Why Industry Experience Is Important in Insurance and Reinsurance Alternative Dispute Resolution

By Larry P. Schiffer | New York Law Journal | April 26, 2024

Much like judges, mediation purists believe that a good mediator can manage any dispute because mediation skills, like judicial skills, apply across every type of dispute in every type of industry.

The Pros and Cons of Industry Expertise in ADR

There is a long-standing debate in alternative dispute resolution (“ADR”) circles, particularly in the mediation community, about whether industry knowledge and expertise are necessary for a neutral to be successful in resolving disputes. In insurance and reinsurance disputes, this is particularly important because of the terms of art and customs and practices of the industry. This article discusses the importance of industry expertise when acting as a neutral in an insurance or reinsurance dispute.

Whether industry expertise is necessary for a neutral to have success in helping to resolve a dispute is a hotly contested question. Mediation purists believe that a good mediator can learn enough about the dispute and the relevant industry during the course of the mediation and that industry experience is not necessary for success. Much like judges, mediation purists believe that a good mediator can manage any dispute because mediation skills, like judicial skills, apply across every type of dispute in every type of industry. Having been a mediator for over thirty years for two New York court-annexed ADR programs and having mediated disputes ranging from a world champion boxer who was stripped of his title by a sanctioning body to all sorts of commercial, contract, personal injury, and employment disputes, I have a great deal of sympathy for this position.

On the other hand, as a user of ADR services as counsel for insurance and reinsurance clients, it is most helpful to have a neutral (or a panel) that has industry expertise. Those of us who practice in specialized industries know the pain of trying to explain terms of art and esoteric customs and practices to a judge who knows little about the industry involved in the dispute. Having a neutral with industry expertise reduces and often eliminates the learning curve, allowing counsel to focus on the substance of the dispute without having to provide an industry 101 tutorial or cheat sheet.

A neutral with true industry experience brings focus and expertise to the dispute. It allows the parties to concentrate on the real issues and avoid collateral sideshows that have little to do with the actual dispute. In highly specialized industries, the disputes are often technical and it is less time consuming and more efficient to have someone with real expertise as the neutral to avoid a learning curve.

The cost savings by using a neutral with industry expertise can be significant. If the parties have to educate the neutral about the industry and explain in lay terms industry-specific terms of art, a substantial amount of time will be consumed that otherwise could be used more efficiently to address the substance of the dispute. Not only will the mediation or arbitration briefs have to be lengthier (and therefore more costly), but the oral presentations and caucuses will be longer as the parties educate the neutral about the industry and the dispute.

On the other hand, there is something to be said for fresh ideas and perspectives. A neutral unencumbered by industry knowledge will not be predisposed to any particular industry position and may be in a better position to help the parties achieve resolution.

Why Industry Expertise Is Important in Insurance and Reinsurance ADR

The pros and cons discussed above apply to ADR in insurance and reinsurance disputes. Having litigated insurance and reinsurance cases before judges and having had non-industry members of arbitration panels on occasion, I can tell you that having true industry expertise in the neutral expedites the proceeding. As I am sure many of you have experienced, when you are before a judge that is familiar with personal injury actions, the judge often thinks they understand insurance and reinsurance. The fact is that many judges have only a cursory understanding of the nuances of insurance and even a lesser understanding of reinsurance. Not only do you have to educate the judge, but you also often have to disabuse the judge of incorrect or inaccurate positions.

Insurance is a highly regulated and specialized industry and reinsurance is specialized and often a mystery even to those experienced with general insurance. Having a neutral with the proper expertise and experience helps expedite the process and focus the parties on the substantive issues in dispute. And by proper expertise, I mean the right experience for the substance of the dispute and broad and deep enough experience to understand the nuances relevant to the dispute. Moreover, the cost-savings in avoiding having to educate or re-educate the neutral may be significant.

For example, when I function as a neutral in a reinsurance dispute, I do not need the parties to tell me how reinsurance works or to explain to me esoteric concepts like follow-the-settlements or utmost good faith. All the parties need to do is fill me in on the relevant reinsurance contract and the specific facts of the dispute.

The same is true for an insurance coverage dispute. I do not need a tutorial on how insurance policies work and how coverage terms should be interpreted. I just need to see the insurance contract and understand the specific facts of the dispute. This allows the parties to focus on the substance of the dispute and on the best way to reach a resolution.

