AIRROC’s Dispute Resolution Process (DRP) 

By Key Coleman

Does anyone still remember the old-style CLE conference where you would fly into a sunny resort, and then leisurely cram two days of intensive learning into a four day trip, only to return home stressed-out because the many plates you had spinning had all come crashing down? In order to participate, you had borrowed from the two cruelest of lenders, the bank of billable hours and the S&L of “personal time.” It seemed like a great investment at the time, but the returns were hardly justified.

AIRROC’s Dispute Resolution Process Workshop on February 7, 2013 was nothing like that.

In fact, AIRROC continued on its roll, with yet another flawless execution of the “new-style” workshop: a 1-day format (a potential fly-in, fly-out affair), packed with information and fearlessly performed in the dead of winter in Chicago. According to Carolyn Fahey, AIRROC’s Executive Director, “people need to come to Chicago anyway…they can either tack on a few days visiting with key clients or they can do a complete turn-around within 24 hours.” Jim Sporleder of Allstate commented: “We in the Chicago area appreciated having the meeting here...with today’s expense pressures, AIRROC companies really like the ‘free’ training sessions for their employees.”

 

The Dispute Resolution Process (DRP)

The purpose of this particular workshop was to highlight one of AIRROC’s most innovative industry solutions, the Dispute Resolution Process, or DRP. AIRROC developed this solution in response to the many disputes over reinsurance balances that are, by everyone’s assessment, too small to arbitrate. Patrick Frye, of Edwards Wildman, describes the process “as a middle ground between expensive lawyering and doing nothing.”

 

Three key features of the process include:

  1. A single umpire is appointed by agreement among the parties. To keep costs in line, these qualified umpires agree to perform DRP arbitrations for $150/hour.
  2. No discovery, unless specifically agreed upon by the parties.
  3. No live witness testimony, unless specifically agreed upon by the parties.

Fact Pattern

Foley & Lardner, our gracious hosts for the day, lent us their master-mind of wit, Neal Moglin, who cleverly constructed a matter that simply “cried out” for a DRP solution. The fact pattern included the insured, ACME, which had used asbestos in its manufacture of anvils. ACME’s insurer, Coyote Insurance, covered the risk for 3 years. After a favorable settlement with ACME, however (that included a policy buyback), Coyote allocated its entire reinsurance loss to the third year, the only year in which it had reinsurance coverage from the ailing Road Runner Re. Road Runner, a 1% treaty participant, was sore over late notice, an issue that is impacted significantly by “choice of law.”

While the parties had only $180,000 at stake, these issues were simply not ripe for compromise. After “civil” discussions, Road Runner and Coyote agreed upon the DRP as the most efficient solution.

Workshop Structure Makes All the Difference

The workshop participants divided into two teams and held separate meetings with counsel. Each team learned of certain so-called “bad facts” that would shape its arguments going forward. For instance, Road Runner’s “late notice” contention was compromised by an earlier memo in which Road Runner was made aware of the underlying loss; consequently, the reinsurer decided not to push for discovery.

Participates gained valuable insights from these break-out sessions. Michael Stick, of Butler Rubin, said the “sessions during which the delegates worked in teams to develop a strategy for resolving the dispute…provided an opportunity to see how industry members with different perspectives (ceding company, assuming company, in-house counsel and outside counsel) approached the same issue.”

Rapid Ruling

The umpire issued a fast, “winner-take-all’ ruling, stating Coyote performed an improper allocation by putting the entire loss into one year. The umpire made no attempt to re-allocate the loss more fairly, but instead ruled that Coyote’s allocation was simply not reasonable and would not be enforced.

This particular ruling drove home the point that the DRP is not a miniature mediation process intended to evoke a settlement. Instead, it allows parties to reach a conclusion based on the merits, in spite of the matter’s size.

Conclusion

On behalf of Foley & Lardner, Mike Pontrelli commented "we were gratified by the turn-out, and impressed by the wealth of experience that participants brought to the day's sessions." The learning environment was, indeed collegial while the format was user-friendly. John Kloecker and Rowe Snider of Locke Lord Bissell summed up the day nicely, agreeing “The workshop showed that AIRROC is living up to its value proposition.”

Key Coleman is a Managing Director in Grant Thornton’s Forensics & Valuations Services division in Chicago, Illinois. He can be reached at key.coleman@us.gt.com.