Most personal injury mediations are not complicated by a defendant’s inability to pay what a plaintiff demands. Over the past two months, I have covered the basics for handling your first personal injury mediation when the availability of settlement funds was not a complicating issue. This month we address that complication.
Mediations are an effective way to find the number somewhere between a plaintiff’s opening demand and a defendant’s opening offer that will resolve your case. There are cases where the amount of damages, in every reasonable person’s view, exceed the amount of money available to settle a case. Often that money is the policy limits of a defendant’s liability insurance. That limit might be a “low limits” auto policy, a million-dollar commercial liability policy, or a multimillion, multi-layered stack of excess/umbrella policies. Those types of cases are often uncomplicated because defense counsel, the client, and the carrier will recognize offering the “policy limits” is the reasonable way to resolve the case. This can often be accomplished without the need for mediation.
There are also cases where the amount of damages, in the view of defense counsel, the client, and the carrier does not exceed the policy limit. A defense lawyer might evaluate the case for her client and conclude there is no more than a ten or twenty percent chance a jury will award damages in excess of the available policy limit. At mediation, the defendant or the insurance carrier may not be willing to pay policy limits to settle the case.
So how should plaintiff’s counsel demand the policy limit? What happens if the demand is for more than the policy limit? How should the defense address itself to a policy limits demand or a demand in excess of a policy limit? Unfortunately, there is no simple answer to any of these questions. But there are statutes and case law that help us understand what to do when faced with these questions. So how do you best prepare for a mediation with policy limits in play? The answer is actually very simple: NO SURPRISES.
Whether you represent a plaintiff or a defendant, the last thing your client wants is a surprise. From a client management standpoint, your skills are tested, and your credibility is at risk anytime you have to explain to your client things are not going as planned. Certainly, if it is a good surprise, explanations will be easier, but even good surprises might require you to explain why you did not anticipate the surprise and, more importantly, are you fully appreciating how the case will proceed henceforth? Maybe it was a good surprise today but tomorrow, maybe not. Good or bad, surprises are better avoided.
If you represent a plaintiff, and you want to mediate with a policy limits demand, make that demand in sufficient time in advance of the mediation to allow the defendant adequate time to evaluate its strength. If you make the demand for the first time at mediation or, more likely, a few days earlier when you send the defendant your mediation brief, the response is unlikely to be positive and quite possibly will result in the mediation being postponed or cancelled.
From the defense perspective, the only party who hates surprises worse than your client is your client’s insurance company. The insurance company, if you don’t know, is often a complicated, slow-moving bureaucracy. Any decision to spend an insurance company’s policy limit is often made by committee or certainly by multiple employees of the company. This means such a decision is rarely made without sufficient notice to the decision makers who will need to understand the reasoning behind the policy limit demand. That often takes days if not weeks to accomplish.
Nonetheless, occasionally the policy limits demand is not made until mediation. And while not ideal, it must be dealt with. As a defense attorney, you must be prepared to discuss the impact of a policy limits demand whether it comes before suit is filed or for the first time at mediation.
The impact of a policy limits demand. A policy limits demand is viewed by many plaintiff’s lawyers as the best way to get the most money their client can ever practically recover. A well drafted policy limits demand puts the most pressure on an insurance company to pay the policy limit amount in settlement or risk paying the entire jury verdict, even if the verdict exceeds the policy limit. This is not an automatic result. The law does not hold an insurance company liable simply because it refuses to settle a case on behalf of its insured any time a policy limit demand is made.
The law starts with the principle the insurance company, as a fiduciary, must not put its financial interest ahead of the interest of its policy holder (the defendant). Under Washington law, as is the case in most jurisdictions, the insurance company must evaluate fairly whether a “reasonable insurer” would pay the policy limit knowing what it knows or should know at the time the demand is rejected. If a defendant and/or an insurance company receives a policy limits demand at mediation or even a week before mediation, the defense may not have sufficient time to evaluate the demand, thereby taking off the pressure from what otherwise might a powerful settlement tool.
As I said, “no surprises.” Best practice is to prepare a policy limits demand early enough that the defendant can give it due consideration. A defense counsel who receives a policy limits demand is apt to advise not only their client quickly but the insurance carrier as well. And a reasonable insurance company is apt to start asking good questions about the strength of the demand. Plaintiff’s counsel can begin a dialogue with defense counsel to document what information is missing to consider the demand. That may mean further exchange of information informally or traditional discovery.
By the time you arrive at mediation, your policy limits demand can stand on its own merit. The defendant may not agree with you to pay that amount. The insurance carrier may not agree to pay that amount. But if that decision by the insurance company is ill advised, it may very well be your ticket for resolving the case later for that limit or even more.
I recommend that younger attorneys take the time to study Washington statutes and case law that address policy limit demands, covenant judgments, IFCA Complaints, and reservations of rights. As defense counsel, waiting until you receive a mediation letter where these concepts are addressed will put you right behind the eight ball. And as plaintiff’s counsel, you might miss your best opportunity to settle a case for the best money available. Good luck with your adventure.
Eric Gillett is a founding member and managing partner at Preg, O’Donnell & Gillett. Follow him on LinkedIn at https://www.linkedin.com/in/eric-gillett or at https://www.linkedin.com/in/gillett-mediation. He is licensed in Washington, Oregon, and Alaska. He has tried dozens of cases to verdict and mediated hundreds more. A navigator of resolutions, he is a commercial mediator and can be contacted through his legal assistant, Jasmine Reddy, at 206.287.1775 or jreddy@pregodonnell.com. You can also reach him through his website at www.gillettmediation.com and his email at eric@gillettmediation.com. Mediations in person are encouraged.
