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Insurance Can Impact Your Mediation

Insurance Can Impact Your Mediation

Source: The Recorder
Date: May 23, 2011

Hon. Rebecca Westerfield (Ret.)

Resolution Centers


134rd Year no. 18 www.therecorder.com Monda Y, Ma Y 23, 2011 RECORDER Craig Meredith, Esq. and Hon. Rebecca Westerfield (Ret.) Alternative Dispute Resolution R esolving a dispute through me- diation is an extremely satisfy- ing experience. Whether a set- tlement is reached at noon or at midnight, individual parties often expe- rience an almost overwhelming feeling of relief that the long-standing dispute that has been consuming their lives for years is finally a thing of the past; they have their lives back. For a business, it means a return to making money rather than spending it on increasingly expen- sive litigation. Settlement puts an end to uncertainties regarding the outcome, cost and duration of the dispute that previously impeded business planning. On the other hand, failing to reach settlement at mediation can be tremen- dously disappointing. The parties have typically spent considerable time and expense preparing for and attending the mediation in the high hopes of final resolution. Ending the mediation with- out a settlement can leave parties feeling even more frustrated, antagonistic and entrenched. Mediations fail for a number of rea- sons. Many fail unnecessarily because the case involves insurance coverage is- sues or disputes among multiple insurers that have not been properly developed or addressed by the date of the mediation. While the parties will typically submit mediation briefs that address the liabil- ity and damage issues of the underlying case, they often do not address coverage issues or allocation disputes even if they know these issues exist. Too often, the mediator is not advised of an insurance issue until well into the mediation and is then faced with a “mediation within the mediation. ” At that point, there may be no way to resolve the undeveloped cov- erage or allocation issues and the media- tion fails. Following is a recommended checklist for mediations involving insurance, so par- ties can minimize the likelihood that insur- ance issues preclude settlement. 1. Have all potentially involved carri- ers been placed on notice? Many claims trigger more than one policy and the defendant should be sure that all poten- tially exposed carriers are on notice. For example, cases involving continuous, progressively worsening damages may trigger several consecutive policy years. Large cases may potentially expose one or more layers of excess policies. Some claims can trigger different types of cov- erage — for example, both the defen- dant’s commercial general liability and professional liability policies. If all po- tentially involved carriers are not on no- tice and up to speed, the case is far from ready for mediation. 2. Do the defending carriers agree that all potentially involved carriers for their insured are participating? Carriers are increasingly unwilling to “pay and chase, ” that is, pay the entire settlement themselves and then pursue other carri- ers for contribution and indemnity. A de- fending carrier may attend a mediation and be well-informed regarding the case, but refuse to grant settlement authority because another of their insured’s carri- ers is not “at the table. ” Counsel should not hesitate to get the mediator involved in this early stage before attending the mediation. It is important to reach an agreement with the defending carriers that all parties who should participate are there, or to come to an understand- ing as to how settlement can be achieved if they do not participate. 3. Have counsel responded to all of the carrier’s requests for information? It is important that counsel respond to all requests so that carrier representatives can obtain authority for the appropriate level of settlement contribution. When the carrier does not have this authority, due to lack of information from counsel, it will heighten the parties’ frustration. Counsel should review all correspon- dence from the carrier and make sure that information requests have been addressed, even if the response is to in- form the carrier that the information is not available. Well in advance of the me- diation, counsel should confirm that the carrier has all of the information it needs to make a decision and that the repre- sentative is not waiting for additional information. 4. Have counsel provided the carrier with a liability and damage analysis and a request for settlement authority? In or- der for a carrier to evaluate settlement, it needs to understand the risks associated with a trial loss, and the potential mag- nitude. It is easier for the representative to obtain necessary approval from supe- riors if there is a specific sum being re- Insurance can impact your mediation Top 10 issues to address to ensure that coverage disputes do not impede settlement Craig S. Meredith, Esq. is a fulltime neutral with JAMS and has successfully mediated hundreds of cases involving complex insurance disputes and can be reached at cmeredith@jamsadr.com. Hon. Rebecca Westerfield (Ret.) is a fulltime neutral with JAMS and has settled and arbitrated more than 2,500 cases throughout the United States, including complex insurance matters. She can be reached at rwesterfield@jamsadr .com.Reprinted with permission from the May 23, 2011 edition of The Recorder. © Copyright 2011. ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, call 415.490.1054 or cshively@alm.com. quested. Claimants should not wait until the day before or day of the mediation to set forth their demands. 5. Has the carrier been provided with sufficient time to work through the pro- cess of obtaining settlement authority? In spite of the lore on the subject, there is seldom a “carrier representative with full policy limits authority” who can attend the mediation in person and pull the trig- ger on a contribution on the spot. And the more settlement authority needed, the longer it will take to get it. For example, getting settlement authority of more than $5 million can often take three or four weeks after the request is made. Coun- sel need to ascertain how much time the claims representative needs so that the mediation is not scheduled prematurely. 6. Has the mediator been advised of troublesome coverage issues and have those issues been briefed? Defense counsel appointed by carriers is un- derstandably reluctant to get into the merits of coverage issues, but they can at least advise the mediator of the ex- istence of such issues. Coverage issues often involve complicated, untested policy language and are determined by facts that might be in dispute. Of- ten there will be insufficient time to educate the mediator adequately on those issues if they have not already been explained in briefs or correspon- dence. When defense counsel becomes aware of possible coverage issues that may impede settlement, they should invite the carrier and insured to send separate briefs or correspondence to the mediator outlining those issues. Policies in dispute should also be avail- able. More often, customized policies, or “manuscript” policies, rather than “form” policies are at issue. Involve the mediator as early as possible to devise a procedure that addresses insurance is- sues in a way that does not impede the “main event. ” 7. Have “allocation disputes” been re- solved ahead of the mediation? Check to see if multiple carriers are defending the same insured parties, as they often have disputes over their respective per- centages of any settlement contribution. Excess carriers and primary carriers also often have disputes over whether the ex- cess carrier must participate in the settle- ment. Carriers may even demand that the insured make a contribution, but don’t have an agreement with the insured as to the respective shares. These allocation disputes should be resolved or at least narrowed as much as possible prior to the mediation. 8. Will the right carrier representative attend or at least be available by phone? When there are unresolved coverage disputes, a carrier representative and/ or coverage counsel should attend. Also, on occasion, the attending claims repre- sentative must call his or her supervisor before increasing settlement authority. Counsel should make sure that they have after-hours access to those supervisors, especially when those supervisors are on the East Coast. 9. Have the parties considered a pre- mediation of the coverage or allocation disputes? Mediations for complicated commercial cases often last longer than a day, even when coverage and allocation disputes don’t exist. An effort to resolve the coverage issues during the mediation of the main case will often result in inade- quate time to resolve the case, which can frustrate already impatient parties. Those parties that are having serious coverage and allocation issues should consider sharing the cost of a pre-mediation be- fore the main mediation. These pre-me- diations can streamline the mediation of the main case by resolving the coverage and allocation issues or devising a pro- cess for doing so. 10. Has the claimant been made aware of coverage limitations that will limit available funds for settlement? As early as possible in the case, the plain- tiff or claimant should understand pos- sible coverage limitations. It is harmful for a client to get excited about a $10 million claim against an insolvent de- fendant when that defendant has only $1 million in available limits. Similarly, even a policy with a $10 million limit does not necessarily provide $10 mil- lion in coverage. Advising the plain- tiff’s counsel early about limitations in available insurance proceeds will assist them in managing their client’s expec- tations about possible recoveries. It is the shared responsibility of the parties and the mediator to prepare par- ticipants for maximum success of the me- diation process. Managing the insurance issues through some of the above sug- gestions, however, will greatly enhance chances of success for all.

