1 REGULATORY

1.1 Which government bodies/agencies regulate insurance (and reinsurance) companies?

The Bermuda Monetary Authority (the "BMA"), an independent (non-governmental) body created by statute, is responsible for the licensing and supervision of insurance and reinsurance companies and has broad enforcement and disciplinary powers. The Minister of Finance has limited powers, on the advice of the BMA, to make regulations prescribing the division of insurance and reinsurance companies into different insurance classes, the value to be attributed to assets and liabilities of insurance and reinsurance companies, the information to be provided by insurance and reinsurance companies in their regulatory returns and to make exemptions from provisions of the Insurance Act 1978 (the "Insurance Act"). In addition, the Minister of Finance is responsible for issuing permits to "non-resident insurance undertakings" (see the answer to question 1.3 below).

1.2 What are the requirements/procedures for setting up a new insurance (or reinsurance) company?

An application for registration as an insurer under the Insurance Act must be made to and be approved by the BMA. Only bodies corporate may be registered as insurers. The BMA must be satisfied that, among other things, the applicant will, when registered:

  • Maintain a prescribed minimum margin of solvency and (to the extent it carries on general business) a minimum liquidity ratio.
  • Meet the "minimum criteria" of registration, namely that (among other things):
    • officers and controllers are fit and proper;
    • the business of the applicant will be conducted in a prudent manner;
    • the position of the applicant within the structure of any group to which it belongs will not obstruct effective consolidated supervision; and
    • the business of the applicant will be carried on with integrity and the professional skills appropriate to the nature and scale of the applicant's activities.

The regulatory regime for insurers registered under the Insurance Act is calibrated based on whether the insurer is a captive insurer, a commercial insurer or a special purpose insurer ("SPI"). An applicant seeking registration as a commercial insurer must meet far more rigorous standards than those that must be met by an applicant seeking registration as a captive insurer. SPIs are a sui generis category of insurer whose liabilities must be fully-funded and whose investors and cedants must be "sophisticated participants".

For insurers carrying on general business, the minimum margin of solvency is calculated by reference to the greater of net written premiums and discounted loss reserves and other insurance reserves. This is subject to a minimum floor of $120,000 for single-parent captives at one end of the scale, and $100 million for "Class 4" reinsurers at the other. For insurers carrying on long-term business, the minimum margin of solvency is a proportion of assets reported on the insurer's statutory balance sheet, subject to a floor of $120,000 for single-parent captives at one end of the scale and to a floor of $8 million for "Class E" insurers at the other.

All multi-parent captives and commercial insurers carrying on general business must appoint a suitably qualified approved loss reserve specialist to confirm the insurer's reserves. Insurers carrying on long-term business must appoint a suitably qualified actuary approved by the BMA. However, for certain insurers carrying on fully-funded business, this requirement may be dispensed with.

All insurers must maintain a principal representative resident in Bermuda whose role it is to report matters of concern to the BMA.

1.3 Are foreign insurers able to write business directly or must they write reinsurance of a domestic insurer?

Foreign insurers are able to write business directly insuring Bermuda risks (subject to any rules imposing eligibility requirements on insurers permitted to insure certain compulsory classes of business) without being registered under the Insurance Act, provided that they do not thereby carry on insurance business in or from within Bermuda.

The exception to the above proviso (that a foreign insurer must not carry on insurance business in or from within Bermuda unless it is registered under the Insurance Act) is the small number of "non-resident insurance undertakings", being foreign insurers which write business in Bermuda through resident representatives pursuant to permits granted by the Minister of Finance under the Non-Resident Insurance Undertakings Act 1967. Such insurers may carry on insurance business in Bermuda through their Bermuda agents without being registered under the Insurance Act.

1.4 Are there any legal rules that restrict the parties' freedom of contract by implying extraneous terms into (all or some) contracts of insurance?

In a commercial context, the parties to insurance and reinsurance contracts have broad freedom to contract on terms as they see fit. The Supply of Services (Implied Terms) Act 2003 implies terms as to consideration, time of performance and standard of performance that are not excludable by agreement. However, this statute is seldom of any practical relevance in the insurance and reinsurance context.

