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“Early Bad Faith Mediation”: New Techniques To Consider?

September 13, 2012

“Early bad faith mediations” are those mediations of negligence claims in which the full limits of a tortfeasor’ policy have already been offered prior to trial and the claimant, seeking monies from the tortfeasor’s insurer beyond those already tendered policy limits, has already rejected that tender and  is still pressing  forward to trial at the time of mediation.  

The intent of the thus pending trial is to obtain an “excess judgment”,  a judgment over the tendered policy limits, that can later be used as grounds to sue the tortfeasor’s insurer directly.  The basis for this intended, future second suit for the recovery of  any judgment in excess of the tortfeasor’s insurance, referred to as “bad faith” litigation, is because the apparently inadequate policy limits were allegedly not offered in settlement “when, under all the circumstances, (the insurer) could and should have done so had it acted fairly and honestly toward its insured and with due regard for his interests”.  (Thus, the term, “Bad Faith”! ) See, Florida Standard Jury Instruction, 404.4 (2012)

(Coincidentally to my publishing this article, the Florida Justice Association’s JOURNAL for August, includes several great substantive articles on the cutting edge issues of bad faith law in Florida.  See, i.e., separate articles by “bad faith” attorneys, Dale M. Swope and Gregory M. Yaffa, #562, August, 2012)

Many judges, hoping for any possibility of a resolution of both trials, the present one and the likely future one, in spite of  the clearly very “early” nature of any potential second trial (ie. in the second trial there will be totally new counsel for both sides and totally new insurance representatives) will refer these matters, even repeatedly, to mediation.

Not surprisingly, however, unless new and different techniques are employed by both sides than are usually used, such “unique” mediations have little chance of success.  But, surprisingly, when extra effort (including by your mediator) and different techniques are artfully employed, such mediations can be very successful.

Some background for the requirement for these different techniques, however, may be necessary.

First, the entire subject of “bad faith” is a very sore one for insurers.  Anytime any insurer is asked to pay more than the limits of any policy applicable to any incident under any circumstance, that insurer will invariably instinctively dig in their heels .  It is simply against their very “culture” to voluntarily pay one dime beyond those limits of coverage that the policy holder paid premiums upon.

Further, most insurers see any such claim as essentially a claim of “insurance malpractice”.  And, we all know how any professional reacts to being accused of professional negligence!  Insurance companies, composed of insurance professionals, feel exactly the same.  And, like many other professionals with money, unless they can be convinced of a reasonable basis for the allegation, you must assume a jury may be making the final decision.

Accordingly, in order to have any chance of mediation success for obtaining “extra-contractual dollars”, monies beyond the policy limits “contract” of any insurer, a great deal of extra effort and pre-mediation preparation is necessary.  Or, you are almost certainly wasting your time.  (Note:  As I believe all mediations can be used to gain valuable benefit, in this context of your time waste I am referring only to the chances of  a claimant, achieving a resolution of both cases.)

Your first new technique must be in obtaining the interest (and, thus the actual physical attendance) of the “real” parties in interest to your claim for extra-contractual monies in a mediation that precedes only the first trial!  This critical subject was addressed in my earlier article, “Mediation Strategies:  ‘Early Bad Faith’ Mediations Require the Proper Participants“,   April 10, 2011.

However, once you have the attention (and attendance) of those real parties, you have other new mediation techniques to master to obtain their actual resolution interest.  (or, at the least, to hone those you already are wisely using!)

This new mediation technique begins with your preparation for a two-step mediation presentation. 

First, you must  convince the tortfeasor’s insurer of the “excess” settlement value of your claim in a range that they would pay if they had unlimited coverage AND  Second,  you must also convince them you will likely also prevail on the second required trial because of their “bad faith” handling of the underlying claim.

Do I really need to tell you that, again, your mediation success in these early bad faith mediations begins with your pre-mediation preparation and exchange of advance information?

You can possibly succeed without such pre-mediation effort in other simple matters.  You will not succeed in any bad-faith issue without it.

First, you must understand the advance mindset of the insurance company.  They honestly believe they always fully and professionally perform their duties.  They are just as proud of their “profession” as any professional.  They have timely received and processed the claim as “permitted by the circumstances*”  (*see the latest (bad?) case law, Goheagan v. American Vehicle Insurance Co., ….So. 3rd…., 37 FLW D1388 (4th DCA June 13, 2012).  They have,  prior to trial, offered the limits of the coverage purchased by their insured.  They stand ready, beyond those limits, to defend their insured to the best of their ability if the limits are not accepted.  And, they may even choose to appeal any adverse outcome and if necessary, try a case multiple times. 

But, most of all, after fulfilling their legal obligations, they truly believe that any ultimate lack of limits to cover any ultimate verdict and/or judgment is something that in the end is simply the sole problem for their insured who chose to be “underinsured” rather than pay higher premiums.

With this mindset, any “early” mediation, must be approached simply as a great business opportunity for the insurer to choose resolution over the path they are forced to take without a resolution  In simple language, any claimant must convince them that their final mediation proposal is  a business  ‘bargain” compared to the “more likely than not”  total end result without resolution.

This “bargain” process begins with convincing the insurer’s excess claims representative and/or their attorney that if they had unlimited coverage that the final mediation “demand” of the claimant prior to trial would likely be a good business decision as opposed to awaiting a trial verdict and final judgment.

