January 22, 2014 Articles

Mediation of Coverage Disputes: Best Practices and Trends

Like any other weapon in the litigator’s arsenal, mediation can be an effective tool for obtaining the best possible result for a client if used properly and at the right time. Thus, counsel should consider when and whether to mediate throughout a dispute

by Arden B. Levy

Mediation in coverage disputes tends to arise in one of the following three contexts: a court orders mediation early in the case; the parties mediate pursuant to some prior agreement to mediate disputes before litigation; or the parties agree to mediate at some time after a dispute arises, and often after litigation is initiated. Generally, it is preferable for the parties to control the mediation process and to decide whether and when to mediate, and how to structure the mediation. When the parties are invested in the process, they are more likely to reach a negotiated settlement. The opportunity for a favorable settlement is enhanced if both the parties and the mediator are sufficiently prepared, if the mediator has the right expertise, and if the parties have the documents and discovery needed to value the case. Like any other weapon in the litigator’s arsenal, mediation can be an effective tool for obtaining the best possible result for a client if used properly and at the right time. Thus, counsel should consider when and whether to mediate throughout a dispute.

Certain trends in litigation and mediation are likely to affect the decisions that counsel make as to whether, when, and how to proceed with mediation. This article lays out some of these trends alongside certain principles to consider in approaching mediation. Ultimately, the advantage of mediation, so long as counsel considers the client’s best interests, is to resolve disputes efficiently and effectively—to minimize the cost of resolving a dispute and to do so in a way that allows the parties to set their own terms.

Evaluate the Case Early

Early evaluation of a dispute is critical if counsel plan to consider using mediation to resolve a dispute. Not surprisingly, evaluating a case as early as possible in the life of a dispute ties into many of the same considerations parties examine for litigation. That means early assessment of the key facts in the dispute and how courts in the relevant jurisdictions are likely to resolve the principal substantive and procedural issues. As objectively as possible, counsel should gauge the strengths and weaknesses of both his or her own case and the opponent’s case. In addition, early evaluation means understanding the nature of the relationships and dynamics between and among the potential parties, as well as knowing how opposing counsel tends to handle cases and approach mediation. Finally, this means educating or reminding the client about the advantages and disadvantages of mediation in the particular dispute at issue. For example, preparing an estimated litigation budget early in the case may be helpful to illustrate the costs of litigation over time, and that budget may need to be amended as the case proceeds. Without going through these steps, counsel face more hurdles in creating a strategic plan for resolving a dispute and maintaining a good client relationship, whether through litigation or mediation.

Over the past 10 to 20 years, it has become accepted that some aspects of that early evaluation are even more important. For example, as the costs of litigation and electronic discovery have exploded, educating clients on potential litigation costs over time and how and when mediation may factor into that litigation is a key part of litigation management. Sometimes a client may decide that resolving a dispute as early as possible without undergoing the corporate equivalent to financial trench warfare is its best solution. However, putting numbers to this analysis early on is important.

At the same time, the fact remains that complex insurance coverage disputes can be difficult to mediate; coverage disputes often involve complex multi-layer insurance programs with multiple insurers and insureds, all with different interests. Thus, all the parties must be able to identify more of a benefit to resolving the dispute through mediation rather than through litigation. Often, parties are not ready to decide whether to mediate a matter until at least after conducting an initial round of discovery, incurring some costs before mediation is even possible. And the very fact that parties already will incur some sizable amount of fees and costs in discovery may make settlement talks less appealing. Alternatively, in some instances, the mediator can arrange with the parties for some initial exchange of documents or materials that will help the parties to better understand the case without incurring the same costs. If the parties are contemplating mediation as a possible course of action, then they may want to consider how and when to proceed in that direction as early as possible.

Know Your Jurisdiction(s)

Determine the likely outcome of the principal case issues. In the first instance, counsel must understand the strengths and weaknesses of a party’s case and the opposing party’s case in order to determine whether mediation might be appropriate. And to reach that understanding, counsel must determine how the matter’s principal substantive issues are likely to be resolved in each jurisdiction where litigation is possible and how that resolution could affect the outcome.

Know how the civil docket works. Aside from evaluating the likely substantive outcome of the issues, counsel also should assess the time frame for litigating those issues.

One recent and significant factor influencing the time to litigate cases—and thus a consideration favoring mediation—is the slowdown of judicial dockets due to insufficient court funding. In jurisdictions where this has happened, practitioners now may view mediation as a better tool for their client than litigation. This may be particularly true for policyholders who want to be paid sooner rather than later. Where policyholders are not likely to see resolution of a case for years, less money in the policyholder’s pocket now rather than the possibility of more money later may make mediation an even more appealing option than in the past.

