In my December 18, 2017, blog post, I wrote about “choosing the right path” to settle complex insurance claims and emphasized the benefits of private structured negotiation, a type of negotiation undertaken without the assistance of mediators. At that time, I identified mediation as “a good potential next step.” Since 2017, the world has suffered through a pandemic, and it has become apparent to me that private settlement discussions can sometimes become discoverable in litigation, even if compromise communications are not permitted in evidence. In the wake of these developments, what I previously counseled as a good potential second step is now in my view the proper first step in most cases. Notwithstanding, while mediation has many benefits, its efficacy depends on identifying the right mediator, selecting the right timing and format (now, likely virtual), and making sure that any settlement reached in mediation does not later unravel.
Why Mediation May Now Be the Superior Process
Some courts properly recognize that public policy favors allowing parties to communicate openly in settlement discussions. But there is a split of authority: other courts have focused instead on the broad reach of fact discovery and have concluded that settlement discussions are relevant and not privileged. These courts note that Federal Rule of Evidence 408 and analogous state rules prohibit the admissibility of compromise communications at trial but may not bar their discoverability for other purposes, if relevant. A compounding problem is that parties negotiating settlement may agree among themselves that their settlement communications are not discoverable, but this does not bind third parties, nor does it prevent a third party not part of settlement negotiation from seeking access to settlement communications if relevance otherwise can be demonstrated, regardless of whether confidentiality agreements were entered into by the negotiating parties. Since many courts apply a broad relevance standard, private negotiations present risk in any litigation that may follow.
To avoid derailing or chilling a settlement dialogue, policyholders and insurers can erect protective barriers. In multiparty cases, all parties can agree that settlement communications are not discoverable either through a case management order or by some other form of jointly proposed court order. In addition, many states have enacted the Uniform Mediation Act, which legislates that mediation communications are privileged and are not subject to discovery. (See, e.g., Ohio Rev. Code § 2710.03.) If parties are domiciled in multiple jurisdictions—as is usually the case—they can choose the law of any state to govern their mediation, and the mediation privilege should apply whether or not litigation is pending.
The pandemic also has changed the calculus. Whereas principled face-to-face meetings between policyholders and insurers have the potential to be very productive, the pandemic has made this harder. For health reasons, many parties do not want to travel or to be in the same rooms together. It is unclear if and when this will change. Virtual proceedings are harder without a neutral, as no party wants to cede control to the other to lead the process and, for example, to control the assignment and management of break-out rooms. Mediation allows a neutral to oversee a confidential virtual proceeding. Remember that mediation is non-binding, far less expensive than litigation (though it can be expensive too), is designed to be quick (though it is sometimes slow), and can be structured in whatever way the parties and mediator determine is most likely to yield a successful outcome. The only limitation is the parties’ and mediator’s creativity.
A mediation that is not well conceived and executed is not likely to succeed. If parties commit to spending the time and effort to engage in a mediation process, they should do so thoughtfully. Assuming that a mediation has been agreed to, parties should consider the following procedural elements:
- Consider the Timing. The timing of a mediation may be imposed or voluntary. Some insurance policies require mediation before a lawsuit is filed. Some jurisdictions (or individual courts) require mediation before trial. Where the decision is voluntary, parties should communicate about the timing. Mediation at the outset of discovery in a complex case may not be as effective as mediation after the close of fact or expert discovery. On the other hand, players with a small financial stake may wish to mediate before incurring the costs of discovery. The facts matter, and individual circumstances will likely dictate the most reasonable decision. All of this can be sorted out if the parties are communicating.
- Select the Right Mediator. Choosing a mediator is like choosing a car. Some will simply get you to where you are going. Others have accessories that may (or may not) matter. Facultative mediators facilitate negotiations. Evaluative mediators analyze the facts and express opinions on the strength of the parties’ respective arguments. Good mediators do both. There are mediators who are in high demand—usually, because they are good—but who may not be able to focus on your matter. There are mediators who have relationships with specific insurers’ senior management. There are mediators with a deep knowledge of a particular jurisdiction’s law. There are mediators with deep knowledge of a specific type of insurance claim. There are mediators who used be judges. There are mediators who used to be policyholder lawyers. There are mediators who used to be insurance executives. There are mediators who one side or the other simply will not agree to. One size definitely does not fit all. Be aware of the pros and cons and choose wisely.
- Choose the Right Format. Much has recently been written about the advantages and disadvantages of virtual mediation. The clearest advantage to virtual mediation today is that few other options are available. It remains to be seen whether virtual mediation ultimately is as productive as a face-to-face meeting where principals (or counsel) can speak to each other directly in a hallway to resolve a case at the pivotal moment. Regardless, parties clearly recognize that courts are backlogged with criminal cases, and virtual mediations are an attractive alternative to waiting years to resolve a case through trial. Virtual mediation can be easier to schedule, especially when working with good mediators and multiple parties, including experts, from diverse geographies. Virtual mediations are cheaper as well, and virtual mediations can more easily be started, stopped, and then restarted if phasing will be helpful.
- Assure that Any Agreement Reached Gets Finalized. Assuming a successful result, make sure that a settlement “in principle” actually constitutes a meeting of the minds. The best time to do this is at the mediation, when the mediator is there to assist. Waiting until after the mediation concludes to confirm terms may result in delays, disagreements, or worse. Take the time to finish what you start by agreeing to all material terms before the parties leave the room.
Keeping these various factors in mind is key to ensuring a successful mediation process—one that is cohesive, thoughtful, and well-positioned to lead to a favorable outcome.