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WHY EVERYBODY LOVES TO HATE ARBITRATION IN AMERICA: (ONE “DUMB YANK’S” VIEW)

WHY EVERYBODY LOVES TO HATE ARBITRATION IN AMERICA: (ONE “DUMB YANK’S” VIEW). © 2010 Andy Douglass*. _________________________________________________________________________________

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WHY EVERYBODY LOVES TO HATE ARBITRATION IN AMERICA: (ONE “DUMB YANK’S” VIEW)

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  1. WHY EVERYBODY LOVES TO HATE ARBITRATION IN AMERICA:(ONE “DUMB YANK’S” VIEW) © 2010 Andy Douglass* _________________________________________________________________________________ *Since 1997 Andy has been a partner of Morrison Mahoney LLP of New York, Boston and Hartford, a firm specializing in insurance and reinsurance litigation and arbitration. Prior to that he was Senior Vice President & General Counsel of The St. Paul Companies, Inc. and St. Paul Fire & Marine Insurance Company.

  2. “EVERYBODY TALKS ABOUT THE WEATHER BUT NOBODY DOES ANYTHING ABOUT IT” (MARK TWAIN)

  3. WHAT PEOPLE DON’T LIKE ABOUT U.S. ARBITRATIONS THE ARBITRATION PROCESS • COST – NO SAVINGS vs LITIGATION • THE AWARDS • HOW DID THE PANEL COME UP WITH THAT NUMBER? SOLOMIC WISDOM, OR LACK THEREOF • 2-1 DECISIONS • CONFIDENTIALITY (LACK THEREOF) • ABOUT THE AMERICAN LEGAL SYSTEM • LACK OF PREDICTIBILITY • IDIOT STATE COURT JUDGES • “LIABILITY CATS” • REINSURERS RESPONSE TO SUDDEN BAD NEWS • WILL US AND EUROPEAN COURTS HONOR IDIOTIC U.S. DECISIONS?

  4. THE COST OF ARBITRATIONCOUNSEL AND ARBITRATION FEES“AND SO HE JUMPED ON HIS HORSE AND WENT RIDING OFF IN ALL DIRECTIONS”(Oscar Wilde) • WHAT TO DO WHEN A CLAIM COMES IN • WHAT YOUR LAWYERS DO (PLEASE SEE OSCAR’S OBSERVATION) • WHAT YOU SHOULD HAVE DONE BEFORE YOU EVER PUT THE RISK ON THE BOOKS • THE ROLE OF THE BROKER • PERSONAL DISCLOSURE: MY FATHER WAS A BROKER • BUT HE WAS AN HONEST BROKER • QUESTION: WHY DOES ANY SANE RISK UNDERWRITER ALLOW THE BROKER TO WRITE THE CONTRACT?

  5. MORAL OF STORY: ANY ARBITRATION CLAUSE IS NOT AS GOOD AS ANY OTHER ARBITRATION CLAUSE • WHAT THE ARBITRATION CLAUSE ACTUALLY SAYS MAKES A DIFFERENCE • WHAT THE CHOICE OF LAW CLAUSE ACTUALLY SAYS ALSO MAKES A DIFFERENCE • WHAT THE CHOICE OF FORUM AND CONSENT TO JURISDICTION CLAUSE ACTUALLY SAYS ALSO MAKES A DIFFERENCE • SO DOES PRETTY MUCH EVERYTHING ELSE IN THE CONTRACT

  6. WHAT TO DO: • CARPE DIEM • THE “GOLDEN RULE” IN WALL STREET • WHO HAS THE GOLD?

  7. COST: PANEL AWARDS • WHERE IN THE WORLD DID THAT NUMBER COME FROM? • LOOK AT THE EVIDENCE PROVIDED BY THE EXPERTS • AMERICAN PENCHANT FOR SPLITTING THE BABY • AWARDS OFTEN FOLLOW “MEDIATOR RULE” FOR SETTLING A CLAIM: NOBODY IS HAPPY • WHAT MOTIVATES ARBITRATORS • “BULLET-PROOFING” THE AWARD FROM APPEAL • 3-0 DECISIONS VS 2-1 • SOME OF THE FRUSTRATION IS REALLY FRUSTRATION WITH THE U.S. LEGAL SYSTEM • SEAT OF THE ARBITRATION AND ITS IMPACT UPON THE AWARD

