A Brief Case for the Non-Attorney Arbitrator
A few years ago, I attended a conference sponsored by an arbitration organization. During the three day conference, I attended several general sessions and several workshops, all related to various aspects of the arbitration process. All were very interesting and informative and one particular general session, presented by an illustrious panel of skilled arbitrators, I found to be of especial interest to me. The format was such that the panel would be given a topic for discussion, then each panel member would respond by giving his or her own views relating to the topic. Toward the end of the session, the moderator, an attorney, asked the panel and the audience, for their reactions to the question, “Do you think it should be compulsory to include an attorney on each arbitration panel?”
The sponsor of this particular conference was an association of arbitrators, specialized in resolving disputes between insurers, reinsurers and excess insurers. Given the nature of the issues in such arbitrations, it certainly seems desirable, if not essential, to have at least one attorney involved in these disputes to review issues relating to coverage wording, jurisdiction, precedence, statues, and similar legal issues. Yet, I found the question to be “moot”, especially for this particular group given that as of August 2008, nearly two-thirds of the certified arbitrators in this association were attorneys. If a panel is composed of two arbitrators and an umpire, in a hypothetical situation making a random three-person selection from among this group, it would seem far more difficult to select three non-attorneys than it would be to select three persons with at least one attorney. Rather, based upon the ratio of attorneys to non-attorneys, it would be likely that such a random selection would result in at least two attorneys being selected. Often, all three-panel members are attorneys.
Now, of course, this hypothetical drawing is not used in a “real-life” selection process. Arbitrators are customarily chosen after an extensive review of their CV containing their experience, work history, certifications, credentials, etc. All certified arbitrators in this association have their CV posted on-line and in the print directory. This allows anyone seeking an arbitrator or umpire to freely and expeditiously review individual qualifications.
Returning to the question posed by the moderator at the conference, and not being an attorney myself, although I am a Certified Arbitrator, my thought was that perhaps the question should have been re-phrased as, “Do you think it should be compulsory to included a non-attorney on each arbitration panel”? Valid reasons for doing so are explored henceforth.
Before an insurance or reinsurance dispute reaches the arbitration stage, it is likely that the parties in the dispute would have had a thorough review of the issues by their respective legal advisors. Whether a primary, excess, ceding or assuming insurer/reinsurer, a large multi-national operation or a small regional operation, it would seem that each company would either have an in-house legal department, or, for smaller operations, at least one employed attorney. When disagreements arise, before a decision is made to arbitrate or litigate, it is likely that in addition to internal legal advice, an outside law firm would have been asked to issue a coverage opinion. Often, through the attorney’s advice and consent, a resolution can be reached before ever commencing with litigation or arbitration. The attorneys’ expertise is essential to express opinions regarding contract workings, jurisdictions, precedents, compromise and other remedies. Then, as the dispute progressed toward arbitration, it is likely that outside counsel would be engaged to present their respective clients’ case before the arbitration panel. Undoubtedly, both parties to the dispute would have invested a “trove” of legal advice, all of which may well be warranted and essential. Then, once the decision is made to arbitrate, the party-appointed arbitrators and umpire would be engaged, and, as pointed out earlier, the panel would likely include yet one or more additional attorneys.
Surely as the dispute develops and moves along the path to arbitration, legal advice and skilled judgments are essential all along the way. There are, however, other valuable skills that can be added to the “soufflé” of the arbitration process. Brokers, underwriters, actuaries, claim managers, supervisors, adjusters, risk managers, insurance and reinsurance consultants, auditors and forensic accountants, all have special skills that have been honed through education and years of experience that exist to bolster and support attorneys’ efforts.
In the lead-up to arbitration, the skills that are called upon are diversified and are the direct result of the accumulation of many years’ day-to-day applications. Consider the underwriters, actuaries and risk managers whose daily duties include the review of policy wordings and the evaluation of risks for new and renewal applications as they continue to seek coverage possibilities to fit the needs of an evolving world of risks. Consider also the brokers, claim department personnel, and MGAs, who are on the front-end of the receiving line everyday, being bombarded with cash-calls and new claim submissions. And, finally, consider the consultants, including auditors and forensic accountants, who may be commissioned to review, evaluate and apply their special skills to premium and claim submissions received from primary and ceding carriers. All of these duties and results stem from hands-on, detailed-oriented individuals whose separate skills accumulate and analyze the DNA-equivalent data that ultimately compose the substance of the disputes – the dollar damages. In addition to attorneys, all of these skills are available in the certified arbitrators of this association who are non-attorneys.
