Why Arbitration Clauses May Make Sense in Cyber Insurance Policies
March 20, 2016
By Daniel B. Garrie, Andrew S. Nadolna, Esq., & Adrienne Publicover, Esq.
Arbitration tends to work best when both parties buy into the process from the beginning. Alternatively, the process often works poorly when one party feels that arbitration was imposed on them. In the commercial insurance context, arbitration can sometimes feel imposed, even to sophisticated policyholders. This comes about through mandatory arbitration clauses inform policies that are usually non-negotiable, and includes domestic, excess and surplus lines London and Bermuda policies. Also, policyholders may perceive elements of unfairness in the arbitration process created by such clauses. But arbitration does not have to be either imposed or unfair in the insurance context. There are circumstances where policyholders may actually want to be part of a confidential arbitration, particularly when the dispute involves a core business process that has failed. A policyholder may wish to avoid publicity over the presence or absence of insurance coverage for such a loss, and they may want confidentiality over documents and testimony that pertain to that business failure. Cyber breach is a case in point.
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