  8. THE THIRD CONCERN ABOUT ARBITRATION: THE CONFIDENTIALITY STANDARDS • NOBODY SUES TO ENFORCE • INSURANCE PEOPLE LOVE TO GOSSIP • BUT THE CASES DO STAY OUT OF THE TABLOID PRESS • IMPORTANCE OF REPUTATION

  9. A LOT OF WHAT PEOPLE DON’T LIKE ABOUT AMERICAN ARBITRATION IS REALLY BECAUSE THEY DON’T LIKE THE AMERICAN LEGAL SYSTEM* _________________________________________________ *THE ERIE RAILROAD AND MR. TOMPKINS

  10. THE AMERICAN LEGAL SYSTEM:“DON’T SHOOT ME – I’M ONLY THE PIANO PLAYER”*(OSCAR WILDE) _____________________________________________________ *(ALSO THE TITLE OF A 1970S ELTON JOHN ALBUM)

  11. THE AMERICAN LEGAL SYSTEM • LACK OF PREDICTIBILITY • FINDINGS OF FACT (BY JURIES) VERSUS FINDINGS OF LAW (BY JUDGES) • JOE JAMAIL AND PENNZOIL v. TEXACO • PLAINTIFF’S BAR: EVERYTHING THAT IS WRONG WITH MY LIFE IS SOMEONE ELSE’S FAULT • RESULT: CLAIMS BECOME LOTTERY TICKETS • RESULT #2: INSURERS BECOME CASINOS. WHETHER THEY LIKE IT OR NOT. • ULTIMATELY, SANITY MUST PREVAIL (STORY OF ST. PAUL MED MAL CLAIMS IN THE 1980’S.)

  12. AMERICAN LEGAL SYSTEM • NOT ALL STATE COURT JUDGES ARE IDIOTS • FEDERAL COURTS ARE GENERALLY MORE CAREFUL – BUT MAY NOT HAVE JURISDICTION • INSURANCE AS A SOCIALIZATION OF RISK TECHNIQUE • THIS IS NOT WELL UNDERSTOOD BY JUDGES, MANY OF WHOM WERE PLAINTIFF’S LAWYERS • SECURITIZATION OF PROPERTY RISKS CREATES PAPER THAT PERFORMS LIKE JUNK BONDS • WE’RE IN A WORLD OF LIABILITY CATS* AS WELL • IF WE KEEP ALL THE RISK, OUR COMPANY’S RESULTS WILL PERFORM LIKE JUNK BONDS _____________________________________________ *(The surplus lines writers have known this for generations)

  13. AMERICAN LEGAL SYSTEM • REINSURERS DON’T LIKE SURPRISES – ESPECIALLY BAD SURPRISES • SO WHY, IN ALL FAIRNESS, SHOULD THEY PICK UP THE COST OF IDIOTIC (MOSTLY STATE) JUDICIAL DECISIONS? • WHERE DO WE GO FROM HERE? • LEXINGTON V. WASA: THE “IDIOTIC STATE COURT” EXCEPTION

  14. HOW DO CEDENTS GET COVER IN THE FUTURE? • DEMAND NEW YORK LAW AND SEAT OF ARBITRATION? • REINSURERS WOULD HAVE TO ARGEE – NOBODY’S HOLDING A GUN TO YOUR HEAD • ARE YOU GOING TO LET THE BROKER BE YOUR SCRIBE? • NEW YORK LAW ON CONTRACT CONSTRUCTION • ALTERNATELY, WILL LONDON AND THE CONTINENT DEVELOP A “THIS TIME WE REALLY MEAN WE’LL FOLLOW YOUR FORTUNES/SETTLEMENTS” CLAUSE? • WILL CEDENTS SAY, “ONCE BITTEN, TWICE SHY”?

  15. WHAT ABOUT COINSURANCE INSTEAD OF REINSURANCE? • MORE RELIANCE ON EXCESS CARRIERS AND LESS ON REINSURERS? • MORE BUSINESS WRITTEN AS SURPLUS LINES BUSINESS?

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