Protecting Subrogation Interests At Mediation

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Mediation has become an integral and very effective tool in the arsenal of the subrogation professional. We find that many of our clients have a great deal of mediation experience, and many have attended mediation without the benefit of having subrogation counsel present – with mixed results. Some years ago, while applying for board certification with the National Board of Trial Advocacy, I estimated that I had participated in approximately 550 mediations up to that point. My partner, Brad Matthiesen, is also a licensed mediator with an active mediation practice. For those who attend mediation without the benefit of counsel, I have some suggestions. For clients who prefer not to attend mediation and to instead be represented by counsel and be available by phone for updates and settlement authority, I have a few warnings.

Subrogated parties are the Maytag repairmen at mediations. We are like the dentist. Nobody likes to visit us until it is absolutely necessary. Rarely are they involved until late into the mediation at which point they are usually asked to waive or significantly reduce their subrogation interests. Set to the lyrical strains of Roy Orbison’s “Only the Lonely”, long are the afternoons of sitting alone in a small conference room, reading and re-reading the Wall Street Journal, and waiting for ominous footsteps of the mediator making his way down the hallway to their door. As the setting sun glares through the small, poorly air conditioned conference room window, it is announced that a deal has been cut and that the subrogation lien is the only thing standing in the way of everyone going home. These are the times that try our souls.

A critical decision in the mediation process is who will be in attendance on behalf of the subrogated party. If you attend mediation without the benefit of counsel, I have a few pieces of advice, a few of which took me dozens of mediations to learn.

  • Do not make aggressive opening statements. State your interests and wait your turn to communicate how important these subrogation dollars are to the insurance industry and small businesses.
  • Make clear that of all the parties in the mediation, you are the least worried about the case being tried.
  • Be familiar with the case. Understanding why your insured/plaintiff has a good case and expressing that understanding will help maximize the recovery and communicate that you are plugged into the case.
  • Do not reveal your “bottom line” – even to the mediator. His job is to settle the case. Period. Your job is to squeeze every possible dollar you can out of a day’s work. If the mediator insists on a bottom line, give him a number – but not your bottom line. In driver’s education, I was taught that the most certain way of hitting an object was to keep looking at it, as opposed to looking past it. The same holds true for your “bottom line.”
  • Clearly spell out in the mediation agreement how, when, and the amount you will be paid. If you have future payment (e.g., pending comp claim) potential, be sure to clarify that your past lien includes payments made, but medical expenses submitted but not yet paid will be the responsibility of the plaintiff/employee.
  • Deal with and spell out your rights to any future credit in the agreement. Be specific and detailed.
  • Address any reimbursement of deductible or self-insured retentions up front so there are no misunderstandings.
  • Spell out that your subrogation recovery is net, free, and clear of any claims for common fund attorney’s fees/costs, or other expenses.
  • Make sure the mediation agreement spells out that all parties have authority to enter into the agreement. If the mediation agreements used by the mediator states that it is an “agreement in principle” but non-binding unless and until reduced to a writing signed by all the parties, ask the mediator to prepare a “binding term sheet,” which summarizes the terms of the settlement and recites that while counsel will prepare formal settlement documents, the term sheet reflects a binding and effective agreement.
  • At every step of the process, be very, very specific about which information you authorize to be communicated to the other side, and which information you do not.

There is no one-size-fits-all rule for when a subrogated insurance carrier should personally attend mediation. Clients with litigation and/or mediation experience feel quite comfortable going toe-to-toe with the other parties and lawyers in a contentious mediation. Some do not. Quite often, our attorneys attend mediation as “client representative”, freeing up our clients to stay on top of their heavy case load and reporting to them regularly throughout the day and obtaining final authority by telephone. If you choose to have counsel attend on your behalf, expect the unexpected. Prepare for the unlikely scenario that the parties want to back out of the mediation, claiming a lack of authority on the part of your counsel.

Every state has different requirements with regard to attendance at mediation. In California, California Rules of Court 3.894 requires a party’s attendance unless the mediator excuses the attendance. However, in our experience, any mediator will excuse a workers’ compensation claims handler’s attendance if the lien is under $500,000 and he or she is available by telephone. In Reyes v. Green Frog Market, LEXIS 6438 (Cal. App. 2002) (unpublished decision), subrogation counsel advised his client they need only be available for mediation by phone. They were, and he settled, signing the mediation agreement on her behalf. The other side wanted to back out and the Court of Appeals allowed it, stating that the attorney didn’t have a specific Power of Attorney to sign on behalf of the client for that mediation in that case. If your attorney attends mediation in California on your behalf, you should have a form Power of Attorney drafted and signed for the mediation, and have an email from the client granting the attorney permission to sign the mediation agreement on the client’s behalf.

