Society, it is said, has become litigious. "I'll see you in court," is too often a response when a liability issue arises. Mediation is a method of alternative dispute resolution (ADR) that is attracting the attention of agents and carriers alike.
Here's an example of a situation where mediation is an effective alternative to a day in court. It is a summary of a role play that was presented during a session on mediation presented at the American Association of Insurance Services (AAIS) Conference held earlier this year. The session was facilitated by Mark Appel, senior vice president at the American Arbitration Association.
The scenario: A painter, along with his lawyer, was seeking a total of $60,000 in medical expenses and damages from a store's insurer. The insurer hotly disputed the damages, especially since the painter had barely made $7,000 the previous year as a painter. The injured painter and lawyer were joined in the role play by the insurance company adjuster and the mediator.
The painter was hurt after falling down on the store's walkway which, allegedly, was still slippery a full hour after a rainstorm. The painter was treated for minor injuries and no hospitalization was involved. After receiving medical information and investigating the loss, the insurer offered $9,200 to settle the claim.
Mark Appel handled the role of the painter and, at convenient points during the demonstration, he stepped out of his role to comment on what was taking place.
The mediation process began with the mediator introducing herself and her qualifications. She also introduced the disputing parties and, starting with the painter's lawyer, asked each party to explain his position. After both the painter's lawyer and the insurance adjuster fully explained their view of the dispute, the mediator asked each party a few questions to clarify her understanding of the loss and each party's demands.
Armed with more information, the mediator began the actual negotiation portion. By alternating discussions with each party, the mediator moved them from extreme positions to a shared center. The final agreement ($23,000) represented a compromise of their original positions. However, rather than having some alternate monetary amount forced on both parties, the settlement involved each party discussing the merits of his position with the mediator. The mediator made the compromise possible by aiding each party's ability to reasonably and fully evaluate his position. The mediator had the advantage of being privy to complete details about each party's circumstances. While the mediator could not, without the party's permission, share this information to the other party, each party's revelation of such information had the following advantages:
* It allowed each party to acknowledge weaknesses in his position to a neutral party.
* This confidential information gave the mediator the ability to move each party toward resolution.
The process was incremental, like a soothing, rocking chair motion where there is constant movement that takes place on common ground. No party is required to make substantial changes in his position. With the assistance of the mediator, the two parties share increasing amounts and levels of information that makes resolution nearly a given.
To support the value of mediation, Mark Appel offered these historical mediation statistics from the American Arbitration Association:
* 95% of AAA cases were completed successfully through either settlement (81%) or withdrawal (14%).
* Their average mediation session lasts a single day.
* On average, a mere 21 days elapse between the time a case is filed with AAA and a mediator is appointed.
What is mediation?
Mediation, according to Mark Appel, is "a process that calls for parties to work together with the aid of a neutral facilitator who assists them in reaching a settlement. The mediator's role is advisory, and resolution of the dispute rests with the parties themselves."
Mediation, as is arbitration, is a form of alternative dispute resolution (ADR). Specifically, it is an alternative to going through a lawsuit. Meditation is not litigation where the process is totally adversarial and performed in court. Neither should mediation be confused with arbitration where each party uses a surrogate to resolve a dispute before an arbitration judge. Unlike litigation and arbitration, mediation is, as Mark Appel puts it, "negotiation plus one." In other words, it is enhanced negotiation because it adds to a person's ability to resolve a disagreement. However, it is important to remember that, while mediation and arbitration are alternatives for resolving coverage amounts, these methods cannot be substituted for litigation to handle arguments over whether coverage exists.
Mediation, paradoxically, is usually part of the lawsuit process. As a suit is filed and meanders its way to a court date, a judge typically suggests to the parties that they attempt to solve their argument through mediation. In most locales, the judge offers a list of experienced mediators for the parties to use in their dispute. The mediators are typically lawyers who have years of experience in resolving tangled situations. The American Association of Arbitration reports in its Resolving Commercial Financial Disputes guide that neutrals (a term for disinterested third parties who act as mediators or arbitrators) include lawyers, former judges and financial service professionals who are specially trained in dispute resolution techniques. The AAA uses the following in its criteria for persons qualified to be included in the National Roster of Commercial Financial Disputes:
* 15 years (minimum) professional or business experience
* successful completion of AAA mediator /arbitrator training programs
* relevant academic and business/professional credentials and licenses
* evidence of scholarship and continuing education
* dispute management and neutral skills
* reputation in the business/professional community, and
* commitment and availability to serve as a neutral arbitrator or mediator
Most judges have lists of qualified mediators who are available in their jurisdiction. Some mediators may even be certified in their field. One such person, Greg Fehribach, an attorney with the Indianapolis, Indiana, firm of Stark, Doninger & Smith, is a veteran mediator who, atypically of the legal stereotype, focuses on a special, human element of mediation.
