7 Tips for Mediating Disputes with Insurance Coverage Issues

By: Paul J. Van Osselaer, IAM Distinguished Fellow
Email: Paul@VanOsselaerADR.com 

Posted: April 7, 2016

Insurance coverage disputes can be the subject of their own lawsuits. But more often – to the surprise of an unsuspecting mediator or attorney – they exist in the background of non-insurance cases and can sidetrack or derail settlement. It doesn’t have to be that way with some planning before a mediation session begins.

1. Treat coverage disputes as just another issue in the mediation. Too often lawyers and mediators view disputes narrowly, as if they are only based on pleadings. Pleadings may limit issues at trial, but never at mediation. All successful mediations require a broader understanding of parties’ interests and, in the case of defendants, that often means dealing with coverage issues carriers have with the claim and with each other. So, as simplistic as it may sound, the key to successfully mediating when insurance coverage issues arise is to recognize them early and just deal with them as you would any other issue. Prepared mediators ask about potential coverage issues early and design the best way to deal with them. For lawyers, it means raising the issues even if your mediator does not. Just appreciating the broader scope of the mediation is the first step to success.

2. Dive into the coverage issues. A defense attorney hired by a carrier may not be able to get involved beyond just informing the mediator of the existence of a coverage issue, but for others – including the mediator – understanding the coverage issues is key. It means determining whether there are coverage attorneys for various parties and reaching out to them on the merits of the coverage issues. And it means discussing coverage issues with the plaintiff who, while not a party to a coverage dispute, effectively is one for the mediation. If coverage issues drive the money to be paid, mediators need to immerse themselves in those issues.

3. Make sure you’ll have the right parties to address coverage issues. Since the right parties to the mediation may include more than those named in the pleadings, make sure those who need to address the coverage issues are present and involved at the mediation. Having an empty chair at trial just means adjusting strategy. At a mediation, it means failure. 

4. Make sure all sides of the coverage issues have what they reasonably need. The lawyers for parties in the underlying case have usually determined that they have enough information on the merits of their case to proceed with mediation. But what about the coverage parties? Have all policies and carriers been identified? Are there indemnity agreements? Are there allocation issues among carriers that need to be resolved? Do the carriers and coverage counsel have enough information about the underlying liability facts as they may affect coverage? Not all issues can be resolved before every mediation, but mediation is not the time to be exchanging core information about the identity of other carriers or indemnitors; nor is it the time to exchange copies of policies.

5. Plan how coverage and liability issues will be juggled. Nothing cripples mediation more than a party being ignored because others are dealing with coverage issues. Again, it’s in the planning. Staging the mediation in separate sessions is difficult, but should be considered. At least the groundwork should be laid before the session to address the coverage issues. To keep the all-important mediation momentum, mediators need to plan how to keep the discussion moving. For example, a mediator might consider never leaving a room without an “assignment” for a party to think about – some “what ifs” about future steps or seeking that party’s views on how they would design a settlement of coverage issues short of everyone agreeing with their position. And sometimes defendants and carriers who have yet to work out allocation issues recognize the value of putting some money on the table in response to an opening offer – knowing that in the unlikely event the plaintiff accepts the first offer it could be worked out. Co-mediators can also be useful, particularly in large multi-party or multi-carrier cases, where one mediator focuses on coverage and allocation issues and the other on liability issues.

6. Remember it’s more than number passing. While it may all be about money in the end, mediators who jump too quickly to converting coverage risk to money may be missing the underlying legal issue preventing settlement. Insurance policies are contracts, of course. And like most complex contract cases, legal issues abound. Where multiple carriers and policyholders are involved, multiple states’ laws are often implicated. The risks may have to be converted to money, but the discussion will not be. Consider the difficulty, for example, of an excess carrier who is willing to pay some money but can’t because the primary carrier is reluctant to exhaust its limits. It will vary by case, of course, but understanding the nuances of the legal issues will often reveal paths toward settlement with some non-monetary components.

7. Let creativity flow. Finally, need for creativity about the mediation process is heightened in cases where there is the added layer of an insurance dispute. For example, should there be a blind system of offers and demands (defendants or carriers don’t know each other’s numbers or the total)? How about a double-blind system (where the plaintiff doesn’t either) or exploration of a claim buyout or policy buyback? Can there be compromised allocation of settlement between covered and uncovered claims? Should a mediator proposal be layered? And in a mediated settlement agreement, remember that parties can agree to things that the operation of law would not provide, frequently in the area of settlement credits. A creative party or mediator can shine.

For experienced mediators and lawyers, these tips are nothing new and apply to all cases. But it’s good to be reminded that the dispute being mediated sometimes also includes another dispute – over insurance. With preparation, knowledge and creativity, there will be a meaningful – and hopefully successful – mediation.

© 2016 By: Paul J. Van Osselaer