards, market consistent valuation,Solvency II and Equivalence, ComFrame,Global Capital Standards, the use ofSupervisory Colleges, and the role of thelead supervisor. But I want to focus theremainder of my remarks here thismorning on what I believe is the mostimportant driver of the rapid regulatorychanges we are seeing today, both hereand abroad, and that is FinancialStability.

Systemic Risk – G-SIFI ProcessOver the past three years-there hasbeen an enormous amount of effortexpended on what we call the G-SIFIprocess, G-SIFI meaning globally

systemically important financialinstitution. As a result of the financialcrisis, the G20 countries asked theFinancial Stability Board, (the FSB) toembark on a project to identifycompanies whose failure would presenta substantial risk to the world economy.It tasked the Basel Committee onBanking Supervision to do this work onBanks and the International Associationof Insurance Supervisors (IAIS) to assessinsurers. There have been multiple datacalls, confidentiality agreements, publicconsultations and enormous amount oftechnical analysis. The processconsisted of a two pronged approach.The first was to determine amethodology, i.e. what questions to ask,what data to collect and what metrics toapply when evaluating the systemic riskposed by an institution, and the secondwas to determine the measures that acompany designated as a G-SIFI will besubject to. Regarding the former, theIAIS’s Financial Stability Committee (FSC)arrived at five key attributes with varyingweights of importance that include:Size, Global Reach, Substitutability,Interconnectedness, and Non-TraditionalNon-Insurance (NTNI)…these last twohaving the most significance andhighest weighting. I am convinced thatthe results of the FSC’s efforts toevaluate and rank the 49 companies onthe original list resulted in an excellentwork product. Unfortunately, the IAISwas not afforded the time to completewhat I believe is a critical part of theprocess, and that is the ComparabilityStudy. The comparability study wouldhave looked at the most risky insurer onthe list and compared it to the 29th orleast systemic bank SIFI. If the mostrisky insurer would have been #31 on thelist of 29 G-SIBs, then a fair conclusionwould be that none of the insurers issystemic. Without completing thatcomparability study however, the FSB’sdecision to designate any insurers asSIFIs is like throwing darts on adartboard…let’s see what number welanded on and that will be the numberof companies we designate as SIFIs.

The Second prong of this approach wasto determine what measures to apply tocompanies designated. These include 1)Greater Prudential oversight; 2) a resolu-tion plan – or what is commonly referredto as a living will; and 3) additional capi-

P A G E 4 2tal requirements, what we are referring to asHLA or higher loss absorbency. It does notinclude, however, a requirement that compa-nies work to eliminate those activities thatmake them systemic. And that gives megreat concern as well, because I thought themost important lesson learned from theFinancial Crisis is that we cannot afford toallow TBTF companies to exist. Anothercause for concern is that designating somecompanies as SIFIs is likely to create an un-level playing field between those companiesthat are deemed SIFIs and those that are not.Let me explain what I mean here. If you are acustomer, particularly of a life insurancecompany, and you see that a company hasbeen deemed systemic, you might very wellconclude that you want to do business withthat company because 1) enhanced pruden-tial regulation:, even if the customer is notsure what that means, they know thatenhanced is better than not enhanced; 2)more capital is better than less, so that’s agood thing; and 3) systemic means that it isToo Big To Fail (TBTF), which means there isan implied government guarantee as we wit-nessed in 2008/2009, so that is really goodalso. All of this suggests a competitive bene-fit to the SIFI. On the other hand, a strongargument can be made that it is a negativeto the SIFI, since higher costs of regulationand capital charges, if passed along to thecustomer, may make the company non-com-petitive. If however, it decides to eat the cost,its ROE will decline which will then make itless attractive to investors and increase itscapital cost or require the company to exitcertain lines of business to remain competi-tive. No one can say for sure which of thesewill happen, but in many ways that is the keypoint…that there are unintended conse-quences. What we do as regulators and poli-cy makers has a real world impact…and aswith physicians, our primary goal should be:Do no Harm!

Now let me say that I have had the privilegeof being the sole US regulator on theFinancial Stability Committee for the pastthree years, and so no one appreciates morethan I the amount of hard work andintelligence that has been devoted to thisimportant issue by so many individuals fromso many jurisdictions. It has been andcontinues to be one of the highest priorityobjectives for the IAIS. Having said that, letme share a few words of caution as wemove forward with the process and thepolicy measures.


