Early Mediation of Insurance Coverage Disputes

Bruce A. Friedman, Esq.

Bruce A. Friedman, Esq.

Mediation of insurance coverage disputes prior to the filing of a lawsuit is becoming more common.  In part, this trend is the result of ADR provisions in insurance policies that require that the policyholder and insurer mediate coverage disputes prior to engaging in litigation.  Some of these provisions provide that the mediation shall continue until the mediator declares an impasse.  Others have a cooling-off period after the mediation that preclude either party from filing suit for a period of time (90 days) from the date of a failed mediation.

While early mediation and resolution of disputes is a laudable goal, saving the parties the time and expense of protracted litigation, the question is whether early mediation can result in a resolution of the dispute.  There are a number of things that the parties can and should do prior to the mediation to enhance the possibility of success, which include the following:

  1. At least a month before the mediation, counsel for parties should discuss what they need to know in order to enhance the possibility of settlement. This may require an information exchange phase of the mediation.  Once you have set up your mediation, the parties can exchange documents and information under the mediation privilege with an agreement to return the documents at the conclusion of the mediation.  The information could include the production of the underwriting and claim file if the coverage dispute arises in the third-party liability insurance context; documentation of the extent of the loss; documentation of the financial condition of policyholder if the issue of collectability is raised by the dispute.  These examples are only illustrative to spark your thinking on what you may need to see in order to evaluate the risk and value of the case.  In some cases, early consultation with experts and an expert report may be very helpful and persuasive.
  1. Mediation briefs must be exchanged as early as possible in order for each side to evaluate the positions of the other. It is too late to wait for the mediation to learn all of the arguments of the other side in order to give the issues the proper consideration.  Exchange of briefs also enhances the meditation process by allowing the parties to directly address each other rather than relying on the mediator to be the sole interpreter and communicator of the positions of the parties.  It educates the opposing side to the issues raised by the case.  Exchange briefs at least a week before the mediation to allow time for counsel to discuss the issues with their clients and to hopefully arrive at some objective evaluation of the prospective lawsuit.
  1. Assuming that the parties are serious about the early mediation and want to attempt to settle the matter, then each side needs to come to the mediation with settlement authority. By that I mean taking off your advocacy hat in the preparation for the mediation and analyzing the likelihood of success.  I suggest that counsel discuss the issues with a colleague in the office who is not involved in the case who may provide a more objective view.  After all, while the mediator is not going to decide the case, a settlement is going to reflect the strengths and weaknesses of each sides positions and an objective evaluation of the issues is crucial to arriving at a settlement.  Other factors in early resolution such as the cost of money, the saving of litigation expenses, and business reasons for resolving the dispute are all fair game for discussion and evaluation of the settlement value of the case, but they are not substitutes for objective risk assessment and the money necessary to get the matter resolved.

One more issue that needs to be considered in connection with the early mediation of insurance coverage disputes arising in the third-party liability insurance context is whether the insurance coverage issues can be resolved without the resolution of the underlying lawsuit against the policyholder.  If the early mediation addresses the duty to defend the underlying suit, then there is no reason to delay in mediating the issue.  However, if the intent of the insurance mediation is to resolve indemnity for loss arising out of the underlying litigation, then it is highly unlikely that the parties will be in a position to resolve the coverage issues without knowing the extent of that loss.  Under these circumstances, I strongly suggest that the mediation of both the coverage issues and the underlying case occur simultaneously.  The coverage issue may be a tool in the resolution of the underlying case and the cost of the third-party settlement will have a significant effect on the resolution of the coverage dispute.

Bruce A. Friedman, Esq. is a JAMS neutral, based in Southern California. He is an accomplished dispute resolution professional who has mediated and arbitrated a wide range of disputes, including insurance, class action, professional liability, business, real estate and entertainment and copyright matters. He can be reached at bfriedman@jamsadr.com.

Witnesses in Arbitration – Federal Arbitration Act

Richard Chernick, Esq.

Richard Chernick, Esq.

Testimony and documents may be obtained in arbitration in accordance with the parties’ agreement, the applicable institutional arbitration rules and provisions of law (federal and state arbitration acts, as applicable).  My prior article addressed the California Arbitration Act, but there are significant differences under the Federal Arbitration Act (FAA).

