PROPOSALS TO INCREASE EFFICIENCY OF REINSURANCE DISPUTE RESOLUTION PROCESS

PROPOSALS TO INCREASE EFFICIENCY OF REINSURANCE

DISPUTE RESOLUTION PROCESS

SUSAN E. GRONDINE CAVELL USA

JOSEPH S. SANO PRINCE LOBEL GLOVSKY & TYE LLP

PAUL E. WHITE SUGARMAN, ROGERS BARSHAK & COHEN, P.C.

ROBERT A. WHITNEY WHITE & WILLIAMS LLP

Cost Effective Resolution of Reinsurance Disputes

A Vignettes Approach

Northern (Cedent) v. SEPTA (Fac. R/I)

• Northern’s Policy With Barneys Big Top: – $5 Mil: injuries by “any participants or

spectator of the show;”– $500K: “the value of any animal” that was

“completely unable to perform” in the show due to “incurable illness or death.”

• Facultative Certificate: SEPTA will pay: “50% of the risk retained” by Northern on behalf of Barney’s.

Northern (Cedent) v.SEPTA (Fac. R/I)


The Underlying Claim:

• Mandy, (the “J. R-T’d Lemur”™), knocks-over spotlight, igniting the stage.

• Sara, (animal transport dept.) badly burned before the flames were extinguished, and

• Mandy: “smoke inhalation” and “loss of fur.”

• Northern settled all liabilities with Barney’s for $1.2 million.


The R/I Claim:

• Northern submits a claim for 50% ($600,000) to SEPTA (Fac. R/I ).

• Northern submits the other 50% to its treaty reinsurers and recovers all but $100k from them.


The R/I Dispute:

• SEPTA rejects Northern’s $600k claim, stating:– Payment to Barneys gratuitous in view of W.C. bar;

– Sara not a “participant” or “spectator;”

– Mandy (the “J. R-T’d Lemur”™) not “completely unable to perform” due to “incurable illness or death;”

– Mandy’s valuation ($100,000) is excessive and includes non-covered training (juggling lessons for new lemur) and equipment;

– Coverage limited to “50% of the risk retained” by Cedent, less amount recovered under treaty R/I retained loss (i.e. net of treaty R/I recoveries).

Northern Demands ArbitrationAgainst SEPTA

Issues:Underlying Coverage

– Submitting/defending Mt. for S.J. re: whether employee (animal transporter) constitutes “participant;”

– Whether Mandy (the J. R.-T’d Lemur™) was disabled per policy and proper amount and scope of replacement costs;

– Whether portion of settlement paid for general releases for Northern not reimbursable under Northern’s Policy.

Fac. R/I Coverage– Whether “follow the fortunes” provision requires payment

notwithstanding issues re underlying coverage determination – Whether Northern’s Treaty R/I recoveries can be considered in

determining “50% of the risk retained” under SEPTA Fac. Cert. (Positions could be supported by expert testimony on industry practice)


Part I- Giving Outside Counsel The Tools To Effectively Plan:

The Initial Substantive Call From Client (Northern) to Northern’s Outside

Counsel

Part I- Tools To Effectively PlanTopics For Initial Client/Counsel Call

• Parties relationship: (disputed issues, other claims, contract and globally);

• Dispute’s nature/size/importance to Company;• Outcomes (desired/acceptable);• Anticipated evidence:

– Nature, source and location of documents, Electronically Stored Information (“ESI”);

– Witnesses, experts (if any), rationale for calling, anticipated testimony, and anticipated witness problems.

• Discuss forum/arbitrator/umpire issues (e.g. ex parte communication with party appointeds).

• Principal to Principal communications during dispute. • Budgeting/billing requirements, anticipated payment cycles, and

any other financial matters necessary for effective planning.• Next steps.


Part II- A Cost Effective Plan For Resolving The Dispute

The Follow Up Call Between Client (SEPTA) and SEPTA’s Outside Counsel

THE VALUE EQUATION:

Dispute Plan +

Detailed Budget +

Approved Staffing

=

ACCOUNTABILITY

Part II- Developing A CostEffective Plan

The Dispute Plan

• Conceive plan at inception, but

• Allow plan to change/develop.

