Resolving insurance coverage disputes through mediation requires
exposing careful assessment of three unique elements: the insurance policy,
the rules applicable to the application of the policy and the cases
construing the policy. Evaluative mediation provides the best
approach for resolving these disputes. It requires parties, counsel
and the mediator to evaluate the strength and weaknesses of
coverage issues, and it provides for input from the mediator as to
possible outcomes of the case. There are also other issues unique
to insurance coverage cases that must be addressed in the mediation process.
Why the Evaluative Approach?
More than any other type of case, the outcome of an insurance
coverage dispute relies heavily on precedent. Counsel must
educate the mediator regarding both the policy provisions at issue
and how court interpretations of those provisions apply to the case
at hand. The evaluative approach provides the most appropriate
mechanisms for doing just that.
Choice of Law
Different states’ legal precedents can have a significant impact on
the interpretation of a policy; therefore, choice of law issues should
be addressed in the mediation brief and discussed in the mediation.
California, for example, has a rule that requires the insurer to
prove that it has been prejudiced by late notice of a claim or suit.
Other states may enforce the notice provision of the policy without
regard to prejudice to the insurer. Another issue may involve
the issue of waiver of coverage defenses. The California Supreme
Court has adopted a rule that the insurer does not waive coverage
defenses not mentioned in the initial denial or reservation of rights
letter. Other states have a more policyholder-friendly rule that provides
that coverage defenses are waived if not specifically raised by
the insurer at the outset of the claim. Law and precedent regarding
other key issues arising in coverage disputes, such as the standard
for rescission of an insurance policy or the application of an exclusion
for a known loss, also differ significantly from state to state.
Burden of Proof
There are also different burdens of proof as to the coverage grant in
the policy and the exclusions that must be addressed in the mediation.
The policyholder generally has the burden of proof to establish
that the risk is covered under the coverage grant of the policy. The
insurer bears the burden of proof with respect to the applicability
of exclusion. This shifting burden of proof may have a significant
impact on the coverage analysis in a duty to defend context. Here,
if the insurer is relying on an exclusion, it must be able to demonstrate
that there is no possibility that the claim may fall outside of
the exclusion. If it cannot do so based on a summary judgment
standard, the insurer must defend the case.
The Mediator’s Role
It is the mediator’s responsibility to independently review the policy,
analyze coverage and understand the applicable case law and
precedent. The mediator should share findings from this analysis,
including opinions regarding the implications for each side’s case,
with the parties either directly or through counsel.
Ultimately, it is the mediator’s job to understand and explain the
strengths and weaknesses of the case in order to create reasonable
expectations with respect to the outcome of the case. The mediator
must work to provide the parties with a rational opportunity to settle
their dispute in order to reach the goal of a successful mediation.
Conclusion
Mediating insurance coverage disputes poses unique challenges
for mediators, parties and counsel. An evaluative approach provides
the best forum for properly addressing these challenges to
ensure a settlement that is agreeable to all stakeholders.
As published on Law.com
Bruce A. Friedman, Esq. is a JAMS neutral, based in Southern
California. He is an accomplished dispute resolution professional
who has mediated a wide range of disputes including insurance,
class action, professional liability, business, real estate and entertainment
matters. He can be reached at bfriedman@jamsadr.com
