Policyholder Pulse
The Second Circuit Court of Appeals has weighed in (again) on a still unsettled issue in the realm of insurance law: whether arbitration provisions in insurance policies issued by foreign insurers are enforceable notwithstanding states’ anti-arbitration statutes? If they are, coverage disputes between policyholders and insurers are likely to be relegated to arbitral decision under insurer-favored arbitration clauses; if not, policyholders may pursue their rights in a more favorable forum. In Certain Underwriters at Lloyds, London v. 3131 Veterans Blvd LLC, the Second Circuit abrogated its previous decision in Stephens v. American International Insurance and answered this question in the affirmative, finding such provisions enforceable under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the “New York Convention”).
Considering the complex structure of commercial insurance programs—typically purchased in annual “towers” of insurance—risk managers and in-house counsel often do not pay sufficient attention to arbitration-related provisions, which the insurance industry is more frequently including in its policies. That’s like playing only one board in a game of three-dimensional chess. Discrepancies among such provisions can lead to obstacles policyholders later must surmount when coverage disputes arise. This article highlights critical issues to consider and offers recommendations to avoid these obstacles wherever possible.
Even if an insurance company attempts to deny its coverage obligations, there are still processes that a policyholder can explore, short of litigation, that could resolve a coverage dispute. Appraisal is an alternative dispute resolution process designed to efficiently resolve measurement disputes between policyholders and their insurers. Appraisal can streamline a coverage lawsuit and narrow the disputed issues—it may even limit the need for expert reports and depositions. There is a strong 
As coverage counsel, we see the situation arise time and again: facing down substantial potential liability in a pending lawsuit, a policyholder engages in good-faith settlement discussions with the plaintiff. After animated negotiations between the parties, the plaintiff finally makes a reasonable offer, only for the policyholder’s insurance carrier to throw up a roadblock by refusing to fund or consent to the settlement. But policyholders need not always resign themselves to continuing costly and time-consuming litigation—a “covenant not to execute” may be the switch to put the settlement back on track.