"Mediation is a chance for both parties to really hear what the other is saying. There is a certain amount of pain involved with disputes and mediation can be (a) healing (process)."
Though such sentiment is not often mentioned when discussing mediation, it is an element of communication that is important to dispute resolution.
Do all disputes lend themselves to mediation? No. As was mentioned earlier, mediation is no help when two parties are fighting over whether a loss should be covered. Do certain lines of business disputes involving loss amounts lend themselves to mediation? Yes, says Appel: "The insurance industry is the biggest user of ADR, particularly mediation. We find that it is often used with (cases involving) uninsured and underinsured motorists, no-fault insurance, personal injury protection and professional liability including lawyers, accountants and architects."
Mediation is extremely flexible since it centers on resolving conflict over amounts, so its usefulness is not affected by the particular line of business. In fact, Appel mentions that mediation is frequently used in reinsurance since that business is filled with sensitive business relationships that run into conflicts such as agent-company, agent-agent, or company-company.
How agents may play a role
Although mediation typically is done at the direction of a judge prior to a hearing, the process's non-binding, voluntary nature creates a role for the agent. Insurance agents typically find themselves in the middle of disputes between their carriers and their insureds. Agents often receive complaints from their insureds and their carriers during breakdowns in settling a claim. Because of their connection to both parties, agents may provide an added service by exploring whether the parties would consider mediation. According to Appel: "Agents can be of real service to clients by discussing best practices with them and explaining how mediation may help. There are a number of companies that encourage using mediation by underwriting its cost."
Should companies use mediation clauses in their policies? Appel says he favors such a move. He points out it may seem somewhat unusual to require persons to participate in a voluntary process, but it is more important that disputing parties be exposed to this often successful process. "More and more commercial contracts are including mediation clauses," he notes.
Since mediation is not binding and because it puts both parties in an equal position, there should be little danger of an agent's becoming legally liable for an unsuccessful mediation. If mediation does not work, both arbitration and litigation are still available.
Control and neutrality
The real beauty of mediation is that the disputing parties remain active in resolving their problem, the process is done within a friendly setting (as opposed to a courtroom) and it includes a neutral party. The third party has no agenda beyond helping the other two parties find agreement. Litigation and arbitration often become frustrating because each party loses control. With mediation, the two parties who have the most to gain by settling their issue and who know the most about the matter keep the responsibility for finding a way to end the argument.
This control is assisted by a mediator who does not have any authority to take the decision away from either party. Nor does the mediator represent one party against the other. The mediator is, rather, the embodiment of both "communication and resolution." The mediator exists to, initially, perform a duty that is often ignored by both sides of a dispute and that duty is to listen. The first true benefit of mediation is that each party, in front of the mediator and the other party, gets the chance to fully explain his/her position while the mediator (and hopefully the other party) just listens.
After everyone has had the opportunity to explain his/her position, the mediator generally asks both parties questions in order to clarify the dispute's critical issues. Also, before meeting with the arguing parties, the mediator is usually provided written information from both parties which explains the situation so that, after a few questions, the mediator should have an excellent understanding of what is desired by both parties.
Mediation may mean salvation
Mediation is not a guarantee that a dispute will be resolved. Mediations can break down, leaving the need to go to more adversarial methods. However, mediation does give a dispute a strong opportunity to be resolved when it involves parties who are motivated to seek a solution. Litigation and arbitration are methods for deciding arguments that will always have a place in the world of insurance. However, mediation offers an alternative that can reduce expenses and bad feelings among the disputing parties. This outcome is a critical advantage of mediation. If mediation is successful, it may also preserve a working relationship between two parties such as an insured and his/her insurance company (and, by extension, the insurance agent). Other methods, due to their increased cost and battleground atmosphere, often leave scorched earth. If you have a dispute, what result could possibly be better than to be able to continue working together after the issue is settled?
Author's note: I attended the 2000 American Association of Insurance Services (AAIS) Conference held in Arlington, Virginia, April 9-April 11, 2000, which included Mark Appel's session on mediation. AAIS creates insurance forms and programs for its subscribing companies and is located at 1735 S. Naperville Road, Wheaton, IL 60187. The AAIS Web site is www.AAISonline.com *
The author
Bruce Hicks, CPCU, CLU, is an editor, Technical and Educational Products Division, for The Rough Notes Company, Inc. He has been in the insurance industry since 1981, serving as a personal lines underwriter for several regional and national companies. He also has worked in corporate underwriting with experience in product research and development, auditing, product filings and compliance. Hicks is also the creator of Liten Up! cartoons which are featured periodically in Rough Notes.