Chapter 5 – Negotiation
and Mediation
Negotiating Skills in Claims Settlement
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Negotiation is a stage
in the claims process
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It is the process that
determines how the obligations are set forth in an insurance contract will be
resolved
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The loss adjuster's
objective in a settlement negotiation is to resolve the claim in a fair and
reasonable way
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All parties to the
insurance contract must operate in a method that meets the standard of good
faith
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The claims relationship
between the insured and insurer is defined in the policy and both parties will
have to operate in the laws of contract
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The claims relationship
between the loss adjuster and TP is different from insured and insurer; adjuster and TP must still operate in good
faith, but they are governed by tort and statute law
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Other contracts that may
influence settlement negotiations are sales contracts or a lease agreement
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Process between
insurers and claimants is prone to disputes, as the loss adjuster may still be
determining how coverage applies under an insurance policy; liability is determined under civil or
statute law, or when damages are evaluated
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Negotiation Styles are
usually categorized into two (2) forms:
I.
Right-based
negotiation - when one party loses and the
other wins; tends to be adversarial and the traditional mode used in litigation; loss adjuster must use superior people skills
when dealing with their own policyholders;
loss adjuster can expect to encounter diversionary tactics,
manipulation, posturing, blaming, demonizing, intimidation, and coercion; this usually ends up against the standard of
utmost good faith
II.
Interest-base
negotiation - stresses cooperation between
parties; each party is expected to make
concessions to the other in an effort to acknowledge the needs of both
parties; tends to be less disruptive and
it is closely associated with mediation;
a series of evaluations must be worked out to the satisfaction of both
parties, creating room for negotiation
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Often loss adjusters
will use both styles to resolve a claim
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When dealing with a TP
the loss adjuster finds the process more complex as s/he must keep the interest
of the insured in mind
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Poor communication is
often the cause of disputes between parties
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To create rapport in
any encounter, it is important not to judge others
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Skilled negotiators have
the following characteristics:
·
Focused on the issues
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Tend to be composed
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Courteous
·
Able to analyze info
quickly
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Serious about the
matter on hand
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Able to create a
comfortable atmosphere
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Good listener
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Asking questions in a
neutral tone and avoid any accusation
·
Use conciliatory
language; tone and words used that do not offend and allow parties to keep
their dignity
·
Able to read body
language to gage on the respondents acceptance/withdrawal on how the message is
being interpreted
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A loss adjuster will
carefully summarize or repeat main ideas to demonstrate respect by being
attentive and trying to understand what is being said
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Repetition is a tool
that will help people remain focused on the issues
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A good negotiator will
strive to end the negotiating session on a positive note whether or not the
claim has been fully resolved
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The following questions
would be considered rude:
·
Talking when someone is
making introductions or explaining a point
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Tapping an object when
someone is talking
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Rolling your eyes when
someone is talking
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Pointing at someone may
be construed as aggressive and therefore rude
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Avoid threats; try
dealing with inappropriate behaviour immediately by asking the person to
clarify what s/he meant
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Threats and bullying
could be a crude way for the person to let you know that s/he has reached a
walk-away position from the negotiations
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When a person lies, it
may be because they are afraid or feel some other insecurity; as the loss adjuster, you come across someone
lying, state the facts without making accusations or using abusive language
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When accusations are
made during negotiations, the loss adjuster should refocus the issues
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When tensions rise,
parties tend to stop listening; being aware of rising tensions will help the
loss adjuster ask the necessary questions to bring the matter to a reasonable
level
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Cooperation and honesty
are to be favoured over suspicion and ill will, especially when mediation is
going to be the next step in the negotiation process
Emotions
in Negotiations
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Anger is a strong
emotion that can be presented during negotiations
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Effective listening
requires identifying anger; signs of
anger include:
·
Flushed face
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Agitated body movements
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Turning away from the
talker
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Uncontrolled
interruption; e.g. coughing, murmuring, and outbursts
·
Crying
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Respond to anger by
being open, interested, and friendly;
the other party may need to express the anger they feel in order to move
beyond it
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Acknowledge claimant's
injury and/or predicament; the loss
adjuster should be empathetic and express regret at the claimant's injury at
the outset of any encounter
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It is better to express
"sorry" (not pity) towards the claimant rather than pretend to
understand what they are going through, as any lying will cause friction and
cause the claimant to mistrust the adjuster;
the adjuster should say something like "I'm sorry you were
injured....." to establish the most appropriate empathetic environment
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Emotions may cause
highly aggressive behaviour; to counter
this use civility as a tool; ask the person to fully formulate his/her
objection and concerns. This will cause
the person to stop and think things through, causing him/her to cool-off. After s/he has presented his/her concerns in
a way that makes sense then use facts of the situation to present the merit of
the settlement amount proposed
Framework
of the Negotiating Plan
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For any settlement negotiation
the loss adjuster must prepare meticulously for the encounter with the
insured; preparation is the key to a
successful outcome
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Consider what demands
made by the claimant are flexible and open to negotiation; separate the issues
in the claim to properly weigh the merits and bring about agreement
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An all inclusive offer
or "package deal" is the best way to initially present the first
offer
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Analyze the value of
the claim by researching case law that is applicable and understanding the
medical issues
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Develop a settlement
range using every item of information in the investigation; questions that should be asked are:
·
Is the claimant's
injury expected to heal without complication?
