Anatomy of an Insurance Dispute

In early 2025, we participated in a panel discussion about the similarities and differences in the process of resolving a disputed insurance claim. We were both so taken by the striking differences in the process and had such a good time learning about each other’s process that we decided to prepare this joint article to share with a wider audience.

Comparatively examining the anatomy of an insurance dispute in the US and the UK is an exercise in contrasts. In many ways, the two are strikingly opposite. Here, we examine, from start to finish, how the process differs in the two jurisdictions and how those differences may contribute to different outcomes, and discuss what lessons perhaps can be gleaned from each other’s experience.

Pre-litigation process

The US Perspective

What stands out about the insurance dispute process in the US as a point of comparison, is the vastness of the arena you are working in. In stark contrast to the UK (as will be discussed below), the US insurance market is sprawling. Hartford, Connecticut might claim to be the insurance capital of the US, while Des Moines, Iowa would claim to be the insurance capital of the Midwest, yet, while there might be more significant insurance companies formally based in either of those two cities than in other US cities, there are many multiples of that more sprawled out across the full country. On top of that, US insureds regularly access the excess and surplus lines market to place insurance through London-based insurers.

This makes the industry, for the average insured, rather impersonal. From the coverage lawyer’s perspective, dealing with a claim under a specialty line of insurance issued by a large insurer, even in the same jurisdiction or region, may result in experiencing the same combination of insurer counsel and assigned claim adjuster. However, more often than not, each dispute reveals an entirely new set of individuals to try to resolve your claim with.

Brokers placing multiple significant programs with larger insurers can sometimes create a more direct line to a personal relationship that can help influence the direction of the claim before it becomes too adversarial. Still, this seems to pale in comparison to the degree that relationships play a role in the UK process.

On top of the geographical scope of the arena, there are a vast number of playing fields within the arena in the US. The federal government does not regulate insurance, leaving insurance law entirely to the states. This means that each state resolves legal issues involving insurance differently and, in many cases, in ways that are directly contrary to each other. The first step in an insurance dispute in the US is not to determine how the issues are properly resolved, but to determine which US states’ law might govern the issue. Once you know which states’ law could apply, then there are often multiple states where the dispute could be filed, each of which will have a different set of rules to determine which of the states’ law should apply.

On top of all of that, there are federal courts sitting in each state, which have different jurisdiction over parties than the state courts do, and which apply substantive state law to decide the coverage issues, but federal law to govern the procedural process. A Florida federal court might conduct a different choice-of-law analysis than a Florida state court, resulting in a different state’s substantive law applying to a case depending on whether it is in the state’s own courts or the federal court sitting there.

In a claim where a company based in New York does work in California, but uses a broker in Texas to place its insurance through an insurance company based in Florida, an insured would be assessing (1) which state(s) would allow the insured to file litigation over the claim, (2) what state’s law each state the insured could file in would choose if conducting a choice of law analysis, and, finally, (3) which state’s substantive insurance law would be most favorable. Of course, the insurer is likely to contend that a less favorable set of state law will apply to the claim than the insured, who will argue for a more favorable set of state law. In other words, the parties may not even agree on the rules by which they are to have their dispute or on which “playing field” they should have it on.

On top of the differences in the states’ approaches to the substantive rules of insurance law, each state varies significantly in its approach to the concept of bad faith claims – referring to a situation where the insurer is deemed to have violated the implied covenant of good faith and fair dealing, which some US jurisdictions impose as a part of all contracts. Just as the different states take different approaches to the substantive issues, the insured may contend the appropriate body of law is that of a state that allows a bad faith claim, while the insurer contends a different state’s law applies, yielding the opposite result. A classic example of this friction is California, which allows bad faith, and New York, which effectively does not. Where the controlling state law is not settled in the pre-litigation claims process, this can make it very difficult to resolve a disputed claim, as the two jurisdictions have very different substantive law and also very different potential remedies, given the bad faith differences.

Finally, barring a few contrary specific rules in specific jurisdictions, parties to litigation in the US pay their own attorneys’ fees. This seems to have the effect of encouraging commercial litigation of insurance claims, while unfortunately dissuading personal litigation of insurance claims, usually except among wealthy individuals. The economics of the situation make this inevitable. For a corporation, if the insurance claim is large enough, it will almost certainly make sense to litigate a claim that has not resolved through the normal claim process, as even a partial recovery will easily cover the cost of the fees to bring the lawsuit and then some. The company can predict, based on its own attorney’s budget, what its costs will be for the lawsuit, without the unknown of a potential fee award to the other side if the company is not successful. On the other hand, for an individual, many insurance claims are simply cost-prohibitive, unless the lawyer is willing to work for discounted rates, pro bono, or on an alternative fee arrangement, such as a contingency.