1.5 Are companies permitted to indemnify directors and officers under local company law?

Bermuda companies are permitted to indemnify the liability of their directors and officers in respect of any negligence, default, breach of duty or breach of trust. Such agreements are void insofar as they purport to extend to fraud or dishonesty. Bermuda companies are also permitted to purchase insurance insuring their directors and officers against liability for breach of their duties of care, skill and diligence, and in respect of their negligence, default, breach of duty or breach of trust.

1.6 Are there any forms of compulsory insurance?

There are a number of forms of compulsory insurance in Bermuda. Some of the more significant examples are those required pursuant to the following acts:

  • Merchant Shipping Act 2002.
  • Workmen's Compensation Act 1965.
  • Motor Car Insurance (Third-Party Risks) Act 1943.
  • Bermuda Bar Act 1974.
  • Institute of Chartered Accountants of Bermuda By-Laws 2006.

In addition, a variety of regulated persons are required, as part of statutory duties imposed under the following acts to carry on business in a prudent manner, to procure insurance against risks inherent in the operation of their business:

  • Investment Business Act 2003.
  • Investment Funds Act 2006.
  • Trusts (Regulation of Trust Business) Act 2001.
  • Corporate Services Providers Business Act 2012.

2 (RE)INSURANCE CLAIMS

2.1 In general terms, is the substantive law relating to insurance more favourable to insurers or insureds?

Bermuda law relating to the pre-contractual duties of insureds and insurers, the interpretation and performance of policy terms and the remedies for breach is similar to English law prior to the coming into force of the UK Insurance Act 2015 and the UK Consumer Insurance (Disclosure and Representations) Act 2012 and is perceived to be fairly pro-insurer. However, parties to insurance and reinsurance contracts may agree to limit the scope of the insured's or reinsured's pre-contractual duties of disclosure and accurate representation and/or the insurer's/reinsurer's remedies for breach.

2.2 Can a third party bring a direct action against an insurer?

Except in a limited range of cases discussed below, a third party cannot bring a direct action under Bermuda law against an insurer under an insurance policy unless it is a party to the insurance policy.

The Third Parties (Rights Against Insurers) Act 1963 allows a third party to bring a direct action against liability insurers on the bankruptcy of an insured person whose liability to the third party has been ascertained and quantified by judgment, settlement or award.

In certain circumstances, direct actions are permitted against insurers who issue policies insuring ship owners in respect of liability under The Merchant Shipping Act 2002. Insolvency of the insured is not a pre-condition. Under the Motor Car Insurance (Third-Party Risks) Act 1943, claimants may, in certain circumstances, proceed directly against insurers in the event of the bankruptcy or winding-up of the insured.

Under the Contracts (Rights of Third Parties) Act 2016, a third party may enforce a term of a contract of insurance or reinsurance in its own right where the:

  • third party is identified in the contract by name, as a member of a class, or as answering a particular description; or
  • contract expressly provides in writing that the third party can enforce the term.

The assignee of an insured's right against its insurer may enforce the right in its own name where the assignment is made in writing under the hand of the insured and notice of assignment has been given to the insurer (a statutory assignment). A statutory assignment requires a matured right against the insurer; in other words, the insurer's liability to the insured must have been ascertained and quantified by judgment, settlement or award.

In certain circumstances, a right against an insurer which is assigned pursuant to a transaction which does not meet the formal requirements of a statutory assignment may be enforced by the assignee by borrowing the name of the insured.

Assignees of a life insurance policy may enforce rights of the life assured under the policy pursuant to the Life Insurance Act 1978 (the "Life Insurance Act").

2.3 Can an insured bring a direct action against a reinsurer?

An insured cannot bring a direct action under Bermuda law against a reinsurer under a reinsurance contract unless the insured is a party to the reinsurance contract, is entitled to enforce a term of the reinsurance contract pursuant to the Contracts (Rights of Third Parties) Act 2016 (see the answer to question 2.2 above) or holds the right pursuant to a statutory assignment (see the answer to question 2.2 above).