A. Policyholders vs. Counterparties

The primary mission of the ConnecticutInsurance Department and virtually everyother state insurance department is toprotect Policyholders…not shareholders, notbondholders and not counterparties. Thisdoesn’t mean we don’t care about theseother constituents. But our focus onPolicyholder protection demands that weexercise great caution not to sacrifice this, ourprimary mission.

As a result, we need to insure that funds thatare set aside as payments to Policyholders forobligations and liabilities decades in thefuture, are not sacrificed to absorb the lossesincurred by the counterparties of TBTFcompanies. Our goal should be to identify,reduce, and, where possible, eliminatesystemic risk, not institutionalize it bycreating TBTF companies.

And as we consider the various policy optionsnecessary for the accomplishment of ourfinancial stability goals, we need to rely onthe supervisor’s expertise and knowledge ofthe group’s activities, the regulatory playingfield in which they operate, and then try tofind the appropriate measures that presentthe least harmful option to Policyholders.

Any failure to be thoughtful in our approachmight end up not only reducing our currentPolicyholder protections, but could actuallycreate unintended consequences that mightlead to “ runs on the bank” that have notpreviously existed in our industry, ordestabilize insurance markets, or createproduct unavailability and ultimately, weakenfinancial stability. That would be mostunfortunate.

B. We also need to be mindful of thesignificant improvements in prudentialregulation as a key factor in reducingsystemic risk…or to say in another way, it’snot all about capital.

We need to continue to focus on lessonslearned in the aftermath of the financial crisisto help prevent another. It’s not justHLA...capital is important but is not the silverbullet. Let’s go back to my earlier commentsregarding AIG. If there had been a 3% capitalsurcharge applied to AIG in early 2008, itwould have done nothing to prevent theliquidity crisis and eventual failure of thecompany. But enhanced and effectiveprudential regulation might very well havedone so.

The primary missionof the ConnecticutInsuranceDepartment andvirtually every otherstate insurancedepartment is toprotectPolicyholders…notshareholders, notbondholders and notcounterparties. Thisdoesn’t mean wedon’t care aboutthese otherconstituents. Butour focus onPolicyholderprotection demandsthat we exercisegreat caution not tosacrifice this, ourprimary mission.

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In the US, we have discussed theSolvency Modernization Initiative, orSMI, on many occasions over the pastseveral years. Often we have used long,complicated PowerPoint presentationsthat are very comprehensive but oftenleave the audience wondering whatreally is SMI and why is it important. Sohere is the 60 second version…the keycomponents of SMI as it relates tosystemic risk:

1. Revisions to the Model HoldingCompany Act (MHCA)

These revisions are among the mostimportant aspects of the SMI. Theyprovide the lead regulator with thefollowing new tools:

a. Access to information about theentire enterprise-not just insurance,or NTNI or other financialactivities...but all of the group’soperations no matter where they arelocated. So if an insurance holdingcompany domiciled in Connecticutowns a railroad in South Africa and amining company in Taiwan, I have theability to demand information onthose operations, even though theyare outside the U.S. and not insuranceactivities.

b. Equally important is that theinformation we receive from theholding company is protected asconfidential, just as state law protectsinformation obtained under theinsurance entity financial examstatutes;

c. You may ask “what does a financialregulator know about chemicalcompanies or railroads”? The answeris “not very much!” But the MHCAprovides the regulator with the abilityto hire outside experts to assist thedepartment in assessing risks in areaswe are not expert in, and to do so atthe insurance holding company’sexpense;

d. It also allows the lead US regulator toexamine all intragroup transactions.And we already have the ability tolimit the sums that can be dividendedup from the legal entities to theholding company; and

e. It codifies the use of SupervisoryColleges, including confidentialinformation sharing with other group

regulators and expensereimbursement.

These are all substantial improvementsthat enable us to conduct meaningfulgroup wide supervision that is equal toand possibly greater than that of mostother jurisdictions in the world.

2. Enterprise Risk Reports (ERR). Inaddition, the ERR requires a group tofile its assessment of its overallenterprise risk. Again, not just itsinsurance or financial businesses, butrisks for the entire enterprise at theGroup level.

3. Own Risk Solvency Assessment (ORSA)requirement and the ability to conductstress testing under various scenarios;and finally,

4, Enhanced Corporate Governancepractices at the holding company andboard level.

