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Mediation: Reserves and Settlement Authority: What You Must Know

May 23, 2014

In my entire legal career I  never attended a seminar at which I did not learn at least one new idea or piece of important information  that literally “paid” for the entire seminar.   It happened again, recently, and the new information was so worthwhile to me, I thought I would share it with you.

In February, I was honored to be a speaker at the Florida Justice Association’s 28th  annual “Workhorse Seminar” held, again, at Walt Disney World.  This almost week-long substantive seminar (long-organized and moderated by John F. Romano, of West Palm Beach, Florida)  is the premier CLE seminar for the claimant-attorney’s side of the Bar and is usually attended, in part or in whole, by practically every “plaintiff”-attorney in the state.

This year, taking a page from the Defense Bar’s head start on the subject, one whole session of the week was devoted to “the other side” of being a complete trial lawyer, the art of negotiation and settlement, including mediation  In other words, as I have been shouting for years, where the money in the trial practice is REALLY made.

One of my fellow-speakers on significant factors of claims negotiation,  former long-time defense attorney, now mediator Robert A. Cole, from Jacksonville, Florida, gave his presentation on “Reserves-Reserves-Reserves:  Understanding Why One of Plaintiff’s Lawyers’ Major Blunders is in the Failure to Know, Understand, and Appreciate Reserves”.  If you didn’t (or couldn’t) attend (Defense attorneys are not invited), I suggest obtaining at least that part of the seminar for an in-depth look at Mr. Cole’s presentation on this eye-opening subject.

I say eye-opening subject, because although most plaintiff-attorneys (and certainly all defense attorneys) have some general understanding of ” insurance reserves” as a generic part of the claims-handling process, I doubt many plaintiff-attorneys know just how critical and central this one single subject is to the ultimate resolution course of any insurance claim .

Let me put it in quick perspective for you:

According to Mr. Cole, as a rule-of-thumb, the authority to settle that will be present at your next mediation will almost always be “70-80% of the official insurance reserve placed upon that claim well prior to mediation “.

And, if , having exhausted this initial authority at mediation, “the call” for more authority is to be made by any insurance representative, you can also bet any additional authority permitted will NEVER be more than 100% of that (previously set) reserve!

NOW, have I got your attention of the critical importance of accurate insurance reserves to ANY settlement?

NOW do you see why “doing your homework” to raise those reserves (Plaintiff and Defense) long before mediation is what dictates what is likely to occur at mediation?

“Setting your claim’s insurance reserve” always begins with the very first contact made by either the claimant, or more likely, the claimant’ attorney.

Along with introducing yourself as representing a claimant, it is imperative to factually and accurately “set the damage scene and tone of the claim” with your initial contact.  (My own “Workhorse” topic also addressed this important subject, along with other “guiding principles in developing personal injury demand packages and what to do with them”.)

However, it is the better practice to continue, constantly, to add to the pool of information that the insurance professional must utilize to accurately portray the actual total future claim exposure.

Additional insurance reserve information:  You should also know that there will always be a built-in reluctance to “over-evaluate” any reserve.  Because insurance companies may not invest any dollar placed into this reserve as their pool for payment of claims, naturally, they will thus try to hold each claim reserve as low as possible.

However, if a verdict and judgment should exceed the reserve for any claim, such a short-fall is seen as a “failing” in the insurance industry.  And, Corporate-Insurance America does not reward failings.

(One fail-safe to preventing under-evaluation is that with the passing of time, alone, reserve software incrementally adjusts upward to account for inflation, missing information, and other human failings.)

However, this constant desire for accuracy of the reserve on every claim is why insurance professionals are continually seeking specific documentation of the value (or lack of value) of any claim!.

(My thanks to former insurance professional, now attorney, Christopher Dillingham, of Orlando, Florida, for these additional  former-insider contributions.)

On the other end of this important reserve spectrum, according to Mr. Cole, a minimum of 45-60 days, in advance of mediation, is usually required to make the final adjustment to the reserves so as to even permit the “mediation authority”.

Notice, that it is the pre-set insurance reserve that ultimately dictates the settlement authority granted, not the well-discussed pre-settlement “round-table” or “committee” authority-evaluations most plaintiff attorneys assume control authority.

In the end, if the reserves are not adequately set, neither will be the settlement authority. 

(This is another reason I have long-advocated sending your most current pre-mediation information to your opposition , including  your refreshed settlement “demands” and any important exhibit or PowerPoint presentation you have been reserving for your opening, at least 30-60 days before your mediation!  See, i.e., Predict Your Own Mediation Outcome: Warning Flags to Read,  September 21, 2012)

I know busy claimant’s attorneys get tired of my constant advocacy for advance preparation and advance education of their opponents.  However, in my personal practice, it was simply common sense; if  I wanted something, I needed to give something.

However, with this important “peep behind the insurance curtain” perhaps you can now better appreciate a very fundamental official reasoning:  if your opponent or their insurer is not aware of any important point of your client’s claim, they simply cannot place any value upon it.  And, if there is no value placed upon it, their will be no reserve accounting for it.  And, if there is no reserve, there will be no authority until the reserve is adjusted.

Here is the good news.  Insurance professionals are required to adjust and revise their reserves as each piece of new  information is received.

In other words, every communication of substance, particularly those enclosing factual documentation directly causes (or at least should cause) a re-review of the reserves set upon that claim.  In particular, in personal injury damage claims, enclosing actual documentation of continued treatment and continued medical expense or loss of earnings directly impacts the upward adjustment of those reserves.

And, the more frequently information is forwarded, directly or through counsel, the more current and objective the adequacy of the reserve of the claim.

You that follow my educational blog know how much I believe in early, voluntary sharing of information with your opposition in the name of seeking resolution without trial.  Now, you can take that suggestion one step earlier and now voluntarily share objective information with your insurance representative early and often to “encourage” that professional to often and adequately adjust and then re-adjust his/her reserves on YOUR client’s claim!

You will be glad you did.  And now you also know WHY.

In summary:  More frequent and more timely objective information means higher reserves.  Higher reserves mean higher settlement authority.  Higher settlement authority means more settlements without trial!

(And, a few, hopefully, during mediation!)

Dan, from Orlando, Florida.







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