2.4 What remedies does an insurer have in cases of either misrepresentation or non-disclosure by the insured?

Unlike the position under English law, the remedies of an insurer (other than an insurer in respect of a policy of life insurance within the scope of the Life Insurance Act) in cases of material misrepresentation or non-disclosure are not governed by statute. Under the common law, the insurer's remedy for material nondisclosure or misrepresentation is avoidance of the policy ab initio (rescission). The insurer must establish that the non-disclosure or misrepresentation induced its entering into the policy. As noted above (in answer to question 2.1), the parties may agree to limit the scope of pre-contractual duties of disclosure and accurate representation and the insurer's remedies for breach. Where the misrepresentation is fraudulent in nature, the insurer may also have a claim for damages in the tort of deceit. The remedies of an insurer for material non-disclosure or misrepresentation inducing the issuance of a life insurance policy within the scope of the Life Insurance Act are avoidance but are subject to certain limitations imposed by the Life Insurance Act.

2.5 Is there a positive duty on an insured to disclose to insurers all matters material to a risk, irrespective of whether the insurer has specifically asked about them?

Yes. The insured must disclose all circumstances known to the insured or which ought to be known to it which are material to the risk, regardless of whether the insurer specifically asks about them. However, the insured need not disclose circumstances that tend to reduce the risk, which are known or presumed to be known to the insurer or of which the insurer waives the need for disclosure.

2.6 Is there an automatic right of subrogation upon payment of an indemnity by the insurer or does an insurer need a separate clause entitling subrogation?

The insurer is automatically subrogated to the rights of the insured upon discharging its duty to indemnify the insured in respect of the loss. The purpose of subrogation is to prevent unjust enrichment of the insured as a result of a "double recovery". Subrogation does not give the insurer the legal right to sue in respect of the subrogated rights. However, in certain circumstances, the insurer can borrow the name of the insured in litigation to establish or enforce the subrogated rights. Nevertheless, absent any express provision, the insured retains the right to compromise claims in respect of the subrogated rights. However, the insurer is not subrogated to the rights of one coinsured under a policy against another.

3 LITIGATION – OVERVIEW

3.1 Which courts are appropriate for commercial insurance disputes? Does this depend on the value of the dispute? Is there any right to a hearing before a jury?

Insurance and reinsurance disputes are assigned to the Commercial Court Division of the Supreme Court of Bermuda. Its purpose is to ensure that commercial litigation is tried expeditiously by an experienced commercial judge, in accordance with the best modern practice. There are currently two specialist Commercial Judges who are assigned at an early stage and then normally hear all matters relating to it. In order to qualify for the Commercial Court, a case must contain a claim or counterclaim arising out of the transaction of trade and commerce, which is either an application under the Companies Act 1981 (including insolvency matters) or relates to one of a number of designated categories, including insurance, reinsurance and arbitration.

Bermuda's rules of procedure are based on the 1979 English Supreme Court Practice Rules, subject to a number of modifications and updates including, for example, providing for the exchange of witness statements and modifying the costs regime. The Civil Procedure Rules ("CPR"), practice directions and pre-action protocols that have revolutionised English Court procedure since 1999 have, with two significant exceptions, not been adopted in Bermuda. Bermuda, therefore, continues to use the "old" litigation terminology, discarded in England, such as "plaintiff", "subpoena", "interlocutory", "discovery" and "writ". The rules of procedure in Bermuda have incorporated two significant aspects of the English CPR regime: the "overriding objective" of enabling the court to deal with cases justly; and the related duty on the court to further the overriding objective by actively managing cases.

Where there is no express local provision, the Commercial Court will follow the practice and procedure of the Commercial Court in London, as set out in the current Commercial Court Guide.

The Magistrates Court adjudicates cases with a value of less than $25,000.

There is no right to a hearing before a jury as regards insurance cases. Although there is provision in the rules for a judge to order that cases involving allegations of fraud may be tried by a jury, the authors are unaware of any incidence of this happening in modern times.

3.2 How long does a commercial case commonly take to bring to court once it has been initiated?

Most matters before the Commercial Court proceed by way of originating summons, originating motion or petition and are generally resolved within a few months. For writ actions – where discovery, witness statements and perhaps expert evidence is required – cases can take between one and two years to get to trial.

4 LITIGATION – PROCEDURE

4.1 What powers do the courts have to order the disclosure/discovery and inspection of documents in respect of (a) parties to the action, and (b) non-parties to the action?

