Mediators who are assigned files of insurance contract matters should always familiarize themselves with elements of bad faith procedures in the industry.
Standard operating procedure in alternative dispute resolution would seem to indicate that a mediator needs not be a subject matter expert before he can mediate a dispute in any given area. I dare say, however, that contemporary opinions are fast beginning to controvert this. The rationale for the general rule is that since the mediator is not a judge of the case before him, it is just sufficient for him to understand the flow of the parties’ dispute or lines of thought and to specifically identify the point of divergence in the transaction.
This said, it is nonetheless important for every mediator to undertake some independent research in the area of dispute he has been assigned a file in order to easily grasp the case flow and not make a ridicule of himself. Certain specialist areas like employment and labour, insurance and maritime are disciplines where a mediator’s inadequate grounding can easily get exposed. Coxon Dappa, an attorney, writing in ‘thenigerialawyer’ blog recently drew attention to what he termed ‘2 Unavoidable Basis for Liability in Contracts of Insurance in Nigeria’. He noted for instance that contrary to the notion that contracts are the product of negotiation between parties, insurance contracts are a shade different. Under the contract of Insurance, the insured undertakes little or no negotiation because the terms are of standard forms to which he or she has no input.
The insured is merely given the terms of insurance already in printed form. He has only one choice – to accept or to decline the transaction based on the pre-determined terms. The writer notes that since the insured party only adheres to standard provisions without actual negotiation, insurance policy in Nigeria is appropriately one of adhesion. The other point the writer raised was that contrary to the common law position where insurance premium can be paid at any time before or after the insurance cover or policy is obtained, the statutory position in Nigeria is a pre-payment of the premium before an insurance policy can take effect.
Ordinarily, the law and practice of Insurance dictates that an insurance contract is a contract of utmost good faith. Utmost Good Faith also known as Uberrimae Fides means that both the policyholder and the insurer need to disclose all material and relevant information to each other before commencement of the contract .In the event of failure to disclose material facts, the contract can be held null and void. Curiously, however insurance in our clime does not appear to have hit that mark. In the Supreme Court case of British India General Insurance Co(Nig.) Ltd v. A.Thawardas, a merchant had insured 165 cases of sardines he was expecting from Las Palmas, against loss of consignment and other risks. When the vessel on which the consignment was shipped arrived at the Lagos port, the sardines were nowhere to be found. The Insurance Company initially assured its customer that something was being done in respect of the claim. Shortly after, it made a volte face, denied liability and parties headed for the court. Though judgment was entered for the plaintiff in the lower court, the shocker came when on an appeal to the Supreme Court, the defendant Insurance Company sought unsuccessfully to persuade the apex court that the merchant had no insurable interest in the lost cargo and that above all, the merchant was unknown to the insurance company – a legal technicality.
Cases such as this perhaps account for the reluctance of prospects to take on insurance cover; compliance appears significant only in areas where the law makes it mandatory. Quite too often, insured parties who take out law suits against their insurers also plead that they were not given sufficient guidance to make an informed choice.
In the matter of good faith negotiations insurers may not always be the only parties to blame. Instances also abound of insured parties who have feigned losses of all types in order to defraud insurance companies. Insured parties have been known to sell off properties such as automobiles before making spurious claims of theft.
Mediators who are assigned files of insurance contract matters should for starters always familiarize themselves with elements of bad faith procedures in the industry. This is to enable them to successfully navigate through such red flag zones in the effort to amicably reconcile disputing parties. As mentioned in this column a fortnight ago, though bad faith negotiation may be difficult to define, they are recognizable to those familiar with the terrain in the form of dishonest or unfair dealings.
Bad faith negotiations in insurance may begin subtly from claims offices after the insured has lodged initial complaint. From that point the office may begin to ignore complainant’s telephone calls, letters, and emails. Even where these communication channels are open, claims officers may resort to excessively burdensome requests for documentation in order to undermine the claimant’s push for the needful.
An insurer will be dealing in bad faith when it denies payment for a valid claim or simply seeks to discount payment without justification. Others still may simply turn the law or policy language on its head to frustrate the uninformed claimant. Identifying what constitute bad faith negotiations will enable the mediator to skillfully guide the parties to agreeing to what may be regarded as fair to all sides.