Each of these factors influencing the pre-litigation claims process contribute to a claims environment where litigation often feels inevitable.

The UK Perspective

While sharing certain common characteristics, there are some key differences in how insurance disputes are resolved in the US and the UK.

The most central is that, unlike in the US, there is a single body of law applicable in England and Wales. Also, there is no concept of bad faith.

Further, compared with the US, the insurance market in the UK is geographically more defined – being centred around the Lloyds Building in what is known as the insurance district in the City of London.  All of the major players in the London market, including insurers, brokers, and law firms, are situated within the same square mile.

While we would agree that, as in the US, aside from the largest industry participants, relationships with insurers are typically short-term, managed by the broker, and not significantly customized, equally it is a much smaller marketplace, and for those who have made their life’s work a career in insurance, those main players work cheek by jowl.

It would be fair to say that, traditionally, both insurance law and its application by the English courts were perceived to be, and indeed were, pro-insurer.   That fact, combined with the “loser pays” cost regime in the UK, has led to a conservative approach to litigation: the stakes are high.

Notably, until recently, insurers were able to decline claims on the basis of a failure by the insured to disclose every circumstance they knew or ought to have known which would influence an insurer in underwriting the risk, and many policies contained ‘basis’ clauses which effectively meant that any and all representations made were warranties, the breach of which discharged an insurer from liability.

The introduction of the Insurance Act 2015 sought to level the playing field for policyholders by bringing in a duty of fair presentation, breach of which would not necessarily lead to a voidance of the policy but a more proportionate remedy based on the terms on which the insurer would have entered into the policy had the breach not occurred.  The Act also banned ‘basis’ clauses, and brought in provisions whereby if non-compliance with a warranty did not increase the risk of the loss in the circumstances in which it occurred, insurers could not rely on that breach to avoid liability under the policy.

In terms of the pre-action process, this differs depending on the court in which the claim is brought.  For complex high-value commercial disputes, including insurance coverage disputes, brought in the Commercial Court, which is a division of the High Court, the court expects the parties to have exchanged sufficient information to understand each other’s position and to try to settle the proceedings without proceedings, including considering ADR.  This process will include sending a Letter of Claim and allowing the defendant time to respond, from 14 days to 3 months, depending on the complexity of the matter. For certain types of claims, there are more specific Pre-action Protocols.

Of particular relevance is the Pre-Action Protocol for Construction and Engineering Disputes brought before the Technology and Construction Court, which has a more prescribed process that includes deadlines that must be adhered to, exchanges of information, and a pre-action meeting.  Costs sanctions can be applied for non-compliance with the Protocol.  Compliance is taken seriously by the parties and the courts, such that it can be an effective tool for exploring whether pre-action resolution is possible, or if not, at least narrowing the issues in advance of the issue of formal proceedings.

Substantive Framework for contract/policy interpretation

The US Perspective

While the US states each have their own approach to insurance issues, there are certain fundamental rules where they tend to come together in near unanimity. At the most fundamental level, nearly every jurisdiction considering an insurance dispute is going to start with the question of whether the court can interpret the meaning of the policy provisions applicable to the claim solely from the policy’s plain language, without considering anything else. If the court decides that it can do this, that is the end of the analysis. If there is clear policy language, that will control. Further, there is extensive caselaw interpreting many common policy provisions, so there is a large body of guidance as to whether a particular term is or is not likely to be deemed clear from the plain language.

It is only if the court decides that the language at issue is subject to more than one reasonable interpretation, yielding different results (i.e., is ambiguous), that the court potentially looks beyond the policy language. However, even then, this is not guaranteed. Some jurisdictions simply interpret ambiguous policy language in favor of coverage, giving the benefit of the doubt automatically to the policyholder. Others will look to extrinsic evidence (i.e., the underwriting file) or the reasonable expectations of the insured to try to determine what the most appropriate interpretation is.

