A transatlantic alliance is setting out to make mediation the dominant method of cross-border dispute resolution. But is the process always the best way to stop conflicts ending up in the courts?

The great and the good of the US insurance industry were all enjoying daiquiris and cosmopolitans in law firm Chaffetz Lindsey’s offices in New York. But it was a Brit who stood out.

By the end of the evening, the Americans knew all about Paul Moss. The head of claims at Montpelier Re’s Lloyd’s of London syndicate was in town late last year to strike a deal that he believes is the first step in helping to transform dispute resolution practices between insurers and reinsurers around the world.

The Reinsurance Mediation Institute, better known as ReMedi, was set up in the USA in November 2009 to certify mediators, develop guidelines and create training courses to promote a more peaceful way of resolving disputes. Mediation has grown increasingly popular on both sides of the pond in recent years, but in ReMedi Moss believed he had spied a unique opportunity to sign up a powerful transatlantic partner for Inrem, a similar organisation that he has just set up in the UK.

This alliance means that Inrem and ReMedi can provide expert lawyers and practitioners, such as claims specialists, to help mediate disputes between insurers and reinsurers when the opposing parties are from UK and US jurisdictions. This will help the parties understand the other’s viewpoint, hopefully allowing them to find a suitable compromise without ending up in the courts or dragging out matters through arbitration.

“It’s a mix-and-match situation,” Moss explains. “Our model offers mediators to work in tandem – perhaps with a lawyer and a market practitioner from two different markets. We felt a more global approach is needed to meet the international nature of the reinsurance business. There is a huge sea-change coming.”

Moss is also working with people looking to replicate the Inrem model by setting up what he calls ‘pods’ across Europe, particularly in Switzerland, Germany, France and Spain. These organisations will then affiliate with Inrem. This is certainly a novel way of pushing mediation as the dominant method of resolving conflict. But the method is not without conflicts of its own, and not all of the industry shares Moss’s optimism.

The American way

The folks behind ReMedi talk a good game. Board member Andrew Walsh hints that arbitration, the confidential and non-binding process that sees the reinsurer and insurer put their cases to an independent third party, has become redundant.

“Arbitration, at least in the USA, is more and more litigation-like,” he argues. “Parties have begun treating it like litigation, with more depositions, so the cost has been going up at an alarming rate.”

In essence, arbitration has just become a very expensive trial, as the parties end up paying for the costs of the neutral party that decides the case. In litigation, the judge is at least free.

Walsh points to a dispute that ReMedi got involved with in 2010 that had been stuck in arbitration for several years as both sides entrenched their positions. “They agreed to go to mediation and in less than half a day both sides agreed [a compromise] that saved them at least $100,000 each in legal fees.”

A founding member of ReMedi and regular speaker at reinsurance forums, Walsh pushed for the Inrem alliance as “in the reinsurance market, so much work is done internationally, we needed to bridge the continental divide”.

ReMedi chairman Katherine Billingham adds that she wanted “to provide education” that would help the market to understand that mediation was a cheaper, quicker alternative to arbitration.

The group’s website hints at just how zealously Billingham and Walsh take this mission, quoting Abraham Lincoln: “As a peacemaker, the lawyer has a superior opportunity of being a good man.”

Moss had spotted a similar trend in the UK and founded Inrem with reinsurance lawyer heavyweights Colin Croly, a former partner at Barlow Lyde & Gilbert, and Peter Schwartz, legal consultant at Holman Fenwick Willan.

A not-for-profit organisation, Inrem is described by Moss as “a very sophisticated directory” where reinsurers and insurers can find some of the UK’s best mediators. Their skills are vital as the European Mediation Directive is trying to stop cross-border disputes ending up in the courts. It threatens to impose cost sanctions on parties that unreasonably refuse to pursue alternative, softer dispute resolution methods to civil litigation.

Inrem and ReMedi try to distinguish themselves from rival mediation enterprises by ensuring the people on the books come from a reinsurance or insurance background.