This is a real administrative task, pre-mediation, because likely reaching the attention of these “real” parties, who ostensibly are not involved (they never want to admit they are even thinking it a problem for the future) is difficult.  And, if they are listening, they are first listening to those being criticised!

Accordingly, one new mediation technique of  best reaching those undisclosed persons is to communicate with the presently assigned adjuster/attorney with “an extra copy to be forwarded to those who may have an interest”.

Trust me.  Once a tender of limits has been rejected, SOMEONE has opened an excess file with a separate set of eyes in review.  They are, after all, really professional at risk-analysis, including risks to themselves.  And, someday, when the underlying claim file of the insured’s representation is requested, they will WANT to have a separate file for their own internal protection of  their internal review of these sensitive matters to prevent their disclosure.  LIkely your “extra copy” communication will ultimately lie there!

Next, your second task is to then convince those same persons of the strength of your alleged “bad faith” claim.   And, once again, well in advance of your formal mediation date.

Remember the mindset, your task is to show reasonable grounds to prove that usual and normal claims handling, by their own employees, including their counsel, was negligently performed!  And, that if handled properly, the “inadequate”  limits would have been tendered and accepted by the Claimant in settlement of the claim.

Here is where many plaintiff’s initial counsel find their primary “bad faith” problem.  In short, if they didn’t “play fairly” in submitting sufficient timely information to show, “clearly” the inadequacy of the existing policy limits, but still agree to accept them if promptly paid, it is going to be an uphill battle in any future “bad faith” litigation. 

But, even if you think the “bad faith”  is clear, here is where, again, the opposition’s mindset plays a role.  You must have a receptive audience at mediation.  Accordingly, send your detailed outline of your “bad faith” argument,  your relevant factual timeline of that “bad faith” and a “reasonable “settlement opening proposal,  BEFORE mediation.

(Yes, you may have to send this outline to your present attorney and representative, inclusive of your “criticisms” of them, but it must be done!)

Now that you have prepared by obtaining the interest (and attendance)of your “bad faith” opposition and have educated them sufficiently to obtain adequate authority, you must now do one of your best formal mediations.  It is your first and best chance to impress opposition personnel who have had no contact with you before!

You also need the help of your defendant insured!  While convincing their insurer, you must also be convincing the insured that you will prevail in excess of their coverage and they, as much as you, need to have the matter settled and now to avoid personal exposure! 

With the actual under-insured policy holder-tortfeasor present and listening, and hopefully represented by personal counsel in ADDITION to the counsel obtained and paid by the insurer (who knows their “new role”), you have a chance to impress both those professionals who will be facing you in the SECOND trial and their/your tortfeasor who is facing payment of a judgment greater than his insurance limits!

THIS is the time for the Powerpoint.  This is the time for the “trial” demonstration as to how you will prevail in BOTH cases.  This is the time for using the actual verdict form to be returned by the jury in BOTH cases.  Remember,  you are not only trying to convince your opposition of the bargain for the underlying claim, but the bargain in resolving, in advance of TWO trials, the entire dispute.

And, this is the time for the physical presence of competent, informed “Bad Faith” counsel.  (Of course, you know, all of the parties, including the attorneys, will be WITNESSES in the second case!) It is the “bad faith counsel” who must carry the day (if given the facts to do so!) AFTER the first judgment is obtained.  Thus, he/she must make this presentation.

Now is the time for the special “bad faith” counsel to clearly show the opposition why they will LOSE the bad faith case, somewhere in time in the future and at a far greater cost than would be available to them, voluntarily, at THIS mediation.

Unfortunately, by the time “bad faith counsel” shows up, much of the “predicate” really required for success in such second trial will have had to be done appropriately.  Accordingly, keeping the “bad faith” counsel fully informed (and not misled) is imperative.  (Obviously, this is why so many trial bar seminars are devoted to how to properly prepare for any such claim.) 

And, you can bet that one of the key defenses that the opposition will raise will include:  “why would the Plaintiff  have accepted the “insufficient” policy limits if tendered “earlier”, but will not now (or when it was tendered)!”  Be prepared for this!  If a future jury believes such a tender was rejected solely to “set-up” the insurance company, you likely cannot prevail.  A word to the wise.

Now is also the time for really aggressive negotiation.  You must signal reasonableness really early!  If you do not make the opposition interested, early, it will be a very short mediation.  (And, it will likely be shorter, anyway, due to the few number of attorneys that will really do the “homework” necessary for resolution.) 

(Note:  I am also presently in the process of preparing and article on some suggestions about this separate subject of negotiation of these matters, including options to your first goal, an outright global dollar settlement.)

In the end, to obtain a global resolution, the “bad faith” adjuster and/or their counsel, must be convinced that they will likely lose a significant judgment in excess of their policy limits, that their insured will likely either sue them over the excess (and, possibly the attorneys hired for the insured) or “cooperate” with the present defendant to the same purpose, and that likely, a future jury will agree that there was an unreasonable failure of insurance procedures that placed the underlying-insured in jeopardy.  (And, particularly, if punitive damages were reached because of such a failure!)

Once they are convinced of these simple matters, it is only a matter of arriving, jointly, with that dollar-bargain for them that is also one for the claimant!  Simple, huh?

In many ways, your pre-mediation efforts in “early bad faith mediations” are similar to those always recommended.  The difference is that while you might “skate-by” and achieve success in other kinds of mediations without these efforts, in “early bad faith” mediations, any lack of this recommended special effort  and the failure to consider these new techniques will likely require your trial of both cases.

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