The use of arbitration and binding opinions in insurance practice from the perspective of parties

1.    Introduction

Arbitration clauses can be found ‐ these days in 2014 ‐ in almost every conceivable type of
contract. In some sectors, arbitration has long been used as an alternative and in particular a
satisfactory form of dispute resolution. Thus, in the construction industry arbitration is a
thoroughly well established concept, thanks to arbitration institutions such as the Council of
Arbitration for Construction and the Arbitration Institute of Architecture. The world of trading
commodities and raw materials also makes extensive use of arbitration as a form of dispute
resolution, with its own arbitration institutions, such as NOFOTA (Netherlands Oils, Fats and
Oilseeds Trade Association) and the Royal Committee of Grain Traders. There is also a specific
arbitration institution for resolving ICT disputes, called SGOA (Foundation for the Settlement of
Automation Disputes). A major advantage of arbitration compared to litigation through the
courts which is constantly mentioned is access to a pool of experts, so that the presence of
specific knowledge of the industry and the subject matter is ensured. Another major
advantage is deemed to be the efficiency and speed with which cases are settled.

Given these undeniable benefits, it would be reasonable to expect that the focus would be on
arbitration in resolving insurance disputes. Yet there appears to be no particular interest in
arbitration within the insurance industry in the Netherlands. In Dutch policy conditions, it is still
unusual to find an arbitration clause. This means that companies in the Netherlands are out of
step with developments in this area in other countries where the arbitration clause has really
taken off in insurance agreements. This is especially true for America, England and Germany
(countries with major players in the insurance market, not to mention the reinsurance market),
where arbitration has long been embraced by insurers .

In America, the sharply rising popularity of arbitration clauses in insurance agreements can be
explained against the background of the jury system. By including (comprehensive) arbitration
clauses in insurance agreements, U.S. insurers deny policyholders the possibility of submitting
questions about the applicability of the policy and the coverage under the policy to a judge and
jury and are trying to prevent the jury classifying the settlement of claims under the policy by
insurers as bad faith (with the risk that the jury will award an amount of damages for noncontractual
liability). Of course, this consideration does not play a role in Dutch law, but it
might be thought at first glance that the above‐mentioned advantages of arbitration would lead
the parties to an insurance dispute to prefer arbitrators to the regular courts.

The fact that this is not (increasingly) happening could perhaps be explained by the pitfalls and
obstacles that may arise if the parties wish to submit their dispute to arbitrators, seen both
from the position of the insurer and from that of the insured.

For example, what about a complex insurance dispute, involving not only the insurer and the
insured, but also other parties, such as the broker, the injured party, the third‐party beneficiary
or one or more other third parties? If the insurance policy includes an arbitration clause, who is
or are bound by it in that case? Only the insurer and the insured or also other parties? How to
avoid partial settlement of disputes ("piecemeal resolution of disputes") and conflicting
judgments?

And does not the argument that the dispute will be settled by one or more arbitrators with
knowledge of the industry and the subject matter evaporate if the insured person himself has
no affinity with the (insurance) industry and is perhaps afraid of high "insider" content? This is
an issue that directly affects the impartiality of arbitrators (already a sensitive subject).

These ‐ and other ‐ pitfalls we will address in this paper, without wanting to aspire to
completeness. In addition, we will briefly discuss alternative dispute resolution procedures in
the form of proposals from an ad hoc binding advisor. Other alternatives ‐ especially disputes
through mediation and the KiFiD ‐ are discussed by other authors in this volume.

2.    The arbitration agreement

2.1    The requirement of a "written document"

Insurer and insured may agree that disputes between them, to the extent arising from the
insurance agreement, shall be subject to arbitration.

Arbitration is only possible if it is based on a valid arbitration agreement. The requirement that
the arbitration agreement is confirmed by a written document (Art. 1021 of the Dutch Act on Civil Procedure, “DACP”) is not an existential or procedural requirement and is only relevant if
the creation or existence of the arbitration agreement is disputed.

Art. 1021 DACP requires that the document is expressly or implicitly accepted by or on behalf of
the other party. It should either be a document which provides for arbitration or a document
that refers to conditions that provide for arbitration. For parties who wish to ensure at the
conclusion of an agreement that any future disputes will be subject to arbitration it is important
that the arbitration clause meets this evidential requirement. That way the inevitable discussion
about the competence of the arbitrators may be avoided, if it comes to a dispute.

A specific feature of insurance law is that an insurance agreement is in principle free in form.
The insurer is required after the conclusion of the insurance agreement to ensure that as soon
as possible a policy ("deed") is issued confirming the agreement (Art. 7:932 section 1 of the
Dutch Civil Code, “DCC”). That deed is the written evidence of the existence of the insurance
agreement.

Such a deed usually involves in practice a schedule with the details of the parties, sum assured,
premium, applicable specific and general clauses etc. It is accompanied with the clause sheet
with special conditions and the applicable general policy conditions. Coverage confirmation, the
contract note or "cover note" do not constitute a deed (and are generally not issued by the
insurer, but the broker) and do not provide compelling evidence of the existence of the
insurance agreement.

The policy meets the requirement of a written document referred to in Article. 1021 DACP. This
document is explicitly or implicitly accepted by the insurer and the policyholder. Acceptance by
the insurer is usually explicit: in many cases, the policy document is signed by or on behalf of
the insurer. Acceptance may be assumed if the policyholder retains the policy and the
policyholder ‐ obviously tacitly ‐ has accepted it as a correct record of the insurance agreement.
Although the retention of a document without protest is in itself insufficient for tacit
acceptance, the situation is different, in our view, with the issue of a policy. The legislature
clearly assumes this procedure, in which a signature of the insured on the policy is not required
and the policy itself qualifies as a deed.

So the policy is a document by which the arbitration agreement can be confirmed. Art. 1021
DACP insists, however, that the document provides for arbitration or refers to conditions that
provide for arbitration. As a rule, the policy itself does not contain an arbitration clause.

The question is whether an arbitration clause contained in the special or general policy
conditions leads to (confirmation of) an arbitration agreement between the parties.
General policy conditions are standardised conditions that often are unilaterally drawn up by
the insurer. In principle, they therefore fall within the scope of Section 6.5.3 DCC. However,
Section 6.5.3 DCC does not apply to "clauses that specify the core of the performance" (Article.
6:231 DCC).

Many terms of an insurance agreement form such core terms: in the policy conditions, the
extent of the coverage is described in often extensive lists of risks covered and excluded. This
calls into question whether the inclusion of an arbitration clause in general policy conditions
meets the requirement that there must be a document which refers to conditions in which an
arbitration clause is provided for under Art. 1021 DACP. However, we believe that Art. 1021
DACP should not be so strictly interpreted that the arbitration clause must be "surrounded" by
only general conditions as specified in Section 6.5.3 DCC. It would be sufficient in our view that
there is an arbitration clause which forms part of a document in which standardised conditions
are laid down, whether these are general conditions under which a protection regime applies or
not. If the general policy conditions include an arbitration clause, reference may be made to
these general policy conditions in a document and this meets the requirement of proof under
Art. 1021 DACP. Art. 1021 DACP does not require that the document (the policy schedule)
expressly refers to the arbitration clause in the general conditions, but only to the conditions
themselves.

