Professional liability insurance for architects and engineers.

New Rules for Court-Ordered Mediations

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By on Jun 22, 2012 in All Topics, Claims, Newsletters |

By Mark E. Jackson and Erin L. Johnson.  This article originally appeared in the June 2012 publication of Florida Engineering Society Journal.

For years, insurance companies have encouraged mediation as a way to settle disputes between design professionals and their clients. In fact, most insurance companies offer financial incentive to clients who choose mediation. Mediation is a form of Alternative Dispute Resolution (ADR) in which a neutral third-party mediator helps the parties reach an agreement in their dispute. Over 75% of claims against design professionals are settled in negotiations or mediations. Mediations offer many benefits and should be considered as an alternative to protracted litigation.

Successful mediations can reduce both claim and defense costs. When mediations lead to a settlement they always take less time than going to trial and can therefore decrease the amount of legal fees. They also require less of the design firm’s time and resources. Mediations also have the potential to lower claim costs. During the mediation process, the parties may agree on a more creative solution, one that a judge or jury could not legally require such as free design services to correct the area of dispute.

Mediations are considered favorable because the proceedings and settlements are confidential. This confidentiality allows parties to openly and safely discuss resolution of cases rather than battling issues out in front of a judge and jury. All settlements are confidential, so your professional reputation is protected from public opinion when cases are mediated. Lastly, mediations avoid the unpredictability of litigation. Rather than having a judge or jury deliver a resolution, the parties involved reach an agreement that is mutually acceptable. When parties decide to enter mediation, they are typically ready to work towards an agreeable resolution. Mediations may be the best option for preserving a relationship with the parties involved.

Less than 5% of all claims against design professionals end up going to trial. When a lawsuit is filed against a design professional, the courts typically require mediation between the two parties prior to a trial. These “court-ordered” mediations must now adhere to the new rule. In November 2011, the Florida Supreme Court amended the Florida Rules of Civil Procedure 1.720 (Mediation Procedures) regarding how court-ordered mediations are conducted. As of January 1, 2012, Florida’s Rules of Civil Procedure regarding mediations now use the following language to define who must attend court-ordered mediations:

  1. The party or a party representative having full authority to settle without further consultation; and
  2. The party’s counsel of record, if any; and
  3. A representative of the insurance carrier for any insured party who is not such carriers’ outside counsel and who has full authority to settle in an amount up to the amount of the plaintiff’s last demand or policy limits, whichever is less, without further consultation.

The amendment changed this section by including an “and” between each section. This minor change now calls for three people to attend the mediation on behalf of the design firm. In addition to outlining who must appear at the mediation, the new requirement also attempts to define a “Party Representative Having Full Authority to Settle” as someone who has the legal capacity to execute a binding settlement agreement on behalf of the party. It also requires attendance of the final decision maker from the insurance company; someone who is not required to make a telephone call during the proceedings to finalize the settlement negotiations.

Prior to the changes, there was a growing frustration from the courts that parties were not sending representatives that were necessary to settle a case. The goal of mediation is to come to a mutual resolution and avoid going to trial. Not having the right individuals present is a waste of both time and money and defeats the purpose of the proceedings. A primary objective of the amendment is to make the process more efficient. The new procedure is designed to reduce or eliminate the practice of sending an insurance adjuster or representative with little or no authority to make a final decision on the settlement.

The practice of sending an attorney to the mediation and having them call the insurance company for further guidance, even under the prior rule, was a violation. However, enforcement of the rule was problematic due to the strict confidentiality requirements. The new rule has given the courts the ability to enforce the appearance requirement without violating the confidentiality afforded under mediation proceedings.

The new changes now require that a pleading, called a Certificate of Authority, be filed at least 10 days prior to the mediation. The Certificate of Authority is designed to make enforcement of the appearance rules easier. The pleading must state who will be attending and confirm that they have the final authority to settle the claim. The amendments may make it necessary for claims managers or supervisors to physically attend the session to comply with the “final decision maker” requirement.

For court-ordered mediations, the changes to Rule 1.720 now require a more formal process for identifying party representatives and representatives of insurance carriers, placing the burden on the attorneys to identify and disclose those individuals to the court in advance of the proceedings. The “final decision maker” requirement creates some difficulty for insurance companies. The new rule states that the person in attendance must have full authority to settle in an amount up to the last demand of the plaintiff or the policy limits, whichever is less, without having to contact anybody else. Most likely, insurance companies will need to send someone from their home office to attend mediations. Identifying and coordinating the proper individuals may cause scheduling delays. There will also be an increased cost for out of state insurance companies as a result of the new rule.

For the principals of design firms, the insurance defense attorney needs to discuss with the plaintiff’s attorney the possibility of excusing an insured client’s physical appearance when it is clear that the insured has no decisions to make at the mediation. When there are no issues relating to coverage, punitive damages, self-insured retention or possibility of judgments in excess of policy limits, having the client present during the proceedings is unnecessary, and the plaintiff’s attorney should be willing to excuse the requirement.

These new rules only apply to court-ordered mediations. Mediations that are required in your contracts as a first step prior to arbitration or litigation will not be affected by this new rule. The hope is that court-ordered mediations will be more successful in reaching a settlement by having the right people in attendance. These changes should help design professionals avoid a lengthy and costly litigation.