Broadly speaking, the Commercial Court has powers to order documentary discovery from the parties to the action along similar lines to the courts in the U.K. and the U.S. Discovery involves the litigating parties exchanging lists of documents and then allowing inspection of the non-privileged documents listed. The breadth of discovery tends to be narrower in Bermuda than in the U.S.

The focus is on discovery being provided only by the parties to the action and applies to documents which are or have been in their possession, custody or power relating to matters in question in the action. If a party is dissatisfied with the discovery given by the opponent, an application may be made to the court for an order for specific discovery.

A party to the action may seek the production of the documents of a non-party by issuing a subpoena for their production. However, a subpoena issued by the Bermuda court is only effective within the jurisdiction of the court. It is possible to obtain discovery of documents from non-parties outside of Bermuda through asking the Bermuda Court to issue a letter of request to the foreign court of the jurisdiction where the non-party resides.

4.2 Can a party withhold from disclosure documents (a) relating to advice given by lawyers, or (b) prepared in contemplation of litigation, or (c) produced in the course of settlement negotiations/attempts?

A party may withhold inspection of privileged documents. The Bermuda Court will usually be guided by English decisions concerning privilege. In general terms, documents are privileged if concerned with the giving or receiving of legal advice (so-called "legal advice privilege") or if brought into being for the sole or dominant purpose of conducting or seeking advice about actual or contemplated litigation (so-called "litigation privilege"). Communications (including notes of meetings and telephone conversations) containing or recording settlement negotiations are also privileged. In Bermuda, as in England, these are called "without prejudice" communications. So there is no misunderstanding, it is usual to mark all correspondence between parties concerning settlement "without prejudice" and at the start of any settlement discussions, for the parties to agree that the discussion is "without prejudice".

4.3 Do the courts have powers to require witnesses to give evidence either before or at the final hearing?

A party to an action may issue a writ of subpoena requiring a witness to attend court to testify and/or produce documents. Non-compliance with a subpoena will render the witness liable to being held in contempt of court.

Where a witness is based outside of Bermuda and is unwilling or unable to testify at trial, a party to proceedings in Bermuda may apply to the court to issue a letter of request to the judicial authorities of the county where the witness resides.

4.4 Is evidence from witnesses allowed even if they are not present?

The court has the power to order the taking of a deposition of a witness before a judge or officer or examiner of the court. However, this is not a U.S.-style discovery deposition but a deposition for the purposes of obtaining the witness's evidence for trial. Typically, such depositions (which are relatively rare) would take place closer to the time of trial and in circumstances where the witness is unable to attend the trial to testify.

Direct witness testimony or evidence-in-chief is given in the form of written witness statements that are filed in advance of the trial.

Generally, the witness must be called to attend trial to be cross-examined. If the witness does not attend trial, the court may disregard the contents of the statement and no other party may rely upon it. This, however, does not apply if the statement is accompanied by a hearsay notice; for example, in circumstances where the maker of the statement is deceased or is resident outside Bermuda. The court has a discretion concerning the evidential weight to give to a statement of a witness who is not produced for cross-examination.

4.5 Are there any restrictions on calling expert witnesses? Is it common to have a court-appointed expert in addition or in place of party-appointed experts?

Expert evidence may only be adduced with leave of the court. The court has considerable flexibility in dealing with the service of expert evidence depending on what it thinks is appropriate in the circumstances of each case. For example, it may order the parties to simultaneously exchange expert evidence and then allow each party to serve rebuttal reports. Alternatively, the court may order one party to serve its expert evidence first followed by the other party's response and then a rebuttal report.

Joint or court-appointed experts are uncommon but party-appointed experts must be independent and not act as advocates. Regarding this, the Bermuda Court has followed the approach to expert evidence as articulated by Cresswell J in the English case, National Justice Compania Naviera SA v Prudential Assurance Co Ltd ('the Ikarian Reefer') [1993] 2 Lloyd's Rep 68, [1993].

4.6 What sort of interim remedies are available from the courts?

Bermuda has not introduced the provisions of the English Civil Procedure Rules that enable the court to order pre-action discovery. However, the Bermuda Court has applied the general principles laid down in the English case, Norwich Pharmacal Co. v Customs & Excise Commissioners [1973] 2 All ER 943, which enables documents to be obtained, where necessary and in the interests of justice, to enable action to be brought against the ultimate wrongdoer.

