While insurance lawsuits involving claims directly between an insurance company and its policyholder make up a relatively small percentage of our courts dockets, cases triggering liability insurance from automobile accidents to securities class actions constitute a very large percentage of all cases before our courts. Settlement of these cases requires the proper shepherding of the insurer(s) defending/covering the case. The participation of the insurer(s) at the mediation is necessary to the ultimate resolution of the case. The challenge is making sure that the insurer(s) are prepared to participate in the mediation in a meaningful way.

What does it take to make sure that all insurers are present and prepared to settle the case? First and foremost, the insurer must be on notice of the lawsuit and be provided with reasonable notice of any settlement mediation. This is not only a predicate to the participation of the insurer in the settlement of the case, but may also be a requirement of the insurance policy. Second, a representative of the insurer needs to be at the mediation. If the case has a large verdict potential, then all primary and excess insures should be present at the mediation.

If the case can be settled within the policy limits of the primary insurer, then it may be necessary for the plaintiff to have made a policy limits demand prior to the mediation in order for the case to be settled. A policy limits demand is a demand by the plaintiff for the limits of the policy in full settlement of the case. The demand may have the effect of opening up the policy limits of a policy exposing the insurer to payment of a judgment in excess of the policy limits in the event that the case is not settled within the limits.

Large exposure cases against institutional defendants whether they are serious injury, death or class actions, require that all insurers, primary and excess, participate in the mediation of the case. Obviously, the presence of the excess insurer is necessary if the settlement is going to exceed the primary limit. Less obvious, but very important, is the legal dynamic between the primary and excess insurers. The primary insurer has a duty to the excess insurer to settle the case within its limits if it can do so. The excess insurer is going to assert pressure on the primary insurer to resolve the case within its limits and in essence is an ally of the plaintiff in this regard. Multiple layers of excess insurance present the same dynamic as the settlement amount goes up the tower of insurance. Absent the participation of the excess insurer(s), large exposure cases cannot be settled.

Then there are those liability cases that present insurance coverage issues. Those issues include whether there is coverage, whether an exclusion applies, whether a policy condition has been breached and others. Under these circumstances, it is necessary for all parties to be aware of the coverage issue going into the mediation in order to understand and analyze whether and to what extent the issue will have on the insurer’s willingness to settle the case. The insurer may have retained coverage counsel to advise it on the issue who may be in attendance at the mediation. The plaintiff or policyholder may also want to consider hiring coverage counsel to provide advice on the issue and to attend the mediation. The insurer will undoubtedly assert that the coverage issue must be considered in terms of how much it will contribute to settlement of the case. The insurer will argue that it should pay less than it would have paid if the issue did not exist. In cases where the defendant/policyholder does not have the ability to pay a judgment or simply will not settle with its own funds, the coverage issue may present a serious impediment to settlement. Understanding the merits of the issue is necessary to effectively address it and reach a resolution of the third party suit.

Whether you represent the plaintiff or the defendant/policyholder, discovery and understanding the liability insurance applicable to your case is a very important aspect of any lawsuit and necessary to an effective resolution of the case. A case should not proceed to mediation unless and until the participation of the insurer(s) is secured. Many mediations are stopped short of settlement because of the lack of effective participation of insurers. That participation is the responsibility of all of the interested parties to the case, plaintiff, defendant and insurer.

Bruce Friedman is an experienced mediator and arbitrator with over 35 years of complex litigation experience in the areas of insurance, financial services, professional liability, business, real estate, entertainment and consumer and securities class actions. His mediation philosophy is to provide an evaluative analysis within the context of a facilitative process. Bruce’s approach to arbitration is to make the process as efficient as possible resulting in a principled decision based on the facts and law.