Seven Tips for Mediating Complex Insurance Coverage Disputes

Rosemary Loehr, Andrew Reidy and Joseph Saka | Lowenstien Sandler

Mediation can be a viable way to reach a satisfactory settlement on an insurance dispute. When successful, mediation offers a less costly and time-consuming alternative to litigation and often allows for more candor and creativity in crafting a successful resolution. Below are seven tips for mediating an insurance matter and achieving a resolution.

  1. Deciding When to Mediate
    Many mediations fail because the insurer claims to lack information about the claim or the damages or did not have the opportunity to review the information. Without information substantiating your claim, mediation is unlikely to be productive. It may be that some factual investigation or discovery is necessary to put the case in a position to be resolved. To get the most out of mediation, a policyholder should focus on the information that can be reasonably gathered to satisfy the insurer’s due diligence in making a coverage determination. For example, if the insurer has valid questions regarding the amount of a loss, then policyholders should consider providing their insurer with factual information to substantiate the loss amount before any mediation so that the insurer has a better understanding of its exposure.
  2. Selecting the Mediator
    Selecting the mediator is often a negotiated process with counsel for the insurance carrier. Insurance coverage cases have some unique issues, especially in light of the rules of insurance policy construction, bad-faith damages, and claims-handling statutes. Several of the major insurers have “approved” lists of mediators, and there may need to be additional discussion if the policyholder wants to use a mediator not on the list. But, ultimately, when considering potential mediators, prioritize the ones who are familiar with insurance coverage cases, have a track record of success, and do not treat insurance companies as their preferred client.
  3. Evaluating Your Claim
    Understanding the strengths and weaknesses of your claim—and your insurer’s defense to your claim—is essential to a successful mediation. When preparing for mediation, consider creating a list with three to five questions that you think will be difficult for your adversary to answer, and then do the same for your claim. Policyholders need to understand that many insurance companies are frequent litigators and will not necessarily be intimidated by the prospect of litigation. Similarly, threats of bad-faith claims rarely will motivate the insurer to settle unless the insurer reasonably believes it has exposure in excess of its policy limits. That said, insurance companies, like most businesses, are motivated to find a reasonable resolution that cuts off legal costs and reduces risk.
  4. Understanding How Insurers Operate
    Many policyholders get frustrated during mediation because of the lack of steady progress throughout the mediation day. As a result, a policyholder must be mindful of two concepts: First, claims representatives have only a certain amount of authority, and any sum above that amount must be approved by one or more senior claims managers or internal committees. Sometimes this is done in advance of mediation, but not always. Second, as a tactical matter, most insurers work slowly during the mediation process by taking long periods to respond to offers and negotiating in very small increments. This strategy is often designed to frustrate the policyholder because insurers have learned that forcing a long, frustrating mediation day will prompt some policyholders to jump at the first decent offer. Being mindful of these concepts will help prevent exasperation during mediation.
  5. Helping the Mediator
    It is important to have your key documents and legal authority on hand for the mediator. It is virtually guaranteed that your mediator will not have time to commit key facts, documents, or case law to memory in advance of the mediation. So if a specific decision or document is critical to your case, then have the material ready to highlight and hand over to the mediator.
  6. Preparing for the Critical, Non-Monetary Terms
    It is not uncommon for insurance mediations to stall because the parties cannot reach agreement on the terms of the settlement. Aside from the settlement amount, the two most common areas of dispute are the scope of the release and whether the insurer will insist on an indemnification provision. The parties should address these terms during the mediation day so that the settlement does not fall apart during the final drafting process. Importantly, insurers often do agree to settlements without indemnifications or with limited indemnifications. Policyholders can push back on this demand by noting that it is not a requirement under most insurance policies.
  7. Having a Plan for Next Steps
    You should create a realistic goal for the mediation. Be sure to have an ideal settlement amount in mind, with a range of options that you will agree to; also, create a plan for concrete steps to take if the mediation does not resolve the case. If you do not come to a resolution, will you file a complaint? Will you encourage the mediator to make a mediator’s proposal? Or do you want to try another mediation later? Know the answers to these questions before going into the mediation so that you arrive ready to achieve your goals.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

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