In our view the situation is in no way different if an arbitration clause is included in the schedule
that contains separately agreed special clauses. Most special clauses are the result of
negotiations, but the text of the most special clauses is standardised. And the most special
clauses are used in multiple insurance agreements. However, it would be preferable not to
include an arbitration clause in the policy schedule to avoid discussions down the road. If the
parties wish to agree in advance on arbitration and if an arbitration clause is not standardly
included in the general policy conditions, the insurer would have to include the arbitration
clause in the policy or the parties would have to sign a separate arbitration agreement.

2.2    Wording of the arbitration clause

A constant source of debate is the wording of the arbitration clause. It is therefore important to
submit an arbitration agreement or an arbitration clause to detailed study because the
multitude of wordings used for such clauses can cause confusion and uncertainty.

The specific elements of the arbitration clause will ultimately determine whether an (insurance)
dispute is subject to arbitration or not, what the proceedings will be like and what topics or
disputes will be covered by an award, etc.. To the extent that arbitration clauses are included in
insurance agreements, they vary from a limited provision in a fire or theft policy when the
insurer admits liability in principle and the arbitration only determines the value of the
damaged or lost property to a comprehensive provision whereby all disputes arising out of or
relating to the insurance agreement shall be subject to arbitration, including but not limited to
disputes about the coverage under the policy . Not only are there significant differences to be
observed in the scope of the arbitration clause, it is also striking that some arbitration clauses
are very extensively formulated (with detailed descriptions of the number of arbitrators, the
appointment procedure, the qualifications of the arbitrators, the particulars of the arbitration
procedure, including the number of written and oral statements, etc.), while other arbitration
clauses are so short that it almost seems as if at the last moment, almost nonchalantly, they
have just been tacked on to the insurance conditions.

The importance of awareness on the part of the insured about the specific elements of an
arbitration clause in an insurance agreement is obvious. It makes the policyholder better able to
understand the arbitration clause and to know what he can get from it. This awareness can also
be used in an attempt to negotiate the arbitration clause so that it is more favourable for the
insured than the original text which the insurer proposes and in fact a "level playing field" is
created.

A number of factors should be considered by the insured in this context (and the following list is
certainly not exhaustive):

1) The fact that arbitration has a definitive nature, and that an arbitral award is, in
principle, not open to appeal.

2) The insured should realise that he is waiving the (constitutional) right to approach the
regular courts.

3) The costs of arbitration can really add up, not least because arbitrators have to be paid
on an hourly basis. It is not easy to say anything about the cost of arbitration in general.
Even complex proceedings in regular courts can really run up the numbers.

4) Traditionally it has been argued that arbitrations involve short lead times and that ‐
especially now that appeal is mostly excluded ‐ the matter is rapidly brought to an end.
Our experience is that arbitration is not always as fast as we would like. A possible
explanation could be that arbitrators often lead the speed be determined by the parties
themselves and, for example, are willing to agree to postpone the award. At the same
time it happens that some arbitrators are so popular that they can only schedule the
issue of an oral hearing and the examination witnesses after a number of months (or
sometimes even longer) or for the same reason take months to reach an arbitral
award. In addition the regular courts have made great advances in recent years
precisely in this area. At the time of the amendment the procedural law for civil matters
on 1 January 2002 and also thereafter numerous measures have been taken by the
legislature to shorten the duration of proceedings before the regular courts and to
avoid unnecessary delays. The advantage of arbitration over ordinary state law because
of the time factor is certainly not as obvious as it was previously.

5) It is not possible in arbitration to settle a mass claim along the lines of the Collective
Settlement of Mass Damage Act (“WCAM”). The WCAM provides for its own procedure
in the Court of Amsterdam for declaring an agreement on collective claims binding,
which cannot be replaced by an arbitration. If there is an arbitration clause in an
insurance agreement with an insurer involved in a mass claim, then it must strictly
speaking be expressly waived by the parties if they want a collective settlement of the
mass claim through the Amsterdam Court.

6) In an international context (in particular with major interests to ensure or in
reinsurance), the insured will be very well aware of the choice of law in the general
insurance policy. Often it will be the law of the state where the insurer has his principal
place of business. Needless to say, this will not often work in favour of the insured (the
policyholder).

7) The insured will have to look carefully at where the arbitration will take place in an
international context. The risk is not insignificant that the insured will have to incur high
travel and accommodation costs to attend the arbitration (and that also goes for any
possible witnesses or experts on behalf of the insured).

8) Furthermore, in an international arbitration, the applicable rules can lead to costs that
are significantly higher than in national arbitration or proceedings in the regular courts
(for example, by application of the IBA Rules on the Taking of Evidence in International
Commercial Arbitration, which rules can lead to relatively extensive discovery and
witness hearings).

3.    Parties to the arbitration and third parties

3.1    Introduction. Outline of the problem

The fact that arbitration is often not standardly agreed in the insurance agreement is, perhaps,
partly due to the number of parties that can play a role in an insurance dispute. Particularly in
complex insurance cases, not only are the insurer and the insured person in dispute, but also
other parties, such as brokers, agents, co‐insured, victims/claimants and other third parties. In
the introduction to Chapter 1 we have already seen that questions may arise on which not all
parties involved in the insurance dispute are bound to an arbitration agreement.

An imaginary (or perhaps not so imaginary) case clearly shows how complicated the problem
can be: imagine that, as part of the construction of a new factory, an installation has to be
delivered and a serious incident occurs during the "testing and commissioning" phase. This
results in significant damage to the equipment, fire, explosion or other disaster, making the
project grind to a halt. The delay that occurs in connection with the investigation into the cause,
repairing the damage and restarting the test phase, quite apart from the question of who paid
the repair costs, will almost certainly lead to all sorts of disputes on the question to whom the
cause of the injurious event is attributable and whether that party has thereby also become
liable for damages. In addition, claims in connection with resulting damage will also be lodged,
inter alia, in connection with the fact that the factory can only be commissioned later as a result
of the accident. The accident may have been caused by a design error, poor workmanship,
negligence during the "testing and commissioning" phase or a cause as yet unknown or difficult
to determine which is not related to the design or two negligence on the part of the supplier,
which were the initial suppositions. The matter is further complicated when the damage is not
immediately visible and only comes to light after partial or final acceptance of the project.

Who is liable in that case? Is there coverage under an insurance policy for a portion or all of the
damage? Which policy covers the damage? Under the CAR insurance, which normally ends on
the completion of the works? The general liability insurance which the owner of the factory has
concluded, which normally begins at the moment of completion of the work or commissioning
of the factory? The professional liability of the designer of the facility? Or the general liability or
professional liability policy of the contractor/installer who received the order for the delivery of
the installation and under whose responsibility the "testing and commissioning" phase was
conducted? And what if one or more insurers refuse cover under the policy? Or the underlying
reinsurers? Who should ‐ subject to the follow‐clause ‐ be involved in proceedings? Has a broker
involved perhaps made a mistake in the conclusion of the (re)insurance?

Given the complexity of these questions, the chances are that there will be a need to litigate
about one or more issues either in arbitration or through the regular courts.

That risk is even greater in a case with international aspects. Since arbitration in insurance
transactions abroad is more popular than in the Netherlands, the possibility is not inconceivable
that a dispute with mainly Dutch parties would still have to deal with (international) arbitration
because of the arbitration clause in the reinsurance agreement. This leads to the strange and
undesirable situation that a dispute over insurance coverage is not decided by a single
instance.

It is therefore not inconceivable in insurance practice that a situation would arise in which only
part of the conflict is resolved by arbitration. If other parts of the conflict (should) be referred to
the regular court, there is a considerable risk that inconsistent verdicts will be obtained, with all
its consequences.