Elements Of TheDispute Plan

• Early dispute termination strategies – phasing/summary adjudication, negotiation points/mediation;

• Detailed discovery plan, including issues requiring discovery;

• Evidentiary sources - witnesses, documents;

• Anticipated discovery disputes;

• Discovery cost-containment strategies - importance of partnership;

• Staffing requirements (including levels/rates).

Hearing Plan

• Location

• Duration

• Witnesses

• Staffing• Briefing

Detailed Budget

• Prepare at outset - project through conclusion;

• Consider budget for each phase;

• Anticipate budget revisions - duty of counsel to proactively revise budget.

Approved Staffing

• Counsel should explain roles;

• Provide client the opportunity to discuss and approve staffing;

• Counsel should commit to not charge for file review of any replacement timekeeper

Agreeing On A Plan For The Dispute Topics For Discussion

1. The Dispute Plan:

• Early Dispute Termination Strategies;

• Detailed Discovery Plan;

• Hearing Plan;

• Staffing Requirements: Name/Levels/Tasks/Rates;

2. The Budget.

Cost Effective Resolution ofReinsurance Disputes

Part III- Looking for Common Ground On Controlling Arbitration Legal

Expenses and Costs: Negotiating Cost Containment Strategies

Before The Organizational Meeting- The Call Between Opposing Counsel

Part III- Looking for Common Ground

Negotiating Cost Containment Strategies Before The Organizational Meeting

A. Looking For Stipulations:1. Consider where opponent’s documents are

likely to be kept, and production and review logistics involving both parties and determine reasonable stipulations;

2. Consider ESI challenges faced by both parties and reasonable stipulations (e.g. No production of “essentially” identical electronic and hard copy document, all production of ESI in hardcopy or agreed common electronic platform);

3. Consider reasonable and mutual document production stipulations (e.g. bates numbering, scanning, who pays for copies, Deposition Exhibit numbering, maintenance of original deposition exhibits, etc.);

4. Consider reasonable and mutual deposition event limitations (number of witnesses, interrogatories, document requests, requests for admission) and duration (one business day – 7 hours) for each dep, without motion;

Negotiating Cost Containment Strategies Before The Organizational Meeting

5. Consider reasonable and/or mutual dates for “anticipation of litigation” for privilege purposes;

6. Consider reasonable and mutual privilege log formats and stipulations (e.g. no need to log post- dispute attorney/client documents not involving third parties, one word “subject” descriptions, affiliation/legal job key for senders and recipients);

Negotiating Cost Containment Strategies Before The Organizational Meeting (cont.)


7. Consider mutual methodology for privilege challenges, if, when and by whom challenges will be made, sensible limits for any necessary, in camera review, third party in camera review designee;

8. Consider reasonable discovery deadlines and anticipate and plan for reasonable extension requests in overall scheduling;

9. Consider discovery dispute process and stipulations that could be made;

10. Consider hearing/cost reduction issues (e.g. sharing daily transcript costs, single court reporting service for depositions, neutral and/or free hearing locations, accommodations for out of town travelers);

11. Consider need for and timing of any anticipated mediation.


Cost Containment Strategies for Conference with Opposing Counsel

1. Affirmatively commit to resolution before decision maker on the merits rather than by obtaining strategic advantages;

2. Communicate cost containment as a client directive and a goal, and seek similar validation from opposing counsel; Address each potential stipulation you are proposing and any proffered by opponent and be willing to reasonably compromise to achieve cost containment without harming substantive rights (incentives for issue/discovery limitations);

3. Express willingness to consider other mutual stipulations throughout the proceeding;

4. Stipulations should be in writing and available for the decision maker in the event of dispute, and if in arbitration, should be presented prior to or at organizational meeting and should address as many points regarding discovery, privilege and scheduling as possible.

Documents

PROPOSALS TO INCREASE EFFICIENCY OF REINSURANCE DISPUTE RESOLUTION PROCESS