New York - Philadelphia - Washington, DC - Palm Beach - London
INSIGHTS ON ADR
September, 2024
Read a note Frank wrote on recent cyber coverage decisions here.
October, 2023
This post raises some interesting points regarding efforts to establish a code of conduct for arbitrators:
Insurance and World Events - October, 2022
Part 1: Aviation Insurance
Significant world events over the last 24 months have created global tensions the number and severity of which have not been greater in the last 40 years. The real short term and potential longer-term impacts of COVID-19, the war in Ukraine, tensions between China and the United States, domestic protests and violence in many countries and the struggling world economy all present risk to individuals and businesses and to their assets and investments.
Many insurance policies and programs may be called upon to respond to the myriad of claims that may occur as a result of one or more of these ongoing world events. To help understand the variety of claims and issues that might arise as a result global tensions, the next several Insights will provide some commentary on what the world might see from underlying claims and potential insurance coverage available to respond to them.
Aviation Insurance
The broad range of economic sanctions implemented by much of the world after Russia's actions in Ukraine in February 2022 prompted Russia to issue a decree prohibiting the export of aircraft operated in Russia. Informed estimates suggest that at least 500 foreign owned aircraft remained in Russia at the time of the decree. The situation presents significant obstacles for owners of the aircraft to repossess and recover these assets. The situation presents likely insurance claims arising from these actions.
Historically, insurers in the aviation market have provided coverage on a ground-up basis. Aviation insurance is both similar and different from other commercial property and casualty markets. The similarity is found in basic principles of risk management, underwriting, and the law of large numbers…. As the number of exposure units (insureds) grows, the probability that the actual loss per exposure unit will equal the expected loss per exposure unit is higher. This results in the principle that it is easier to reduce risk exposure (charge the “correct” premium) as more policies are issued within a given insurance class assuming a stable and independent probability distribution for loss exposure.
The difference from other commercial markets (and specific challenge to aviation insurers) is that the customer base, and therefore, the premium base is limited. There are fewer potential customers as there exist a small number of aircraft manufacturers, component part suppliers, airlines, airports, and service providers. And the actual risks insured in the aviation industry are massive. As a result, most aviation exposures are insured by several insurers each taking on a percentage of the overall exposure.
Reinsurance plays an important part in the aviation industry. Reinsurance of aviation risks is normally provided on an aggregate excess of loss basis because the direct insurers require coverage for the aggregation of multiple events each year. Aviation reinsurance policies normally provide a single aggregate limit and potentially several reinstatements.
The history of aviation insurance reveals that the business of transporting passengers and freight is done so with great success as the rate of accidents in the airline industry is lower than all other transportation industries. When incidents do occur, they are typically significant and produce large claims with the resulting emotional and financial stress.
Primary Aviation Insurance
Primary insurance provided to airline operators and aircraft owners usually consist of the following:
-
Hull “All Risks” – Covers loss or damage to aircraft while flying or on the ground for an agreed value. Loss or damage caused by war, hijacking, and a number of other listed events related to violence, hostilities or government action are normally excluded the “All Risk” coverage and is written separately under a “War Risk” policy (see below).
-
Passenger – Covers liability for death or injury of passengers.
-
Third Party – Covers general third-party liability of the insured for death, bodily injury, and property damage external to the aircraft including indemnity obligations that may exist under leases.
-
War Risks – This coverage is provided for losses that are excluded from the Hull “All Risks” policy and normally includes loss or damage arising from claims caused by war, invasion, acts of foreign enemies, hostilities, confiscation, nationalization, seizure, restraint, detention, appropriation, and other listed acts. The coverage is available for both hull damage and for injury to passengers and third parties.
It is not uncommon for there to be questions as to whether a covered loss of or regarding an aircraft falls within the “All Risks” or the “War Risk” policy. To address this issue, many policies include a clause referred to as AVS 103 wording. This clause provides for a provisional settlement where both the Hull and War Risk insurers agree in advance to equally split the hull costs for claims when the cause of the loss is unclear. The insurers agree to a subsequent arbitration to determine coverage liability if they cannot agree to a resolution among themselves. In such an arbitration the “All Risk” insurers must convince a tribunal that the loss was due to an excluded peril.