Under the Federal Arbitration Act (FAA), "an arbitration agreement must be enforced
notwithstanding the presence of other persons who are parties to the underlying dispute but
not to the arbitration agreement". There is no similar provision in the Netherlands in the
Arbitration Act, but the result should, in our view, be identical in the Netherlands (but it is not,
see below).

When we review the procedural aspects of the battlefield, it must first be determined whether
and, if so, between which parties, an arbitration agreement has been concluded.

3.2 A party to the insurance agreement is not automatically a party to the arbitration
Agreement

An arbitration agreement is in principle only between the contracting parties, who have
renounced their (constitutional) right of access to the regular courts and have agreed that a
dispute between them shall be settled by arbitration. Thus arbitrations are "private affairs".
Third parties who are not parties to the (arbitration) agreement, but who are directly involved
in the dispute, cannot be involved in the arbitration ‐ and certainly not involuntarily.

3.2.1 Co‐insured third parties

An interesting question is whether an arbitration clause agreed between the insurer and the
policyholder ‐ for example, an arbitration clause contained in the general policy conditions ‐ also
has effect in relation to a co‐insured. We are inclined to answer this question in the negative,
however undesirable the outcome may be. We will explain.

In the legal literature, the appointment of a third party as a co‐insured on the policy is
considered a third‐party condition within the meaning of Art. 6:253 DCC: the agreement creates
for the third party a receivable under the insurance agreement, if the third party accepts the
third‐party condition in the insurance agreement. If and when the third party accepts this
appointment, he becomes a party to the insurance agreement, assuming that such acceptance
can take place by claiming a benefit under the insurance agreement. It can be argued that the
acceptance has already happened: indeed Art 6:253 section 4 DCC stipulates that a clause that
is final and not introduced against the third party is already considered accepted if it has come
to the attention of the third party and the third party has not rejected it immediately.

No distinction is made between third parties who know that they are listed as co‐insured on the
policy and others who are unfamiliar with the appointment (or even the existence of the
insurance). Precisely for that reason, we consider that it cannot be assumed that a co‐insured
third party is familiar with the arbitration clause in the policy conditions and certainly not that
he has accepted, expressly or implicitly, the arbitration agreement through the acceptance of
the appointment of the third clause. The pain here is in particular that the co‐insured third
party that is seeking cover under the insurance agreement would be faced with an arbitration
agreement that he did not know in advance and did not want. Especially if the appointment of
the third‐party as co‐insured is not considered a third‐party clause, it cannot indeed be
sustained that this is not contrary to the right of access to regular courts included in the
provisions of Art. 6 section 1 ECHR. It would indeed mean that the co‐insured third party, as
soon as he is familiar with the insurance agreement and the arbitration clause contained in it,
would have to immediately reject the third‐party clause. In addition, he then immediately be
without insurance coverage; a result that is hardly desirable.

The above leads us to consider that the co‐insured is not bound by the arbitration agreement,
unless he explicitly accepts it.

The fact that a policyholder when taking out the insurance has a disclosure obligation that
extends to facts that a conscientious third party, on the conclusion of the insurance, knows or
ought to know and on which, whether he knows or should know it, the decision of the insurer
depends or should depend, does not alter the situation. The duty to provide relevant
information to the third party when entering into the insurance agreement does not justify
the assertion that the third party therefore agrees to the arbitration clause. And that is a
requirement.

What can indeed be argued, in some cases, is that the co‐insured third party is represented in
the sense that that the third party has granted the policyholder an (implied) proxy to conclude
an insurance agreement and to include the third‐party in it as co‐insured (Art. 3:62 DCC). Such a
construction is not inconceivable in cases where a holding company concludes an insurance
agreement on behalf of all the companies that are part of the group. Such proxy is not bound to
a specific form, but as the case may be it could be a point of discussion whether a general, formfree
proxy has given the holder the power to bind the issuers to arbitration and thus refuse the
right of access to regular courts. None of this alters the fact that the principal (the third party
co‐insured) must endorse the act authorised and accept the arbitration agreement. For a third
party co‐insured, which the insurer wants to engage in arbitration, there is therefore not much
going on. Problems arise in the opposite case, if the insurer wants to submit a dispute with the
policyholder and the insured to the arbitrators. The insurer will have to prove that the insured
has accepted the arbitration clause. If the insurance company wants in advance to make sure
that he can involve third parties in an arbitration, he must therefore insist that third parties are
recognised as policyholders.

3.2.2 Co‐insurance

There can also be a "third party" on the side of insurers, namely in the case of co‐insurance. The
insurance on the stock exchange is closed, in principle, through e‐ABS (Electronic Insurance
Exchange System) by an authorised agent who as appropriate signs on behalf of co‐insurers.
In that case it could be that co‐insurers included in the policy conditions have accepted an
arbitration clause. This is clearly a case of accepting a document on behalf of the other party.

However, it is another interesting question whether the co‐insurers are also bound, if the
arbitration clause is not in the policy conditions on the conclusion of the agreement, but an
arbitration agreement is concluded at a later stage between the policyholder and the leading
insurer. The prevailing "to follow" clause suggests that the co‐insurers must in that case "tag
along":

"The other insurers undertake to follow all clauses, to accept conditions and changes which may
be approved by the leading insurers, to submit completely to the claims settlement of these
leading insurers and undertake their share of all refunds on all claims (including leniency
payments), as determined by the leading insurer (however that determination may have been
reached)."

In our view, however, it is rather a case of incidental authority if the co‐insurers are not
explicitly involved as a party to the arbitration agreement. Above all in a situation in which the
arbitration agreement is concluded later, it is better to be safe than sorry.

3.2    The arbitration agreement and third parties

3.3.1 Collateral effect of the arbitration clause?

As illustrated by cases provided in the introduction to this chapter, various parties play a role in
more complex disputes. Not all parties are covered by the arbitration agreement and, as we
have indicated previously, there is also a question as to whether all of the parties in an
insurance contract can even be considered to have accepted the arbitration clause contained
herein. So, could there be a collateral effect in relation to an arbitration clause that has been
included within a policy document?

The law that governs the collateral effect of arbitration clauses on other legal areas
demonstrates that there is little freedom for dealing with these in a flexible manner. In general,
there is no immediate assumption that an arbitration clause has a collateral effect. In 2012, at
least three rulings were issued on this topic, one in arbitration, another by the Dutch courts; in
all three cases, the collateral effect was not accepted.

The arbitrator thus decided, in a procedure involving the Council of Arbitration for Construction
in an incidental judgment on 12 January 2012, that the general terms and conditions provided
by a subcontractor to the sister‐company of the main contractor and not to the main contractor
itself, were not applicable to the main contractor. Unity of management thus makes no
difference according to the arbitrator. In concrete terms, this concerned the General Steel
Construction Sales and Delivery Conditions in which an arbitration clause had been included.
These were thus not applicable in terms of the relationship with the main contractor.
Subsequently, the arbitrator had to declare himself incompetent, in the procedure that had
been brought by the subcontractor against the main contractor, in relation to the incident
raised by the main contractor.

