Other Stakeholders

Mediators constantly exhort their clients to make sure that the proper decision makers attend mediation sessions — with good reason. It’s true that the presence of appropriate decision makers is probably the most important factor in successful negotiation — and, conversely, lack of participation by such folks is probably the biggest culprit in failed negotiation. However, attorneys and their clients should not assume that just because their party-affiliated decision makers are lined up their side is completely ready to participate meaningfully. In the mediation of personal injury cases, there are often outside stakeholders whose interests will also have to be considered. Health insurers and medical care providers with subrogation interests or liens, family members (or even banks) who may have loaned money to the plaintiff while he or she was out of work, and former spouses, are just a few whose unaddressed interests could have an adverse impact on the success of negotiations. And don’t forget that recent developments in the way the government views Medicare liens often make Uncle Sam the 800 pound gorilla in the room. See, e.g., Steve Mehta's post of April 22, 2009, entitled "Six Things That You Must Know (But Are Afraid to Know) About Medicare Reimbursement Rights: The Medicare Super Lien."

In my standard engagement correspondence I not only address the need for attendance by party-affiliated decision makers, but also include the following:

I urge you to also make arrangements with non-party stakeholders, such as lienholders, family members, etc., to bring them into the loop as much as possible prior to the mediation session. You should encourage such people to either attend or to be available by telephone during the session, if their decisions are likely to impact the success of the negotiations.

I like to explore this issue further with counsel when meeting with them separately in pre-mediation conferences. I’ve seen (too) many mediations falter in their final stages when the interests of outside stakeholders have not been adequately considered. E.g., time and again, dealing with liens by health insurance providers seems to be an afterthought. Consider the following fairly typical exchange in caucus between the mediator and the plaintiff’s team:

Mediator: "The defense says the bills they have amount to only $2,952.16, and they can’t understand where you get your claim that your client has incurred over $10,000. What does Anthem claim as its lien?"

Plaintiffs’ Lawyer: "Um, er, let me make a phone call."

Mediator (later): "So, what’s the verdict?"

Plaintiffs’ Lawyer: "My Anthem guy’s on vacation this week. We’ll certainly get that info, but we’re confident that our list is accurate and related to the accident."

At this point, it becomes obvious to the mediator (and probably to the lawyer’s client!) that not only has the lawyer dropped the ball on firming up special damages, but also will not be able to negotiate a compromise of the lien — at least not until later.

Lest anyone think I am singling out plaintiffs’ attorneys for criticism, defense attorneys are also obligated, in my view, to make sure that outside stakeholders are brought into the picture before a mediation. By the time of mediation all such stakeholders should have been identified, either through formal discovery or informal discussions with plaintiffs’ counsel. Defense counsel should not wait until the day of mediation to broach the subject of their participation with his or her counterpart on the plaintiffs’ side.

Bottom Line: All parties need to make an effort to see that the ducks are in a row before the mediation — assuming, of course, that they want to settle at some level.

Limitations of Common Sense

The concept of "common sense" is regarded in our culture as the most practical application of intelligence. Webster’s defines the term as "sound and prudent judgment based on a simple perception of the situation or facts."* Juries are exhorted by both judges and lawyers to use it when weighing evidence; parents tell their children to use it when they first learn to drive or start to date; and politicians urge citizens to follow it when going to the polls.

Unfortunately, common sense, like beauty, is very much in the eye of the beholder. Too often it’s used as a short cut to avoid analysis. Human nature being what it is, most people tend to rationalize that the result they want is the only "common sense" solution. Barry Goldman, in The Science of Settlement: Ideas for Negotiators, refers to this phenomenon as the "self-serving bias."† Until each side to a mediation understands why its opponents think the way they do, settlement will be difficult to achieve, regardless how much effort and skill a mediator may bring to bear.

At the risk of sounding platitudinous, don’t mediate until you’re ready. To be ready, you have to understand the other side’s "common sense" arguments almost as well as your own. And you have to make sure that the other folks are equally well prepared. Do the depositions; disclose the medical records; have frank discussions over lunch (or whatever) with opposing counsel. You don’t have to give away the store or disclose all your hole cards, but you need to make sure you know where your opponents are coming from and vice versa. Your chances of settlement improve when you are ready for mediation, but improve even more when all are ready. Why do you need to make sure your opponent is ready? Because a lawyer who is caught unprepared at mediation loses client control — and that’s not good for either side.

* Merriam Webster’s Online Dictionary (10th ed).

† ALI-ABA (2008), § 2.01(d).

We Got ‘Em Cornered!

If your defense team is so proud of its case that you truly don’t plan to offer more than nuisance value, you shouldn’t bother to mediate. Instead, you should courteously and frankly communicate that fact to the plaintiff’s attorney before a lot of time is wasted preparing for, paying for and attending a mediation. If the plaintiff secretly agrees with your assessment, you might quickly get the job done over the telephone. If not, well, that’s what trials are for.

Hiding your intention to play hard ball until the day of mediation is a sure-fire way to crater any negotiations. There are usually enough emotions bouncing off the walls in the plaintiff’s room during the mediation of a tough personal injury case; a defense team that wants to settle shouldn’t add desperation to the mix.

Unless you're determined to try the case, don’t put the plaintiff between a rock and a hard place. Always give them a reasonable way out. In over thirty years of practice, I have seen only one plaintiff just give up and walk away from a no-offer case, and only a very few simply fold and accept a nuisance offer. People who have their backs against a wall usually fight, even if it’s irrational to do so. And if they fight, sometimes they win. Remember Doug Flutie’s long bomb against Miami in 1984?