The Bermuda Court has jurisdiction to grant injunctions, which are similar to U.S. restraining orders. If granted, an injunction will require a party to do or refrain from doing a specific act. In the insurance context, injunctions are often granted to restrain a party from acting in breach of contract by commencing foreign proceedings in breach of an arbitration or exclusive jurisdiction clause (known as an "anti-suit" injunction).

A "Mareva" injunction (now known as a "freezing" injunction in England) may be obtained in circumstances where the applicant can show that there is a real risk of dissipation of the assets in question, that the applicant has a good arguable case in relation to which the assets would satisfy any judgment and that the order is just and convenient in all the circumstances.

In addition, the court has jurisdiction to make an order for the detention, custody or preservation of property which is the subject matter of litigation.

4.7 Is there any right of appeal from the decisions of the courts of first instance? If so, on what general grounds? How many stages of appeal are there?

There is the possibility of an appeal from decisions of the Supreme Court of Bermuda first to the Court of Appeal in Bermuda and finally to the Privy Council in London.

The Court of Appeal, consisting of three judges, hears appeals in Bermuda and hearings take place in three sessions each year. A civil appeal can usually be heard within six to nine months, although it may be possible to have an earlier hearing in a case of real urgency. It is possible for the Court of Appeal acting by a single judge to hear and determine interlocutory applications (such as an application to stay execution of a judgment) before the court hears an appeal.

Bermuda's final appeal court is the Judicial Committee of the Privy Council in London. Five judges, who also sit in the United Kingdom's final appeal court, the Supreme Court (formerly House of Lords), hear appeals. Save for urgent cases, it can take over a year for an appeal to be heard by the Privy Council.

The permission of either the Supreme Court of Bermuda or the Court of Appeal is needed to appeal either an interlocutory order or a costs order. There is no need to seek permission to appeal a final judgment of the Supreme Court. For an appeal to the Privy Council, an appeal lies as of right from any final judgment of the Court of Appeal, where the matter in dispute on the appeal amounts to or is of the value of $12,000 or upwards or where the appeal involves, directly or indirectly, some claim or question to or respecting property or some civil right amounting to or of the value of $12,000 or upward. At the discretion of the Court of Appeal, any other judgment may be appealed to the Privy Council if in the opinion of the Court of Appeal the question involved in the appeal is one which, by reason of its great general or public importance, or otherwise, ought to be submitted to the Privy Council for decision.

4.8 Is interest generally recoverable in respect of claims? If so, what is the current rate?

The court has discretion to award pre-judgment and post-judgment interest. Pre-judgment interest is awarded at the statutory rate on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of judgment. Post-judgment interest is awarded, unless the court orders otherwise, at the statutory rate from the time the judgment is given until the judgment is satisfied. There is no power to award compound interest. The statutory rate is currently 7%.

4.9 What are the standard rules regarding costs? Are there any potential costs advantages in making an offer to settle prior to trial?

Bermuda follows the English "loser pays" practice and so, in general terms, the successful party of a trial or application is usually awarded its costs (i.e. attorneys' fees and expenses/disbursements) on either the standard or indemnity basis. (An award on the more penal indemnity basis means that costs are assessed with a presumption in favour of reasonableness, thus producing a higher costs recovery from the successful party.) However, the court has the discretion and may penalise unreasonable behaviour by either party; for example, when superfluous issues are raised unnecessarily.

The usual order is that costs must be paid on the standard basis. However, on rare occasions the court may award indemnity costs, often as a way of expressing its displeasure with the behaviour of a party concerned.

A defendant to a money claim may make a payment into court and the plaintiff will suffer adverse costs consequences if it fails to beat the payment in at trial. Usually, the plaintiff will recover its costs until the date of the payment in, but thereafter have to pay the defendant's costs.

Alternatively, a party may make an offer that is "without prejudice save as to costs". This is usually only effective for offers that cannot be made by a payment into court. The costs consequences are similar to a payment into court.

4.10 Can the courts compel the parties to mediate disputes? If so, do they exercise such powers?

Mediation is used in Bermuda occasionally and on a voluntary basis at the discretion of the parties.