Unlike the capital surcharge, all of thesesignificant measures, had they been inplace in 2006 and 2007, may very wellhave enabled supervisors to prevent theAIG debacle from having occurred. Letme give you a specific example of why Isay this:

In addition to the Financial ProductsGroup (AIGFP), another area thatcontributed to the demise of AIG,though in a much more modest way,were the securities lending programs ofthe AIG insurance subsidiaries. Thesewere approved by the variousdomiciliary state insurance regulators.At the time of approval however, theseprograms were conservative; reinvestingthe cash collateral in short-term U.S.Treasury securities.

The Bottom line: there was no maturi-ty mismatch. At some point in time pri-or to 2007, AIG changed the nature ofits securities lending program, reinvest-ing the cash collateral in mortgage-backed securities with long maturitydates, thereby creating maturity mis-matches. While AIG was obligated toinform its home state regulator of thischange, it failed to do so. Instead, Texasregulators were doing an onsite exam-ine of one of their AIG domestics, anddiscovered this change in 2007. Thiscritical info was shared with other stateregulators with jurisdiction over otherlegal entities in the group, and the reg-

ulators, acting in concert, immediatelydirected the company to begin windingdown this “new” program and returningto the original program. The state regu-lators also communicated this informa-tion to other involved regulators duringan AIG supervisors’ meeting (a precur-sor to today’s supervisory colleges) heldby the Office of Thrift Supervision, anow defunct federal regulator thatserved as AIG’s group wide supervisorat the time.

As a result of the collective action bystate insurance regulators, prior to thecrisis in 2008, the securities lendingprogram had already been significantlyreduced. Unfortunately the crisisprevented further winding down of theprogram as a result of the blow up inthe AIGFP division, which, as I saidearlier, was not regulated by aninsurance regulator in the US or in theUK where the AIGFP division waslocated.

As a lesson learned from this situation,the state regulators, acting through theNational Association of Insurance Com-missioners, our standard setting organi-zation, instituted new reporting require-ments for securities lending activities sothat now we can easily identify anymaturity mismatch or other concernswith these programs and not have torely upon the company to inform us ofany changes. These are concrete exam-ples of the lessons learned and impor-tant steps taken to prevent systemic riskthat do not rely on capital surcharges.

Fighting the last warAnd finally, we need to be mindful thatas supervisors we have to be vigilant inthe early identification of new trendsand new risks that may affect financialstability in the future. Climate changeand the prolonged low interest rateenvironment are two recent examples.There are undoubtedly many otherpotential challenges lurking out there.Shame on us if, while spending so muchtime closing the barn door after thehorses are all out, we don’t see that afire is about to burn down the wholebarn.▼

Thank You.

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feature Jeffrey Rubin and Eric KobrickChosen as ARIAS•U.S. Chairmanand President for 2014Elizabeth Mullins Elected Vice President (President Elect)James Rubin Is Vice PresidentDeirdre Johnson Is New Board Member

Jeffrey M. Rubin, Senior Vice President,Director Global Claims of OdysseyReinsurance Company, was electedChairman of ARIAS•U.S. at its 2013Annual Conference in New York City. Hesucceeds Mary Kay Vyskocil, a Partner atSimpson Thacher & Bartlett LLP, whohas retired from the Board. Eric S.Kobrick, Vice President, Deputy GeneralCounsel, and Chief Reinsurance LegalOfficer at American International Group,Inc., was elected President succeedingMr. Rubin.

Also at the conference, Elizabeth A.Mullins, Managing Director and head ofGlobal Dispute Resolution & Litigationat Swiss Re America HoldingCorporation, was elected Vice Presidentand designated as President Elect.James I. Rubin, head of the reinsurancelitigation and arbitration practice atButler Rubin Saltarelli & Boyd LLP, waselected Vice President.

In addition, ARIAS•U.S. members re-elected one Board member and electedone new member. Eric S. Kobrick was re-elected to a second term. Deirdre G.Johnson, a partner in the Washington,DC office of Crowell & Moring LLP, waselected to a first term. Ms. Johnsonreplaced Ms. Vyskocil as a law firmrepresentative.

As Senior Vice President, Director GlobalClaims of Odyssey ReinsuranceCompany, the new ARIAS•U.S.Chairman, Jeffrey Rubin, is responsiblefor oversight of group-wide claims. Heis a graduate of Cornell University LawSchool and State University of New York,Oneonta College.

At ARIAS•U.S., Mr. Rubin serves as Co-Chair of the Arbitration Task Force, Chair

of the Executive Committee, and Chairof the Finance Committee.

