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Home / Insurance / Court order Dispatch discussion to arbitration abroad shows the potential consequences of purchasing "Bermuda forms" and other international coverage

Court order Dispatch discussion to arbitration abroad shows the potential consequences of purchasing "Bermuda forms" and other international coverage



MF Global Holdings Ltd. et al. v. Allied World Assurance Co. Ltd. et al., No. 1: 16-ap-01251 (Bankruptcy SDNY Aug. 24, 2017), United States Bankruptcy Law for the Southern District of New York ordered MF Global Holdings Ltd. and Allied World Assurance Co. Ltd. to send their $ 15 million failure and lack of coverage in Hamilton, Bermuda. MF Global initiated an opponent against Allied World in the bankruptcy court after Allied World had refused to pay MF Global for amounts returned by MF Global to its customers' accounts as part of a settlement of claims on MF Global's former directors and board members. Allied World denied coverage under its "Bermuda Form" error and removal policy, claiming that this procedure was equivalent to assuring insurance, not professional liability insurance, which is what errors and omissions usually cover.

MF Global attempted to settle disputes in bankruptcy law in New York and claimed that the disposition of the coverage was at the heart of the bankruptcy procedure, since the policy of dissolution required interpretation and enforcement of previous bankruptcy court orders and also for the dispute to be an important asset to the estate. However, Allied World attempted to insure the British arbitration arbitration award in Bermuda. It claimed that the declaration dispute was a "non-core" issue and the general policy favored the enforcement of arbitration.

Bankruptcy law agreed with Allied World and concluded that it had to refer arbitration disputes to arbitration in Bermuda. The court considered that the dispute settlement was a "non-core" issue based on the parties' negotiation relationship, not based on rights created under the bankruptcy law and did not mean that the accommodation was the most important. The Court also emphasized the federal arbitrator's strong policy of enforcing arbitration agreements. Finally, the court also held the opponent in full pending the outcome of the Bermuda arbitration.

F Global illustrates the potential consequences of policyholders buying "Bermuda Form" policies. These policies usually provide Bermuda or London-based arbitration and have gained popularity in recent decades due to the perceived procedural and material benefits of avoiding US governing law. For example, insurance carriers may be drawn to the "Bermuda Form" arbitration because of their application of English or Bermuda Joint Law, as well as the UNCITRAL Model International Commercial Arbitration Act and the 1993 Bermuda International Conciliation and Arbitration Act. In comparison to US substantive laws, these may govern standards offer insurance carriers more options to avoid coverage for settlement costs and more options to seek to revoke coverage and avoid penalties for penalties.

MF Global serves as a reminder that policyholders will need to evaluate jurisdictional and fair differences when considering the "Bermuda Form" policy, including the potential coverage effect. Coverage Councils can help policyholders understand these and other international coverage forms to assess their potential benefits and to develop strategies to mitigate their potential risks.


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