In the next case, which was brought before the Court of ‘s‐Gravenhage, the collateral effect was
even less relevant. It had been established that the Slovakian company Kinex Bearings A/S was
not bound to a contract from 1997 as an original contracted party. The subsequent issue was
whether Kinex Bearings had taken over the contract from party Kinex. There were certain other
issues in relation to private international law but we shall exclude these here for the sake of
simplicity. The court assumed that Dutch law was applicable and that, on the basis of art. 6:145
of the Dutch Civil Code, a deed is required for a contract take‐over; there was no suggestion or
evidence that this requirement had been fulfilled. The court thus concluded that there had been
no legally binding contract transfer. The respondent argued that Kinex Bearings had taken on
the execution of the agreement. The court understood the position of the respondent, i.e. that
they could reasonably have assumed that Kinex Bearings would be considered bound vis a vis
them to the content of the original contract from 1997 or, in other words, that a new contract
had been created between the respondent and Kinex Bearings with the same content as the
contract from 1997. The court found the respondent to be correct on that point but this quickly
turned out to be a hollow victory:

‘if Kinex Bearings had wanted to make other agreements, they should have made this clear
along the way, once they had appeared as a ‘new player’ on the field. This conclusion is of no
benefit [to the respondent] with respect to the issue of competence, now that an exception must
be made for the arbitration clause. On the grounds of article 1021 Dutch Act on Civil Procedure,
an arbitration agreement must be proven by means of a document. This requirement has not
been fulfilled.

The judgment also indirectly dealt with the option of assigning the claims. A deed of assignment
is required for a lawful assignment. This could be a private or an authentic deed. The
assignment must then be reported by the debtor to the third party. The judgment from the
court means that an assumption must be made that, in the event of a lack of a deed of
assignment, there is no case of collateral effect: no legal assignment had taken place and no
arbitration agreement had been created because the requirement to have a document
(explicitly or tacitly agreed) was not fulfilled.

Finally, the Court of Almelo, in the judgment of 19 September 2012 , made it crystal clear that,
in principle, there is no collateral effect with respect to an arbitration clause. The case involved
a dispute between Thuiszorg B.V. and Woonzorg B.V. on one side, and Thuiszorg B.V. and X B.V.
on the other. Evidently, there had been a contract between Thuiszorg B.V. and X B.V. which
contained an arbitration clause. X had brought a case before the courts against Thuiszorg and
Woonzorg but had not stated that Woonzorg was a party to the agreement that X had drawn up
with Thuiszorg. X also failed to state that the parties had intended to also bind Woonzorg to the
arbitration clause. The court ruled that the simple fact that Woonzorg and Thuiszorg have the
same director/shareholder does not justify an exception being made to the principle that the
arbitration clause has no collateral effect. The allegation by Thuiszorg and Woonzorg that a
declaration of incompetence with respect to Thuiszorg would lead to the same dispute arising
between two other bodies and that this would be undesirable with regard to considerations of
case economics, did not lead the court to any other conclusion. The court added that case
economic considerations were insufficient to justify breaching an arbitration clause.

This and other cases have shown that, in principle, third parties are not bound to an arbitration
agreement if they contest this restriction.

The above examples in any case clarify that insurers which include an arbitration clause in their
general insurance conditions must be aware of the fact that not all parties that are directly or
indirectly involved in the insurance dispute can also be involved in the arbitration. Insurers that
include an arbitration clause must also accept that disputes will only be partially resolved and
that conflicting judgments may be issued.

The problem outlined can be overcome if the third parties that are involved in the insurance
dispute agree with the other party, after the conflict has arisen, that their conflict should be
resolved by means of arbitration. These parties will then enter into an arbitration agreement.

Another method for avoiding the problem of conflicting judgments involves the parties, who
have entered into an arbitration agreement, nevertheless deciding to reject arbitration. It must
be assumed that the parties that are authorised to enter into an arbitration agreement are also
authorised, with the benefit of further insight, to refuse to do so and collectively decide to put
their disputes before the Dutch courts. The right to arbitration is a so‐called ‘waiveable right’,
i.e. a right which can be waived.

The fact that, in principle, third parties cannot simply be involved in the procedure is, in our
opinion, the reason that it is not usual in Dutch insurance practices to include an arbitration
clause in the policy conditions. In the event of a dispute arising, whereby parties would like to
turn to arbitrators, they may always decide to enter into an arbitration agreement. And this
occurs in practice with some regularity.

If the parties involved in an arbitration agreement actually end up in an arbitration process, this
does not necessarily mean that third parties will have no role to play therein. There are various
conceivable constructions within which third parties could function as a party in arbitral
proceedings.

3.3.2 Joining and intervening (art. 1036 and art. 1045 Dutch Act on Civil Procedure)

Art. 1045 DCC governs the related legal concepts ‘joining’ and ‘intervening’. Above, we talked
about a perfectly feasible situation within the insurance branch whereby a third party is not a
party within an arbitration agreement but does have an interest in the outcome of the
procedure. In the complex world of insurance disputes, it is quite possible that an arbitration
procedure involves a topic that concerns a third party. This third party can then, in order to
defend his own interests, apply in writing to join the arbitration in an ongoing procedure on the
side of one of the parties or intervene between both parties.

If the interests of one party tally with the interests of the third party, this third party can join
the procedure on his side to support him. If the third party’s interests are served by being
positioned between the allegations of both parties, he may intervene. If he intervenes, he also
submits his own claim. Joining or intervening can only be permitted by the court of arbitration if
the third party is admitted to the arbitration agreement by means of a written agreement with
the parties. If the request is granted, the third party becomes a party in the ongoing
procedure, in both cases. The court of arbitration then oversees the further progress of the
proceedings unless the parties have provided for this within the agreement.

Cases such as HR 15 November 1996 (Multivision/Nederlandse Antillen) and HR 8 December
2000 (Scob/Apeldoorn) demonstrate that the requirements are now less strict.

Less strict requirements have been set in relation to joining and intervening in a range of
arbitration regulations. These regulations endeavour to avoid the procedure being delayed by
joining/intervening as far as is possible. Where there is a threat of an unreasonable delay, the
request will be turned down by the court of arbitration. The consideration of interests that
takes place in this context depends on the circumstances of the case.

A case involving the Council of Arbitration for Construction played out as follows. The parties in
the case were a municipality and a bank. The bank alleged (this was uncontested) that it was the
pledgee of claims that a contractor was making in relation to the municipality. The municipality
had been informed of this right of distraint. On the grounds thereof, the bank was of the
opinion that it was entitled to the claim submitted by the contractor and was thus also entitled
to and had an interest in intervening in the case. The municipality opposed the requested
intervention. In the meantime, the contractor had gone bankrupt; the case was suspended at
the request of the municipality and the receiver then indicated that he would not continue with
the proceeding. The municipality argued that all case procedures had become null and void as a
result of the suspension, including the bank’s request for intervention.

Nevertheless, the arbitrators established that the request by the bank had arrived with the
morning post on 15 February 2010 and that the receiver’s notification that the case would not
continue had only been received in the afternoon. The arbitrators thus referred to art. 1036
DACP, which sets out that arbitration is subject to the rules of book IV DACP and any rules set by
the parties' agreement or by arbitrators. The definitions of books I, II and III DACP are therefore
not, or not directly, applicable to the arbitration case. Parties or arbitrators can take on these
legal definitions in arbitration if they are required. The arbitrators therefore accepted the
intervention under reference to article 225 DACP.

The Bill to Review Arbitration Law 2012 does not bring about significant changes herein. Art.
1045c of the Bill clarifies that third party joining or intervening may only be considered if the
same arbitration agreement applies or is in force between the parties and the third party as was
the case between the original parties.