·
Does the thin skull
theory apply and how will it affect the claim?
·
What effect has the
injury had on the claimant's lifestyle?
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Reactive
Devaluation - presenting the first offer and
the opposing side believes that this offer is the lowest offer of the
settlement range. This first offer is
considered insubstantial, even though it may be fair and reasonable. The opposing side believes any subsequent
offer will be greater than this first offer
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The first offer is a
way to bring the opposing side (the claimant) within a reasonable range and
explain how this amount was calculated
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A better approach is
for the loss adjuster to point out that it is the claimant that is making the
claim and that the claimant should present a reasonable figure
Making
Concessions
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Timing is
important; the loss adjuster must make
any concession hard won and worthwhile
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The loss adjuster must
be flexible enough to recognize a mutually beneficial solution; also the loss adjuster must consider new
information and if need be re-evaluate the settlement range in order to move
negotiations forward
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Concessions are not one
sided and both parties need to make sacrifices and compromise to bring the
negotiation to a fair and reasonable conclusion
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If the results aren't
successful as was hoped by the loss adjuster, the settlement session should end
on a positive note; it is likely the
matter may be escalated to the next level which is mediation and perhaps
arbitration or litigation
Alternative
Dispute Resolution (ADR) Models
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Often ADR is brought
forward because the negotiation situation has broken down or the insurer has
denied the claim
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There are usually five
types of ADRs which are:
·
Mediation
·
Mini-trials
·
Arbitration
·
Appraisal
·
Litigation
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Litigation is the most
costly for both parties and often subject to delays; often both parties will decide on the other
choices above as a way to reduce cost and save time; all other options, other than litigation, are
less formal and more flexible
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Litigation is often
used in matters when the claim is deemed fraudulent; fraudulent claims should not use other ADRs
as the issue is a right-base and away to deter others who may try to present
fraudulent claims
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Using the other
resolution models of the ADR other than litigation creates an environment of
cooperation, decreases animosity between the parties and promote opportunities
for future business relationships
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In certain
jurisdictions of Ontario, defense counsel must participate in mandatory
mediation as a required step in all litigated cases
Comparing
Litigation to Mediation Processes
Litigation
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Mediation
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Pros
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Attempts to negotiate a conflict have
not been successful and the only option left is litigation
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Conflict has escalated where lines of
communication are completely severed since both parties believe their point
of view is right and the other side is wrong
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Both parties have dug their heels in
and require an objective party, the courts, to determine the matter at hand
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Parties to the dispute have hired
lawyers to represent their views in an civil but adversarial context
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The belief is that the opposing side, the
wrongdoer, will be held accountable for his/her actions; the wronged party will be fairly
compensated
Cons
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Painstaking system designed to find
the truth based on carefully admitted and assessed evidence and well-reasoned
arguments
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Very expensive and often subject to
delays
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Results are not predictable due to a
great deal of case law that could support either side in the dispute
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All evidence and arguments are public
record and can be viewed by all who have access to the court's decisions
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The court's decision in the matter is
final and any attempt to reverse the decision will require more time and
expense by presenting the ruling to a higher court
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Appeals to higher court are not
predictable and the lower court's decision may be reinforced with no other alternative
to dispute the matter
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Pros
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Any settlement reached is done so by
the cooperation of both parties and the final decision is binding
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Often matters resolved by mediation
end up with creative solutions worked out by the parties involved
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The matter in dispute is managed
compassionately
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All parties accept that any materials
delivered and anything said in the context of the mediation process is
protected by confidentiality
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Less formal than litigation when it
comes to presenting arguments and evidence; process is more flexible
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Both parties' interest and needs are
examined
Cons
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Not appropriate medium for fraudulent
claims as the principals in dispute require public record to deter any future
fraudulent claims
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There is no right or wrong; if a party wants to establish the wrongdoer
to be accountable for their actions then mediation will not be a good place
to bring about this type of argument
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In very few cases that need to be
litigated, certain jurisdictions (like in Ontario) force mandatory
mediation; this forced process adds to
the cost of matters that ultimately end up being decided by litigation
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Mediation
Theory
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Assisted negotiation;
parties in dispute retain control over the situation
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Designed to improve
communication and collaboration between disputing parties; parties to the
dispute must be open to creative solutions, in order to find a result
acceptable to all parties involved
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The objective is NOT to