The UK Perspective

English law takes an objective approach to policy interpretation, asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean.  The subjective intention or understanding of the parties as to what the policy wording means or is intended to achieve is not relevant to the exercise.  However, market practice or understanding, if it can be established that there was one, can form part of the background knowledge that would reasonably have been available to the parties.

Commercial common sense is not permitted to be invoked retrospectively to rewrite a clause in an attempt to assist an unwise party or to penalize an astute party: where the parties have used unambiguous language, the court will apply it. In recent years, the courts have taken an increasingly strict approach in this regard, making it clear that it is not their job to rescue a commercial party from a bad bargain.  If the wording is clear, the court will give effect to it.

However, where there is ambiguity and there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.   In an insurance context, the doctrine of contra proferentem applies so that where there is ambiguity, the clause is interpreted against the party responsible for drafting the wording – usually the insurer – and is, therefore, helfpul for the policyholder.  Also helpful for policyholders is a recent ruling that held that “a construction which advances the purpose of the cover is to be preferred to one that hinders it.” (LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17, in the Federal Court of Australia, per Derrington and Colvin JJ at [15])

In the context of the recent Covid-19 business interruption litigation, the courts have identified what has been termed a ‘pick and mix’ approach to drafting insurance policies, with clauses adapted from other contracts such that the policy does not necessarily hang together as an internally consistent whole. That is a factor that may influence interpretation in that reference to the same or similar language elsewhere in the policy may carry little weight.

Litigation Process – Initial Stages and Discovery

The US Perspective

In most jurisdictions, there is essentially no procedural barrier to entry to begin litigating an insured’s disputed claim. An insured who has submitted a claim can file a lawsuit the next day, even if the claim has not yet been denied. Declaratory judgment actions, which ask the court to declare the parties’ respective rights and obligations under the policy, can be procedurally appropriate even without a denial.

There are few procedural opportunities to put a binding end to that lawsuit prior to trial. There is an opportunity for the defendant to challenge the sufficiency of the complaint at the outset, but the standard to prevail on that is exceedingly difficult. There is an opportunity to seek judgment based on the complaint and answer together but, again, the standard is challenging to meet. Finally, there is an opportunity to have the case decided prior to trial, through a motion for summary judgment, but only if the issues to be decided are exclusively legal ones. A single disputed issue of fact material to the outcome of the case will be cause for the case to be sent to trial.

This forces the parties through the fact-finding phase of the case, known as discovery. Discovery in US litigation can be extremely expensive and time-consuming, and there typically is not any limitation imposed on discovery in a case based on the nature or size of the case. Thus, an individual with a claim against an insurer may have the same right to take the deposition of a senior person at the insurance company as a Fortune 500 company would. The individual would be equally entitled to all potentially relevant documents and to ask the same number of interrogatory written questions in the process. Many high-profile individuals – i.e., Donald Trump, Mark Zuckerberg – have been deposed in US litigation. This is a high-stakes process, as there are few limitations on what can be sought and asked from the other party in discovery, provided it is credibly connected to the insurance dispute.

The cost and discomfort of this process force many claims to settle. The process of reviewing sometimes tens of thousands of documents to ensure only relevant non-privileged documents are produced is extremely time-consuming and expensive. Similarly, the process of having to go through the intensive full-day questioning of the deposition process can be a daunting prospect for decision-makers on both sides. The parties also gain a significantly more acute understanding of their cases during this time, given the amount of document scrutiny and preparation involved. Many, if not most, insurance disputes settle during the discovery phase of litigation.

The UK Perspective

Litigation in the UK begins with a sequential exchange of pleadings: the claim form and particulars of claim, the defense, and the reply.

Notably, and unlike in the US, in the UK, we have a split profession with the court advocacy being carried out by barristers who also draft the pleadings. Issuing proceedings, therefore entails instructing a barrister in addition to the existing solicitor firm that will have been initially instructed and had day-to-day conduct of the matter through the pre-action stages.

There are another three key reasons why litigation is not something one embarks upon lightly: although relatively modest, the £10,000 court fee for issue of claims above a certain value is sufficient to deter many a vexatious litigant; the potential liability for adverse costs triggered by commencing litigation coupled with the fact that once underway the litigation may take on a life of its own; and finally the level of specificity needed to plead the claim to the satisfaction of the court and/or the defendant.  A poorly pleaded claim may lead to rounds of requests for further and better particulars or applications for strike out or summary judgment.

