A popular method for resolving commercial disputes is
arbitration. This is particularly true in the insurance sector
where it is common to see arbitration clauses in insurance and
reinsurance policies. Policyholders, brokers and insurers should
therefore take note of recent changes brought in by the Arbitration
Act 2025. The Act, in force from 1 August 2025, has important
implications for dispute resolution under your policies –
both existing policies and those to be placed in the future.
You can find our full analysis of the Arbitration Act 2025 here and here, but we draw your attention to two key
developments from an insurance and reinsurance perspective:
- Arbitration agreements will now be governed by the law of the seat, unless the parties expressly agree otherwise. A governing law clause that applies to the policy generally will not be sufficient.
- A statutory duty of disclosure will now apply to arbitrators in relation to impartiality.
The changes will not apply to arbitral proceedings (or court proceedings in connection with arbitral proceedings) that are already on foot before the changes come into force. However, the changes will otherwise apply in relation to arbitration agreements whenever made. This means the changes will apply to arbitration clauses in existing insurance or reinsurance policies.
ARBITRATION AGREEMENTS GOVERNED BY THE LAW OF THE SEAT
In our view, the most important change in the Arbitration Act 2025 from an insurance perspective is the new rule on the law applicable to the arbitration agreement. This will now be governed by the law of the seat of the arbitration.
To put this change in context, it is necessary to understand the three main sources of law in arbitrations:
- The proper law of the contract: This is the law that governs the substantive issues in dispute. For example, an insurance policy might state that it is governed by the law of England and Wales.
- The law of the seat of the arbitration: The seat of the arbitration is where the arbitration takes place. The law of the seat governs the arbitration itself, such as matters of procedure and which courts have supervisory powers. For example, if the seat of the arbitration is in England and Wales or Northern Ireland, the Arbitration Act 1996 generally applies. The law of the contract may be different from the law of the seat.
- The proper law of the arbitration agreement: This is the law that governs the validity, scope and meaning of the agreement to arbitrate.
This can be confusing and challenges arise where there has not been clear agreement and drafting as to the applicable law and seat, leading to difficulty identifying the proper law of the arbitration agreement.
Conflicting case law further complicated matters and led to a landmark (and divided) Supreme Court decision in Enka v Chubb [2020] UKSC 28 (see our blog post here), which decided that an arbitration agreement will usually be governed by the law chosen to govern the main contract and the choice of a different seat of arbitration is not generally sufficient to negate this. However, the Supreme Court's decision did not put the issue to rest. The Law Commission observed that one effect of Enka v Chubb was that many arbitration agreements would be governed by a foreign law, even where the seat of the arbitration is specified as England and Wales.
In the interests of simplicity and certainty, the Law Commission recommended – and the Arbitration Act 2025 adopts – a new rule: arbitration agreements are to be governed by the law of the seat, unless the parties expressly agree otherwise.
This means, for example, that if an insurance policy was governed generally by the law of a local jurisdiction (e.g. New York) but contained an arbitration clause with the seat being in London, then the law of the arbitration agreement would be English law. By the same logic, just because a policy is governed by English law generally, does not mean the arbitration agreement is, because the latter would depend on the seat of the arbitration. Such results could come as a surprise.
This change will apply to arbitration agreements whenever made, but not to arbitral proceedings that are already on foot (including court proceedings which relate to arbitral proceedings that are already on foot). This means, for example, that once the change comes into force it will apply to any arbitration that is commenced, even if the policy was placed long before that time.
Policyholders and brokers should therefore ask the following questions:
- What do existing policies say about governing law generally, the law of the arbitration agreement and the seat of the arbitration? Ideally such matters should be clearly stipulated. If it is unclear, should the documentation be amended to clarify the position before any disputes arise?
- Are new policies clear about what the parties have agreed in terms of governing law, the law of the arbitration agreement and the seat of the arbitration?
- If there are multiple policies and/or excess layers governing the same risk, are they all aligned with respect to their dispute resolution procedures and applicable laws?
DUTY OF DISCLOSURE AND IMPARTIALITY
The Arbitration Act 2025 introduces a statutory duty of disclosure in relation to impartiality. It requires an arbitrator to disclose to the parties any "relevant circumstances" of which the arbitrator is, or becomes, aware (or ought reasonably to be aware). Relevant circumstances are circumstances that might reasonably give rise to justifiable doubts as to the individual's impartiality in relation to the proceedings, or potential proceedings, concerned.
Although this codification does not depart from current practice, it is worth considering, as the duty can have particular significance in specialist sectors like insurance. The pool of potential arbitrators may be relatively small due to parties seeking arbitrators with specialist insurance expertise and who have availability. This means an arbitrator may have determined multiple disputes involving the same insurers. Arbitrators will need to consider carefully their disclosure obligations, which are context-dependent, and thus will need to conform with custom and practice in insurance arbitration. Both policyholders (and insurers) will also need to carefully consider any connections, past experience or other factors which may impact that candidate's duty of impartiality.
The statutory duty of disclosure will apply to arbitral proceedings commenced on or after 1 August 2025.
CONCLUSION
Coverage disputes under insurance and reinsurance policies are common. It is therefore important that dispute resolution provisions in policies (whatever form of dispute resolution procedure they provide for) are reviewed regularly to check they work in the way that the parties intend. The coming into force of the Arbitration Act 2025 is a timely reminder to take stock, particularly given the changes outlined above.
Arbitrating against insurers has many nuances. Read our article here which sets out considerations for policyholders to understand in order to maximise recoveries.
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.
