Bermuda: An Overview of Insurance: Contentious

Introduction

There has been a recent increase in policyholder disputes involving coverage challenges by (re)insurers in the context of Bermuda high-value, excess-of-loss policies. This is, in part, due to Bermuda’s commercial (re)insurers facing a marked and sustained rise in the volume of claims, incurring claims costs globally of BMD1.1 trillion from 2016 through 2024. The massive volume and quantum of claims can be attributed in part to the significance of the Bermuda (re)insurance market in the global economy, as well as Bermuda’s exposure to catastrophic losses caused by natural disasters over this period. Bermuda’s increased exposure to global (re)insurance risks has naturally resulted in an increase in complex claims and coverage disputes.

There is a near universal practice of including arbitration clauses in Bermuda (re)insurance agreements, regardless of form (ie, whether facultative or treaty-based, proportional or non-proportional). There is no standard, industry-adopted uniform wording for Bermuda arbitration clauses, however, there are a few common variations that frequently appear in such clauses.

Against this backdrop of increasing claims volume, giving rise to complex coverage disputes, we provide an overview of considerations which a party commencing a Bermuda (re)insurance arbitration should take into account. In doing so, we highlight emerging trends in arbitral practice, enforcement considerations, and issues for policyholders navigating high-value claims.

Choice of law

In Bermuda arbitration clauses, it is common for different substantive and procedural laws to apply to the dispute. A frequent combination is New York substantive law governing interpretation of the (re)insurance contract, with the law of either Bermuda or England, as the seat of arbitration, governing the procedure. Where Bermuda is the seat of the arbitration, procedure is usually governed by the Bermuda International Conciliation and Arbitration Act 1993 (the “1993 Act”), which incorporates the UNCITRAL Model Law into local legislation.

The separation between law governing the substance of the dispute (which usually concerns contractual interpretation) and procedure is not always clear cut, and it may be argued that certain issues straddle both areas of law. The law governing the dispute, as well as the procedure, should guide the selection of a party’s legal team as well as inform the assessment of suitable arbitrator candidates (discussed further below).

Legal team

Selecting a legal team for a Bermuda arbitration necessitates co-ordinated expertise across jurisdictions. The primary legal team should have expertise in the substantive law governing the dispute. As noted already, Bermuda arbitrations are commonly governed by New York law, although it is possible for the law of the original policyholder’s jurisdiction to be selected to govern interpretation of coverage provided by the (re)insurance agreement.

Where Bermuda is the seat of the arbitration, the parties should retain Bermuda counsel to advise on matters of procedural law, which may include the scope of discovery, relevance and admissibility of evidence, and the recoverability of costs and interest. It may also become necessary to seek assistance from the Bermuda courts on issues such as arbitrator appointments (if the Bermuda Supreme Court is identified as the appointing authority in the arbitration agreement), interim injunctions or the ordering of subpoenas.

The composition of the arbitral tribunal may further inform a party’s legal team selection. It is common for retired judges (from the UK, US or Canada), English King’s Counsel, legal academics or retired (re)insurance executives to be considered as arbitral candidates. Where the arbitrators are more familiar with English (or Bermudian) procedure, it is common for parties to add London King’s Counsel to their legal team to conduct the advocacy at the arbitration hearing. This is particularly so where the dispute is complex or high value. However, this is generally a strategic choice that depends on the scale of the dispute and budget constraints.

On the policyholder side, we generally see parties engaging all three components of the team. Policyholders, particularly in high-value or complex coverage disputes, tend to prioritise a fully resourced structure to maximise recovery.

Arbitrator selection

Typically, Bermuda arbitration clauses provide for a panel of three arbitrators (two party-appointed, one neutral). Although two of the panel are party-appointed, all arbitrators must be impartial and independent and owe duties of fairness to both sides.

Recent trends show an increasing emphasis on industry expertise. It is becoming more common for the arbitration agreement to require that arbitrators be current or former executives of a (re)insurance company. This is often coupled with an “honourable engagement” clause which provides that the (re)insurance contract is an honourable engagement, rather than one of rigid legal obligation. The implication is that the arbitral panel is directed to consider industry practice and commercial pragmatism, and to avoid an overly legalistic approach to the dispute.

Cost shifting

In Bermuda, the starting point when considering costs in arbitration is first to determine whether the arbitration clause or any subsequent agreement between the parties provides a specific mechanism for the determination or allocation of costs. In the absence of such an agreed mechanism, Section 32 of the 1993 Act applies, conferring a discretion on the Tribunal to determine costs.

That discretion must be exercised judicially. The established starting point in Bermuda is that costs follow the event, such that the successful party is ordinarily entitled to recover its costs, subject to the Tribunal’s assessment of what is just in all the circumstances.

Institutional or ad hoc approach

Parties have long utilised both institutional and ad hoc arbitration clauses in Bermuda arbitration. Where an institution is preferred, parties commonly select established administrators such as the ICC, LCIA or ARIAS-US, benefiting from a ready-made procedural framework, appointment support and case management discipline. Others choose ad hoc proceedings, often applying the 1993 Act, to maximise party autonomy. Bermuda (re)insurance disputes illustrate the value of that flexibility.

Enforcement of awards

The Bermuda courts have been receptive to holding parties to their agreement to arbitrate, issuing anti-suit injunctions where parties seek to gain a tactical advantage by issuing court proceedings in violation of the arbitration agreement, and at the other end of the process, recognising and enforcing arbitral awards.

Conclusion

Historically, Bermuda has long been recognised as a hub for (re)insurance disputes, both domestically and internationally. Looking ahead, Bermuda will remain a strong arbitration venue. Later this year, the Bermuda International Mediation and Arbitration Centre is set to open its doors, which will offer parties additional flexibility and resources.

With claims severity and coverage challenges on the rise, policyholders who invest early in coverage strategy, tribunal selection, and a co-ordinated cross-border team will be best placed to navigate disputes efficiently and maximise recovery, whether proceeding ad hoc or institutionally.

First Published in Chambers and Partners