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Briefing - When should you try your hand at baseball arbitration?
(From Reinsurance)
Originally used for determining baseball players' salaries, 'baseball arbitration' (as it is now called) offers advantages if used in the right circumstances, but it is neither without risk nor for the faint-hearted.
At the heart of a dispute, resolution through baseball arbitration is a requirement that the parties exchange final figures at an early stage, and indeed usually before a Tribunal is constituted. Those figures are then binding on the parties throughout the arbitral process, and the Tribunal may or may not be told about them (the latter being termed 'night' baseball). The key point is that it is the figure of the party that is closest to the award made by the Tribunal who becomes the binding figure payable. Less frequently, baseball arbitrations involve non-monetary remedies, with the Tribunal assessing whose final offer is preferable.
The dispute between Winterthur and XL arose following the sale of Winterthur's international insurance operations, branded Winterthur International, in early 2001. It was agreed that the reserves in place would be 'seasoned', or, in other words, reviewed after three years and a balancing payment made. Any dispute was to be resolved through a baseball arbitration (or strictly an expert baseball determination).
In light of significant losses, a balancing payment from Winterthur to XL was necessary, but the amount was disputed. There was around $900m difference between the amounts initially proposed by the parties as their binding figures. An independent actuary was appointed to make a determination; the end result was closest to Winterthur's proposed figure, which was therefore deemed to be the final amount for the purposes of the agreement.
The dispute was a high-value and high-profile example of a baseball arbitration process carried out to completion. Now we will look briefly at the advantages and disadvantages of the process, and comment on the types of dispute where it may be of most use as a method of effective dispute resolution.
Advantages
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