Efficient and Practical Mediation of Reinsurance Disputes
Updated: May 8, 2018
The final presentation of the day was Panel Discussion: A Fresh Perspective on Mediation of Reinsurance Disputes, led by moderator, Jerry McElroy of Zelle LLP, and panelists, Jeff Kichaven of Kichaven Commercial Mediation, Patricia Taylor Fox of AIG, Michael Frantz of Munich Re, and Kristin Suga Heres, also of the Zelle firm. The panel used a fact pattern developed in the workshop earlier in the day, along with mock sessions to illustrate the elements of a successful mediation. While they may vary, the key elements are a pre-mediation call, written submissions and the mediation itself, including joint and private sessions.
Preliminary Call An initial phone call between the mediator and each lawyer is essential in order to review the case informally and discuss any issues counsel may not want to raise in a brief or during the mediation and, indeed, issues counsel may not want to discuss in front of his/her own client. The panel presented mock calls with counsel in which the lawyers raised concerns about the reasonableness of the opposing party’s positions and commented on the history between counsel and the parties.
Written Submissions Written submissions have become a necessary part of the mediation process. While it is up to the parties to determine the parameters of written submissions, a significant insight offered by the panel is that parties are often so intent on submitting confidential documents, that they are little more than motion papers with a few lines devoted to mediation issues. A useful alternative is for counsel to exchange these documents with the mediation section redacted or simply put the mediation comments in a short supplemental statement for the mediator only. This is the place to tell the mediator any concerns, including opinions regarding the opposing party and its counsel.
Mediation Sessions A mediation proceeding typically includes both a joint session and private sessions. Prior to the joint session, it is useful for the mediator to meet briefly with each side so the mediator can establish credibility with the participants and prepare them for the joint session and negotiations to follow. The joint session that follows ensures that all involved hear the parties’ respective positions, while also giving the principals a chance to put a face to the negotiations. In many cases, the principals do not otherwise meet. Done properly, this session sets a positive tone for the entire mediation and encourages compromise.
After the joint session, the parties meet with the mediator in a series of private sessions only. Private sessions, with the parties and their respective counsel, in separate rooms, are invaluable to the negotiating process. They offer the opportunity for candor and advocacy by the parties and mediator.
In the first mock private session, the mediator asked the cedent client and counsel for their thoughts on the joint session and whether the cedent would be willing to make a demand or would prefer that the mediator request an offer. They responded that they would prefer an offer first. The mediator asked what they expected from the reinsurer’s offer and why. Upon conferring with counsel, the client made a demand of 80% even though the cedent expected a “low ball” offer of 40% from the reinsurer. The cedent indicated to the mediator that a counteroffer would not be forthcoming if the reinsurer’s offer was unreasonable and that an offer under 40% would be unreasonable. The mediator suggested that the cedent at least consider the possibility of an offer under 40%.
In the mock private session with the reinsurer and its counsel, the reinsurer indicated any payment of the claim would include a steep discount, accounting for the bad faith portion of the settlement. The mediator advised that the cedent’s opening demand was 80%, characterizing it as reasonable and suggesting that a good faith offer should be made in response. The mediator encouraged the reinsurer to speak privately with counsel in connection with formulating a response, and they did. (It is perfectly acceptable to ask the mediator to leave at any time.) They advised the mediator that the reinsurer was willing to pay 20%, and while they may consider increasing the offer, they would not go to 40%.
Back in a private session with the cedent, the mediator reported the 20% offer and the cedent responded that there would be no counteroffer because a number in the middle, i.e., 60%, would not be acceptable. The mediator asked how they would like to proceed and suggested it might it be a good time for him to meet with the lawyers only.
With time pressure to wrap up, the panel members added some of their own thoughts on mediation and why it is not used very frequently to resolve reinsurance disputes. One explanation given was the familiarity of company representatives with one another based on prior dealings and settlements. In those cases, the representatives may reach out for a meeting or phone call, with authority, to attempt to negotiate outside a formal mediation process, avoiding the expense of a mediation. Company representatives sometimes achieve success through principal-to-principal meetings, especially where they both have an interest in working out the dispute directly.
Throughout the presentation, the panel highlighted some of the common obstacles in mediation and practical steps to avoid them, and ways to work through them when they do arise. From information gathering through pre-mediation phone calls, written submissions, joint and private sessions, it is critical to understand the players and their appetite for compromise, while managing their expectations regarding exposure and valuation of the case. Some cases can be worked out readily, while others become so intractable, due to any number of reasons (e.g., lawyers at odds, bad blood between clients, breakdown between lawyer and client), that assistance from an independent professional is the best answer.
Ms. Regan is of counsel at Prince Lobel Tye LLP. She can be reached at amregan@PrinceLobel.com.
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