 Insurance can impact your mediation 
Top 10 issues to address to ensure that coverage disputes 

Resolving a dispute through mediation is an extremely satisfying experience. Whether a settlement is reached at noon or at midnight, individual parties often experience an almost overwhelming feeling of relief that the long-standing dispute that has been consuming their lives for years is finally a thing of the past; they have their lives back. For a business, it  means a return to making money rather than spending it on increasingly expensive litigation. Settlement puts an end to uncertainties regarding the outcome, cost and duration of the dispute that previously impeded business planning. 

On the other hand, failing to reach  settlement at mediation can be tremendously  disappointing. The parties have  typically spent considerable time and  expense preparing for and attending  the mediation in the high hopes of final  resolution. Ending the mediation with-do not impede settlement out a settlement can leave parties feeling  even more frustrated, antagonistic and  entrenched. 
 Mediations fail for a number of reasons.  Many fail unnecessarily because  the case involves insurance coverage issues  or disputes among multiple insurers  that have not been properly developed or  addressed by the date of the mediation. 

While the parties will typically submit  mediation briefs that address the liability  and damage issues of the underlying  case, they often do not address coverage  issues or allocation disputes even if they  know these issues exist. Too often, the  mediator is not advised of an insurance  issue until well into the mediation and is  then faced with a "mediation within the  mediation." At that point, there may be  no way to resolve the undeveloped coverage  or allocation issues and the mediation  fails.

Following is a recommended checklist  for mediations involving insurance, so parties  can minimize the likelihood that insurance  issues preclude settlement. 
 1. Have all potentially involved carriers  been placed on notice? Many claims  trigger more than one policy and the  defendant should be sure that all potentially  exposed carriers are on notice. For  example, cases involving continuous,  progressively worsening damages may  trigger several consecutive policy years.  Large cases may potentially expose one  or more layers of excess policies. Some  claims can trigger different types of coverage  — for example, both the defendant's  commercial general liability and  professional liability policies. If all potentially  involved carriers are not on notice  and up to speed, the case is far from  ready for mediation. 