The Mediator as Dutch Uncle

I am always uncomfortable when asked to play the role of Dutch uncle by an attorney for a party involved in one of my mediations. The request is usually (but not always) made by the attorney for the plaintiff and goes something like this: "My client just doesn’t understand that a jury will never give her the kind of money she is looking for! I need you to bring her down to earth." I become even less comfortable if it appears that the attorney has been too chicken to discuss the matter frankly with the client and simply wants me to get him or her off the hook.

A cardinal principle of mediation is that it allows the parties themselves to decide their case, rather than having the decision turned over to 12 strangers. Nobody should either be coerced or manipulated into settling a case — even for their own good (as perceived by others). Having said that, I will sometimes — reluctantly — agree to "help talk sense" to the client, but only when I conclude that: (a) the client truly does not understand the risks; (b) I have the active support of the client’s own attorney, who has come to the same conclusion; (c) I believe that the other side’s offer is both fair and will not be improved; and (d) I believe it would do no good for the parties to adjourn and, after reflection, try again later.

Even with all of these factors in place, I personally prefer the wise grandfather approach, using reality-testing questions, over the more abrasive Dutch uncle lecture. The process of mediation will be respected only if the parties are persuaded instead of pushed.

TR as Mediator

Mention Theodore Roosevelt and most people conjure visions of action and energy, often with a strong militaristic streak. The charge up San Juan Hill, "Perdicaris alive, or Raisuli dead" and (perhaps most famously) "speak softly and carry a big stick" are some that come to mind. For some of us who are more familiar with a facilitative approach to dispute resolution, this hardly seems the stuff of which mediators are made.

Yet, despite his tough, no-nonsense image, TR was awarded the Nobel Peace Prize in 1906 for mediating the Russo-Japanese War the previous year. For an excellent discussion of this accomplishment, see James E. Fender, Roosevelt, the Mikado and the Czar: Theodore Roosevelt’s Mediation of the 1905 Treaty of Portsmouth, N.H.B.J., Vol. 46, No. 2, Summer 2005, p. 68.

Global Mediation of Tort and Insurance Coverage Cases

The so-called "tripartite relationship" arises when a liability insurance company retains an attorney to defend its insured in tort litigation. For the most part, the three members of the relationship (insurance company, defendant and defense attorney) are able to present a united front against the plaintiff or plaintiffs who brought suit. In such cases the defense attorney has no conflict representing both insurer and insured simultaneously; whatever differences there may be between the insurer and insured are not likely to complicate settlement discussions. The risks associated with not settling are limited to the traditional ones revolving around tort liability and damages.

A new set of risks is thrown into the mix when a tort lawsuit raises questions of coverage; e.g., do the facts of the case give rise to a duty under the insurance contract to indemnify and/or defend the insured? Unless the facts are fairly straightforward and clearly show that the policy does not afford coverage, most companies will not deny coverage unconditionally, but will instead pay for a defense, thereby keeping some control over the litigation, while reserving all rights to deny coverage later on.

While defending a tort action, a company will often retain separate counsel and bring another lawsuit (usually a declaratory judgment action) against its own insured to determine coverage issues. The plaintiff in the underlying tort case may be joined as a party in that action and will thus be bound by the court’s decision.

In such cases, the question arises: "Do we mediate before or after a decision on coverage?" The answer usually is: "It depends." Of course, if mediation comes before coverage issues are decided, the insurer(s), with separate coverage counsel, would have to participate for the process to have any chance of success.

I have heard some involved in such cases say: "There is no point in mediating the tort case until the coverage case is decided." But settlement of tort cases is almost always driven by uncertainty and risk. People and companies settle to avoid risk and uncertainty; therefore, the more uncertainty and risk, one can argue, the more mediation is likely to be successful.

Settlement usually happens when the parties come to grips with reality. If one of the realities is that there might not be any money available to the plaintiff, even if victorious, that is just another risk to be analyzed. Waiting until the coverage issue is decided might make the plaintiff’s case more valuable — or it might not. The effect is similar to that posed by a pending motion for summary judgment in the underlying tort case. Mediation often has a better chance of resulting in settlement if all parties in both cases come to the table before any of the coverage unknowns are decided.

On the other hand, in some cases the coverage questions are so complex — multiple companies, extended periods of exposure, different policy language, choice of law questions, etc. — that settlement is impossible (or extremely unlikely) until some or all of these issues are sorted out. For example, if because of all the unknowns the insurance company (or companies) will commit to paying so little money that the plaintiff feels that there is little to lose by not settling, it is probably best to structure the mediation to allow for advance clarification of some of the coverage issues.

Passing the Torch

In an article I wrote a couple of years ago ("Dealing with Insurance Company Claims Representatives"), I urged plaintiffs’ lawyers in personal injury cases to communicate early and often with the claims rep assigned by the defendant’s insurance company. I suggested they take a leaf from Willie Sutton’s book and "persuade, cajole, and negotiate with insurance companies 'because that’s where the money is.'"

There are other reasons why it’s a good idea to open lines of communication with the company as soon as the case walks in your door. One that is often overlooked is that, by doing so, an alert attorney is more likely to learn useful information as to how the company views his or her case. Company claims reps have varying levels of authority based on their experience, training and time with the organization. Typically, the newer claims people are assigned the cases regarded as routine; the people further up the ladder handle more serious cases, and have authority commensurate with how the exposure is viewed.

If you have been working a case for a couple of months, diligently sending medical bills, records and other documents to your opposite number at the insurance company, and learn that the matter has been reassigned to a more experienced claims rep, that is not an occasion for alarm, but a sign that you have their attention! Don’t sulk because you think you have to start all over again and educate a new person. Believe me, these people are usually quick studies who likely know a lot about your case already. When you learn that such a reassignment has been made, jump on it quickly and establish contact with the new person. Offer to answer any questions he or she may have. Such cooperation is likely to pay dividends when the time comes for serious negotiations.