determine who is right or wrong, but to uncover the needs and interest of the
bargaining parties in a neutral and cooperative environment, ultimately coming
to a conclusion in the matter
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Each party is given the
opportunity:
·
To fully explain his or
her position
·
Analyze each other's
risk
·
Attempt to define
differences
·
Work towards a solution
Mediation
Process
When to Consider Mediation
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Negotiations have
stalled; parties have reached an impasse
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To overcome lack of
agreement
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Determine, using
objective means, a more accurate value of damages
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Determine what each
party should contribute to any settlement
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Come to a conclusion of
other right-based issues requiring a yes or no answer
Preparing for Mediation
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Study the file and
develop strategies to resolve the dispute in the best way possible for the
parties involved in the dispute
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The thorough review and
predicting the possible scenarios for a mediation meeting will help the parties
to overcome unexpected twists and turns that a mediation session can take
Mediator's Role
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Skills of the mediator should
include:
·
neutrality
·
be able to negotiate
fairly
·
be empathetic and see
other's point of view
·
be able to communicate
effectively
·
be able to interview
parties to better able to find the matters that are in dispute
·
be able to counsel the
parties and have them understand the opposing sides views
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to have knowledge of
insurance claims
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to listen intently and
be able to summarize the issues that all parties can understand
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be able to recognize
emotional undercurrents and find ways to overcome these barriers of
communication
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The mediator will
control the mediation and intervene as required to move the process forward
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Mediator should act as
a coach; as claimant's are new to such
procedures, the mediator will help prepare the claimant so that the process can
have an environment that is conducive leading to a cooperative negotiation
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Mediator will explore
possible solutions and generate creative solutions to resolve conflicts and
maximize the possibility of a good result for all parties involved
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Mediator should recognize
an imbalance of power; the claimants
have much more at stake personally because the outcome of a mediation will have
a greater impact on their lives than it would on the insurer; mediator should identify when positions taken
by either party can't be supported by law
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When mediator sees that
tempers are rising, s/he may choose to separate the parties to defuse the
situation
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Mediators begin to
prepare for the mediation once the date, time, and place of the mediation have
been arranged
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Potential areas where
conflict exists can be identified early on and the mediator can develop
appropriate strategies to bring about a successful resolution to the matter in
dispute
Claims
Representative's Role in Mediation
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The claims rep can act
as the insurer's rep during the mediation proceedings
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The claims rep should
use non-confrontational communication techniques, such as eye contact and
conciliatory body language
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The claims rep should
face the claimant and avoid facing the mediator because the mediator is not meant
to be a go-between; the mediator is only there to be a facilitator
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The claims rep should
come to the mediation with sufficient authority to settle the claim; arrangements should be made to have a senior
claims person on call ready to increase settlement authority should it be
necessary to do so
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When new evidence is
presented the claims rep should analyze it and see if the settlement needs to
be adjusted (higher or lower)
Lawyer's
Role in Mediation
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Similar to the role of
counsel in litigation, which are:
·
Represent the interests
of the insurer
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Participate in
negotiation, interpret info, and provide feedback to their client
·
Assess relevant case
law and see if it applies to the dispute presented at mediation
·
Advise their client as
to how events will play out and the expected results
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The reasons a lawyer
may not be comfortable in a mediation are:
·
Their expertise are
best suited for the litigation process; more geared toward formal presentation
of evidence and arguments, while in mediation the process is more flexible and
less formal
·
Their presentation of
issues are often framed in a right based argument creating an adversarial
environment; mediation process strives
to create an environment of cooperation
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Their consideration of
the opposing sides issues are often dismissive or devaluing causing contempt
and polarization
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If an agreement is
reached, counsel will draft the minutes of settlement to illustrate the
expectations of the parties to the mediation session
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Minutes
of Settlement - written out
agreed-upon terms of settlement in a binding agreement or contract; for this document to be legally binding, they
must be executed with legal counsel and each party must receive independent
legal advice about its contents
Stages in Mediation
Process
Selecting
the Mediation Team
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Fundamental step to
success is choosing the right team
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At times the loss
adjuster has become embroiled in the negotiation process and can't be
objective; loss adjuster can be substituted by a claims examiner or a neutral
party
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Litigation counsel
might be replaced by a mediation counsel
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The participating
insurance rep must have enough authority to authorize the negotiated settlement
or have a claim examiner on call to consider increasing authority based on the
info presented by the claimant
Mediation
Agreements
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Once the mediation is
booked, the mediator sends confirmation to the participants, which includes the