In Florida, almost every case that is going to trial must first go to mediation. Florida Rule of Civil Procedure 1.720(b) requires that you must send someone to mediation with “full authority” to settle the lawsuit. “Full authority” means “the final decision maker with respect to all issues presented by the case who has the legal capacity to execute a binding settlement agreement on behalf of the party.” This rule applies to all Florida state courts, other than small claims court, which has its own mediation process.

There are also some common misconceptions and urban myths relating to mediation which every participant should be aware of:

  • Confidentiality. Be careful what you reveal during mediation. If there is a good chance the case will not settle, save your best ammunition for trial. Confidentiality at mediation is not absolute, even though it may sound that way during the general caucus. The law varies. The Local Rules of the U.S. District Court for the Southern District of New York, like many forms of private mediation, provide broad assurances that “[t]he entire mediation process shall be confidential.” The Florida Mediation Confidentiality Act provides for disclosure of matters discussed in mediation only where neglect of children or the intent to commit a crime is involved. Fla. Stat. §§ 44.401 – 44.406. Mediators can testify in a civil proceeding as to statements or conduct of the parties that give rise to civil or criminal sanctions that may be constituted as a crime, that could be subject to investigation by the State Bar or Commission on Judicial Performance, or that could give rise to disqualification proceedings due to judicial bias. One California case even suggested that failure to object to evidence brought in during a mediation proceeding will allow this evidence to be brought into court later, although it was later overturned. In Wisconsin, there are several exceptions to the general rule of inadmissibility with one of the exceptions allowing evidence otherwise barred “in an action or proceeding distinct from the dispute whose settlement is attempted through mediation” to be admitted if “necessary to prevent a manifest injustice.” Wis. Stats. § 904.085(4)(e).
  • Ending The Mediation. Mediators like to say that the mediation is over when they say it is over. That is not the rule. Decide when to end the mediation. Decisions made during mediation are to be made by the parties. A mediator is responsible for assisting the parties in reaching informed and voluntary decisions while protecting their right of self-determination, but just as parties are not required to settle, they are not captive until excused by the mediator.
  • Failure To Mediate In Good Faith. Some mediators like to threaten to report to the court that a subrogated party did not mediate in good faith. State laws may vary, but mediators are ethically prohibited from reporting to the court that parties failed to mediate in good faith. Mediator Ethics Advisory Comm. Op., 2001-004(c) (May 2, 2001). While parties may be required to attend mediation, they are in no way required to settle or even make a settlement offer.
  • Plaintiff’s Attorneys’ Fees. It seems to be an unwritten law the lawyers never compromise their fees. Nothing could be further from the truth. When a lawyer’s effective hourly rate in a file will be more than the down payment on your house, make a fee compromise a condition precedent to any subrogation reduction or compromise. You’ll be surprised how often it works, and a trial lawyer leaving mediation unhappy is always a good sign for the subrogated carrier.

Do not fall victim to the mediator’s representation that he has been at this for 30+ years and subrogated carriers almost always do a three-way split (1/3 to plaintiff, 1/3 to plaintiff’s counsel, and 1/3 to the subrogated carrier) when the policy limits are insufficient to cover even the subrogation lien. In those situations, it is the plaintiff’s attorney who is the party crasher.

Our firm has always placed a great deal of emphasis on the benefits of mediation in order to cost-effectively recover our clients’ subrogation interests. If you have control over potential mediation of your subrogation interests, take the time to choose an appropriate mediator for the case. Let all parties know that you want a say in who facilitates the settlement process. As a subrogated carrier, be familiar with the applicable law involved. Knowing the law better than the other side is our secret weapon. Anticipating their arguments, schemes, and artifices ahead of time is our advantage. However, where mediation is ordered by the court and chances for resolution are slim, be optimistic, stay aggressive, and bring lots of reading material.

If you have a question regarding this article or subrogation in general, please contact Gary Wickert at [email protected].

Gary L. Wickert

Gary L. Wickert is an insurance trial lawyer and partner with the law firm of Matthiesen, Wickert & Lehrer, S.C. Gary has nearly four decades of litigation experience and is regarded as one of the world’s leading experts on insurance subrogation. He is the author of several subrogation books and legal treatises and a national and international speaker and lecturer on subrogation and motivational topics.