Time to talk.

With moves afoot to promote mediation in the marine market, Richard Cornah extols the virtues of ADR.

In 1997 Lord Mustill completed his year as chairman of the
Association of Average Adjusters (AAA) with a highly entertaining and
instructive address on the way in which sloppy and inaccurate policy
wordings lead all too often to costly disputes. His general view was
clearly that the insurance industry could do a great deal better.


His analysis of the different kind of mistakes included 'low-level
disasters', the 'lucky dip', the 'collage', the 'ampersand blunderbuss'
the 'palimpsest', the 'blunt instrument', the 'false friend' and 'designer
confusion'. His different titles convey the problems that are all too
often encountered in practice.


WOOLF REFORMS


Reinsurance has earned a reputation for complex and costly litigation over
disputed wordings, and anything that can help to solve cases more quickly
and effectively must be good news. Lord Woolf's 1996 report 'Access to
Justice' has re-emerged as a new set of procedural rules governing
litigation in England and Wales effective since 26 April.


The main thrust of the changes has been to reduce the duration, cost and
procedural complexity of litigation. Some variations have therefore been
allowed in the specialist Commercial and Admiralty Courts that deal with
major corporate cases.


The basis of the Civil Procedure Rules' new approach is that they are
framed with "the over-riding objective of enabling the court to deal with
cases justly". The court itself must actively manage cases to achieve this
objective.


Examples of such case management include encouraging the parties to
co-operate, controlling the progress of the case, identifying the key
issues at an early stage and disposing of those that do not need to be
considered at trial, and encouraging the parties to use alternative
dispute resolution (ADR).


Although mediation has been a great success in the US on personal injury
claims - a success that is being repeated in the UK - there has been a
reluctance to see it as a means of resolving the big corporate
disputes.


Better education and information is obviously the solution to this, and in
the London market the International Underwriting Association and the
Lloyd's Underwriters' Association have set up a joint working party, which
includes a member of the AAA, to promote ADR among their members.


The high level of attendance at a presentation to the market in April
suggests that many (re)insurers are ready to take these ideas on
board.


The working party intends to capitalise on this interest by staging a mock
mediation this month.


ADR PROVISIONS


Encouragement to use ADR is not simply included in the Civil Procedure
Rules as a 'good thing'; there are a number of very specific
provisions.


Rule 26.4(1) states that: "A party may ... make a written request for the
proceedings to be stayed while the parties try to settle the case by
alternative dispute resolution or other means." The new regime of active
case management takes this even further because, when "the court of its
own initiative considers that such a stay would be appropriate, the court
will direct that the proceedings be stayed for one month" and the court
can extend that period "as it considers appropriate".


What remains to be seen is the extent to which the courts take into
account the parties' observance of the spirit and the letter of the new
rules when considering the question of costs. Under Rule 44.5(3) the court
must consider several factors when looking at costs, including the conduct
of the parties before the proceedings and "the efforts made, if any,
before and during the proceedings in order to try and resolve the
dispute".


A RANGE OF OPTIONS


The term ADR is usually associated with mediation where a mediator
actively assists the parties to reach a settlement, without taking sides
or imposing a solution. The term actually covers a wider range of options
which can include:


- executive tribunals (sometimes called mini-trials), which involve
presentations to senior executives of each party with a neutral
chairman;


- neutral evaluation, where an appropriately experienced neutral is
appointed to deliver a non-binding view of the merits of each side's case;
or,


- expert adjudication, where the appointed neutral gives a legally binding
decision.


PROVEN TRACK RECORD


The AAA's members deal with up to $1bn of claims in a typical year, with
its independent view being accepted fully in over 95% of claims. Cases
where a settlement of some kind is not agreed are rare. There is therefore
nothing particularly new or radical about the use of an intermediary in
such a role.


Since it was set up in 1990 as a non-profit making organisation with the
backing of several major corporate and professional supporters, the Centre
for Dispute Resolution (CEDR) has become a major ADR service provider.


CEDR recently reported that in the year to March 1999, the number of cases
submitted to it had increased by 33%, with almost half the cases involving
disputes of over £500,000 ($800,000). The average length of the mediations
was 1-3 days and the settlement rate for commercial cases ran at an
impressive 85%, with parties finding significant savings in costs and
management time. The highest reported cost saving by one party was £1.5m
and their largest case, which was reinsurance-based, involved over
£1bn.


While advocates of mediation would not claim that it is effective in all
cases, the evidence of a quick and cost-effective system is there for all
to see. This begs the question of why it is not already more widely
used.


Lawyers would doubtless point out that good lawyers have always been
commercial in their outlook and ready to seek a negotiated settlement when
in the interests of their client. Unfortunately, a difficult lawyer on the
other side can make this process impossible and, when allowed to get out
of control by a nervous or inexperienced principal, can keep the
litigation meter running indefinitely.


The new Civil Procedure Rules should mean that lawyers who are needlessly
aggressive or dismissive of reasonable settlement opportunities will lay
themselves open to scrutiny by the judge as case manager, and possible
sanction when it comes to costs.


Richard Cornah is a director of Richards Hogg Lindley and a fellow of the
Association of Average Adjusters.


TABLE 1: ALTERNATIVE DISPUTE RESOLUTION ROUTE MAP


LITIGATION


- Protagonists - adversarial process with binding decision to be imposed
by adjudicator.


- Procedural rigidity - externally imposed rules on procedures, timetable,
representation, evidence, costs.


- Positional - 'win or lose'. Parties assert maximum claims.


- Past-looking - judicial role to analyse 'history' of issue and evidence
that led to dispute and relate to legal precedent.


- Public domain - hearing generally open to public and press.


- Pressure - of costs, delay, adversarial postures, risks of judgement
against lead to late 'collapse' into settlement. Final arguments often on
how to divide costs.


ALTERNATIVE DISPUTE RESOLUTION (ADR)


- Consensual - parties agree to seek business solution assisted by
advisers.


- Control - parties agree timetable, procedure, agenda. Outcome is
contractual agreement or consent award.


- Cost-saving - emphasis on key issues, not on exploring every corner to
substantiate case or meet other side's evidence before judge.


- Continued business relations - emphasis on communication of interests
between the parties, on problem-solving, on business solutions.


- Confidentiality - private meetings to explore and agree settlement.


- Creative - commercial/business solutions not limited by legal rules or
precedent, nor by historical perspective. Current and future interests and
any other aspects can be explored to help achieve solution.


LITIGATION AND ADR ARE NOT MUTUALLY EXCLUSIVE


- ADR offers widening scope of negotiating techniques.


- Litigation may create a consensus for ADR.


- ADR can address legal rights and business solutions.
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