Similarly, in jurisdictions where there might be a greater push toward mediation, such action may affect the use of mediation. For example, in New Jersey, after insurance disputes received great attention following Superstorm Sandy in 2012, the state established a mediation program to foster the resolution of insurance disputes arising out of Sandy.[1] However, such a program may not necessarily provide the structure or incentive needed for commercial coverage disputes. Nevertheless, the existence of the mediation program provides another consideration for parties to evaluate early on in a case.

By comparison, there are some jurisdictions where the dockets may move so quickly that parties generally use mediation before litigation (or before it proceeds too far), or the parties may need to voluntarily dismiss in order to focus on mediating the dispute. For example, in the Eastern District of Virginia—aka “the Rocket Docket”—where cases often move from the filing of the complaint to trial in six months, the parties simply may not have time to mediate a dispute during the litigation unless one party voluntary dismisses without prejudice.[2]

These are all considerations counsel may want to present to clients as they contemplate litigation.

Getting to Mediation

Assuming that the dispute is right and the time is ripe to move toward mediation, the next step is determining whether the other parties are on board and then selecting the mediator.

Bringing other parties to mediation. The specific parties or counsel involved a dispute may affect whether or when they decide to mediate a matter. For example, it may be that the insurance company or the policyholder in the dispute has an internal policy related to promoting resolution of disputes through mediation. Or it may be that a party’s lawyer has successfully resolved one or more prior disputes through mediation and is more experienced in using the process effectively.

If litigation already has begun, it may be that a particular judge or magistrate may shepherd the parties toward mediation. Such pressure may work for or against mediation. For example, at an initial scheduling conference, the court may push the parties toward mediation. If neither party is interested in mediation, that may be pointless. However, if at least one party believes the case is ripe for mediation, the judge may be more likely to set aside the time or opportunity for mediation.[3] Nevertheless, both parties must want to resolve the case for mediation to be successful, and bringing an unwilling party to the table can be a waste of time and money for all involved.

Selecting the right mediator. Once the parties decide to mediate, they must select the right mediator. Parties often seek to find a mediator who is knowledgeable about the specific issues or policies in question. This expertise is particularly important where complex insurance programs or issues are in dispute and it is critical to find a mediator who is able to delve into the law on the key issues.

Further, selection of the right mediator also involves finding a person who is experienced in the process of mediating disputes and who follows some of the more common practices for reaching a resolution.[4] That means finding a mediator who incorporates considerations for what should be done before and after the day or days scheduled for mediation into his or her methodology (and cost structure) for conducting the mediation. To some practitioners, it also may mean finding a mediator who will not pressure parties to settle or force the parties to give their bottom line, and instead view mediation as an ongoing process in litigation.

In addition, the right mediator—to bring both parties to the table on an equal footing—is typically one who has a reputation for neutrality. Nevertheless, counsel should not necessarily reject a proposed mediator outright simply because that person is not known to counsel. A thorough investigation of the proposed mediator is essential to determine whether that person is a good mediator for the case at issue.

Best Practices for Pre-Mediation

As with any other role, a prepared mediator is better than an unprepared mediator. But more important, a prepared mediator should follow a process that makes the parties more invested in the mediation process as early as possible.

The five steps listed below incorporate many of the typical processes that are followed before the mediation starts. Yet, often times some of these steps do not take place and the mediation is not as productive as possible. Practitioners should consider each of the steps as they evaluate potential mediators and as they interact with the selected mediator.

Separate discussions between the mediator and each party before the mediation starts. The mediator should speak with each of the parties separately at least once before the mediation begins. Some mediators may set up telephone conferences with the parties before the mediation. For example, they may first speak with the parties jointly to discuss procedure, and then later set up calls with each of the parties to discuss the substantive issues and case valuation. Such discussion of the substantive issues and case value often happens after the parties have submitted their written mediation briefs.

Exchange and disclosure of any necessary documents. Sometimes, the parties may not have all the information they need to mediate the matter. This may be particularly true where the parties are discussing settlement before litigation has begun or very early on in the discovery process. Thus, they may need additional facts and documents to evaluate the case. To address this situation, a mediator may structure the mediation to allow time for a limited exchange of documents before the day of mediation.

Submission of written mediation briefs or position papers. The mediator should define the scope and page limit of these briefs so that they provide only the information needed for the mediation. If any party has information that is truly confidential, the party should submit that information separately or in a letter to the mediator. However, the mediator may work with the party to confirm that the information is truly confidential.

Exchange of at least one demand/offer before the mediation. The mediator is best situated to help the parties if he or she understands the parties’ positions coming in to the mediation. An exchange of a demand and offer early on allows the parties to understand how the other party values the case coming into the mediation and enables all parties to be as prepared as possible. Likewise, the process allows each party to more accurately value its own case before the mediation starts.

