The November 2020 issue of Mealey’s International Arbitration Report features expert commentary on the events in the global economy that have led to an increase in filings. The article, “International Arbitration Experts Discuss The Impact On The Global Economy,” includes commentary from Sandra Smith Thayer and Peter Halprin.
Sandra Smith Thayer:
SARS-CoV-2, COVID-19, and the subsequent actions and orders of government authorities around the world in response to SARS-CoV-2 and COVID-19 (‘‘COVID-19 Pandemic’’) have had a devastating impact on the global economy and have led, or are likely to lead, to a spike in the number of arbitration filings in many industries, including construction, energy, and manufacturing. At issue in these arbitrations is whether the COVID-19 Pandemic, and specifically, the various government orders requiring people to stay at home and businesses to close, are a valid excuse for nonperformance of a contract.
In the insurance coverage arena, we also have seen, and will continue to see, an uptick in the number of arbitration filings involving insurance companies as companies all over the world continue to suffer property damage and massive business interruption losses as a result of the COVID-19 Pandemic. These insurance coverage arbitrations generally involve the question of whether SARS-CoV-2 and/or COVID-19 constitute ‘‘direct loss or damage to property’’ under property insurance policies.
In addition to property damage and business interruption disputes under property policies, we also may see an increase in arbitration filings involving insurers under political risk insurance policies as foreign economies— especially in some of the poorer countries—continue to suffer. Political risk insurance generally protects a company’s assets, investments, or contractual rights in a foreign country from losses suffered as a result of certain events in that foreign country, including political violence and the foreign government’s (i) unlawful confiscation, expropriation, or nationalization of the company’s assets or investment, (ii) enactment of new currency laws that prevent or restrict the conversion or transfer of a company’s investment returns from the local currency to U.S. dollars, and (iii) actions or changes in laws that results in the termination of a company’s trade or sales contract with a foreign company or prevents the foreign company from performing under the contract.
At the risk of stating the obvious, the pandemic has had a tremendous impact on filings. It has disrupted supply chains, interfered with commercial contracts, and triggered civil authority actions which have hindered the flow of commerce. All of this has led to an increase in disputes and a resulting increase in filings. In addition, given court delays, many litigants have no doubt decided to have their disputes addressed through alternative means such as arbitration.
According to one study, there are presently more than 5,300 pandemic-related filings in the United States. According to another, in the United States, there are presently more than 1,250 pandemic insurance litigations. Many insureds, both in the United States and around the world, have policies which contain domestic or international arbitration provisions. The latter provide for arbitration in Bermuda, London, or elsewhere. Among these, there is likely a mix of ad hoc and institutional arbitration with the majority of such disputes likely being ad hoc.
While the numbers may not be as high as the number of pandemic-related court filings, there is no doubt that the increase in pandemic insurance and reinsurance arbitrations while parallel the trend in court filings.
Download this article in Mealey’s International Arbitration Report here.