mediation agreement
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Mediation agreement
will set out all terms and conditions of the mediation and reconfirm the
confidentiality of the mediation meeting
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Confidentiality is
important in mediation as it protects the participants, allowing them to speak
freely; participants will feel assured
what they say or do at the mediation will not impair future litigation
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Any settlements or
discussions at mediation cannot be used as evidence at litigation
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Mediation agreement
will set out who pays for the cost if the meeting is cancelled or runs into
overtime and can include any other terms that might be a source of contention
later; the agreement must be reviewed
and signed by all participants prior to the mediation meeting
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For commercial
mediation the agreement will outline that all participants will share in the
cost of the meeting; this is to ensure
that the mediator is neutral
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For mediations concerning
insurance issues, most often the insurer is the party that will pay; some insurers have proposed that the claimant
share in the cost of mediation, but if a settlement is finalized at mediation
then the insurer will pay for the entire cost;
this proposition is designed for the claimant to have a serious stake
when considering settlement at mediation
Mediation
Memos
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These are statements
prepared by the lawyers of the participants and written in the most persuasive,
narrative form, whereby it presents the issues in a way that engages the reader
and outlines the issues, highlighting the strengths of the participants
position
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The best mediation
memos are concise yet thorough; if the
mediator can understand your party's position in the dispute it will be easier
for the mediator to present this to the opposing party
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The mediation memo
should be drafted by the counsel then sent to the insurer for review and
suggestions before a final memo is sent to the mediator
Previous Offers or
Negotiations
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Formal offers to settle
made before the mediation should be disclosed in the mediation summary
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If there have been
negotiations before the mediation and if no formal offers to settle have been
exchange, counsel should present their opinion of those settlement amounts
before the mediation is arranged
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If new information
comes to light then this information should be taken into account when
proposing a new settlement amount
Opening
Statements
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Mediator will make the
introductions and then set the ground rules; this explanation is a benefit to
the claimant who is new to the mediation process; the mediator will not discuss
the claim
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After introductions,
opening statements are made by both sides and the main points should be
presented in a clear and logical way
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The loss adjuster in
the opening statements should:
·
Acknowledge the other
party's injury or suffering
·
Make an effort to
soften the tense situation
·
Acknowledge the
inconvenience of being at the mediation without accusing the other party of
being the cause of this process
·
Present the opening
statement in a sincere way; avoid
alienating the claimant or losing credibility
·
Advise that the purpose
of the mediation is to find common ground and take a step into the right
direction
·
Present the reasons why
the session is taking place by listing the issues in dispute; e.g. deductibles,
threshold, eligibility of income payments, consideration for collateral
payments
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The counsel for the
claimant may evoke emotional response instead of presenting facts
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If the opposing counsel
asks questions in their opening statement be prepared to answer the questions
and if any issues that are presented by the opposing counsel should be met with
understanding and consideration
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The insurer's position
should be grounded in facts relevant to its position and be presented in an
objective yet sincere way
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If during the mediation
meeting there is info that is missing, the session may have to be cancelled
until this information can be obtained from the participant having access to it
Presenting Evidence in
Mediation
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Most often complicated
issues of medical evidence is the reason for dispute and cause of mediation
session
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In the mediation memo,
briefly and concisely let the mediator know the crucial points which should be
supported by evidence
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In some BI cases the
medical briefs are substantial and summary should be prepared and presented to
the mediator in the memo
Disclosure of
Surveillance Evidence
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Surveillance is a
sensitive subject because good surveillance can provide irrefutable evidence
-
Surveillance footage
should be viewed by counsel prior to the mediation session, especially if the
claimant's counsel has hired an expert medical witness to comment on this
evidence
-
Sometimes surveillance
evidence is less powerful and an explanation for the activities captured on tape
can undermine what was once thought as irrefutable to being a "good
day"
Expert Witness in
Mediation
-
Experts who attend
mediation sessions appear to carry more weight if the opposing side has the
opportunity to question them directly
-
By not providing the
opposing side the opportunity to question the witness may seem to cast
suspicion on the evidence offered by the expert witness
-
In complex cases
experts from both sides may meet prior to the mediation session to narrow or
eliminate differences between their positions
Caucusing
-
Mediator uses separate,
private, side meetings during mediation
-
Mediator has greater
control over the proceedings using this format
-
This permits the
participants a greater level of comfort and freedom
-
The freedom allowed by
the participants would be to speak with the mediator and their own counsel in a
more open way without the hindrance of over courteous, shyness or awkwardness
if they were speaking in-front of the opposing side
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The participants are separated
after opening statements are presented
-
The mediator will
shuttle between the parties advising the concerns and issues presented by the
opposing side and outlining where there still exists disputes and where there
are agreements
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There are two (2) approaches
to confidentiality in caucusing that are commonly used, which are:
I.
