There is no magic to resolving coverage disputes. There are, however, a few points that separate this type of mediation and claim from other commercial disputes.
Insurance coverage battles tend to be hard fought. There is often greater strife between policyholders and insurers than in cases involving other litigants.
From the policyholder’s perspective, the insurer gladly took the policyholder’s premium, and has now failed to perform. The insurer has forced the policyholder to engage counsel, often at considerable cost, in order to get the insurer simply to do what it should have done in the first place. A mediator may thus have to help diffuse the policyholder’s emotions.
The cause for the insurer’s attitude may be more difficult to ascertain. As a general rule, insurers seem to hire coverage lawyers with a pugilistic bent. These lawyers have probably recommended a coverage position to their client, and now have to defend it. The claims handler to whom they report may have encouraged the position, and may also be bent on defending it. The mediator will thus have to assess the strength of the carrier’s position. If the carrier’s position appears less strong than the carrier believes, the mediator’s challenge may be getting the carrier representative to understand there is some real risk.
Legal issues often predominate. More than most cases, coverage cases usually involve legal disputes. The mediator will thus want to encourage the parties to cover all outstanding legal issues in the mediation statement. In preparing for the mediation, the mediator will need to understand the legal issues fully, and may need to be prepared to offer an independent assessment at some point during the mediation.
If the issue appears to be a close question, reminding a carrier of some of the basic rules may be helpful. These rules typically include that ambiguities will be construed against the insurer, and that any exclusions will be interpreted narrowly.
The risk of a bad precedent may be significant. It must be remembered that insurance coverage disputes typically involve form contracts that tend to be litigated repeatedly. Thus, if a case involves an undecided point of law, the carrier may wish to settle, if only to avoid the risk a judicial precedent that could affect other cases.
Carrier representatives often need to justify a settlement internally. Insurance companies often have complicated reporting structures with multiple levels of authority. If a claims representative initially took an aggressive position regarding a claim, it is a safe bet that the representative has duly reported and defended the position to superiors. If a settlement would result in a substantial change in the company’s internal evaluation, the claims representative will need to justify it.
A mediator can be very useful in this regarding in providing feedback. If the feedback is specific and well-reasoned, it may provide the claims handler with the information necessary to change the internal evaluation, and hence to allow the case to settle.
However, it may well be impossible for the carrier to process this feedback during a mediation session. Therefore, coverage cases are more likely to involve multiple sessions than other cases.
Look for signs of flexibility coming into the mediation. Insurance companies often mediate coverage disputes when there is some concern that their position will not be sustained. The mediator should determine if the carrier has recently replaced its counsel or brought in additional counsel, as such a change may also reflect either concern or a changing attitude. Similarly, the mediator should determine if the claims handler has been in the case since the beginning or is new. A new claims handler may also signal a different attitude.
Bad faith, or extra-contractual liability, can be significant. As discussed in the second post in this series, carriers typically want to avoid exposure for bad faith, or, as the carriers sometimes put it, extra-contractual liability. If the policyholder is claiming bad faith, the mediator will want to understand the basis for the claim and the strength of the claim under applicable law (bad faith risk can vary substantially from state to state).
If the risk of bad faith appears minimal, the carrier is probably not going to give it much weight during negotiations. If there appears to be some real risk, then avoiding extra-contractual exposure, may motivate the carrier to settle. At the same time, the insured will need to understand that it is far easier to settle a claim if any settlement payment is “contractual” and not “extra-contractual.”
Insureds need to understand they can lose, too. Insurance carriers tend to be represented by coverage experts. Carriers do not lose every coverage battle. On the contrary, they often win.
Insureds may want to see things only their way. They may not understand the legal nuances relied upon by the carrier. Mediators can help insureds understand these issues, but, most importantly, that a win is probably not a sure thing.
Mediating coverage litigation does provide a challenge. However, a good mediator, particularly one that understands the coverage issues, will probably be able to help the parties reach a settlement.