2. Do the defending carriers agree  that all potentially involved carriers for  their insured are participating? Carriers  are increasingly unwilling to "pay and  chase," that is, pay the entire settlement  themselves and then pursue other carriers  for contribution and indemnity. A defending  carrier may attend a mediation  and be well-informed regarding the case,  but refuse to grant settlement authority  because another of their insured's carriers  is not "at the table." Counsel should  not hesitate to get the mediator involved  in this early stage before attending the  mediation. It is important to reach an  agreement with the defending carriers  that all parties who should participate  are there, or to come to an understanding  as to how settlement can be achieved  if they do not participate. 

3. Have counsel responded to all of  the carrier's requests for information? It  is important that counsel respond to all  requests so that carrier representatives  can obtain authority for the appropriate  level of settlement contribution. When  the carrier does not have this authority,  due to lack of information from counsel,  it will heighten the parties' frustration.  Counsel should review all correspondence  from the carrier and make sure  that information requests have been  addressed, even if the response is to inform  the carrier that the information is  not available. Well in advance of the mediation,  counsel should confirm that the  carrier has all of the information it needs  to make a decision and that the representative  is not waiting for additional  information. 

4. Have counsel provided the carrier  with a liability and damage analysis and  a request for settlement authority? In order  for a carrier to evaluate settlement, it  needs to understand the risks associated  with a trial loss, and the potential magnitude.  It is easier for the representative  to obtain necessary approval from superiors  if there is a specific sum being requested. Claimants should not wait until  the day before or day of the mediation to  set forth their demands. 

5. Has the carrier been provided with  sufficient time to work through the process  of obtaining settlement authority?  In spite of the lore on the subject, there is  seldom a "carrier representative with full  policy limits authority" who can attend  the mediation in person and pull the trigger  on a contribution on the spot. And the  more settlement authority needed, the  longer it will take to get it. For example,  getting settlement authority of more than  $5 million can often take three or four  weeks after the request is made. Counsel  need to ascertain how much time the  claims representative needs so that the  mediation is not scheduled prematurely. 

6. Has the mediator been advised of  troublesome coverage issues and have  those issues been briefed? Defense  counsel appointed by carriers is understandably  reluctant to get into the  merits of coverage issues, but they can  at least advise the mediator of the existence  of such issues. Coverage issues  often involve complicated, untested  policy language and are determined  by facts that might be in dispute. Often  there will be insufficient time to  educate the mediator adequately on  those issues if they have not already  been explained in briefs or correspondence.  When defense counsel becomes  aware of possible coverage issues that  may impede settlement, they should  invite the carrier and insured to send  separate briefs or correspondence to  the mediator outlining those issues.  Policies in dispute should also be available.  More often, customized policies,  or "manuscript" policies, rather than  "form" policies are at issue. Involve the  mediator as early as possible to devise a  procedure that addresses insurance issues  in a way that does not impede the  "main event." 
7. Have "allocation disputes" been resolved  ahead of the mediation? Check  to see if multiple carriers are defending  the same insured parties, as they often  have disputes over their respective percentages  of any settlement contribution.  Excess carriers and primary carriers also  often have disputes over whether the excess  carrier must participate in the settlement.  Carriers may even demand that the  insured make a contribution, but don't  have an agreement with the insured as  to the respective shares. These allocation  disputes should be resolved or at least  narrowed as much as possible prior to  the mediation. 

8. Will the right carrier representative  attend or at least be available by phone?  When there are unresolved coverage  disputes, a carrier representative and/  or coverage counsel should attend. Also,  on occasion, the attending claims representative  must call his or her supervisor  before increasing settlement authority.  Counsel should make sure that they have  after-hours access to those supervisors,  especially when those supervisors are on  the East Coast. 

9. Have the parties considered a pre- mediation of the coverage or allocation  disputes? Mediations for complicated  commercial cases often last longer than  a day, even when coverage and allocation  disputes don't exist. An effort to resolve  the coverage issues during the mediation  of the main case will often result in inadequate  time to resolve the case, which can  frustrate already impatient parties. Those  parties that are having serious coverage  and allocation issues should consider  sharing the cost of a pre-mediation before  the main mediation. These pre-mediations  can streamline the mediation of  the main case by resolving the coverage  and allocation issues or devising a process  for doing so. 

10. Has the claimant been made  aware of coverage limitations that will  limit available funds for settlement? As  early as possible in the case, the plaintiff  or claimant should understand possible  coverage limitations. It is harmful  for a client to get excited about a $10  million claim against an insolvent defendant  when that defendant has only  $1 million in available limits. Similarly,  even a policy with a $10 million limit  does not necessarily provide $10 million  in coverage. Advising the plaintiff's  counsel early about limitations in  available insurance proceeds will assist  them in managing their client's expectations  about possible recoveries.  It is the shared responsibility of the  parties and the mediator to prepare participants  for maximum success of the mediation  process. Managing the insurance  issues through some of the above suggestions,  however, will greatly enhance  chances of success for all.