Everything discussed in
a caucus can be revealed to the participants as a whole, unless the parties
specifically request that the information remains confidential
II.
Everything revealed in
a caucus is confidential unless it is specifically agreed it can be shared with
the group as a whole
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Option II is used when
there is a mandatory mediation and the parties are close to trial; this type of mediation session forms part of
the trial strategy
-
In the mediation, the
mediator, counsels for the participants and participants themselves must
consider that if the matter goes to court and the mediation session is
unsuccessful, there is no guarantee that either party will be successful; there is a risk that either party may lose at
trial; in the event of successful
litigation the legal fees are often substantial and often legal fees are not
fully recovered by the winner
-
Personalities will
affect the mediation process;
participants who are cooperative and altruistic will find the
non-adversarial environment of mediation preferable over the formal, right
based argumentative structure of the litigation process
-
Also, if one side is
overly open and the other side is holding back, the optimism of the cooperative
and altruistic side may be construed as foolhardy and become a detriment to the
mediation process
Finalizing
a Mediation
-
If the mediation is
successful and a resolution is agreed to, then the counsels of the participants
will draw up the minutes of settlement
(pg 8)
-
The minutes of
settlement will usually include:
·
Claim release
·
Description of how
things will play out
·
When the claim will be
paid
·
Time limits for tasks
to be completed
·
Which party is
responsible for what action remains
·
Any further
undertakings required
-
The minutes of
settlement can impose confidentiality on the agreement and avoid any negative
publicity or creating a legal precedent
-
The three (3) options
that might be available should mediation breakdown are:
·
Neutral evaluation
·
Arbitration
·
Litigation
-
If both parties opt for
a neutral evaluation, they can present the matter to the mediator on hand who
can change his/her role as a neutral evaluator;
this options saves both time and money
-
Some mediators are not
comfortable with the change in their role and may refuse the option to be a
neutral evaluator
Obstacles to Settlement
in Mediation
-
A reasonable settlement
approximates what a claimant would be awarded at trial less the amount the
claimant would save by not going to trial;
these savings would be found in time, trouble and expenses
-
Jackpot
Syndrome - claimant feels that s/he has a
very good case and could likely secure a larger settlement at trial; this type of syndrome causes mediation
session to derail because the claimant believes by settling the claim at
mediation would be to undermine its true value at trial; the claimant turns the mediation session into
an adversarial environment as s/he believes that there is more to gain by taking
the matter to trial
-
If the parties enter
into mediation after litigation begins, then many fences need to be mended
-
A further complication
would be in jurisdiction where mediation is mandatory, a thorough investigation
hasn't been completed and information about the claim remain pending; by forcing the mediation, the insurer's side
resists finding a viable solution as it always reserves the right to
investigate the claim; this type of
"forced" mediation causes the environment to be adversarial since
commitment on both sides isn't forth coming
-
Tactics like
withholding evidence from the other side prior to mediation does occur; as such the other party not having access to
this new information is unwilling to come into a resolution since a review the
undisclosed evidence needs to be undertaken to see how it affects the
settlement
-
Each party will act in
their own best interest; even if the
facts of the claim are not in dispute, interpretation of those facts and their
implications can vary wildly; differing
opinions should be presented in a neutral, blame-fee, non-threatening way as to
promote an environment of cooperation and purposeful resolution
-
At times one of the
participants will make a new demand; the
other participants should resist accusing this party of bad faith; participants
should review the evidence and see why this new demand has been presented and
consider if it has merit; if this demand
has no merit or is unrealistic a clear and non-combative approach should be
presented to explain why this is the case
-
All participants should
come to the mediation session with sufficient authority to settle; by not having sufficient authority the
mediation session will be unsuccessful as there can be no resolution; it is best to have a senior claims examiner
on call in order to review the matter and provide adequate authority to settle
the claim if the original authority is not enough