While not as onerous as in the US, disclosure – our equivalent of discovery – is nevertheless in many cases disproportionately time-consuming and expensive.  The volume of electronic documents that are likely to have been generated in any dispute will typically require the parties to engage an e-disclosure provider and agree to search terms and a review process in an attempt to unearth the “smoking gun” that will unlock the dispute.  The policyholder bears the brunt in that, since having suffered the insured event, they will hold the majority of the documents and have the burden of proving their case. Attempts by the courts in recent years to overhaul the process and make the exercise more manageable have, as often as not, only served to frontload the cost and add additional layers of procedure. Insurance cases often settle after the disclosure stage once insurers are satisfied that the claim is genuine and that any adverse documents that might provide justification for declining the claim have been shared.

There is no equivalent of the US deposition process.  Written witness evidence is prepared by each party’s own legal team and exchanged.  There is no opportunity to interrogate that evidence until the witness is cross-examined at trial.  Few insurance cases ever make it that far.

The key to unlocking an insurance claim, particularly in the construction sector, can often be strong technical expert evidence.  Although written expert evidence is not exchanged until relatively late in the process (after disclosure and witness statements), it can be helpful to share expert evidence at an earlier juncture – even pre-action – to demonstrate the robust basis for the claim.

Litigation Process – ADR

The US Perspective

Although a large percentage of insurance litigation settles during discovery, it rarely happens without assistance from a third party. The courts in the US know this well. Accordingly, it is almost uniformly true now that courts require the parties, from the outset, to participate in some form of official alternative dispute resolution process during the course of the litigation.

While private mediation is the most common in our experience, this can take other forms as well, depending on the jurisdiction. Many jurisdictions have judges in the same court, other than your assigned judge, conduct settlement conferences or early neutral evaluations, which are often similar in format to mediation, but have some additional formality around them due to the presence in the courthouse and the neutral being a judge.

Judges also have significant discretion in how they set the case calendar. It has become increasingly common, in our experience, for judges in insurance disputes to not set a date for trial until after motions for summary judgment have been resolved. A federal judge recently expressly told the SDV author of this article that she would not set a trial date until after summary judgment motions because, in her experience, most of her insurance disputes settle at or around that time. Sure enough, the case settled at the end of discovery, just before those motions would have been filed. This is a significant departure from the typical procedure for other forms of litigation in the US.

The UK Perspective

While ADR and, specifically, mediation has been a very common way of resolving insurance disputes, in recent years, a number of issues that have had wide-ranging implications for the entire insurance sector, with billions of pounds at stake, have meant an unprecedentedly high volume of insurance disputes going not just to trial, but to the Court of Appeal and the Supreme Court.  This wave of litigation has included the Covid-19 business interruption litigation, the Russian aviation litigation, and the construction litigation relating to the cost of remedying fire-safety issues affecting buildings throughout the country following the Grenfell tragedy and introduction of the Building Safety Act 2022. In the context of disputes relating to those issues, insurers have often been reluctant to enter into commercial settlements through ADR pending clarity from the courts on the extent of their liability. Further, settling one claim would have repercussions for claims being brought by other policyholders on similar wordings.

More generally, the court’s approach had traditionally been to encourage – but not require – the parties to a dispute to engage in ADR. However, following the introduction of new procedural rules in 2024, courts now have the power to order parties to engage in ADR and can impose costs sanctions on a party for failing unreasonably to engage in ADR. The extent to which the courts elect to exercise that discretion remains to be seen, and certainly it remains open to the parties to argue that, in the particular circumstances of their case, ADR would not be appropriate at any particular juncture.

Litigation Process – Trial and Judgment

The US Perspective

At the end of all of the pre-litigation, pleading, discovery, and motion practice phases of the insurance dispute, if the parties have not yet settled, there is still the prospect of a trial. Provided there is a disputed factual issue involved in the dispute, the insured is typically entitled to have the dispute heard by a jury.

Insurance companies have traditionally not benefited from positive news coverage in the US. Juries are composed of local individuals within the geographic jurisdiction of the court and include people from all social classes and bands of life. All residents in the geographic jurisdiction are subject to being called into the court for jury duty. These individuals are also regularly exposed to negative news coverage about insurance companies pulling out of insurance markets, denying claims, and charging ever-increasing rates for reduced coverage. Accordingly, there is a negative perception of the industry from average US citizens. Aside from specific situations where the policyholder carries a similar negative public perception, policyholders typically feel more confident bringing a disputed fact issue to trial than insurers do. This also contributes to driving settlement.

