The legal system is a fine institution, but it may be the last thing you want to encounter to settle a claim or lawsuit. With litigation, there are often lengthy delays until a case actually reaches a courtroom. Trials also bring the risk of high costs, unwanted publicity and ill will. Appeals may be filed, causing further delays and increased costs.
Because lawsuits can consume significant time and resources, it is often preferable to consider alternatives to litigation. There are two basic forms of alternative dispute resolution: arbitration and mediation.
Arbitration is a process where each side presents its case to an independent third party who renders a decision. Usually the claim is already in litigation and the presiding court has ordered the matter to arbitration. Generally, the arbitrator takes the arguments and renders a decision within 30 days. But either side can reject the decision and the matter continues through litigation with a judge or jury making the final decision.
Mediation is a process where an independent third party—who has no authority to render a decision—tries to assist the conflicting parties to negotiate their differences. It is less formal than arbitration and a case does not have to be in litigation to pursue this avenue of resolution. Parties will know on the day of mediation whether the case can be settled.
Many consider mediation a fair, expeditious and less expensive alternative to resolving disputes. If a particular claim has problems and the litigation outcome is almost certain to be a settlement, using mediation can keep the case from going to court and incurring legal fees and public exposure. Mediation can be done with or without a lawyer representing either side. In some mediation proceedings, the claimant is represented but the insured is not. This portrays to the injured party and his or her attorney that the insured is participating in the process to work out a settlement and not argue the law or legal aspects of the claim. Insurance adjusters will usually work with the insured party to determine the best representation strategy for a particular claim.
Once the two parties agree to mediation, a mediator is selected. There are firms throughout the country that specialize in alternative dispute resolution. Insurance claims professionals will have worked with mediators on a variety of matters and can direct the parties to those who are familiar with the industry and assumption of risk.
The program is fairly inexpensive. Usually there is an administration fee of $150 per party for the hearing. The fee for the mediator averages between $150 to $300 per hour. The parties can stipulate to a half-day mediation (four hours) or a full day, depending on the difficulty of the case. The parties usually share equally in the cost of the mediation.
Next, a submission regarding the case is prepared and delivered to the mediator at least 30 days in advance of the mediation date. The submission outlines each party’s version of the case and facts surrounding the case. Parties can include witness statements, releases, diagrams and photographs. Witnesses are not normally present at the mediation. Again, a claims adjuster can help prepare a submission.
For a significantly large case, insured parties need to determine if the claimant is amenable to a structured settlement where the funds are put into an annuity and paid out over a period of time with interest. If so, make plans to have a structured-settlement person present at the mediation.
On the date of the mediation, the parties meet together in one session. Each side usually makes an opening statement, after which the mediator separates the parties and meets individually with each side to discuss the case. The mediator goes back and forth between the two parties trying to bring each side closer to settlement. Often each party will share confidential information with the mediator that will assist in the negotiations. The mediator does not reveal this information to the other side. While the mediator usually offers suggestions in an effort to reach a resolution, the parties involved in the process are the ones who determine the final outcome of the claim.
If and when the parties reach an agreement, it is put into writing and a release is exchanged. Consider including a confidentiality clause in the release, which prohibits the claimant from revealing the terms of the settlement.
While mediation often works to resolve cases, it is not a guaranteed way to avoid litigation. Sometimes claimants have high expectations as to the amount of money they believe they deserve. Sometimes they simply want a day in court to have someone to listen to their story. Should the matter not be settled in mediation, the fact that the parties have participated in a mediation process and that offers of settlement were made cannot be used or introduced as evidence in judicial proceedings.
Which gets back to mediation, usually the preferred procedure. It’s a great tool for settling claims without incurring extensive legal costs.
