ADR Under the Microscope

Summary by Kyle Medley

On October 14, 2013, Raenu Barod, a Partner at Barger & Wolen, LLP’s New York and London offices, led a panel discussion at the opening educational session of the Rendez-vous on the pros, cons and innovations of various forms of Dispute Resolution Mechanisms. The distinguished panel represented a broad cross section of the industry – Bruce Byrnes, Senior Counsel at Berkshire Hathaway; Christopher Reichow, Corporate Claims counsel at R&Q; James Scrimgeour, Senior Counsel – Reinsurance at The Travelers; and Steven C. Schwartz, a Partner at Locke Lord LLP. The Panel discussion provided some fresh insights and challenges to the conventional wisdom on this topic and gave valuable insight into the in-house preference and experience.

The discussion reviewed the conventional wisdom on the benefits and disadvantages of arbitration versus litigation as forms of dispute resolution and challenged aspects of those basic assumptions. Panel members went on to discuss the factors that impacted their preference for one type of dispute resolution process over another. Further discussion centered around the need, in this economic climate, for a greater focus on the most efficient and cost effective outcome in dispute resolution and how this has influenced panel members in pursuing creative strategies for combining the best features of different dispute resolution methods. Panel members also expressed their views on their emerging experience of mediation as another possible and effective tool in the settlement of certain types of reinsurance disputes.

In contrasting arbitration with litigation, one of the topics discussed by the Panel was whether arbitration was more cost-effective in that it reduced amount of discovery in a dispute. While reference was made to recent experiences in which arbitrators seemed to be allowing expansive discovery in an effort to ward off accusations by a party of “due process” violations, it was noted and agreed that many arbitrators are unconcerned about such hollow threats and appear to be making more of a concerted effort to get “back to the basics” of arbitration, meaning a truncated resolution mechanism without the exhaustive discovery available and often used in litigation. Mr. Scrimgeour noted that he believes that Courts, too, are headed in the direction of limiting discovery, as evidenced in the proposed changes to the Federal Rules of Civil Procedure. The proposed changes to the Rules of Civil Procedure would include reducing the length of depositions and the default number of discovery demands, as well as making discovery “proportional” to the amount at issue in the action. These changes might erode some of the perceived cost differences between arbitration and litigation.

In addition to the critical issue of costs, other differences in arbitration and litigation that the panel discussed included third-party discovery, privilege, confidentiality, expertise (i.e., industry arbitrators vs. judges), and finality of the award or decision. One theme that ran through these topics was the flexibility of arbitration. For example, it was agreed that, with respect to privileged materials, arbitrators were much better equipped to respect the common interest privilege between reinsurers and ceding companies.

The panel members discussed their individual preferences for different types of dispute resolution processes depending on the nature and size of the dispute. Some had worked on “hybrid” arrangements where agreement was made between the parties to move out of arbitration into a federal court setting where it was more appropriate to the dispute. The merits of mediation were discussed and the panel agreed that mediation should always “be in the toolbox” of dispute resolution devices, as mediators can often apply “tough love” to parties to either resolve all of their differences, or at least limit the issues that require resolution. Although the quality and experience of the mediator was viewed by all as an essential pre-requisite to embarking down the path of mediation.

In sum, the panel provided a fresh look at the current issues facing insurers and reinsurers with respect to dispute resolution. While parties do not always have the luxury of choosing a dispute mechanism after a disagreement has already developed, the panel stressed the need to anticipate issues more purposefully in the drafting of contracts so as to best suit any disputes that might arise in the future. Although imperfect in some respects, the majority of the Panel still view arbitration as the most efficient dispute resolution mechanism. Within that context, however, some were in favor of a having a federal court judge as the sole arbitrator in “bet your company” type cases. Kyle Medley is an Associate at Barger & Wolen LLP. kmedley@bargerwolen.com