This whole certification teaches how to build a file against a hesitating insurer. It remains to know before whom it will be brought, and that question is settled years earlier, in a clause almost nobody reads at signature. Dispute resolution never appears in offer comparison tables, it does not figure in brokers' summary notes, and it nonetheless decides what a dispute will cost, how long it will take and what a decision will be worth once obtained.
Two distinct choices hide in that clause and they are constantly confused. The governing law says by what rules the contract is interpreted: what an inaccurate disclosure is worth, how a fact is proved, whether a forfeiture clause takes effect, what good faith requires. The forum says before whom the dispute is argued, a named state court or arbitration seated in a named city. A policy may perfectly well be governed by one law and argued elsewhere, and that combination is even frequent, which obliges a tribunal to apply a law that is not its own.
The governing law carries consequences one measures only by comparison. On disclosure, some laws sanction good faith inaccuracy by proportional reduction and others by far harsher rules. On late notification, some require the insurer to show prejudice and others are satisfied by the missed deadline. On the construction of ambiguous clauses, some read them against the party that drafted them and others do not. Those differences are not specialists' nuances: they decide entire files, and they were fixed on the day a two line clause was signed.
The forum decides everything else, beginning with cost. An international arbitration under the rules of a recognised institution costs hundreds of thousands of euros in administrative fees and arbitrators' fees, before any counsel, and that expense is indifferent to the amount in dispute. For a three hundred million claim it does not matter; for an eight million claim it decides whether bringing it is worthwhile at all, which is to say that the dispute resolution clause can make economically inaccessible a cover that has been paid for. It is the one place in the contract where a stipulation of form removes in practice a right of substance.
A second criterion is more rarely considered and becomes decisive when one wins: what the decision obtained is worth. An arbitral award made under a widely ratified international convention is enforced in many countries without review on the merits, which is its principal advantage. A state court judgment travels far less well and depends on bilateral agreements or national enforcement procedures. Against a solid insurer established in a country where one can act directly, the question does not arise; against a carrier from a more distant market, or a pool of scattered co insurers, it becomes the main question again.
One must then say what the confidentiality of arbitration changes, because both parties present it as an advantage and it does not serve the same interests. It protects the insured from publicity it does not want, which is real. Above all it protects the insurer from the building of public case law on its own wordings, which is more so. An insured arguing alone against a standard clause has the benefit of no earlier decision, whereas its insurer knows every one that concerns it. That asymmetry is structural and is not corrected at the time of the dispute.
There remains a practical answer to the cost problem, and it deserves being known rather than discovered: third party litigation funding. A funder advances the costs against a share of the proceeds, which makes workable a claim the insured's cash would not have carried. That solution is neither free nor neutral, since it introduces into the file an actor whose interest is return and not the relationship with the insurer, and it presupposes a strong, well documented claim to interest anyone. It nonetheless changes the balance on mid sized files, which are precisely the ones the forum clause was discouraging.
This module closes on the only thing a professional can take from it at the moment it is still useful, that is at inception. Read the dispute resolution clause as one reads the limit, and put three questions: under what law will my disclosure be assessed, what does access to this forum cost for a claim of the size I fear, and where will I enforce if I win. None of those three questions appears on an offer comparison table, and together they decide the real value of the cover.
A mid sized Belgian group holds a cable plant in a Southeast Asian country, insured for 40 million euros. A series of administrative measures causes it to lose control of operations in 2025. The insurer, established in Bermuda, declines, alleging an inaccurate disclosure at inception: the group did not mention a summons from the energy authority received three weeks before inception. The claim is for 11 million after the deductible and the retained share. The dispute resolution clause provides for arbitration before three arbitrators, seated in Singapore, under institutional rules, the policy being governed by English law. The quote from prospective counsel comes to 1.6 million euros, arbitration costs included. The finance department hesitates. How should the problem be framed?
One must first refuse to treat this as a question of legal conviction, because it is not: 1.6 million of costs against 11 million claimed is fifteen per cent of what is at stake before any assessment of prospects, and that proportion, not the merits, is what makes management hesitate. It is exactly the effect described above, where a clause of form makes economically inaccessible a cover that has been paid for, and it must be named to the committee rather than leaving it to believe the file is weak. On the merits the position is not bad. English law governs, and the question will be whether the energy authority's summons was a fact that would have altered a prudent underwriter's assessment, which is arguable depending on what it contained, and whether the insured must answer for a fact known to its local management without reaching head office, which depends on the contractual definition of the circle of knowledge parties. Both points are arguable, and the second is often the stronger. Three routes then open and they must be presented together. The first is settlement, to be approached without embarrassment: the insurer knows the cost of access to the forum as well as the insured does and knows it will hesitate, which bears on what it offers. A settlement at fifty or sixty per cent is defensible where the alternative costs fifteen per cent of what is at stake and takes three years. The second is third party funding, which makes the arbitral route workable without committing the group's cash, at a price directly comparable to the discount a settlement would impose; it presupposes a well documented file and that is so here. The third is to check whether the applicable institutional rules offer an expedited single arbitrator procedure for amounts of this order, which several rules do and which would cut the quote considerably. What must be said to the committee in conclusion is not pleasant and is better said: the clause producing this situation was accepted at inception without being read, and the step to take for the group's other assets is to treat forum and governing law as one treats the limit.
- 01Two distinct choices hide in one clause: the law says by what rules the contract is read, the forum says before whom one argues, and a policy may be governed by one law and argued elsewhere.
- 02The cost of access to a forum is indifferent to the amount in dispute: it is the one place in the contract where a stipulation of form removes in practice a right of substance.
- 03What a decision is worth once obtained depends on how it travels: an award is widely enforced without review on the merits, a state judgment travels far less well.
- 04The confidentiality of arbitration mainly protects the insurer, which knows every decision made on its wordings when the insured knows none.
- 05Three questions to put at inception, none of which appears on an offer table: under what law, at what cost of access for the size of loss I fear, and where I enforce if I win.