As opposed to what is now the case, the Bill to Review Arbitration Law 2012 included the
concept that arbitrators should hear both the parties and the third parties before they make a
decision on the request for joining or intervening, except in the case that the arbitrators grant
the third party’s request for joining or intervening. It is clear that, in this case, it is not useful or
desirable to grant a hearing to the third party.

3.3.3 Third party proceedings (art. 1045 Dutch Act on Civil Procedure)

Third party proceedings in arbitration are also regulated in art. 1045 DACP. One party can call a
third party into a third party proceeding. Third party proceedings can only be permitted by the
court of arbitration if the third party is admitted to the arbitration agreement by means of a
written agreement with the parties.

Even though the legal definitions in relation to arbitration permit third party proceedings, over
the past few years there have been a few surprising rulings regarding third party proceedings in
arbitration cases. In 2011, a court ruled twice that an appeal to incompetence, despite the
reference to a (valid) arbitration agreement, should be rejected on the grounds of fairness and
reasonableness. This is notable, at the very least. If the parties in arbitration are agreed and
have thus waived their (legal) rights to approach the Dutch courts, the Dutch courts must
declare themselves incompetent if one of the parties in defiance of the arbitration agreement
turns to the Dutch courts. The legal, case regime seems clear.

The ‘escape’ in both cases was found via the application of the legal correction of art. 6:248
section 2 DCC: the courts considered, in the concrete circumstances of the case according to the
measures of reasonableness and fairness, that it was unacceptable that one of the parties called
upon the arbitration clause in the agreement between the parties. The situation in both third
party cases was that the main case had already been put before the court and that the essential
elements of the main case were very closely linked to the third party procedure.

We recognise that this rule is, in principle, also valid for arbitration agreements and/or
arbitration clauses in agreements, as governed by Dutch law.

At the same time, previous case law, whereby the implementation of an arbitration clause fails
on the basis of the inadmissibility of art. 6:248 section 2 DCC, is very limited. Only in very
exceptional circumstances has an appeal to the arbitration clause been turned down on these
grounds. Meijer refers, in this context, to the category that encompasses the risk of conflicting
rulings. The Supreme Court’s most far‐reaching ruling in this category was a (limited)
exception to art. 1022 DACP issued in the ruling concerning Van Kloof/CSU II, whereby the
Supreme Court accepted that the Dutch courts could include ‘subordinated’ cases that, strictly
speaking, should be subject to arbitration, in their judgments. In another case –
Lufthansa/Aero Groundservices ‐ the court accepted that disputes that were essentially
subject to arbitration could be settled by the Dutch courts. This was the direct consequence of
the fact that the parties themselves had made a mess of the procedure and had introduced a
fragmented dispute settlement regime when they had decided to do away with the arbitration
clause in their agreement on the basis of cost considerations. The court of Haarlem thus agreed
that disputes from the later period and disputes from the period during which the arbitration
clause still applied, could be put before the Dutch courts.

The rulings from the court of Utrecht and the court of Middelburg also fall into the category
that encompasses the risk of conflicting rulings, however these seem to go further than
previous case law. In the interests of case economics, the preference is given to the main case
and the third party proceedings being handled by the Dutch courts; the interests of the party
that is calling upon the arbitration clause are, however, overruled. The issue is whether this is
correct.

Certainly in cases where parties, as a result of an absence of specific expertise (whether that is
expertise in relation to the insurance or any other branch), opt for arbitration, we would like to
argue with Van Haersolte‐van Hof that the Dutch courts do not rush to unify everything on the
basis of case economics. Preventing conflicting rulings is preferable however this end does not
justify all means and must be considered against the interests of a good and efficient decision.
In so doing, the Dutch courts must also consider the principle of party autonomy, which we
regard as a significant component.

Also with respect to the third party case, the Bill to Review Arbitration Law 2012 contains
several clarifications. The panel hears both the parties and the third party. The criteria for
accessing third party proceedings, reference art. 1045a section 4, subsection C of the Bill, reads
as follows:

‘4. The court of arbitration shall not permit third party proceedings if the court of arbitration
considers it implausible, in advance, that the third party will be obligated to bear the
detrimental consequences of any ruling involving the interested party or is of the opinion that
third party proceedings will more than likely impose an unreasonable or unnecessary delay on
the case.'

3.3.4 Consolidation (art. 1046 Dutch Code of Civil Procedure)

The consolidation of arbitration clauses is regulated in art. 1046 DACP. This definition provides
the provisional judge at the court of Amsterdam the authority, on request by the plaintiff, to
order consolidation, in pending Dutch arbitration cases covering related topics. Parties will
thereby be obliged to nominate the arbitrators in the consolidated cases and then to establish
the case rules to be applied. It is perfectly conceivable that the parties cannot agree this and
this has also been covered by the legislator: in that case the provisional judge (again from the
court of Amsterdam) can make a decision on these issues. Unless the parties have made other
arrangements in this regard.

As a result of the consolidation, not all of the arbitration cases will be unified into one
arbitration case whereby all of the parties that were involved in the original cases form a party
in this one too. The consolidated cases remain separate cases with the understanding that the
same arbitrators will be nominated and that the same arbitration rules will apply to all cases.

This does not detract from the fact that the consolidation of arbitration cases can have a
significant impact on a party involved in such a case. It is also possible that a party, on the
grounds of a ruling by the provisional judge in Amsterdam, suddenly (and against his will) is
confronted with an amendment to the arbitration agreement (or an arbitration case) and sees
his dispute settled by another arbitration institute via the application of a different arbitration
rule.

In general, it is assumed that the introduction of legal rules relating to consolidation in 1986
targeted the needs that could arise within the building world. The idea – as a result of
developments in America – was that legislation that enabled ‘consolidation’ could also be used
to avoid more than one case concerning essentially the same facts being played out within more
than one arbitration institute. Here, we can once again see parallels with complex insurance
cases. However, in practice, (even in the building world) applications for consolidation are very
few and far between. Clearly, the need is less evident than was expected at the time or the
advantages of consolidation are less appealing than was hoped.

Despite this, the consolidation rule is found within the draft Bill to Review Arbitration Law
2012. As a result, with respect to the consolidation of arbitration cases, this represents an
important new point of law: not only the provisional judge at the court of Amsterdam, but also
a third party appointed by the parties concerned (in practice, often the arbitration institute
appointed by the parties) can order consolidation, unless agreed otherwise by the parties. The
criteria for consolidation are set forth in art. 1046c of the Bill for Review.

‘2. Consolidation can be ordered insofar as there will be no unreasonable delay to the pending
cases, given the position they are at and that between the arbitration cases there are close
connections such that the efficient administration of justice demands simultaneous processing
and judgments in order to avoid separate judgments for the cases leading to conflicting
decisions.'

4.    Consumers; general terms and conditions

4.1    Arbitration clause in insurance agreements with consumers

This section focuses on the position of the consumer. For some time now, in case law and
literature, a question has been raised as to whether arbitration clauses in agreements with
consumers are unreasonably onerous in the sense of art. 6:233 DCC or unfair clauses in the
sense of art. 3 Directive 93/13/EC. This becomes an even more pertinent issue if an arbitration
clause is included in general terms and conditions (i.e. the ‘small‐print’).

