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"Well, it was a curious country, and full of interest."

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—"A Connecticut Yankee in King Arthur's Court," Mark Twain (1889).

The liability insurance programs of many major U.S. manufacturing companies are composed of policies sold on the so-called Bermuda Form, most of which mandate that disputes be resolved via confidential arbitrations in London. Regardless of how sophisticated an American policyholder and its coverage counsel may be at litigating in U.S. courts, arbitrating in London is different. Indeed, any policyholder that must arbitrate its insurance coverage dispute in London should be aware of some of that forum's quirks. This is especially important given that insurers are frequent flyers in that arena and likely will have the advantage of, among other things, having (1) previously tested their legal theories; (2) familiarity with those arbitrators who are frequently engaged in connection with insurance coverage disputes; and (3) a go-to team of barristers and solicitors. Given that American policyholders usually will not have that same level of experience, the following discussion highlights some of the basic differences of which they should be aware.

1. Hiring the Local Team: Twice the Lawyers, Twice the Fun

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While American policyholders will likely have American coverage counsel, it would be ill-advised to engage in a London arbitration without a local team composed of a barrister (or two) and a solicitor (or two). The difference between the two types of lawyers will probably be the first variance that an American policyholder will encounter. Although there are other differences, at its simplest level, the U.K. system divides its lawyers between those who appear in court and do trials and those who do not. The former are barristers, who are awarded the designation of King's Counsel, or KC, when they reach a more senior level. They also are often called "silks" due to the silk garments worn when they assume that position. Barristers are basically all sole practitioners, although they are affiliated with certain "chambers" where they situate their offices and share administrative services. It is common for a KC to work with a junior barrister — one who has not yet attained the KC designation. These simply are referred to as "juniors." Solicitors are not that different from U.S. lawyers — and are often referred to merely as lawyers — and they work in a similar law firm format. While solicitors may be qualified to appear in court and often do with respect to certain proceedings, they will usually team up with barristers to do a trial or arbitration. As for the relationship between a solicitor and a barrister in the context of an arbitration, in U.K. parlance, the solicitor "instructs" the barristers, which is meant to convey the notion that the solicitor knows the case and provides guidance to the barrister as to the mission. The term "instructs" is also used in place of the words "hire" or "retain," etc., as in, "We need to instruct a barrister." In practice, of course, the American coverage counsel, the solicitor team and the barrister team will all work together from the get-go, analyzing the facts and the law, and deciding on the strategy for prosecuting the policyholder's case. While the American coverage counsel will usually be the most intimately familiar with the policyholder, the facts of its claim, and the substantive law that will govern the dispute — most likely New York law, as prescribed in the policies — the U.K. team will know English procedure, the unique customs and practices of English-seated arbitrations and, perhaps most importantly, the personalities, strengths and weaknesses of the arbitrator candidates. This last can include who gets along with whom, or who is a black-letter purist and who is more commercial, among other things.

After the U.K. team is hired, the first item on the agenda in initiating an arbitration is for the policyholder to appoint an arbitrator. This is a very important decision, and it will entail some forecasting as to who the insurer might appoint and who the parties might jointly appoint as the chair. This also is the point at which an American policyholder might first experience one of the key differences between the U.S. and English systems as far as conflicts are concerned. While English law prohibits conflicts of interest just like American law, how this plays out in practice may seem surprising and odd to an American policyholder. Many of these oddities arise from the unique arrangements between barristers and their chambers. Specifically, as mentioned above, while all barristers are affiliated with specific chambers, they are also all sole practitioners, and chambers are not the same as law firms. As a result, an American policyholder might be surprised to see an arbitrator being from the same chambers as one of the barristers who is involved in the arbitration by representing one of the parties. It also is possible to have more than one arbitrator from the same chambers on the same tribunal. These are not considered conflicts under English law because it is not assumed that knowledge of one barrister is imputed to the other barristers in the same chambers, as is the case with respect to law firms. It also is very possible that an arbitrator may be appointed multiple times by the same party — most likely the insurer — in different arbitrations, and it also is possible that an arbitrator might have sat in judgment in an arbitration involving largely the same facts and issues. The rules and standards that must be applied to determine whether a conflict exists or whether an arbitrator might be biased are complex, so that is a topic for another article.

