Recently there has been a fair amount of activity by the insurance departments in New York, New Jersey and Connecticut regarding setting up mediation programs for Superstorm Sandy claims.  These programs typically require insurers to offer mediation to policyholders on certain claims, participate in the mediation in good faith, and pay all or part of the mediator’s fee.  New York was the first to implement this for Sandy, as you would expect because New Yorkers always think they are the best at everything (except for the 2004 baseball post-season).  For more on the New York mediation program for Sandy, see our Property Insurance Coverage Insights blog.  New Jersey’s Governor and Department of Banking and Insurance commissioner have issued a press release saying they intend to establish a mediation program, and Connecticut’s Insurance Department has also suggested that they will follow suit. 

What occurred to me, in light of this, and similar programs that were in place for Hurricane Katrina claims, is whether insurance companies, in their policies, should require all insureds to participate in a mediation as a precondition to filing suit on any claim (or any claim over a certain dollar amount, if you want to exclude small claims court disputes).  The idea would be to give the company an opportunity to resolve every significant dispute that is headed for litigation, before the costs and inconveniences of litigation commence.  Mandatory pre-suit mediation provisions are not uncommon in commercial contracts.  I would imagine that insurance departments would have a hard time not approving these provisions, particularly if insurers agreed to pay for most or all of the mediator’s fee, and the provision was otherwise fair and reasonable.  Surely companies would avoid some litigation if this was required. How much litigation they would avoid would be hard to predict, but insurance department mediation programs have obviously had some significant success.  (By merely suggesting this, I’m probably hurting my own interests as someone who is paid to defend insurance companies in lawsuits.)  So what are the downsides?  Some of these mandatory mediations would no doubt be a complete waste of a mediator’s fee and the company representative’s time.  It is also possible that insureds who have no real intention of filing suit will demand a mediation to try to obtain some more money when they are not owed anything.  But there should be a way to ferret that out in how you draft the mediation provision and in the company’s mediation positions.  Maybe the insured should have to pay something towards the cost of the mediation and/or be penalized for a mediation request that the mediator deems to be in bad faith.  Would such mandatory mediations even be necessary, given that a company can always ask for a mediation immediately after suit is filed?  The risk there is it might send the wrong message, suggesting that the company is concerned about the suit and perhaps willing to open its checkbook.  If mediation is mandatory before any suit is brought, the company avoids sending such a message by requesting mediation.  My idea might be worth a shot.

So now I imagine you’re thinking, why am I reading about this on an insurance class action blog?  Does this have anything to do with class actions?  Well, if implemented, this would require every  would-be named plaintiff who wants to bring a putative class action to go through a mediation first.  Named plaintiffs fall into a variety of camps.  Some are dead set on pursuing a class action and are fully controlled by their counsel, in which case a pre-suit mediation is almost always going to be a waste of time.  But others are just looking to make a little money for themselves, or reluctantly signed up with class counsel not really knowing what they are getting themselves into, and others actually have no idea what a class action is when their counsel brings suit.  Other named plaintiffs agreed to sign onto a suit simply because they were upset with how they were treated by the company, and what they really want is for the company to make things right for them individually.  A simple apology for a mistake might even go a long way for them.  In defending a class action, it is usually quite some time into the litigation before you ever have any chance to talk to the named plaintiff, and the first opportunity comes in a formal deposition.  A mandatory pre-suit mediation would at least give the company a chance to talk directly to the named plaintiff, find out what their story is, and make them an offer, on an individual basis, that they will have a hard time refusing.  That seems likely to eliminate some class actions from being brought.  Of course there may be some danger of people posturing in a mediation about bringing a class action that they have no real intention of bringing.  Companies will not want to let plaintiffs’ lawyers make a cottage industry of threatening to bring phantom class actions that would never be brought.  But there are other ways of dealing with that. 

If any of you know of this concept being tried and how it worked out, please drop me an e-mail or give me a call.