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The voice of authority in insurance mediation

by Antony Collins on 29 Oct 2014


Mediation hands parties the power to resolve disputes directly and outside a court but exactly who is given the power to settle and for how much can be a pivotal factor in mediation. This is especially pertinent to the insurance sector.

The ideal scenario in a mediation is that all the parties in attendance have “full authority” to settle the claim, including insurance representatives. After all, entering a mediation only to find you are negotiating with someone without the power to make a settlement can exacerbate tensions.

“Parties attending a mediation or conciliation meeting, who do not have a realistic level of authority to settle a matter on behalf of an insurer can cause frustration, delays and even risk the success of the process,” says JAMS International Panellist Charles Gordon.

While JAMS International’s standard mediation agreement is silent as to authority, others are not. A typical clause might read as follows: “The parties' representatives must have the necessary full authority to settle the dispute and shall immediately inform the Mediator if it becomes apparent, prior to or during the Mediation hearing, that a restriction or limit on their authority might reasonably be expected adversely to affect the mediation.”

When it comes to large insurance or resinsurance claims, however, “full authority” starts to become a more complicated concept, especially in multi-party claims. While an insurance representative present at mediation usually has the authority to settle a claim, the key issue is how much they can settle that claim for. Insurers will have already assessed the case and reserved an amount – covering payments, costs, interest, etc. – for how much they are willing to allocate before going into a mediation. A representative of an insurer then will likely only have the authority to settle to a certain figure. This reserved amount, however, may be a long way off the other side’s expectations and form an impasse.

The UK courts have been pushing parties to explore settlements outside of litigation too. There is a growing body of case law that has seen parties hit with adverse cost order for not exploring mediation.

“If the mediator suspects that a party is just going through the motions of mediation without genuine engagement he must try to keep the parties engaged,” Charles adds. “The great thing about mediation is that people do often genuinely see another side to their case and can really be surprised about the settlement opportunities that open up."

Limiting authority can tactical. On a basic level, insurers will want to keep the potential settlement number as low as possible and by sending along a representative with limited authority, it controls the parameters and sets the benchmark for negotiations. Limited authority can also be a way to influence the other side into questioning their case or frustrating the mediation process. After all, any number higher than the reserved figure is going to have to go back to the insurer for internal clearance procedures, which can drag on proceedings even longer.

Addressing authority from the outset, even before the mediation, is one strategy and a skilled mediator can offer a number of solutions beyond the focus on bottom line numbers (from either side). Entering mediation on the basis of de facto minimum and maximum caps may result in a process based on financial haggling rather than negotiation and resolution. The challenge is that, if the insurance company already has their own financial cut-off point, it may limit flexibility and undermine the process.

“Obviously no party and, particularly, no insurer goes into a mediation with a blank cheque but there does seem to be a growing tendency to go in, on occasions, with little room for manoeuvre in terms of settlement numbers and no ability to quickly get authority on a number outside the original level of authority,” Gordon claims.

Gordon suggests that preparation by the mediator is the key in regards to the level of authority. Insures will not normally disclose its reserved figure of course but focusing on – and exploring – the specifics of the case rather than bottom-line numbers, greater flexibility can be encouraged.

Put simply, make sure representatives have authority but do not get bogged down in how much they are authorised to settle for. The essence of mediation is that not everything is set in stone and this is just as applicable to authority; just because a representative says they have limited authority from an insurer does not mean they cannot change that. By working towards a compromise, the issue of increasing the level of authority can be addressed at a later stage in the mediation when all the key points have been aired.

“An effective mediator needs to make sure that those individuals coming to the hearing do have sensible levels of authority and a hotline to someone who can authorise changes if needed,” Gordon concludes.

This post was written by Antony Collins who is a freelance journalist. He can be contacted at ac@acollinsmedia.com

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Topics: Insurance, Mediation

Antony Collins

Written by Antony Collins