Understanding the Changes to Arbitration in Insurance Under the New Act

Arbitration in the insurance industry is poised for significant transformation following the passage of a new Act designed to complement the Arbitration Act 1996. This legislation aims to maintain the United Kingdom’s status as a premier venue for domestic and international commercial arbitration, particularly impacting policyholders involved in insurance coverage disputes in England, Wales, and Northern Ireland.

Why Are These Changes Important?

In the realm of insurance, many policies mandate that disputes between insured parties and insurers regarding coverage and claims be resolved through arbitration seated in London, even if the risks arise in other jurisdictions. Unfortunately, arbitration clauses in insurance policies are typically overlooked, leading to inconsistencies across policies, which can complicate dispute resolution.

Key Takeaways:

• Inconsistent Clauses: Often, arbitration provisions may be inadequately defined, creating potential conflicts within the same insurance policy or across layered insurance programs.
• Cost and Time: If ambiguities in procedural elements arise during a coverage dispute, it can lead to extended resolution times and increased costs for policyholders.

Key Changes Introduced by the New Act

1. Law Governing the Arbitration Agreement

The new Act has introduced an essential change regarding the governing law of the arbitration agreement. Unless parties agree otherwise, the law applicable will now be the law of the seat of arbitration. This marks a departure from the Supreme Court’s ruling in Enka v Chubb (2020), which asserted that an arbitration agreement is generally governed by the substantive law of the contract. Explicitly determining what law governs the arbitration agreement is advisable, especially when the governing law of the policy differs from the arbitration seat, which is often the case in so-called ‘Bermuda Form’ cover.

2. Arbitrator’s Duty of Disclosure

Building on the Halliburton v Chubb Supreme Court decision, the Act clarifies the ongoing duty of arbitrators to disclose any relevant circumstances that may raise doubts about their impartiality. This is crucial in the insurance sector, where repeat appointments of arbitrators with specialized knowledge often occur. Policyholders should scrutinize arbitrator disclosures and be aware of the potential for overlapping claims with the same issues and insurers.

3. Power to Make Awards on a Summary Basis

The Act empowers arbitrators to issue awards on a summary basis concerning specific claims or defenses if a party shows no real prospect of success. Before proceeding with a summary award, the tribunal is required to allow parties to make representations. This provision can be particularly beneficial for expediting straightforward issues, such as policy construction or interpretation, reinforcing efficient dispute resolution.

Practical Considerations for Policyholders

Arbitration remains a favored mechanism for resolving disputes across various insurance sectors, including marine, construction, and ‘Bermuda Form’ coverage associated with catastrophic risks. In recent times, arbitration is increasingly supplanting English court litigation in areas like Professional Liability and Directors & Officers (D&O) coverage.

Advantages of Arbitration:

• Confidentiality: One major benefit is the enhanced confidentiality arbitration affords, which is particularly important when reputational factors or sensitive information are at play.
• Thorough Review: Given the importance of the arbitration clause, policyholders should ensure it aligns with other provisions within the insurance policy and wider programme, addressing potential ambiguities surrounding the chosen forum and applicable laws.

The new Act presents a timely opportunity for policyholders to reassess their agreements with insurers, ensuring that they are equipped to handle disputes effectively.

Conclusion

With the enactment of the new arbitration Act, it’s vital for policyholders in the insurance sector to review their arbitration clauses diligently. Understanding the implications of these changes can significantly impact the efficiency and effectiveness of resolving disputes, ensuring a smoother experience in arbitration proceedings.