As Vice President, Deputy GeneralCounsel, and Chief Reinsurance LegalOfficer at American International Group,Inc., Mr. Kobrick oversees reinsurancedispute resolution, as well as reinsurancecontract wording and regulatory andtransactional issues. He received a B.A.in Government from Cornell Universityand a J.D. from Columbia Law School.Prior to joining AIG, he was associatedwith the law firm of Simpson Thacher &Bartlett LLP.

Mr. Kobrick is an ARIAS•U.S. CertifiedArbitrator, had served on the ARIAS•U.S.Long Range Planning Committee, andserves as Chairman of the ARIAS•U.S.Ethics Discussion Committee and amember of the Finance Committee.▼

Jeff Rubin

Eric Kobrick

Elizabeth Mullins

Jim Rubin

Deirdre Johnson

In 2014, The Education Committee will present four live webinars that willtake place in March, June, September, and December.

These events, taken on your computer, will last for approximately 75 minutes. Members will have the option of taking any three

offered in 2014. Registration and attendance at each webinar will provide1/3 of a seminar credit point toward certification or renewal.

Details (subjects, dates, and costs) will be announced in January.

Watch your email and the website Current Newsfor the announcement!

4 5 P A G E


John M. ParkerJohn Parker is recently retired fromRiverStone US where he served as SeniorVice President and Reinsurance Counsel.During his 19 years at RiverStone, Mr. Parkermanaged well over one hundred reinsurancearbitrations and litigations in addition to hisoperational responsibilities for assumed andceded reinsurance. Prior to his role inReinsurance, he served as General Counselfor the insurance companies owned byRiverStone US. In this role, in addition to hisreinsurance dispute responsibilities, he wasresponsible for acquisition due diligence, asubstantial restructuring, and complianceinitiatives.

Prior to his time at RiverStone, Mr. Parker wasin private practice at Sidley Austin LLP, wherehe represented assumed and cedent clientsin reinsurance disputes.

In addition to his law degree from JohnMarshal Law School, Mr. Parker has aBachelors degree in Accounting fromDominican University and a Masters inBusiness Administration from DePaulUniversity. He is also a Chartered PropertyCasualty Underwriter and has an Associate inReinsurance.

in focus

Profiles of all certified arbitratorsare on the website at www.arias-us.org

John M.Parker

Recently Certified Arbitrators

Coming Soon…ARIAS•U.S. Webinars!

Do you know someone who is interested inlearning more about ARIAS•U.S.? If so, pass on this letter of invitation and membership application.

An Invitation…The rapid growth of ARIAS•U.S. (AIDAReinsurance & Insurance Arbitration Society) sinceits incorporation in May of 1994 testifies to theincreasing importance of the Society in the field ofreinsurance arbitration. Training and certification ofarbitrators through educational seminars,conferences, and publications has assistedARIAS•U.S. in achieving its goals of increasing thepool of qualified arbitrators and improving thearbitration process. As of December 2013,ARIAS•U.S. was comprised of 313 individualmembers and 113 corporate memberships, totaling884 individual members and designated corporaterepresentatives, of which 223 are certified asarbitrators and 58 are certified as umpires.

The Society offers its Umpire AppointmentProcedure, based on a unique software programcreated specifically for ARIAS, that randomlygenerates the names of umpire candidates from thelist of ARIAS•U.S. Certified Umpires. Theprocedure is free to members and non-members. It is described in detail in the Selecting an Umpiresection of the website.

Similarly, a random, neutral selection of all threepanel members from a list of ARIAS CertifiedArbitrators is offered at no cost. Details of theprocedure are available on the website underNeutral Selection Procedure.

The website offers the "Arbitrator, Umpire, andMediator Search" feature that searches the extensivebackground data of our Certified Arbitrators whohave completed their enhanced biographicalprofiles. The search results list is linked to thoseprofiles, containing details about their workexperience and current contact information.

Over the years, ARIAS•U.S. has held conferencesand workshops in Chicago, Marco Island, SanFrancisco, San Diego, Philadelphia, Baltimore,Washington, Boston, Miami, New York, PuertoRico, Palm Beach, Boca Raton, Las Vegas, Marinadel Rey, Amelia Island, and Bermuda. The Societyhas brought together many of the leadingprofessionals in the field to support its educationaland training objectives.