3. Pleading Your Case: The Devil in the Details

The policyholder's first pleading will be its statement of claim, which is akin to a complaint in U.S. litigation. The main difference between the two is that a statement of claim will likely be a much more detailed and comprehensive document than a typical complaint. Indeed, notice pleading, or merely putting the other side on notice of general facts and theories of recovery will not cut it; fact pleading — specifically extensive fact pleading — is the norm. This will require careful consideration of all facts and issues and a clear strategy. Indeed, a policyholder — or any party — would not want to plead anything that it did not really think it will win, particularly due to the fee shifting that is part of the U.K. system, as discussed below. Further, speculative or aspirational pleading that is not backed up with evidence in the policyholder's possession, is generally ill-advised, because the insurers will definitely pick apart every single allegation and will require the policyholder to provide support through discovery.

4. Fact Witness Statements: Potential Landmines in a Murky Field

Fact witness testimony in London arbitration takes the form of written statements, like an affidavit, as well as live testimony on cross-examination. There is no direct examination by the party proffering the witness. Rather, the fact witness statement serves as the witness's direct testimony. Once the witness is put in the box, they are turned over to the other side immediately for the cross-examination. There is no chance to warm up with the witness with softball questions to calm their nerves. But the bigger potential problem with this process is that the fact witness statements usually are submitted months in advance of the arbitration's final hearing, the trial. This presents two potential problems. First, the witness's testimony must be set in stone early, while theories and strategy might still be under development. This means that there might not be the possibility to adjust the witness's testimony to match shifting strategies. Second, the opposition will have months to think about and dissect the witness's testimony. Any phrase, term or statement, regardless how truthful or innocuous it appeared months before the hearing, might be revealed as a landmine under the probing of your skilled opponent.

5. Witness Prep — or the Lack Thereof

One of the biggest oddities in London arbitrations is that witnesses are really not supposed to be prepared the way we are used to in the United States. The U.S. practice of sitting with a witness, going over documents, and practicing questions and answers is not only not the norm in the U.K., but is technically not allowed. Asking a witness questions that you expect the opposition to ask in order to perfect their answers is referred to as "witness coaching." If the tribunal comes to believe this took place, the witness's testimony might be discredited or even struck. In fact, barristers will usually not even participate in witness prep, other than to introduce themselves, give the witness some overview of what to expect and remind them to tell the truth.

6. Interpretive Evidence: The Tribunal Knows Best

In U.S. litigation, it is standard for a policyholder to seek the production of, and possibly rely upon, what generally is referred to as "interpretative evidence." These are materials that shed light on the meanings that the insurer itself gave to its own policy language. These might include documents generated during the drafting of policy language, explanations set forth in underwriting or claims manuals, communications with brokers, or representations made to regulators, among other things. Interpretative evidence might also take the form of testimony from an expert in the meaning of certain policy language, such as a broker or a former underwriter. In London arbitrations, insurers will almost definitely refuse to produce any such materials, and they will seek to strike or prevent any expert evidence that bears on the meaning of policy language. If a policyholder strongly believes that such evidence should properly be offered, it should consult with its barrister for guidance on whether any such effort has a chance of succeeding. But the fact is, under English practice, the interpretation of policy language is considered a pure legal question, solely within the domain of the tribunal's expertise. Depending on the nature of the dispute, it might be possible to get similar evidence in on the premise that it relates to the so-called custom and practice in the market with respect to similar claims or risks. But any such effort would probably need to be backed up by including custom and practice allegations in the statement of claim. Consult your barrister. Actual mileage may vary.

Another distinguishing feature of English procedure, and sometimes the most brutal, is fee shifting: The losing party pays most of the winning party's legal fees and expenses, and also pays all the costs of the arbitration. This includes all reasonable attorney fees and expenses — approximately 60% to 80% — as well as the tribunal's fees, expert fees and anything else. This practice is meant to discourage frivolous litigation, and it works. In fact, even if a party decides to voluntarily dismiss a claim or terminate an arbitration midstream, the other party will be entitled to the costs it incurred in the effort up until that point. This is an important factor that the policyholder should consider as part of its overall strategy.

Conclusion: A visit to the Harrods Food Halls may make it all worth it.

The above are just some of the main features of a London arbitration of which an American policyholder might not be aware. There are countless others, enough for a sequel to this article. But if the above seemed overly gloomy, do not despair. A London arbitration does have its benefits, such as control over the process, a say in who your judges are, and the ability to negotiate and set the schedule. Also, the fee shifting works both ways: An insurer that is inappropriately refusing to provide coverage will likely have an awakening if paying its policyholder's lawyers looks like a real possibility.

"An American Policyholder’s Guide to UK Insurance Arbitration," by Robert Jacobs was published in&nbsp;<a href="https://www.law360.com/articles/1833945">Law360</a>&nbsp;on May 10, 2024.

An American Policyholder’s Guide to UK Insurance Arbitration

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