Preparing for a mediation involving coverage issues
Adequate preparation is essential for any mediation, and mediations involving insurance coverage issues are no exception. Whether the focus of the mediation is the insurance coverage dispute itself, or whether the insurer is attending a mediation of the underlying action (with an expectation that it will fund any settlement), the insured can and should take certain steps to ensure a more productive session.
1) Select the right mediator
Only the attorneys handling the case can judge which mediator has the right style and temperament to handle their specific matter. An additional consideration, however, should be whether the mediator has some experience with insurance coverage issues. Like many litigators, some mediators view insurance coverage as a somewhat rarefied and obscure area of law. A mediator with little or no insurance coverage experience may hesitate to roll up his or her sleeves, focus on the insurance policy language and the legal rules which govern its interpretation, and work out whatever coverage issues exist between your client and the insurer.
On a more practical level, a mediator with insurance coverage experience will be familiar with the carrier thought process and have a better understanding of how decisions are made within an insurance company. Therefore, a mediator with such experience can better motivate and persuade the carrier, working through any internal hurdles to decision-making and ultimate resolution.
2) Ensure decision-makers are in attendance
When attorneys agree to mediate, it is frequently assumed that their respective clients will attend. Insurance companies frequently make precisely the opposite assumption, and will only send their attorneys to a mediation. While an insurer’s unwillingness to send a representative may appear obstructionist, in part it simply reflects the reality that in-house insurance claims handlers frequently manage hundreds of files at a time, and simply can’t be in two places at once. At the same time, anyone who has participated in a mediation attended by attorneys only knows that such sessions typically are not productive.
The best way to ensure that a fully-authorized carrier representative attend the mediation is for the insured to expressly insist upon it, and to do so early, often, and forcefully. If you’re considering mediation, bring the carrier into the loop as soon as possible regarding scheduling. Even if the insurer does not ultimately agree to send a representative, you will have a record of your attempts to accommodate the carrier’s schedule.
3) Prepare the way the insurer prepares
Before a mediation, review all reservation of rights letters and other significant correspondence. Know the history of the file and remind yourself of all the various bases for the insurer’s reservation of rights and when they were first raised. Issues which have been lying dormant for months, and which the policyholder may have assumed the insurer has abandoned, often resurface at mediation. If you are mediating an underlying liability case, be sure defense counsel is prepared to appropriately explain the insured’s potential exposure. Indeed, it is usually advisable for defense counsel to deliver a pre-mediation report to the insurer, detailing the case status and the insured’s potential exposure. (Where the insurer either is not defending or is defending subject to a reservation of rights, privilege concerns can be addressed by delivering the report orally, rather than in writing.)
Keep in mind that a primary goal of the insurer will be to emerge from the mediation having terminated any defense obligation, and having paid less than the full limits of its policy. If the insurer has been funding the defense, know where the defense costs stand – how much has been paid to date, and how much defense costs will be in the future if the matter is not resolved. Future defense costs can be a significant factor in motivating the insurer to settle the case. Getting a good handle on defense costs is particularly important if the policy is a “wasting limits” policy. You’ll want to know exactly how much of the policy limits are left, and how much is already “spoken for” (i.e., outstanding defense billings that the insurer has not yet paid).
Make sure your client and defense counsel are prepared with your position on tough questions or issues that may arise during the mediation, such as: (1) the insurer insisting that the insured contribute to funding the settlement; (2) the insurer announcing its intention to seek recoupment of amounts expended, pursuant to Buss v. Superior Court and Johansen; or (3) the insurer requesting either a full policy release, or a release of all potential future claims related to the issue being mediated (e.g., in environmental exposures, the possibility that a regulatory agency will re-open an enforcement action).
4) Brief the coverage issues promptly and thoroughly
Without the pressure of a court-imposed deadline, attorneys often ignore the mediator’s deadlines for mediation briefs, submitting them just a day or two before the mediation. Attorneys representing policyholders should resist this temptation. Insurance companies are large bureaucracies, charged with monitoring thousands of claims at any given time. As noted above, the representative responsible for your client’s file is typically handling hundreds of other claims at the same time. To ensure that the representative has time to fully review and absorb your mediation brief, and to procure appropriate settlement authority based on the arguments made therein, submit your brief on time. (Indeed, you should confirm well in advance of the mediation that the parties will be exchanging briefs. Otherwise, the first time the insurer representative will be hearing your best articulation of your client’s coverage position will be at the mediation itself.)
Finally, insurance coverage issues are often best addressed in separate and/or private submissions to the mediator. In a mediation of the underlying case, a separate submission on the coverage issues is usually appropriate, with the submission going only to the mediator and the insurance carrier. Separate or private submissions may also be appropriate in cases where multiple insurance carriers are involved. The carriers will undoubtedly have differing views regarding which among them has the greatest obligation to fund settlement. In such cases, carve out an agreement in advance that will allow each carrier to do a private submission that is shared only with the insured and the mediator (but not the other carriers). The insured may also provide a private submission with its views on allocation, or with leverage points that can be used separately with each carrier.
Like any other step in litigation, success in mediation depends on advance planning and preparation, as well as giving careful consideration to the viewpoint of your ultimate decision-makers. Taking the above steps will help ensure that you are thoroughly prepared to address any issues that may arise at the mediation itself.