Navigating claims in international programs - part 2: legal systems and jurisdictions

_{We’ve been investigating claims best practice for international programs, gathering insights from across our network of partners and our own team. These include claims handlers, brokers, loss adjusters and coverage lawyers. This series of articles covers practical information and useful tips on how you can address the issues that may arise in the reporting, handling, and settlement of cross border claims. You can read the next article in the series here.}

What is the applicable law and competent jurisdiction? This is a key question at the outset of a claim. It's only with confirmation of the applicable law and competent jurisdiction that the parties know what to expect on how their claim is going to be handled. Different jurisdictions have different legal systems and hence different claims handling regulations.

"When you get legal and regulatory environments that differ substantially, that could impact the intended plans for a claim for building reinstatement, business recovery or subrogation. Significant logistical issues can arise from one claim involving different territories," comments William Wilson, Head of Major Loss (Ireland) at McLarens.

"This is always the starting point as a lawyer. The first question I ask is, what's the law and jurisdiction," explains Jason Reeves, Attorney at Law ‑ English Solicitor at Zelle International, "and then I would say the dispute resolution process. Does it call for mediation? Is the jurisdiction where the claimant is situated? Does it have any alternative dispute resolution process? Is litigation cost-effective there? Are we going to be in a court?"

Different approaches in different jurisdictions may have an impact as to how a loss is quantified. Take the example of the flooding in Thailand in 2011/2012.

"There was a view in London that there were concurrent causes of loss, which could be taken into account to arrive at a reduced settlement amount, but it wasn't clear that this would apply in the local jurisdiction," explains Ian Hasson, Director Financial Risks, Europe Middle East & Africa at Sedgwick International. "So, you can have market practice in one jurisdiction, which would not necessarily be followed in the jurisdiction where the loss or losses take place."

"Here's another example", shares Ian Hasson, "an issue arose as to the proper treatment of depreciation in the evaluation of a Business Interruption claim. You may have legal decisions in one jurisdiction that, in certain circumstances, it’s appropriate to make a deduction for depreciation.

However, you may have case law in another jurisdiction, which says depreciation is not a charge that is payable out of profit and should not be taken as a deduction in any loss calculation. You may need to take legal advice on a specific legal point in the territory where the loss is located. However, in terms of reaching a settlement on a loss, that could be seen as adversarial and may be counterproductive to reaching an agreed settlement on the business interruption resulting from the loss."

You would often have a Dispute Resolution Clause and an Arbitration Clause within the policy and that would specify the jurisdiction of any dispute, but while this provides some certainty it doesn't always work.  It may be important to ensure that the dispute resolution jurisdiction in a fronted local policy, mirrors that of any reinsurance contracts.

"On claims on international programs, that issue may well be addressed in terms of providing some certainty as to which law should be applied. But it doesn't necessarily overcome the issue of explaining why a loss in a particular territory is being approached in a particular way from a quantification perspective," explains Ian Hasson, from Sedgwick International.

And as Jon Jones, our Property & Engineering Claims Lead adds, "the policy tries to iron out that issue, but it's not infallible. The reality is the loss location will often determine the jurisdiction under which any dispute will need to be considered."

"Disclosure is always an interesting area on international claims," adds Jason Reeves from Zelle International, "specifically, determining the amount of disclosure an investigation requires in the course of a normal claims adjustment. But also, during any litigation that may arise, there can be different rules and civil procedure jurisdictions applying to common law procedures, which generally have far broader disclosure obligations. There are also different cultural expectations on how information is held and disclosed."

International Programs with a fronting/reinsurance component add an additional layer of complexity to the claims resolution process.

"Taking Latin American countries as an example. You may have a retention locally, a retention in the North American Market, and a retention in the European Market. Getting those three insurance groups to work together can be challenging," explains Jason Reeves from Zelle International, "the insurer holding the local retention isn’t likely to want to hire a New York or a London lawyer. They would argue ‘Why would I need advice on local law from a non-local lawyer?’ But equally, North American, European or Asian Markets are unlikely to hire a local lawyer directly."

"So, the fronting arrangements can cause problems, and then you can have conflict of law questions. I find that reinsurers often forget their role in handling these types of claims, where there's a large front, because ‘follow the fortunes’ may apply and the claim may be adjusted following local law, and as per local rules and practices’."

"This can be addressed by ensuring that partnership arrangements with law firms mirror those territories in which you operate. That way you can have London/NY counsel, who is liaising with their local representative. From a fronting perspective this goes to the strength and network communication of the lead", adds Jon Jones.

On claims, it’s necessary to determine whether a claim is or isn’t covered by the local policy, and if it isn’t, the claim will be referred to the master policy, under DIC/DIL or FINC. An insurer may issue a local policy, because they're licensed to write in that jurisdiction, and other insurers are participating on DIC/DIL.

"One frustration of claims with DIC/DIL for stand-alone local policies is if local insurers simply don't communicate what they're doing or why they're doing it. COVID has created interesting examples of this, for example where there’s a locally retained component but the local insurer is not telling anyone how they're handling the local claims. And the rest of the (insurance) market, sitting as difference in conditions, is scratching their head trying to figure out what's going on," shares Jason Reeves from Zelle International.

However, a properly structured international program will avoid these issues.

Wherever possible the law that will apply to and the jurisdiction that is competent for handling a claim should be determined at the outset.

However, the interpretation of policy response and the application of the insurance cover may vary across different jurisdictions and the claim may not necessarily proceed in the way you would expect from experience in your own jurisdiction. 

That’s why we have a network of specialist partners who can support you on planning for and navigating the most complex claims around the world. 

Read more articles in this series

Part 1: Global claims for global risks
Part 3: Managing claims across cultural and geographical barriers
Part 4: Keeping your business running, financials and cash flow
Part 5: 5 tips for best practice for managing global claims

A special thanks to some of the experts in our network who shared their insights for this piece:

William Wilson, Head of Major Loss (Ireland) at McLarens.
Jason Reeves, Attorney at Law ‑ English Solicitor at Zelle International.
Ian Hasson, Director Financial Risks, Europe Middle East & Africa at Sedgwick International.

Readers should form their own opinion on the topics described and not rely on the information provided in this article. Though collected with due care, Swiss Re does not accept any responsibility for completeness and accuracy of the information provided.