Liability Insurance in International Arbitration: The Bermuda Form

394 Pages·2004·1.17 MB·English

by  Richard Jacobs

LIABILITY INSURANCE IN INTERNATIONAL
ARBITRATION

LIABILITY INSURANCE
IN INTERNATIONAL
ARBITRATION
THE BERMUDA FORM
RICHARD JACOBS QC
Essex Court Chambers, London
LORELIE S MASTERS
Jenner & Block LLP, Washington, DC
PAUL STANLEY
Essex Court Chambers, London
OXFORD AND PORTLAND, OREGON
2004
Hart Publishing
Oxford and Portland, Oregon
Published in North America (US and Canada) by
Hart Publishing c/o
International Specialized Book Services
5804 NEHassalo Street
Portland, Oregon
97213-3644
USA
© Richard Jacobs, Lorelie S Masters and Paul Stanley 2004
Richard Jacobs, Lorelie S Masters and Paul Stanley have asserted their
right under the Copyright, Designs and Patents Act 1988, to be
identified as the authors of this work
Hart Publishing is a specialist legal publisher based in Oxford,
England.
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British Library Cataloguing in Publication Data
Data Available
ISBN 1–84113–467–8 (hardback)
Typeset by Hope Services (Abingdon) Ltd.
Printed and bound in Great Britain by
T J International, Padstow, Cornwall
Contents
Foreword vii
Preface ix
Table of Cases xi
Table of Legislation xxix
1 The Legal and Economic Origins of the Bermuda Form 1
2 The Bermuda Form: Its Basic Structure 21
3 Choice-of-Law Issues Under the Bermuda Form 29
4 Interpretation of the Bermuda Form and the Modification of
New York Law 51
5 The Coverage Clause 69
6 The Definition of ‘Occurrence’ 87
7 Fortuity, Expected or Intended, and the ‘Maintenance
Deductible’ 107
8 Notice of Occurrence 127
9 Article II: The Excess Point and Limits of Liability 143
10 The Exclusions 163
11 The Conditions 201
12 Misrepresentation and Non-Disclosure 231
13 Waiver and Estoppel and Reservations of Rights 251
14 Commencing a Bermuda Form Arbitration and Appointing
Attorneys and Arbitrators 261
15 The Course and Conduct of a Bermuda Form Arbitration in
London 279
16 Discovery, Privilege, and Waiver of Privilege 307
Appendix 335
Bibliography 347
Index 351