A recent example of the interaction of the two insurance programs involves the loss of Malaysia Airlines flight MH370 in March 2014. That claim involved that unexplained loss of the aircraft and all 239 passengers and crew. Pursuant to the A VS103 clause, the issue of causation was resolved in an arbitration after which it was reported that the War Risk insurers would absorb the full claim.
Biggest Changes in the Claims / Litigation Environment - August, 2022
Frank was quoted in CLM Magazine's 15th anniversary edition regarding the biggest changes he has seen the in the claims / litigation environment over the last 15 years <https://736506f6.flowpaper.com/CLMAugust2022/#page=40>.
Fact Witness Testimony in Arbitration - September, 2021
Arbitration tribunals are often confronted by underlying disputes of fact which must be analyzed before the larger or main dispute can be resolved. What the tribunal decides happened is an important factor in the overall determination of a dispute. The 2 forms of evidence that is used to prove facts are documents and fact witness testimony. Black’s Law Dictionary defines a “fact witness”as:
In general, one who, being present, personally sees or perceives a thing, a beholder, spectator, or eyewitness. One who is called to testify before a court…One who testifies to what he has seen, heard, or otherwise observed.
At first glance, the idea of a fact witness is simple; assuming the witness does not intend to lie his testimony will recall events, observations, intent, and the like based on firsthand experience. Fact witness evidence is often presented to provide context to documentary evidence, fill gaps fill in documentary gaps, or even explain the absence of evidence.
A recent Commission Report by the International Chamber of Commerce (ICC) reveals the complexity of the testimony of fact witnesses. The report, entitled The Accuracy of Fact Witness Memory in International Arbitration 1 discusses factors that might distort fact witness testimony as well as how to preserve the accuracy and weigh the credibility of such testimony considering distorting factors. While the context of the report is focused on International Arbitration, its insight on human memory and the relatively easy ways that memories can be impacted and changed is applicable to any fact taking exercise large or small.
The whole report is well worth a read, but here are a few summary points:
Witness testimony is imperfect – There is a consensus among the scientific literature that good faith memories are influenced by the way and words that are used to question fact witnesses, a witnesses’ perspective (a claimant, respondent, or neutral witness) and even by events that the happen to the witness after an event. While fact testimony will always be valuable and necessary to resolve many disputes, the potential for unintentional distortions and inaccuracies must be considered by the parties as well as the fact finders.
Recommendations to preserve memory and reduce distortions – The Report suggests several procedures to ensure the accuracy and value of fact testimony:
-
Prepare contemporaneous notes as events transpire.
-
Preserve witness evidence as soon as possible after any event occurs.
-
Allow Witnesses to prepare their own written recollection of events as soon as possible
-
Parties and fact finders should educate themselves on the science of cognitive processes that impact (distort) memories.
Virtual Reality: Remote Proceedings - May, 2021
A prominent issue facing the arbitral community has become virtual meetings and hearings. Having recently completed several virtual proceedings including acting as an arbitrator for an entire arbitration cycle, I have some observations on the process:
-
There is no doubt that the remote arbitration proceedings can and do work. Assuming one has the correct technology and training to use it, the tools are more than adequate to accomplish the tasks needed.
-
There are obvious practical and efficiency advantages from expense, time and stress perspectives. After I completed my first remote preliminary hearing, I thought about it critically and put myself in the position of one the parties. As far as I was concerned neither party was at any disadvantage from not being in the same room. The arguments, discussions and resulting order did not suffer at all from the virtual proceedings.
-
The actual hearing is where I think the real discussion must take place. To begin with, the parties are entitled to agree on whatever mechanisms and procedures that they want to arbitrate their dispute. What considerations might be important to the parties when considering a remote versus in-person hearing?