The Supreme Court recently provided further clarity in this discussion. The Supreme Court has
made it clear that arbitration clauses in general terms and conditions should not always be
regarded as unreasonably onerous or unfair. The national court must evaluate a specific clause
on the basis of the concrete circumstances in the case and must investigate whether an
arbitration clause in a concrete situation is unreasonably onerous or unfair.

But what did this involve? The case concerned an order to carry out renovation work. The
contracting party was a consumer. The contractor, in the order confirmation, had stated that
the General Terms and Conditions for Contracting within Construction 1992 (AVA 1992) should
apply. Art. 21 of the AVA 1992 states that all disputes that arise as a result of the agreement, or
any agreements that should subsequently arise, should be settled via 'arbitration corresponding
to the rules set forth in the Articles of Association for the Arbitration Council for Construction
Companies in the Netherlands'. Only in the case of disputes that corresponded to the
magistrate’s authority, would parties have a choice as to whether the case was put to
arbitrators or to the magistrate.

The contracting party was of the opinion that the renovation work carried out by the contractor
was substandard. The contracting party had thus summonsed the contractor to appear before
the court of Leeuwarden. The contractor raised a competency incident and argued that the
Council of Arbitration for Construction rather than the court was competent in terms of
handling the dispute.

The Court of Leeuwarden rejected the claim in the incident. The contractor then appealed to a
higher court but the Court enforced the ruling by the lower court in terms of the incident. The
higher court noted that the arbitration clause of art. 21 AVA 1992 was unreasonably onerous in
the sense of art. 6:233, introduction and under A of the Dutch Civil Code. The higher court
stated in this regard:

'An arbitration clause that is included in the general conditions of an agreement is not
necessarily regarded, on the grounds of art. 6:236 DCC or presumed, on the grounds of art.
6:237 DCC, to be unreasonably onerous. It must therefore be tested against the open norm of
art. 6:233, introduction and under A of the Dutch Civil Code. The interpretation of this norm
must correspond with Directive 93/13/EC of 5 April 1993 regarding unfair clauses in consumer
agreements.’

Upon evaluation on the basis of this criterion, the higher court concluded:

‘The arbitration clause at hand is a clause as set forth in the annex of the Directive under q)
because in the case of a dispute that does not correspond to the authority of the magistrate, the
consumer may exclusively turn to arbitration. The consumer is thus prevented from using the
court provided to him in law, without him consciously realising this at the time of entering into
the agreement and without this topic having been raised during negotiations. (…) All these
circumstances together, bring the court to the conclusion that the arbitration clause of art. 21
AVA 1992 is unfair in the sense of the Directive and unreasonably onerous in the sense of art.
6:233, introduction and under A of the Dutch Civil Code.’

The contractor went to the court of cassation and thereafter the Supreme Court ruled the
following on 21 September 2012:

‘3.4 (…) has provided the court with an evaluation that does not rest upon the exceptional
circumstances of the case at hand but on a general argument that applies to every use of
arbitration clauses included within general terms and conditions such as the case at hand that
form part of an agreement between a user and a natural person that does not exercise a
profession or function as a company (i.e. a consumer). The judgment of the court comes back to
the notion that arbitration clauses in general terms and conditions are always unfair in the sense
of the Directive and unreasonably onerous in the sense of art. 6:233, introduction and under A of
the Civil Code. The sections 1, 3 and 4 correctly oppose this. An arbitration clause that occurs in
general terms and conditions, as the court recognised in section 3.5 of the disputed ruling, will
not necessarily be considered as unreasonably onerous on the grounds of art. 6:236 DCC, and
will not be assumed to be unreasonably onerous on the grounds of art 6:237 DCC. This does not
however rule out, as also recognised by the court, the fact that the judge could find such a
clause to be unreasonably onerous and on the grounds of art. 6:233 DCC consider it to be
reversible, however such a judgment must then – aside from the case set forth in art. 6:233,
introduction and under B of the Dutch Civil Code – rest on a specific justification which
encompasses the nature and the other content of the agreement, the way in which the
conditions were drawn up, the mutual interests of the parties and the other circumstances of the
case, while the obligation to furnish the facts of the case, in principle, lies with the consumer.
The disputed judgment of the court does not rest on an evaluation of the concrete circumstances
of the case but places, as it were, the arbitral clause on the blacklist of art. 6:236 DCC and thus
demonstrates an incorrect legal conception.’

In terms of an arbitration clause in an insurance agreement with consumers, therefore, it must
be assumed that this will not be regarded in advance as unreasonably onerous in the sense of
art. 6:233 DCC, or as an unfair clause in the sense of the Directive. This does not detract from
the fact that the national court, in a specific case, depending on the concrete circumstances of
the case, could rule that an arbitration clause may be quashed. Insurers must take this
possibility seriously. This is even more important now that the Bill to Review Arbitration Law has
placed the arbitration clause on a blacklist.

4.2    Consumers involved in insurance agreements between company and insurer

If there is a case of an arbitration clause in corporate liability insurance, and a private individual
who has been harmed by injury addresses the insurer directly on the grounds of art. 7:954 DCC,
it cannot be assumed that the arbitration clause can be invoked vis a vis the consumer. Even
though, strictly speaking, the consumer is not exercising his own rights in relation to the insurer
and is actually only taking over the claim of the insured party against the insurer, a consumer in
such a case must not be prevented from addressing the Dutch courts.

5.    Ad hoc arbitration

The many aspects that correspond to including an arbitration clause in an insurance agreement
mean that parties will often only enter into an arbitration agreement once a dispute has arisen.
In the Netherlands, this ad hoc arbitration is frequently initiated in the case of a coverage
dispute, i.e. arbitration without use of an arbitration institute such as the Dutch Arbitration
Institute or the Council of Arbitration for Construction.

But why is this? The most obvious reason is the limited number of suitable arbitrators in the
Netherlands that have a good understanding of insurance law. In the case of a policy dispute,
however, in‐depth knowledge of the underlying technical damage is not necessarily required.
Arbitrators must often primarily tackle the explanation of a policy condition or policy conditions
that are interrelated. The corresponding person must therefore primarily have an insurance
background. And most lawyers with knowledge of insurance law are aware of the ins and outs
of liability law, should that end up playing a role in the case. If the parties, however, know which
arbitrator(s) they have to address, it would seem easier to be able to do so directly rather than
going via the NAI.

If it concerns a coverage dispute with respect to a construction issue, the Council of Arbitration
for Construction will be approached. The Council of Arbitration for Construction has a list of
arbitrators which includes lawyers, alongside those with a construction background, who are
familiar with issues that can correspond to a CAR policy. Presenting a policy dispute to the
Council of Arbitration for Construction is only preferable, however, if the (technical/factual)
evaluation of the damage is important in terms of the evaluation of the coverage dispute. Of
the three appointed arbitrators, there is generally only one lawyer.

In the event of ad hoc arbitration, parties can appoint expert arbitrators with insurance law
expertise themselves; in general both parties each appoint one party‐arbitrator who, in turn,
decide who should function as the chairman of the arbitral board. The fact that this procedure is
not regulated, however, is an immediate pitfall. Unfortunately, it may well be that parties
cannot reach agreement between themselves regarding the appointment of arbitrators or that
the two party‐arbitrators cannot reach agreement over the appointment of a chairman.
Without the intervention of an arbitration institute which is familiar with this type of situation,
the arbitration will fail before it’s even begun.

