Most reinsurance disputes are resolved in private before panels of industry experts, who are experienced in the unique practices, nomenclature, and statutory accounting that comprise the business of insurance and reinsurance. These disputes often embrace financial and other obligations arising under many different insurance policies, with losses that may span decades and cross international borders. Most arbitration clauses relieve arbitrators of the obligation to follow “the strict rules of law,” and instead call for the contract to be interpreted as an honorable engagement and not a legal obligation. These considerations and concerns about confidentiality have led many reinsurance counterparties and their counsel to avoid judicial fora, where they must first teach the business of insurance, then reinsurance, and ultimately the issue(s) to judges who may not have experienced such matters either on the bench or in private practice.
A respectable number of reinsurance disputes end up in court, whether as the primary venue dispute resolution or for confirmation of arbitral awards. In either event, courts may end up construing reinsurance contract wordings. In such events, and for many years, parties to court disputes have invoked a variety of market customs, practices, and terminology in order to fill interstices in contract language. Not infrequently, courts have issued decisions that appear at odds with business practices. When reinsurance issues arise in court, judges increasingly rely upon rules of construction applied to other types of commercial contract, sometimes reaching decisions of broad application involving decades old agreements that now mete out substantial financial obligations. Nowhere has this been more evident than in disputes arising under facultative certificates over a reinsurer’s alleged obligation to share the expense of defending underlying claims along with indemnity for their financial resolution.