-
The nature of the overall hearing and evidence – This is the most important in my mind. If a hearing is all or almost all oral argument, there should be less concern about the move to a remote format for the proceeding. When the dispute is very fact intensive, however, the practical reality of presenting video evidence arises. I am not suggesting that all fact intensive disputes should be in-person, but I am suggesting that the parties think through the practical reality of a remote evidence taking session when fact witnesses are involved. This is clearly new territory for everyone involved and few if any norms are yet developed. Some issues to consider are impacts on:
-
Credibility of Witnesses
-
Cross examination of Witnesses
-
How will Technology interface with documentary evidence – How will counsel present direct evidence and/or cross examine a witness using documents. How will counsel be sure the tribunal is understanding the context and emphasis intended from documents?
-
The ability of all involved to “read” the room
-
-
Time Zones – When everyone is present for an in person hearing the issues surrounding time zones and business hours for the most part will disappear.
-
“Zoom Fatigue” – There is consensus that the increased and different cognitive load presented by long video sessions are exhausting and fatiguing to most human beings.
-
These and other issues must be considered by the parties. We have all seen that the use of remote technology to conduct hearings is not uniformly intrusive to due process as was initially claimed by some advocates. There is no doubt that the efficiency gains will be strong factors especially in small less-complex matters. The real analysis will be considered by the parties in complex high-value matters where complicated evidentiary issues and fact evidence and credibility of witnesses will determine the result.
Ability, Availability, Dependability - April, 2021
Much has been written on the attributes necessary to be effective and successful and on the qualities that parties should assess when appointing an arbitrator. Beyond independence and impartiality, one way to analyze the attributes is through quotes from those who have dominated in sports:
-
The famous footballer Zlatan Ibrahimovic is known to have said “I can play in the 11 positions because a good player can play anywhere on the pitch.”
-
The former NFL football coach Bill Parcells said that a “player's best ability is his availability” suggesting that talent doesn't matter if the player is not on the field playing the game.
-
Bill Belichick’s has said “Dependability is more important than ability” suggesting that a player’s dedication, passion and effort were most essential to succeed on the teams he coached.
It would be hard to argue that a blend of ability, availability and dependability is not the best formula for success when evaluating potential candidates to sit as an arbitrator. When I was involved in choosing arbitrator candidates rarely would I select a candidate that did not score well in each of these attributes. A “10” in ability does no good if the candidate scores a “2” in availability and/or dependability.
Ability should be measured both in terms of the candidate’s professional experience and expertise and his/her capabilities to manage people and the process. Certain matters might require significant technical expertise and the “perfect” candidate would have deep domain knowledge in a particular area. Other times, opting for a seasoned professional with enough knowledge and experience in handling arbitrations, common sense, and the willingness to listen might be better as long as the other attributes are also present.
Availability is paramount for a reasonably smooth efficient and timely process. The stress and delay caused by repetitive scheduling conflicts can often impact the quality of the presentation of evidence and arguments. Availability does not only focus on a candidate’s time for preliminary, interim and final hearings but also on the time needed to deliberate, write and issue an award within a reasonably short time after the final hearing.
Dependability should be assessed in the candidate’s work ethic, demeanor and demonstrated commitment to move the process and execute a fair and prompt proceeding.
Key Characteristics and Attributes for Any Mediator - March, 2021
I recently completed the 40 hour training program, Mediating the Litigated Case, at the Straus Institute for Dispute Resolution at Pepperdine University Law School. Straus has been recognized as one of the world's leading educational programs in the field of dispute resolution. Part of the program included lectures and workshops provided by practicing experienced mediators, which provided a significant amount of excellent practical content and instruction.
I compiled the following list of insights and observations that I think are very relevant to mediators and mediation:
-
Approach the process with humility and curiosity rather than arrogance and authoritarianism – the mediator must learn in the context of this dispute before he/she can be effective.
-
Commit to a process where the end result will be an informed choice by the parties, no matter what that result might be – Some conflicts will not be resolved through one mediation despite good faith effort…that’s ok as long as both sides have made the informed choice to carry on.
-
Mediators cannot oversell what they do…they must emphasize what the parties can do.
-
Parties want consistency – to build relationship and trust a mediator must be transparent and authentic…the mediator’s words and actions must align.
-
Attitude is a choice and is contagious – The mediator can play a significant role in the attitude of the parties and the tone throughout the process even when emotion is legitimately involved in the conflict.
These are all valuable insights for any mediator to consider and ones that I will try to bring to my own work in the mediation context.