Another problem lies in the fact that the arbitral procedure is not set out within a regulation.
This can lead to all sorts of discussions regarding the periods of time given to the parties to
submit their documents, the admissibility of more detailed memories and the delivery and
evaluation of the evidence by parties. In such cases, arbitrators are required with experience
and the authority to put the parties back on track. Unfortunately, there have also been
instances where substantial delays have been incurred because arbitrators have failed to deliver
their (provisional) decisions or instructions. Precisely because of the fact that sought‐after
arbitrators are often found within a small circle of experienced and expert lawyers, it concerns
very busy people who – without external pressure ‐ are sometimes too easily tempted to
postpone their judgments. The parties involved in such a situation can often exercise little
pressure on the arbitrators as a result of an absence of underlying regulations.

These difficulties are eliminated if the arbitration is agreed with, for example, the Dutch
Arbitration Institute (NAI). The appointment of arbitrators usually takes place within the NAI
using a list procedure, however this is not obligatory. Parties can also appoint their own
arbitrators. The oft‐heard problem with NAI arbitration – namely that parties do not know
which arbitrators are on the list and whether these arbitrators have sufficient expertise in terms
of insurance law – is thus eliminated. The advantage is that the administrator of the NAI can
move to appoint if the parties cannot reach an agreement. The risk that the arbitration will not
even get off the ground is therefore substantially reduced. Another advantage of arbitration via
the NAI is that the procedure is regulated. In principle, the applicable time limits are fixed, as
are the methods for supplying and evaluating the evidence. Compliance herewith is supervised
by the NAI. The NAI also organises remuneration for the arbitrators and the payment by parties
of an advance for the costs of arbitration. NAI arbitration does correspond to certain
administration costs. Parties will have to weigh up the costs against the advantages.

If parties prefer to engage in ad hoc arbitration, we would advise them – before starting to
appoint arbitrators – to make agreements about the appointment procedure, in particular if the
appointment process grinds to a halt. We would also recommend setting out procedural
regulations with the arbitrators, once they have been appointed, with which the parties and the
arbitrators must abide. These regulations do not have to include all time limits but should at
least indicate the rules about the number and content of memories, the delivery and evaluation
of evidence and the payment of advances for the costs of arbitration.

6.    Impartiality of arbitrators

Everyone who is involved in arbitration (arbitrators, parties, council members) must fully
endorse the independence and impartiality of the arbitrators. Over the past few years, various
prominent persons from the Dutch arbitration circle have stressed the usefulness of and need
for independent and impartial arbitrators. Luckily, in the Netherlands, we apply the Guideline
of judge impartiality and the IBA Guidelines on Conflicts of Interests in International
Arbitration.

Sometimes, at the beginning of the case, it is clear that there is a conflict of interests. In this
case, the arbitrator cannot accept this appointment. If there are any doubts, the arbitrator in
question must explain his position to the parties, i.e. disclose his interests. It is then up to the
parties – each one independently – to decide whether the arbitrator can or cannot be
accepted.

Nevertheless, problems may occur in practice. Without wanting to cast aspersions on the good
faith of arbitrators, (possible) conflicting interests regularly come to light during the course of
arbitral procedures. The arbitrator must then disclose his interests and if one or both parties
decide that the arbitrator is no longer acceptable, this will unavoidably lead to a not
insubstantial delay in proceedings.

Otherwise, it does not concern actual independence or impartiality. In the ruling N/Willems
c.s. the Supreme Court again confirmed that the appearance of insufficient independence or
impartiality can be enough for a challenge.

By coincidence, the case of N/Willems c.s. concerned arbitration for a pension and mortgage
insurance case. The arbitration was put before the NAI and it involved a panel of three
arbitrators: one lawyer (who functioned as chairman) and two medical arbitrators. Party N had
challenged the two medical arbitrators because they were functioning as experts in their own
case. After the challenge had been initially rejected by the NAI’s executive committee in
proceedings on the basis of art. 19 of the NAI arbitration regulations, the Rotterdam provisional
judge permitted the request and found the challenge to be grounded. A review of this ruling
was initiated in the interests of law. One of the most important considerations (and – if you like
– principles for the arbitrator) is that arbitrators may not gather evidence separately to the
parties. They must leave the evidence to the parties and must then evaluate this. The Supreme
Court considers that evidence gathering by the arbitrator can put him in a position whereby he
disrupts the balance between the parties and thus loses his impartiality.

But does this not put the arbitrator, who was appointed as a result of his expertise with the
branch and/or the subject matter, in an impossible quandary? How can the arbitrator ‘set aside’
his expertise in an attempt to eliminate any semblance of insufficient independence or
impartiality?

The question that Snijders raised in this context – namely whether the position of arbitrators
here is not identical to those for other decisions that they take on their own initiative and
where one of the parties can and will raise questions as a result of being displeased – is
practically rhetorical. With Snijders, we are of the opinion that it is not clear in advance that
arbitral evidence gathering will put the independence and impartiality of the arbitrator is
question.

Alongside the problem of the arbitrator/expert and the limits that must be implemented herein,
there has been another –both national and international – development that could pose a
threat to the independence and impartiality of the arbitrators. We would like to refer to this
development as the ‘professional arbitrator’. Herein there are at least two problems.

1) With the increase in the number of arbitrations, there is an increasing number of individuals
that function as arbitrator with some regularity. This development is not only occurring in the
Netherlands, but also in other countries too (consider, for example, the popularity of some ICC
arbitrators). In American literature, there are various suggestions that these professional
arbitrators have a substantial interest in ‘repeat business’. In conflicts between two parties
within the insurance branch, this could result in compromise verdicts. The underlying train of
thought herein is that the arbitrators prefer not to completely accept or reject the claims of
either party because this would inhibit a possible subsequent appointment. For the same
reasons, there is also a suggestion that insured parties are disadvantage by this system because
arbitrators are not keen to offend insurers (as they are the ‘bosses’ or ‘frequent users of the
system’). In America, this has led to damages awarded in arbitral rulings being a fraction of the
damages awarded in proceedings that have been allocated to the national courts and a jury.

2) In America, arbitration agreements often contain the provision that the board of arbitration
must be made up of independent representatives of insurance companies or re‐insurance
companies, whether these are in active service or in retirement. This therefore increasingly
concerns ‘industry insiders’ and thus relates to an increased chance of biased arbitrators and
arbitrators with conflicts of interests. Some American writers even believe that parties that
choose arbitration are foregoing the independence of the national courts for the branch
expertise and professional knowledge of the arbitrators. We would certainly not wish to go so
far in the Dutch situation, but the insurance branch is quite small in the Netherlands and it
could be difficult to find arbitrators who do have the required expertise and experience, but
have no links (and have never had links) to insurers or re‐insurers (or to other parties with an
interest in the outcome of the dispute).

The fact that arbitration is informal and has a confidential nature means that there is an
increased risk that arbitrators are insufficiently independent and impartial. This could turn out
to be detrimental to both the insured party and the insurer as an appeal to a higher court is
ruled out in many cases. , Assuming that the insurer has, to a certain degree, included this
risk within his calculations in relation to including an arbitration clause in the general insurance
conditions, there is every reason for the insured party to take a critical position in relation to
arbitration clauses, particularly when it comes to the qualifications of arbitrators and the
procedure surrounding the appointment thereof.

