Insurance bad-faith mediations

Bad-faith cases rarely settle on the day of mediation. Are unrealistic client expectations to blame, or is the insurer just testing plaintiff’s resolve?

2019 September

Over the past year, none of the insurance bad faith cases our firm resolved actually settled at mediation. They all resolved through the mediation process, including significant follow-up with the mediator, but no settlements were reached on the day of the in-person session with the mediator. This development is quite unlike in years past. Earlier in my career, it was common that matters “ripe” for settlement actually resulted in a signed agreement at the end of the mediation session, or at least a “mediator’s proposal” that both sides had until the next day or two to confidentially accept or reject.

All our mediations last year occurred when the cases were similarly “ripe,” meaning that key depositions had been taken, summary adjudication motions had been decided, or trial was looming. Yet, the mediation sessions all ended with the same outcome – a narrowed negotiating range and a commitment from the mediator to keep “working the phones” to see if the gap could be bridged. Indeed, at one mediation, the mediator began the session with the comment to our client that it was unusual for cases to resolve on the day of mediation, presaging the outcome that occurred eight hours later.

There are likely many factors that have contributed to this development. I asked one mediator for his thoughts on this. He indicated this was the “trend line” on all the cases he mediates, not just insurance bad-faith cases, and he thought it was the result of attorneys not adequately setting client expectations. He said everyone seemed to be coming to mediations with unrealistic expectations, both plaintiffs and defendants. Cases couldn’t settle until those unrealistic expectations were adequately smashed.

Similarly, another mediator thought it was the failure of the parties to talk openly about the case in advance of the mediation. He said, “It just seems attorneys aren’t talking about the case and settlement ranges before they get to mediation, so we have to work all day just to get everyone on the same playing field.” Another mediator suggested the structure of insurance companies, with the slow-to-move “business side” having ultimate authority, inhibited sufficient settlement authority increases to achieve day-of-mediation settlements.

In my experience, this development has a lot more to do with insurers’ efforts to test the plaintiff’s resolve to say “no” to an unjust settlement amount and less to do with a decrease in pre-mediation dialogue. In one case, I had lots of dialogue with opposing counsel. More than I cared for, actually. I gave a settlement demand, and in response received what I believed to be a ridiculously low offer. I refused to respond, and when asked to go to mediation, said, “no, we’re too far apart for it to be meaningful.” Over the next several months, as the case was marching towards trial, the defense lawyer gave conflicting messages. On the one hand, he kept asking to go to mediation. On the other, he kept saying I had a loser of a case, typified by this rather abhorrent text message:

So. Love you. But your case sucks. And about tired of begging you to mediate. Guess your prideful answer is no. Fine. Your sweet client will suffer. I am going to win this. And she gets nothing. Nothing. Good luck explaining that to her. That I was trying to pay her. To mediate. And her arrogant smug lawyer refused. Hope that goes well. For me, I am done begging.

Having “proudly” ignored that text message, and after receiving a favorable trial court order, I gave an increased demand and agreed to mediate. The mediation session ended with a supposed last-best-and-final offer from the insurance company that would remain open for three days. A week after that, the case finally resolved by way of a mediator’s proposal.

In another case, a similar thing happened. A long day at mediation essentially went nowhere. A week later, I received a three-page settlement offer, which detailed all the reasons my client would lose at trial, but that if he won, why a two-year appeal would be the inevitable result. An extra copy of the letter translated in Spanish was thoughtfully included by the defense attorney for my Spanish-speaking client. After my client, thankfully, ignored the offer, the case resolved the weekend before trial with the mediator’s assistance.

I have always felt that a client will not obtain a “great” settlement unless she is prepared to, and in fact does, turn down a “good” settlement. This fundamental point in any negotiation seems less likely to be overcome at a mediation session. Instead, it seems the defense wants our clients to “sit in it”; to think about the money they are turning down; to think about it when they are in bed, staring up at the ceiling, worrying about the mortgage; to think about whether they’re being greedy; to think about the million “what ifs” about how the case can be lost; and to think about their lawyer, and whether the recommendation to reject a settlement offer was too aggressive. The defense wants our clients to think about these things outside our presence to ramp up the pressure in the hope that they will buckle.

Sometimes, this tactic works. In one case, my client had an overriding fear of trial. He was so scared. Within the confines of the mediation, in my presence, he could feed off my confidence and see how prepared I was to try his case and hold the insurance company accountable. After the mediation session, by himself, his mind would go to worst-case scenarios. After numerous phone calls, he ultimately directed me to accept the insurance company’s post-mediation settlement offer.

Face time

There are two fundamental lessons, therefore, that I’ve learned over the past year of mediations. The first is the importance of building and maintaining client trust. Face-to-face follow-up with our clients is critical. Mediators might “work the phones” after a mediation; we should not do the same with our clients. In one recent case, I drove two hours to meet with a client to deliver a settlement offer I had received and to work out a response and plan for further negotiations. In that meeting, I was not only able to deliver the news but gained insight into my client’s hopes, fears and circumstances at a level that only could have been obtained through a face-to-face meeting. He was so grateful that I spent the time to meet with him and hear what he had to say; he felt that his concerns were being understood. He didn’t buckle. I don’t know that a telephone call from me would have had the same result. I don’t think I would have fully appreciated his concerns as well as I did from a simple phone call and therefore would likely not have been as equipped to address them appropriately. Had I met further with the client who had directed me to accept the defendant’s offer, I doubt he would have done so.

Second, clients really need to be prepared for the likelihood that the mediation session will just be one step in the negotiating process. Our clients understandably look forward to mediations as the “big day” that they’ve been waiting for and preparing for to see whether their case will settle. Even when they’re told in advance that the case is unlikely to settle on the day of mediation, it is tremendously deflating to them to endure an entire day devoted to just getting the parties in the same stratosphere.

Mediators I have spoken with have shared their view that parties’ unrealistic expectations with respect to settlement impede day-of-mediation resolutions. But in my view, a client’s unrealistic expectations of what likely can be accomplished at a mediation session, even one occurring shortly before trial, can be quite harmful. It can really be a gut-punch to the client and cause them to second-guess their resolve. In this regard, sharing other clients’ experiences can be helpful, particularly how their mediations, although not “successful” on the day of the session, ultimately led to just resolutions.