Mediation provides carriers and policyholders with an option beyond litigation.
Insurance claims is a difficult business. Frequently, the claimants and insurers seem to have opposite goals. The claimant may feel that the carrier does not understand the loss the insured has sustained, and has no empathy.
The insurer may believe that the loss is exaggerated and the insured has unrealistic compensation expectations or that the insured is attempting to falsify the extent of the losses. The insured may not understand why coverage is being disputed for the claim. Any lack of understanding of the other party’s position greatly increases the likelihood of no settlement. Litigation and expenses lurk ahead for all parties.
There are, however, other options besides litigation. One of those is mediation.
Understanding the process
All of the parties to a mediation, especially the insured, should have an understanding of the process. In most instances, mediation is a voluntary process. All sides present their positions and issues, and then with the assistance of an impartial mediator, attempt to explore possible ways in which the dispute may be settled to the acceptance of all the parties.
Notice I say ‘to the acceptance of all parties’ and not to the ‘satisfaction of all parties’ because often one or more parties are not completely happy, but still willing to make a settlement. This is the sign of an overall good outcome. All parties must have confidence that the mediator is truly impartial and has absolutely no authority to force a settlement upon any of the parties involved with the mediation conference.
This method of dispute settlement is very different from an arbitration. The fact that there is no provision for imposing any kind of settlement on the parties must be clear. Only then can the parties negotiate to attempt to reach a settlement.
The insurer’s representative will usually have been through many mediation conferences, but for the insured, this is usually an entirely new experience. Thus, it is incumbent upon the mediator to carefully explain the process to the parties at the beginning, see that the conference is voluntary and verify there is no pressure put upon either of the parties. It is up to the parties to reach a mutually agreeable settlement.
It is especially important that the insured, who is normally much less familiar with the process, feel a sense of fairness and security. Without this, continuing is probably not fruitful. It is also important to emphasize the confidentiality of the mediation process.
Both parties must understand that the mediator is a neutral, impartial party with no preferences or prejudices in favor of either party. If it appears to either party that there is an appearance of the mediator favoring one party over another, then the mediation will probably not be successful and should be terminated. Comments that might be misinterpreted as favoring one party over the other should be avoided, and if any question is raised, the mediator should explain what he or she said that was misinterpreted.
If either party feels that the mediator favors one party or the other, it is probably best to terminate the mediation and the parties should consider another conference with a different mediator. It may be that language used by the mediator was not intended to imply favoritism, but was interpreted that way by a party. A mediator should also be aware of attitude and tone of voice, which might give the appearance of partiality.
Both parties must understand that the mediator is an impartial party to the discussion.
Reaching an agreement
If the parties are able to reach an agreement to settle the dispute, even if neither goes away perfectly satisfied, there are benefits. The matter is settled, the parties can go on without an ongoing dispute hanging over them, and the insurer can close the file. By reaching a settlement and entering an agreement, benefits and costs are determined, unlike ongoing litigation. When litigating a matter in court, there are usually few if any guarantees of the outcome.
A legally enforceable agreement, entered upon voluntarily by the parties, is simply a preferable way to resolve the dispute. The mediator is not there to dictate terms, but to make suggestions and attempt to bring the parties together in a settlement both can accept. The benefits of a settlement accrue to both when completed. Structured settlements and other options may bring different factors into consideration.
Determining the numbers
In the majority of insurance claims, the major issue is a financial one. Clearly, the insurer wishes to minimize the number and the insured to maximize it. Usually, the first offers are certainly not the last. It becomes a matter of negotiation, and this occurs during mediations.
Hopefully the mediator is able to discuss the strengths and weaknesses of both parties’ positions and possible ways to move closer together with respect to a settlement amount. Attempting to narrow the differences between the parties is largely what the process entails so they reach a point where they can meet. It may not be in the ‘middle,’ but at least there is an agreement.
The extent of losses, physical and otherwise, cost to repair and replace, expenses for loss of use and many more issues can make discussions difficult but not impossible. As the different sides hear the various arguments, the views often change and positions move closer together. Always? Obviously not, but probably in a majority of cases they tend to change.
In some situations, money is not the major factor. Egos and psychology can sometimes come into play. Parties must weigh their positions and consider those of the other party. In the end, the parties themselves must make decisions they believe important, in their interest, and allow for some agreement. If they cannot do this, then there may be new or continued litigation. Money is not always the issue and there may be other things of equal importance to the parties.
Some mediations don’t work out
Even if a mediation does not immediately result in a settlement agreement, it may still have been worthwhile. The parties may gain a better idea of each other’s positions and later reach a settlement. Of course, new or continued litigation may also be the way the matter concludes. The idea is that sitting in a room together helps each party gain a better understanding of the other position and see the issues in a different light.
Policy terms, exclusions and more
Adjusters and others in the claims industry are on the front line of the business. It is often a very difficult position; attempting to settle a claim for what is considered a reasonable amount by the company and also a reasonable payment by the insured. Frequently, the insured has not reviewed the policy and is unfamiliar with issues like exclusions. A careful and thoughtful explanation of these can frequently help to settle a matter.
An insured may be under the impression that virtually any loss is compensable, but when confronted with exclusions in the policy, will have to accept what is in the contract. Depending upon the facts of the situation, an adjuster may have some degree of latitude without violating the terms of the policy contract. In many cases, this may result in a marked change in the insured’s attitude, opening up settlement opportunities. While often not totally happy, an insured may see that under the policy there are limits on payouts.
Adjusters and mediation representatives are in a position to occasionally settle a claim and maintain a business relationship with the insured. When insureds see the carrier is not trying to short-change them, but pay what is considered reasonable under the circumstances, they may leave with a different impression of the company and the industry itself.
If a claimant feels that the company is really trying to settle the claim in a fair manner, considering the limits of the policy contract, it should relieve much of the claimant’s fear. While a claimant may not always be satisfied with an offered settlement, rarely is the insurer. However, if they can meet in the middle and reach an acceptable agreement, then this is usually a sign of a truly good settlement.