Simultaneously, we must of course be careful not to throw the baby out with the bath water. In
a ruling, mentioned by De Ly, from the Federal Court of Justice of the fifth jurisdiction (Positive
Software Solutions Inc. v. New Century Mortgage Corporation, 476 F.3d 278 (2007)) the
following was considered:

‘Arbitration would lose the benefit of specialized knowledge, because the best lawyers and
professionals, who normally have the longest list of potential connections to disclose, have no
need to risk blemishes on their reputations from post‐arbitration law suits attacking them as
biased.’

7.    Binding advice

It does not always pay to have a dispute between an insurer and an insured party settled by the
Dutch courts or arbitration. This not only concerns the costs associated with the proceedings,
the corresponding period of time can also stand in the way of a dynamic method for settling
disputes. A solution for this can be found by putting part of the dispute before a binding adviser
or, perhaps, a committee of binding advisers. The method of seeking a (partial) dispute
solution via a binding adviser is generally less formal and therefore often quicker and cheaper.
The fact that a dispute is rarely put before a binding adviser in practice (or perhaps this goes on
behind the scenes) could seem surprising. The reason may well lie in the fact that putting a
dispute to a binding adviser is not included as a standard in policy conditions and, once the
dispute has arisen, the parties are insufficiently cooperative to work towards a practical solution
together.

What is often included in many policy conditions, however, is the route to the KiFiD (the
financial complaint institute). So, in practice, the entire dispute is generally put before the
dispute commission. What we have in mind, is allowing a ruling on part of the dispute to be
made by one or more binding advisers. After a ruling (which may or may not be fundamental),
the parties can meet again in an attempt to come to a conclusion amicably.

Such a partial dispute could, for example, relate to a fundamental difference of opinion
regarding the explanation of a policy condition whereby the outcome is ‘all or nothing’: is party
X co‐insured under the policy? Was the claim or situation reported promptly? Once a decision
has been made regarding this type of fundamental issue, it is certainly possible that the other
issues that are contested between the parties are such that these can be agreed between the
parties themselves. The advantage of binding advice with respect to arbitration is the informal
nature thereof: binding advice is regulated by law (section 7.15 DCC) but the procedure for
binding advice is not. This informal nature can mean a quicker procedure and can also prevent
the dispute between the parties worsening.

Binding advice can also play a role in cases where the insurer and insured party hold discussions
regarding the treatment of a case (e.g. the settlement method used for a third party claim,
whereby the insurer has taken over the defence of the insured person). The insurer and insured
party may have different interests, which could lead to a conflict particularly in cases which
involve a high excess or damages that (far) exceed the insured sum. Different interests are,
however, also feasible in cases in which one party prefers a fundamental ruling because he is
often involved with these types of issue, whereas the other party has a (commercial or
practical) interest in a rapid and smooth settlement. The insurer and insured party can both
engage a lawyer to represent their interests but this does not necessarily mean that parties will
resolve a difference of opinion.

Most English (professional) liability insurance policies include the Queen’s Counsel clause; this
indicates that the insurer may only take on the defence on behalf of the insured party against a
third party if a Queen’s Counsel (an experienced barrister) has stated that the defence has a
reasonable chance of success. Such a clause often leads to the insurer having to pay out:

‘any such claim or claims which may arise without requiring the assured to dispute any claim,
unless a Queen’s Counsel (to be mutually agreed upon by the underwriters and assured) advises
that the same could be successfully contested by the assured and the assured consents to such a
claim being contested, but such consent not to be unreasonably withheld.’

In some policies, this clause has a broader application, namely that the Queen’s Counsel must
provide an opinion on all policy disputes that are contested by parties. In these cases, there is in
fact talk of an arbitration clause because the Queen’s Counsel shall issue a ruling which can be
enforced, even though the text of the clause is somewhat ambiguous regarding the precise
nature of the dispute procedure.

Both parties may invoke the ‘QC clause’. In order to avoid a chicken‐and‐egg discussion, there is
an assumption that this involves coverage in order to enable the QC clause to be invoked. Once
the Queen’s Counsel has provided a ruling regarding the issue of whether the insured party
must defend himself against a claim, the insurer may dispute the fact that this relates to
coverage at all. If the insurer does not invoke the QC clause, there is a consequence that is very
important in practice: if the insured party also fails to invoke the QC clause and decides to settle
with the other party, the insurer may not state thereafter that he has thus prejudiced his
interests. The insurer can no longer take the standpoint that the insured party should have
defended himself and that, by settling, has forfeited his right to (full) cover. If the insurer is of
the opinion that contesting the case could lead to a better outcome, he must immediately move
towards defending and, if the insured party has a different view, seek the advice of the Queen’s
Counsel.

In the Netherlands, we are not familiar with the concept of Queen’s Counsel, but in our opinion
it could well be an option to appoint an adviser (which may or may not be binding) in the policy
conditions, who makes a decision in the event of a difference of opinion with respect to the
defence to be mounted. An arbitrator from the NAI list could be appointed as a binding adviser,
as could the chairman of the KiFiD, or it could be left to an independent third party (such as the
chairman of the KiFiD or the Financial Ombudsman) to appoint an expert adviser. In our opinion,
there are clear advantages to having such a regulation. It could prevent unnecessary delays due
to discussions between insurer and insured party regarding the way in which a claim is to be
processed, particularly when it comes to the issue of whether the interests of an insurer are or
will be damaged if an insured party wishes or decides to settle.

An important disadvantage of binding advice compared to an arbitral judgment or a ruling by a
government body is that binding advice does not ascribe executorial title (whereby we note that
the arbitral judgment can initially be put forward for execution by leave of the provisional judge,
see art. 1062 DACP). The Dutch courts must be engaged in the event of non‐compliance with
the binding advice. The judge must test the binding advice against the benchmark of art. 7: 904
DCC .

8.    Conclusions

Dutch policy conditions rarely contain arbitration clauses and there is a reason for this. In cases
which may involve multiple parties, an arbitration clause hinders the possibility of including all
of the parties in one proceeding, right from the start.

This does not mean, however, that arbitration does not occur or is undesirable within insurance
practice. Arbitration can always be agreed between parties once the dispute has arisen and can
present significant advantages compared to the Dutch courts. If the nature of the dispute is
known, consideration can be made of this when choosing the arbitrators and establishing the
procedure to be followed.

Our preference would be for parties, once a dispute has arisen, to enter into an arbitration
agreement and for the arbitration procedure to be executed under the supervision of an
arbitration institute. This could alleviate a great deal of frustration and discussion when
appointing arbitrators, estimating costs and determining the rules with which the parties must
abide. It is important that the arbitration institute that is required has a list of possible
arbitrators that have sufficient expertise in insurance law or, more specifically policy law, if the
dispute involves a policy dispute.

Furthermore, we believe that in practice the option to appoint a binding adviser is used too
infrequently. This is a particularly good alternative for arbitration or the Dutch courts in
situations where, for example, agreement must be reached between the insurer and the
insured party regarding the defence to be brought against a third party. Moreover, a binding
adviser can help parties through an impasse by, for example, issuing a ruling about the
explanation of a policy condition, just like an independent expert can rule on the extent of
damage. Because of the fact that parties do not tend to seek a binding adviser, it is
recommended that a binding advice procedure is included in policy conditions.






For further information, please contact Ploum Rotterdam Law Firm:

Natalie Vloemans, partner
T +31 10 440 6440
M +31 6 302302 60

Ploum Rotterdam Law Firm – www.ploum.nl
Blaak 28 – 3011 TA Rotterdam
P.O. Box 711 – 3000 AS Rotterdam
The Netherlands