While the Bermuda Court will not generally compel the parties to mediate, it nevertheless has the power to make costs orders to encourage parties to explore alternative dispute mechanisms, or to sanction parties who have unreasonably refused to mediate. For example, in Knight v Warren [2010] Bda LR 27, the Bermuda Court of Appeal held that a party's willingness to attempt mediation, or his refusal to do so, may be relevant to costs orders.

Having said that, judicial sanctions for failure to mediate are rare and do not provide a particularly strong incentive to mediate except in extreme cases. Outside the family law context, there is as yet no reported decision in Bermuda in which the Court ordered mediation. This is not to say, however, that the Court does not have such power. There is a reasonable argument that the Court has the power to order mediation or, at least, to stay proceedings pending mediation.

4.11 If a party refuses to a request to mediate, what consequences may follow?

As indicated above, the Bermuda Court has not hitherto exercised its power to compel parties to mediate, other than in the family law context. Parties to commercial disputes remain free to mediate voluntarily, and unreasonable conduct may attract costs consequences. However, at this stage there is no compulsory mediation of commercial disputes in Bermuda and the Court has not evidenced a willingness to reprimand parties for failures in this regard.

5 ARBITRATION

5.1 What approach do the courts take in relation to arbitration and how far is the principle of party autonomy adopted by the courts? Are the courts able to intervene in the conduct of an arbitration? If so, on what grounds and does this happen in many cases?

The great majority of insurance and reinsurance contracts issued in Bermuda contain arbitration clauses and the Bermuda Court is very supportive of the arbitration process. There are significant differences between arbitration in Bermuda and England. In the first instance, there are two different regimes for commercial arbitration in Bermuda: the Arbitration Act 1986, which applies to domestic arbitrations; and the Bermuda International Conciliation and Arbitration Act 1993 ("the 1993 Act"), which applies to international arbitrations or where designated. Almost all insurance and reinsurance arbitrations take place under the 1993 Act, which implements the UNCITRAL Model Law on International Commercial Arbitration ("the Model Law"), and the remaining answers in this section deal only with the position under the 1993 Act.

Under the 1993 Act, party autonomy prevails and this principle is enthusiastically supported by the Bermuda Court. Court intervention is very limited. Situations in which the Court may intervene include: where the arbitrator appointment process has failed; where the neutrality of an arbitrator is challenged; or to secure the attendance of witnesses.

5.2 Is it necessary for a form of words to be put into a contract of (re)insurance to ensure that an arbitration clause will be enforceable? If so, what form of words is required?

The 1993 Act does not require any specific form or format for an arbitration clause, save that there must be an agreement recorded in writing, which can include an agreement formed by an exchange of communications. The Act expressly allows an arbitration clause contained in another document to be incorporated by reference.

5.3 Notwithstanding the inclusion of an express arbitration clause, is there any possibility that the courts will refuse to enforce such a clause?

Only if it can be shown that the arbitration clause is invalid; for example, because it was procured by fraud. The arbitration clause is deemed to be a separate contract and so may survive even if it is shown that the contract in which it is contained is void. Under the 1993 Act, the tribunal is expressly given the power to decide issues concerning its own jurisdiction with the court then retaining a power of review.

5.4 What interim forms of relief can be obtained in support of arbitration from the courts? Please give examples.

The power of arbitrators is limited to the giving of monetary or declaratory relief. The court will support arbitrations by, for example, compelling the attendance of witnesses, facilitating the taking of evidence and discovery from non-parties and issuing injunctions, including injunctions to restrain a party from proceeding in breach of an arbitration clause.

5.5 Is the arbitral tribunal legally bound to give detailed reasons for its award? If not, can the parties agree (in the arbitration clause or subsequently) that a reasoned award is required?

Under the 1993 Act, the award must be in writing and signed by the arbitrators and the reasons upon which it is based must be given, unless the parties have agreed that no reasons are to be given.

5.6 Is there any right of appeal to the courts from the decision of an arbitral tribunal? If so, in what circumstances does the right arise?

An award is final and not subject to any appeal on the merits. There are very limited grounds to challenge an award under the 1993 Act, including invalidity and conflict with the public policy of Bermuda.

Originally published by The International Comparative Legal Guide to: Insurance & Reinsurance 2018, Global Legal Group.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.