The FAA provides limited authority to subpoena witnesses or a summons to a hearing under Section 7:

The arbitrators selected either as prescribed in this title or otherwise, or a majority of them, may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case. The fees for such attendance shall be the same as the fees of witnesses before masters of the United States courts. Said summons shall issue in the name of the arbitrator or arbitrators, or a majority of them, and shall be signed by the arbitrators, or a majority of them, and shall be directed to the said person and shall be served in the same manner as subpoenas to appear and testify before the court; if any person or persons so summoned to testify shall refuse or neglect to obey said summons, upon petition the United States district court for the district in which such arbitrators, or a majority of them, are sitting may compel the attendance of such person or persons before said arbitrator or arbitrators, or punish said person or persons for contempt in the same manner provided by law for securing the attendance of witnesses or their punishment for neglect or refusal to attend in the courts of the United States.

This provision principally concerns summoning a witness to an arbitration hearing. It is also relevant, however, to the ability of a party to obtain documents from a third-party witness pre-hearing, and case law in this regard is quite limiting. Some federal courts have interpreted Section 7 as requiring the appearance of the witness at a hearing before one or more of the arbitrators; thus Section 7 does not authorize a documents-only arbitral subpoena for pre-hearing production of documents by a non-party. Hay Group, Inc. v. E.B.S. Acquisition Corp; Life Receivables Trust v. Syndicate 102 at Lloyd’s of London. A concurring opinion on Hay Group (Chertoff) suggests that so long as one of the arbitrators is present at the “hearing,” a party may ask the arbitrators to issue a summons for documents to be produced by the non-party at the “hearing;” once that occurs, the “hearing” is adjourned until the time set for the merits hearing. (Often once the subpoena is issued, the non-party is amenable to production of the requested documents directly to counsel, avoiding the need for anyone to attend an actual hearing.)

Presumably these holdings would apply to a pre-hearing subpoena for a discovery deposition, although neither Hay Group nor Life Receivables Trust addressed this issue. These cases also reject the view of the Eighth Circuit that Section 7 implicitly authorizes issuance of a subpoena for production of relevant documents for review by a party prior to the hearing.  In re Security Life Ins. Co. of America. The Third and Second Circuit cases also reject the view that in exceptional cases discovery subpoenas are allowed on a showing of special needs or hardship. COMSAT Corp. v. National Science Fdn. See Stolt-Nielsen SA v. Celanese AG (affirming enforcement of a subpoena issued to a non-party to give testimony in the presence of one or more of the arbitrators – there is nothing in the language of Section 7 that requires or suggests that the non-party witness may only be required to attend and testify at the merits hearing).

Subpoenas issued in arbitration are aided by the recent change to the Federal Rules of Civil Procedure, Rule 45, in 2013, which provides for nationwide service of a judicial subpoena; under the FAA that provision would by implication be applicable to summons served in connection with Section 7. A “summon(s) in writing … [is] served in same manner as subpoenas to appear and testify” in court; Stolt-Nielsen SA v. Celanese AG. The court may punish the witness for contempt.

A summons may be issued to a natural person or to a corporation. It is unclear whether Rule 30(b)(6) may be employed under Section 7. Section 7 contemplates issuance by the arbitrators or a majority of them, not by counsel. State law provisions permitting issuance by counsel are likely inapplicable under the FAA (National Broadcasting Co. v. Bear, Stearns & Co.) absent party agreement (cf. Mastrobuono v. Shearson Lehman Hutton, Inc.).

Make the Most of your Mediation: The Employment Case

Hon. Lynn Duryee (Ret.)

Hon. Lynn Duryee (Ret.)

Mediating employment disputes before legal action is filed gives parties an opportunity to settle their differences before incurring impressive attorney’s fees and expending valuable effort. Yet, it’s no easy thing to settle a case before discovery has been conducted. Here is how one set of motivated participants successfully settled a pre-filing employment dispute in four hours.