Using a neutral with industry experience also helps gain the trust of and buy-in from the insurance or reinsurance company representative. If the company representative thinks that the neutral does not have specific knowledge  about the insurance or reinsurance business or about how insurance or reinsurance claims or contracts work, it will be exceedingly difficult for the neutral to convince the company representative that reaching a settlement is in everyone's best interest. Where industry expertise is demonstrable, the company representative will be more comfortable with the neutral and will more likely be receptive to the neutral's perspective on how the matter might be resolved.

Industry Expertise When Acting As an Arbitrator

Arbitration is considered a part of ADR because it is not litigation in the courts. Yet, arbitration bears many of the characteristics of litigation because it is an adversarial proceeding where the arbitrator (or panel) will issue a final determination in the form of an arbitration award. Nevertheless, like mediation, whether the arbitrator is a party-appointed arbitrator as part of a panel or on a neutral panel or appointed as a single arbiter, industry expertise is helpful.

As the trier of fact and law, having an arbitrator (or panel) with industry expertise allows the parties to focus solely on the merits of the dispute rather than on educating the arbitrator. Insurance or reinsurance 101 is not needed if the arbitrator has sufficient industry experience. This is important in the early stages of the arbitration where there may be questions about how many depositions and what kinds of discovery are necessary. An arbitrator with industry expertise will be in a better position to understand the parties' positions and recognize what depositions and what discovery is really necessary for the dispute.

If there are disputes over the disclosure of allegedly privileged or highly confidential business documents (trade secrets), an arbitrator with industry knowledge will be better able to sort through the documents, make the appropriate determinations and order the necessary protections. Disputes over third-party or former employee subpoenas also will benefit from industry expertise as the arbitrator will be in a better position to understand whether that third-party or former employee truly has something to offer relevant to the dispute.

When it comes to the arbitration hearing, an arbitrator (or panel) with industry expertise is in a much better position to move testimony along and suggest to counsel that the point of the testimony has been made with much less introductory or explanatory testimony. The same is true for opening and closing arguments. Counsel (in both opening and closing) will not need to educate an industry knowledgeable arbitrator about the basics and can get right to the substance of the dispute.

Finally, when drafting the award, an arbitrator with industry expertise will be able to digest the facts and craft a determination that, more likely than not, will make sense to the parties (even if they do not like the outcome).

Industry Expertise When Acting as a Neutral in Mediation or Other Forms of Non-adversarial ADR

Acting as a neutral in a mediation or other non-adversarial setting is what most people think of when they think of ADR. Industry expertise in this setting is important for some of the reasons discussed above. As a neutral, one needs to understand the facts of the dispute in the context of the contractual or non-contractual industry setting. Expertise for general commercial or contract disputes and less esoteric disputes is not as important as the expertise needed in disputes involving specialized or technical industries.

In many complicated technical or specialized disputes, the learning curve diminishes the economic value of trying to resolve the dispute in advance of an arbitration or court proceeding. A neutral with industry expertise is able to cut to the chase and start collaborating with the parties to craft a resolution to the dispute without the necessity to hear chapter and verse about the industry.

The value of a neutral with industry expertise cannot be overstated when the parties are in a dispute with complicated issues arising from a highly regulated or specialized industry, such as the insurance and reinsurance industry. While there is no doubt that a good mediator can mediate any dispute, in certain circumstances or in certain industries, having specialized expertise can make a difference in the cost, efficiency and quality of the mediation process.  

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Reprinted with permission from the April 26, 2024 edition of the NEW YORK LAW JOURNAL © 2024 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com

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Larry P. Schiffer is a member of NAM's (National Arbitration and Mediation) Hearing Officer Panel and is available to arbitrate and mediate insurance and reinsurance cases throughout the United States. Mr. Schiffer is one of the foremost authorities on insurance/reinsurance matters and has a wealth of knowledge and experience that spans both the property and casualty and the life and health markets. He has provided counsel and advice on a wide variety of insurance and reinsurance issues that include coverage, insolvency, commutations and recaptures, due diligence for corporate transactions and investments, reinsurance audits and inspections, cyber insurance, claims analysis and related issues.