Relatively few insurance disputes in the US are resolved through arbitration, usually only occurring in select situations where the insurer included a mandatory arbitration provision in the policy. For those disputes that do go through arbitration, the process is similar, but with more limited discovery and less predictability in the procedural rules, as the arbitrator is typically not bound by state or federal procedural rules in how they administer the proceeding. Policyholders find that the perceived advantage in perception typically lacks in arbitration, due to the absence of a jury.

Another reason for the policyholder’s aversion to arbitration is the inability to appeal. Insurance issues are often extremely complex. Appeal of a trial court decision is typically a matter of right for the policyholder, at least to the intermediate state or federal appellate court. Insurance issues are typically not heard by the US Supreme Court, but state supreme courts may also agree to hear a further appeal following the intermediate court of appeals’ decision. This gives policyholders a reasonable degree of assurance that the correct result will ultimately be reached. If an arbitrator applies the law wrong, on the other hand, the case is typically over.

The UK Perspective

Civil trials in England and Wales are heard by a single judge at first instance, and without a jury.  Juries are reserved solely for criminal trials. On appeal to the Court of Appeal, there is a panel of three judges, and should the matter come before the Supreme Court, the panel will typically consist of five, but potentially seven or even nine, of the twelve appointed judges – or justices, as they are called, of the Supreme Court.

From issue of proceedings to trial typically takes a period of 18 months to 2 years, and the process involves exchange of written statements of case (particulars of claim; defence and reply); a procedural hearing known as a case management conference to agree the directions to trial; usually followed by disclosure of documents (akin to discovery); sequential exchange of factual and expert witness statements; and trial. There may be interlocutory hearings, for example, for summary judgment.

The successful party at trial is awarded their legal costs.  That is, the losing side bears not only their own costs but also adverse costs, being those of their winning adversary.  The reasonableness of those costs is assessed, but typically around 65% – 70% can be recovered.  The court also has a discretion to award indemnity costs, which results in a higher recovery.  That potential exposure can be a bar to issuing proceedings – although it is possible (at a price) to obtain After The Event insurance (ATE) to cover the risk of being liable for adverse costs.

In the UK, the courts do not have the power to award punitive damages.  Recent legislation has brought in the ability to claim damages for the late payment of insurance claims, but the threshold is high, and as a remedy, this has yet to gain significant traction.

The courts of England and Wales will not necessarily have jurisdiction over insurance disputes: many insurance policies contain arbitration clauses whereby any disputes, or disputes over quantum, are referable to arbitration.  The advantages of arbitration for insurers are that their confidential nature means that decisions on certain contested clauses are not made public; conversely, the fact of litigation proceedings being heard in open court can provide policyholders with commercial leverage to the extent that not paying claims may open an insurer to negative reputational consequences.  There is also a perception that many experienced insurance arbitrators hail from a long career on the insurer-side of the market, meaning that the outcome might be an insurer-friendly foregone conclusion – which as, in the US – is unlikely to be appealable.

Conclusion

Will: Most likely not to anyone’s surprise, there are some significant distinctions in the US and UK systems. Some of these distinctions – the ease of instituting litigation, impersonal nature of the insurance industry, and entitlement to highly probing discovery processes – perhaps help to explain the US’s reputation for litigiousness. The US system provides many opportunities for strategic gamesmanship, given the many forums to file in and the differences in state substantive law. I am left thinking that these considerations create an environment more favorable to corporate policyholders, who can take advantage of these processes as long as they are able to fund the process along the way.

Joanna: Drawing the threads together, and notwithstanding the fascinating and clear differences that we have explored between the two systems, some common themes do emerge, such as the relatively similar approaches to policy interpretation and propensity for claims to settle before trial.  Despite the greater risks that litigating in the UK may pose to policyholders, similarly, those corporate policyholders that can fund the process are able to take advantage of a more favorable landscape post the Insurance Act 2015 and in light of the number of recent policyholder-friendly rulings. The challenge for us on both sides of the pond is how we bring about our shared goal of leveling the playing field for all policyholders.

Authors

Joanna Grant, Managing Partner, Fenchurch Law

Will S. Bennett, Partner, SDV Law