For many years, the Society published theARIAS•U.S. Membership Directory, which wasprovided to members. In 2009, it was broughtonline, where it is available for members only.ARIAS also publishes the ARIAS•U.S. PracticalGuide to Reinsurance Arbitration Procedure, TheARIAS•U.S. Rules for the Resolution of U.S.Insurance and Reinsurance Disputes, and theARIAS•U.S. Code of Conduct. These onlinepublications … as well as the ARIAS•U.S.Quarterly journal, special member rates forconferences, and access to educational seminars andintensive arbitrator training workshops, are amongthe benefits of membership in ARIAS.

If you are not already a member, we invite you toenjoy all ARIAS•U.S. benefits by joining. Complete information is in the Membership area ofthe website; an application form and an onlineapplication system are also available there. If youhave any questions regarding membership, pleasecontact Bill Yankus, Executive Director, [email protected] or 914-966-3180, ext. 116.

Join us and become an active part of ARIAS•U.S.,the leading trade association for the insurance andreinsurance arbitration industry.

P A G E 4 6

Sincerely,

Jeffrey M. Rubin Eric S. Kobrick

Chairman President

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at www.arias-us.org.

Complete information about

ARIAS•U.S. is available at

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Included are current

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upcoming events,

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INITIATION FEE $500 $1,500

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* Member joining and paying the full annual dues after October 1 is considered paid through the following calendar year.

** As a benefit of membership, you will receive the ARIAS•U.S. Quarterly, published four times a year. Approximately $40 of your dues payment will be allocated to this benefit.

Payment by check: Enclosed is my check in the amount of $____________Please make checks payable to ARIAS•U.S. (Fed. I.D. No. 13-3804860) and mail with registration form to: ARIAS•U.S.

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Payment by credit card: Fax to 914-966-3264 or mail to ARIAS•U.S., P.O. Box 9001, Mt. Vernon, NY 10552.Please charge my credit card: (NOTE: Credit card charges will have 3% added to cover the processing fee.)

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NOTE: Corporate memberships include up to five designated representatives. Additional representatives may be designated for an additional $425 per individual, per year.Names of designated corporate representatives must be submitted on corporation/organiza-tion letterhead or by email from the corporate key contact and include the following informa-tion for each: name, address, phone, cell, fax and e-mail.

By signing below, I agree that I have read the By-Laws of ARIAS•U.S., and agree toabide and be bound by the By-Laws of ARIAS•U.S. The By-Laws are available atwww.arias-us.org in the About ARIAS section.

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P.O. Box 9001Mt. Vernon, NY 10552

Board of DirectorsChairman

Jeffrey M. RubinOdyssey Reinsurance Company300 First Stamford PlaceStamford, CT [email protected]

President Eric S. Kobrick

American International Group, Inc.180 Maiden LaneNew York, NY [email protected]

Vice President (President Elect)Elizabeth A. Mullins

Swiss Re America Holding Corporation175 King StreetArmonk, NY [email protected]

Vice PresidentDeirdre G. Johnson

Crowell & Moring LLP1001 Pennsylvania Avenue NWWashington, D.C. [email protected]

Ann L. FieldZurich Insurance Group1400 American LaneSchaumburg, IL [email protected]

Michael A. FrantzMunich Re America 555 College Road EastPrinceton, NJ [email protected]

James I. RubinButler Rubin Saltarelli & Boyd LLPThree First National Plaza70 West Madison StreetChicago, IL [email protected]

Mark T. Megaw ACE Group Holdings436 Walnut StreetPhiladelphia, PA [email protected]

John M. Nonna Patton Boggs LLP1185 Avenue of the AmericasNew York, NY 10036Phone: [email protected]

Chairman EmeritusT. Richard Kennedy

Directors EmeritiCharles M. FossMark S. GurevitzCharles W. Havens IIIRonald A. Jacks*Susan E. MackRobert M. ManginoEdmond F. Rondepierre*Daniel E. Schmidt, IV

*deceased

AdministrationTreasurer

Peter A. Gentile7976 Cranes Pointe WayWest Palm Beach, FL. [email protected]

Executive Director/ CorporateSecretary

William H. YankusSenior Vice PresidentCINN Worldwide, Inc.P.O. Box 9001Mt. Vernon, NY 10552914-966-3180 ext. [email protected]

ARIAS 4th Quarter 2013 Quarterly

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Transcript of ARIAS 4th Quarter 2013 Quarterly