Thorough knowledge of the case issues and values. With the information provided before the mediation begins, the mediator should gain a thorough knowledge of the case, its procedural posture and substantive issues, the strengths and weaknesses of each party’s position, and how each party values the case. Taking this step ahead of time makes the day of mediation more productive.

Best Practices During Mediation

Just as in the pre-mediation phase, there are some typical steps to follow during mediation that help create the best environment for productive settlement discussions. As a practical matter, mediators may conduct either joint or separate sessions, although mediators often tend to do a lot of shuffling back and forth between the parties in separate sessions. In preparing for those meetings, counsel may want to consider some of the following points as guidelines to use throughout the mediation:

Come prepared with detailed knowledge of facts and the relevant law. With any lesser preparation, a party may not be ready to evaluate the case and the demand or offer it is facing.

Come prepared with opening and closing. Each party’s counsel should be prepared to give a short (and even shorter) opening and closing statement, depending on how the mediator structures the day. In addition, each party should be ready to identify its supporting evidence, as well as to respond to the evidence that supports the other party’s case.

Identify and be prepared to present “new” facts or evidence. Each side should identify documents or facts that it believes the other party has not yet considered or even identified. This is information to be used in a strategic way as the day proceeds.

Be prepared for mediation to continue. Parties sometimes view the end of the mediation day as the time limit for settling. However, as a practical matter, coverage cases often do not settle on the first scheduled mediation date. Instead, settlement discussions often continue after the date of the mediation, and resolution comes at some later time.

Similarly, there are ways in which counsel’s conduct during the mediation can harm his or her client’s own case. Below is a list of some of the key considerations for counsel to bear in mind so they do not poison the well with their conduct:

Do not submit insulting or aggressive mediation briefs or engage in personal attacks. This should be common sense. A lawyer can aggressively represent his or her client without engaging in unprofessional conduct. Table pounding is one tactic that lawyers sometimes use at mediation on behalf of their clients. Sometimes, that can be effective. However, consider carefully about how and when to use that approach. Alternatively, counsel may want to raise with the other party a problem or potential problem that may appear insulting or overaggressive to the other side. In that circumstance, the solution may simply be to notify the mediator separately—whether in writing or in a caucus. Ultimately, keep the client’s best interests in mind.

Avoid surprise tactics. If the mediator has set the right structure for the day, then the parties have an understanding of how opposing counsel views the case. Yet, if counsel then comes into the mediation with a much higher or lower demand than expected without some good, or new, justification, he or she ultimately weakens his or her client’s position. The client’s position should be worked out beforehand.

Do not burn bridges. If you say “take it or leave it,” you better mean it. Once you take a hard-line position, it is very difficult to back off that position for purposes of continuing the mediation.

Never disclose a client’s bottom line to the mediator. The mediator may be pushing a client hard, particularly as the day wears on and time is running out, to reach a settlement. However, never disclose a client’s bottom line to the mediator. By doing so, counsel opens the door to the mediator using that “bottom line” number as the starting point for further negotiation, effectively putting the mediator in the position of taking over negotiations for counsel.

Conclusion

Mediation, if it is right for a client, should be a dynamic process. It begins with case evaluation and mediator selection and continues through to the day of mediation and beyond. Follow the trends of what works best in similar cases and how mediation is playing out in your jurisdictions. Be prepared, professional, and flexible to achieve the best result for your client.

Keywords: insurance, coverage, litigation, mediation

Arden B. Levy is with Miller Friel, PLLC, in Washington, D.C.


 

[1] See New Jersey Dep’t of Banking & Insurance, Order No. A13-106, In the Matter of the Establishment of a Mediation Program to Aid in the Resolution of Claims Related to Storm Sandy (Mar. 26, 2013).
[2] For example, in the United States District Court for the Eastern District of Virginia, the court typically does not grant continuances. Thus, it is very difficult for parties to mediate a case as they are racing through discovery. See, e.g., E.D. Va. Local Rule of Civ. P. 16.
[3] If only one party wants to mediate, that party can include a statement in the proposed written discovery plan (which is submitted pursuant to Federal Rule of Civil Procedure 26) that it believes the case is appropriate for mediation, which may push the court to schedule an initial hearing with the parties to discuss the possibility of mediation.
[4] It is interesting that mediators for large complex coverage disputes do not always have state-specific mediator certification, which may (or may not) affect the quality and skill of the mediator at getting the parties to a resolution. See, e.g., Maryland Council for Dispute Resolution (webpage on certification), and Supreme Court of Virginia, Guidelines for the Training and Certification of Court-Referred Mediators (effective July 1, 2011).

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