“A lot of mediations fail because they are conducted by people outside the industry,” Moss says. “They may have the skills but not the technical understanding of the issues in dispute. Mediation inevitably involves compromise – and if the mediator doesn’t understand industry customs and practices, it is going to be very difficult for them to move someone from an entrenched position.”

The case for the defence

Edwards Angell Palmer & Dodge insurance and reinsurance partner Richard Hopley agrees that mediation saves money as large disputes can potentially cost millions of pounds in legal fees.

He believes that mediation is best suited to situations where both parties realise that the issues are not clear-cut.

For example, a complicated reinsurance contract might have five different ways to apply a policy that could result in several different outcomes. Neither party would be clear exactly how much the reinsurer had to pay out, so a mediator could help the parties work their way through the information.

Hopley points out that mediation has a benefit beyond cost: “Commercial relationships are important and litigation doesn’t help. Arbitration is perhaps preferable to litigation because it is confidential and may do less harm to a commercial relationship, but that is still an adversarial proceeding.”

Law firm Addleshaw Goddard’s head of litigation Richard Leedham, a specialist in reinsurance, says that commercial sensitivities have increased as a result of consolidation in the reinsurance market. “Twenty years ago, large insurers would lay off risk to 100 reinsurers, but now it will be only seven or eight, so they don’t fall out so much,” he argues.

With so few reinsurers, it’s not worth aggravating them over contract semantics. Instead, Leedham says, insurers have expanded the number of lawyers in-house to ensure that situations are resolved before they reach dispute stage.

Despite acknowledging the relevance of commercial sensitivities, Leedham actually disagrees with Hopley’s conclusion. He believes that confidential arbitration remains the most popular form of dispute resolution, because neither the insurer nor reinsurer will want counterparties to have potentially precedent-setting information.

“Take a Hurricane Katrina,” Leedham suggests.

“The insurer and reinsurer would like to keep the dispute under wraps so that the result does not bind them against other parties. It takes the risk out of a relevant, relatively high-profile loss or issue being repeated.”

The case for court

Although there is broad consensus that mediation has grown in popularity in recent years, not everyone believes that this is because the reinsurance market has suddenly become a more conciliatory place.

Head of the contentious insurance and reinsurance practice at Norton Rose, Michael Mendelowitz, says that plenty of parties still ask: “Why should I go to mediation? Why should I compromise?” He believes that, instead, they should look at mediation as the possibility for a novel solution to their dispute, such as drawing up a new contract.

Although Mendelowitz agrees that it’s “probably true” that mediation has grown in success since around 2005, that is simply because, as a form of dispute resolution, it has matured: “People know how to use mediation properly now.”

Indeed, this suggests that the balance between mediation, arbitration and litigation is already reasonable, giving aggrieved parties plenty of options. When one reinsurance figure hears about Inrem, he sighs: “Does the world need another mediation organisation? I’m slightly cynical. We have quite a few already.”

Law firm Kennedys partner David Wilkinson certainly is cynical. He says that since mediation drifted across the Atlantic as a concept around 15 years ago, the industry has grown to the extent that “there are more mediators than disputes to be mediated – and I mean that quite seriously”.

Though there is nothing wrong with the concept, Wilkinson argues, mediation is failing in practice. In his first mediation case, there were just five people: two opponents, their lawyers and the mediator. Now there would be a deputy mediator, barristers, as well as solicitors and expert witnesses.

“What is happening in practice is that mediations begin to resemble mini-trials,” Wilkinson says. “Mediators want bundles of documents and you can see from this what is happening to the cost of mediation.”

This argument strikes at two of Inrem’s and ReMedi’s central contentions: that mediation saves time and money.

However, such arguments will not deter the groups. Inrem launched its website in mid-February, and will now work on offering its roster of experts to insurers and reinsurers across the country and then the world.

And if the practitioners at Inrem are that good at their jobs, they will soon convince the doubters of their way of thinking – perhaps with a little compromise. GR