“THE DEVIL IS IN THE DETAILS”
Whether the dispute is between an insured and an insurer (first party) involving a time-element or property claim resulting from a catastrophic event, a dispute between an excess and underlying carrier involving a “drop-down” issue, or a dispute between assuming reinsurers over the allocation of an asbestos claim with 100,000 or more claimants, the answers ordinarily lie in the details. As these details are deeply imbedded in the claim files, attorneys usually do not venture into the caverns and crevices of the files, and instead remained focus on “the big picture”.
Forensic accountants, for example, have the capability to scrutinize and uncover the details within those claim files. When engaged, the accountant reviews the aggregate premium, expense, indemnity and outstanding figures, to develop a program for selecting a representative sample of the population, then actually reviewing the pertinent documents within the selected files. Policy compliance, vouching, documenting and tracing transactions into the reported figures included within the aggregations, which have been reported and are now part of the dispute, compose the purpose of the transaction testing. Then of course, for large asbestos and other toxic tort claims, which often have tens of thousands of claimants, there remains testing of the allocations, which often span thirty, forty or more years and perhaps several different allocation methodologies or an entirely unique methodology altogether.
Forensic accounting engagements usually come prior to litigation, mediation or arbitration, although sometimes the dispute has already reached that stage and the urgency with which to complete the audit increases. In either case, audit services are usually required more toward the “tip-of-the-tail” rather than at the start of the claim escalation period. It is not uncommon for excess insurers and reinsurers, with substantial exposures, to delay or postpone the “review and test” process of the details supporting the claim submissions as reported periodically by the primary or ceding company. Often it is not until attachment is immanent that questions are raised concerning aggregate claim and expense payments and outstanding claims. A puzzling phenomena really when you consider that this would quite similar to a company writing thousands of checks and making thousands of deposits into a primary operating bank account without ever reconciling accounts to the monthly bank statement.
In insurance and reinsurance litigation, after liability has been established, the focus turns to one of “quantification” of damages, more commonly known as a bifurcated proceeding. Prior to the damages phase of the proceeding, the attorneys usually seek expertise from qualified accountants, and with good reason. Who is better prepared to express an opinion upon the quantification of perhaps hundreds of thousands of claims and related expenses? Who is better prepared to determine and select a statistical sample necessary to obtain a reasonably reliable test population without examining every claim file, complaint, work history, medical “trigger date” and release? Who is better prepared to test the allocation methodologies for attachment and exhaustion? The forensic accountant!
Just as the court proceeds on a bifurcated basis, creating supporting rolls for accountants and others to assist the attorneys particularly during the “damage assessment” phase of the trial, it would seem logical that a similar process is appropriate in arbitration and mediation. It may well be desirable, at an early stage of the arbitration process, perhaps at the Organizational Meeting, for the panel to ask, “Has anyone audited the claims and expenses that are the subject of this dispute”? If the answer were “No”, and many times this is the case, would this not be a good time for the panel to suggest such a review of the indemnity and expenses be conducted? The scope and timing of the review could be drafted by the selected auditors and then submitted to the panel for discussion with the parties to the arbitration. In drafting a proposed review of transactions, the auditors experience and skills would be a guide to achieve a “comfort level” with the recorded indemnity and expense payments. By applying sampling techniques, the program would be structured to obtain, at the very least, minimal assurance that balances are either reliable or not. To be sure, the scope would be somewhat limited by the composition of the aggregate payments. Toxic Torts, with large indemnity and expense payments, would of course be structured differently than a dispute involving worker compensation claims. In any case, the auditor could customize the review to obtain the objective within a set timeframe as directed by the panel. With both sides contributing to the costs of the limited review, economies as well as efficiencies would be realized. Most importantly, once the audit report was prepared and submitted, the panel would have an opportunity to question the auditors after which the panel would be well informed and equipped to issue a just and reasonable decision relating to both the financial considerations as well as the legal issues.
During this historic time in the insurance industry, challenges arise daily as to how to cope with cash calls stemming from class actions to catastrophic events. Fortunately, there is a body of knowledge now called “arbitrators”, each of whom are insurance-oriented individuals, attorneys and non-attorney alike, that exists to facilitate reasonable resolutions to these daily challenges. Who knows, if you were to peek under the blindfold of the “Lady of Justice” you may find that she is really a Forensic Accountant.
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