Foreword
VV Veeder QC
Thirty years ago, one of England’s most eminent arbitration practitioners
asserted that international commercial arbitrations in London only rarely
raised issues on the conflicts of laws; and rightly so: such an arbitration,
almost invariably, was then conducted before English arbitrators by
English counsel instructed by English solicitors arguing over an English
standard form of contract governed by English substantive law and
English procedural law, with only the parties’ foreign names signifying
the transnational character of the disputed transaction. This is no longer
so. The changes came even before the English Arbitration Act 1996; and in
the field of insurance, they included the early London arbitrations on the
Bermuda Form. At first, not a few English lawyers and arbitrators were
puzzled by the inter-locking logic of its different provisions and the split
between English procedural law and New York substantive law, the latter
subject to the famous proviso subject itself (it was thought) to English sub-
stantive law under English conflict rules. From the beginning, it proved
impossible to conduct such London arbitrations without the active
participation of US lawyers and arbitrators, who were equally puzzled at
the cultural idiosyncrasies of English arbitral procedure: the practice (soon
abandoned) of adducing expert witness evidence on New York law as
opposed to arguing New York law in submission, the black-letter syntac-
tical approach to contractual wording, the reading-out of law reports and
the common tea-breaks where, by ancient tradition (but also soon aban-
doned), the chocolate-covered biscuits were reserved for the arbitrators.
Eventually, the two legal tribes acquired a better understanding of each
other; but sadly, a better public understanding of the Bermuda Form
remained elusive. That was not only due to the fact that for every new
case, that complicated wording is to be read, again, for the first time; but
also because English arbitrations are private and English arbitral awards
under English law remain confidential. There is an article by a well-known
insurance lawyer from Washington DC, and later there was a successful
one-day London conference on the procedural aspects of the Bermuda
Form; but until now there was never the fuller work undertaken by these
three distinguished authors. They represent the symbiotic response of
English and US legal specialists which the Bermuda Form requires for
every London arbitration; and in their comprehensive coverage of both
substance and procedure, they have performed a great public service to
viii Foreword
the many users of the Bermuda Form and their legal advisers everywhere.
Not all will agree with their analysis or conclusions; but it is nevertheless
high time that any dispute should begin with a better knowledge of the
issues raised by the Bermuda Form’s successive wordings under English
and New York law. The Bermuda Form remains a complex document. For
the objective lawyer and impartial arbitrator, it is good to come to any new
dispute with an open mind, susceptible to new arguments and new
approaches, but it is not good to come with an empty head, possibly
clouded by samizdat rumours of different arguments and awards in other
cases. It is time the Bermuda Form came out from the dark, even if, unlike
Peter Pan, the Bermuda Form can never quite lose its shadow. With this
most useful work, the authors have begun that most important and neces-
sary process.
London
May 2004
Preface
In the mid-1980s the market for liability insurance in the United States suf-
fered one of its periodic crises. An enormous contraction of capacity left
many large enterprises with uncomfortably small quantities of insurance
coverage. The market adjusted itself. New companies were created offer-
ing fresh capacity. The terms on which insurance was offered changed.
Two of the new companies, ACE and XL, devised their own wording;
since they were based in Bermuda, the form is commonly known as the
Bermuda Form. It was a subtle blend of the old and the new. It is now of
enormous importance commercially, in use not only by those for whom it
was originally created, but by other insurers as well.
Even an assiduous reader of law reports in the United States or England,
however, would have little clue about the Bermuda Form’s importance. It
requires disputes to be resolved by arbitration; and since arbitration is a
confidential process, there has been little public discussion of the Bermuda
Form. From time to time it flits into public view when it briefly surfaces in
litigation. But most of the issues are resolved behind closed doors by tri-
bunals who are often unaware of the decisions that other arbitrators have
reached. They sometimes find themselves either reinventing the wheel, or
reaching different decisions on the same issues. Barely any controversial
point is ever permanently settled. With so much at stake, no stone is left
unturned, and many stones have been repeatedly turned. It does not help
that the provisions of the Form are complex, often unique, and that the
applicable law is not even simply that applied by any national judiciary.
The privacy of arbitrations has its benefits; but it also has disadvantages,
and an undoubted disadvantage is that the publicly reasoned elaboration
of commercial law is stifled. Short either of statutory reform or private
agreement by the parties to make arbitration awards publicly available
there is no solution to this. No book, much less any single book, could
possibly fill this gap. But we hope that this book will at least provide a
guide to the basic structure of the Form, identify some of the issues that
commonly arise, and suggest possible approaches to those issues. Some
of what we say is necessarily controversial (though we hope we have
signposted those areas).
There are a number of different versions of the Bermuda Form. ACE and
XL originally used the same version of the Form. The forms used by those
companies diverged over the years, but their current versions (ACE 5, and
XL 004) are again substantially the same. Some insurance companies have
adopted the ACE or XL versions of the Bermuda Form wholesale, whilst
x Preface
others have adapted it. We needed to decide which version or versions
of the Form would be the focus of the book. In the end, we decided to
concentrate on the various XL forms, in particular the most recent 004
Form, as the basis for our discussion. There are differences between the XL
forms and the forms used by other companies, but the similarities are
greater than the differences. We did not want this book to be a recitation
of the differences between forms, since that would obscure the overall
purpose of the book, and be of little interest either to the reader or the
authors.
We also decided that this book did not readily lend itself to the annual
publication of updates which is now common in the legal publishing
industry. Instead, we aim to use a dedicated section of our publisher’s
website (www.hartpub.co.uk) to notify and express our views on any
significant legal developments, or areas where we think that what we have
said in the book should be expanded.
We wish to record our enormous thanks to Kim Gibbs in Washington
and Michael Douglas in London. They bore the brunt of formatting and
correcting the messy typescripts that joint authorship produces. We are
also very grateful to Cheryl Olson and Jessica Wells who carried out the
laborious task of checking footnote citations and reading the proofs.
In writing this book we have been helped not only by each other but
by many others, including colleagues with profound experience of
the Bermuda Form. We would like to thank the following for the
encouragement and assistance that they have provided: Nicole Berner,
Peter Demma, Christopher Dickinson, Mitchell Dolin, Graham Dunning,
Bernard Eder, Cecily Engle, Bill Greaney, Darren Lubetzky, Tom
Newman, Karina Nowak, James Trilling and Johnny Veeder. Their com-
ments have helped us in many ways, and our blunders are fewer than they
might otherwise have been. We must accept joint and several liability for
what remains, including any heresies which we have refused to recant.
The retroactive coverage date for this book is 00.01 GMT on 1 May 2004.
Richard Jacobs
Lorelie S Masters
Paul Stanley
London and Washington
24 May 2004