  1. Plaintiff submitted a reasonable demand far in advance of the mediation. Four months before the mediation was even set, plaintiff’s counsel sent his adversary a 10-page, beautifully written, old-school demand letter. The letter laid out the facts and law in support of plaintiff’s claim. It gave a demand that was aspirational, but not astronomic. And, most importantly, the letter was served in plenty of time for all the defendant decision-makers to review and consider in advance of the mediation.
  1. The lawyers agreed to exchange all the information they had well before the mediation. The lawyers appreciated that they would be able to better advise their clients about the benefits of settlement if each were in a position to evaluate the case as fully as possible. Accordingly, they exchanged the evidence available to them: wage statements, overtime records, emails, names of witnesses and expected areas of testimony, as well as current legal theories. This helped lawyers on both sides start the mediation feeling fully prepared to discuss the case with the mediator and with their clients.
  1. The lawyers cultivated a respectful relationship with one another. In separate pre-mediation calls with counsel, each side told the mediator that his opponent was a “good guy.” Although the lawyers disagreed on the facts and the value of the case, they had made a genuine effort to understand the position of the other side and respect the views of the opponent. The respect they had for one another contributed to the professional ambiance of the mediation.
  1. All principals attended the mediation. The employee and employer were present in separate rooms, and both came prepared to speak openly with the mediator. Defense counsel had not had the opportunity to meet with plaintiff, and so, with counsel’s permission, the mediator invited defense counsel to meet the plaintiff and hear her story. The plaintiff came fully prepared to speak about her experience regarding pregnancy discrimination, while defense counsel rose to the occasion and listened carefully and compassionately. This brief session in itself was one big reason the case ultimately settled.
  1. The parties maintained momentum by remaining optimistic about settlement and making changes to their positions. Both sides were clear that they wanted to settle the case, and both were clear that their number (and not their opponent’s) was in the fair range. The parties were quite far apart during most of the negotiations, but each side continued to make baby steps to move closer together. Ultimately, each side offered a bracket, and after brackets were exchanged, the case settled easily. During the day, each side remained fully committed to settling. Neither side threatened to walk out. Neither side accused the other of bad faith. Each lawyer greeted the news about the change in position of his opponent with optimism. There was a feeling all during negotiations that settlement was just around the corner.

Early preparation. Excellent briefs. Professional lawyers. Presence of decision-makers. Mutual respect. There’s the prize-winning recipe for settling a case in just a few hours.

Achieving Workable – and Just – ADR Results in Family Law

Judge Deborah Fleck (Ret.), JAMS mediator and arbitrator

Judge Deborah Fleck (Ret.), JAMS mediator and arbitrator

Mediation, the ADR vehicle most commonly used in family law cases, frequently results in a final settlement – but often only after a marathon session dealing with the many important issues in the lives of family members.

There are ways to improve the process and results of family law mediation. The keys are open communication, adequate preparation, proper timing and mediator selection.

Open Communication – With the Opposing Party and With the Mediator.  Pick up the telephone early in the case.  The working relationship you develop by actually speaking with reasonable opposing counsel can save time and money.  While it may seem that using email is more efficient, it often takes more time and creates additional conflict.

Once discovery is reasonably complete, and the parties have had sufficient time to begin addressing the emotional and financial upheaval of separation, you can develop creative potential solutions with your client.   Exchanging mediation letters with legal issues defined and important documents attached far in advance of mediation can streamline the mediation process, and increase the likelihood of resolution on mediation day. Also, many mediators make a pre-mediation call, in which attorneys can provide information that is often helpful to the mediator in finessing trouble spots.

Preparation – Worth the Effort.  An attorney who is well prepared for mediation has not wasted time – if the case doesn’t settle, it is well on the road for trial.  If it settles, as most cases do, mediation will have saved time, money, and emotional stress for the parties.

Proper Timing and Mediator Selection.  Family law cases have emotional timelines, distinct from other types of litigation.  In many cases, it takes several months for one party to reach a stage of partial equilibrium.  It is not helpful to attempt to settle family law cases before both parties have reached that comfort level.  But when both sides are emotionally ready and have enough information regarding the facts and the law, mediation can allow them to avoid the financial and emotional costs of trial and move on with their lives.

When attorneys have worked together for several months, they can identify a mediator with the listening skills, depth of knowledge, temperament, and creativity to help the parties achieve resolution.   By focusing on what is just and equitable for both parties, attorneys and the mediator can achieve a compromise solution that is acceptable, one that meets the needs and abilities of both parties.

Hon. Deborah Fleck (Ret.) is a neutral with JAMS based in Seattle. She served for more than 20 years on the King County Superior Court and handles a wide range of complex civil, estate/probate, family law and personal injury cases. She can be reached at dfleck@jamsadr.com.