Editor's Note: John Gregory Service is an attorney and Florida Supreme Court Certified Circuit and County Court mediator. He has been involved in mediation and arbitration as alternative methods of dispute resolution for more than 20 years.

Insurance companies are businesses and, as such, seek to operate so that they are able to make a profit. So too are oil companies, for example. In the latter case, the company provides a product essential to the functioning of a modern industrial economy, whereas the former also provides something essential to the modern economy.

Unfortunately, many businesses and individuals may not recognize what is provided by insurers. Neither of these industries is generally held in very high esteem by the public, although without them the public and business would find day-to-day life much more challenging. Just think about trying to deliver products in a horse-drawn wagon, for instance.

The business of the oil company is to provide energy; the business of the insurance company is in general to provide a degree of indemnity from financial loss due to risks involved in business or life generally. There are a large number of activities in business and life that expose companies or individuals to risk of financial loss in the situation where certain events may occur. Most possible losses that would arguably result in financial loss to the insured because of a certain occurrence may be insured against, although in a given situation finding a company to take on the risk may require some time.

Without the opportunity to shift the financial loss that may result from the possible occurrence of those events, a large number of activities may very well prove nearly impossible. Of course, virtually no one would purchase insurance if a given event causing potential loss was perfectly predictable. Thus, often the potential risk of financial loss is shifted to an insurer. There are, of course, some situations where an individual or a business may be willing to self-insure. A person driving an older vehicle might believe the cost of collision insurance exceeds a potential loss if the auto is damaged in an accident. Therefore, the driver may need to make a claim against the third party causing the damage, depending on the situation.

Reality v. Perception

Have you read anything that you were unaware of? Probably not. So are we simply just dancing around issues? What about the title of this piece? We will get to that shortly, but for now we should consider a truism—how others see us and how we see ourselves are sometimes rather different. On occasion, it is beneficial to take a long look in the mirror. I think this may well apply to the insurance industry.

That view of others may not necessarily be deserved but may be in part because of a lack of understanding of the business. In conducting business daily and perhaps especially in the matter of claims handling, consider how things may appear to the other side. The author has seen many situations in which an insurance company representative attempts to explain to a claimant why a loss is not covered under the policy. As an example, in a homeowner's claim for water damage how many readers have run into the situation where a sudden accidental occurrence like a burst water pipe must be distinguished from water damage apparently caused by prolonged deterioration?

Often the insured initially simply fails to recognize the difference. Remember that a large number of individuals may not have ever really looked at the policy they purchased. Instead, they simply believed they were covered for most losses. The policy itself may provide for certain exclusions and it may well be very clear in the policy. So when the obvious is pointed out, however delicately, the insured may nevertheless feel a tinge of 'why did I buy this policy?'

Thoughtful Explanations Matter

A policy may require some action on the part of the insured to minimize further damage to property. Sometimes the matter (and how to ensure compliance on the part of the insured) may be explained. In other cases, the insured leaves frustrated, sparking an end to the business relationship. An understanding adjuster can take the time and a thoughtful approach in fully explaining the insurer's position—and that the policy is a contract. While the insured may still not be particularly happy at this point, he or she may at least accept the explanation and possibly continue the business relationship. At least the adjuster will have tried to salve the wound, so to speak.

The business of settling claims be it by an adjuster or attorney, in a situation where the claim has been made but there is not any legal action, or where a lawsuit has been filed, is never a particularly easy process. There are the matters of adequately investigating the loss, determining if coverage applies, examining cause of the loss, considering the extent of the loss to name a few. The extent of loss is not always viewed the same by the parties. For example in a property damage situation suppose the insured's auto or truck was good dependable transportation but the vehicle was reasonably old. What is cost to repair versus total loss and compensation? That may not be the easiest matter for one to explain to a claimant. Many readers have been down that road I am sure. Actual cash value is not always something the claimant wants to be told, but depending on the company and its policies sometimes there is room to negotiate. This may actually be beneficial in that it may preserve the business relationship with the insured and also give them a better opinion of the industry.

Alternative Dispute Resolution

At this point, you've been very patient with a somewhat long lead-in to the real issue addressed here: using mediation to settle claims. It involves discussion, negotiation, and diplomacy. Similar to negotiations in other areas, such as labor disputes, usually the sides—if they reach an agreement—will meet somewhere in the middle so to speak. What is being asked by a claimant, like selling a used car, is often more than he or she is willing to accept. The same can be said of settlement offers. Again, this is not a novel idea but is rather one that needs to be emphasized. Give and take, discuss, negotiate, and hopefully reach an agreement that all parties may accept. Does it always work to this stage? No.

In recent years especially, as the volume of litigated claims has increased, alternative dispute resolution (ADR) has become more frequently used. One method of this, mediation, has become used much more often in attempting to settle disputes. It may be used with a claim or where a lawsuit has been filed. In all likelihood, you are familiar with the process generally, as it is often used in disputed claims before and during litigation.

Depending upon the jurisdiction a number of courts will refer matters to mediation prior to setting trials. This presents an opportunity to reduce the number of cases on a court docket. It is a process much like negotiation, give and take, but somewhat different in that now there is an impartial third party involved in a concerted effort to help the parties reach an amicable settlement. This of course is vastly different from the tool of arbitration in which a decision is made by the impartial third party.

In mediation, the third party attempts to bring the parties together, making suggestions of possible settlements, pointing out possible strong and weak arguments and thus hopefully getting the parties to look at possibilities perhaps not previously considered. I have often likened the role of mediator to a catalyst in a chemical reaction, the mediator hopefully helping to bring about an agreement to put the dispute to rest.

Value in the Process

Indeed, with this tool of settlement negotiation, mediation, there are a number of matters to reflect on. (Now the reader connects with the title of this piece. Patience rewarded.) Is this a technique that will always cause a settlement? Certainly not. There is no one manner of settling disputes. I recall a situation where two parties disputed the use of a slogan for business. Rather than litigate forever, the two sides sought to settle the matter by having an arm-wrestling contest between company leaders. The outcome was that the matter settled peacefully with use of the slogan allowed. I carried a copy of that news article to many mediations to illustrate that mediation is one of many ways to settle disputes. But the process of mediation is a valuable tool, as many readers will accept. If a dispute which goes to mediation settles, fine, the parties normally believe that the process has worked, been of value, and the desired end of the dispute has been reached. If there is no settlement, then once in a while the parties consider that the entire process was simply a waste of valuable time.

In cases where mediation does not end with a settlement agreement, there often is still value to having gone through the process. With parties facing each other frequently they will leave the conference at least with a better perspective of how the other side views issues, and that the opposite party is not simply some kind of irresponsible person. By participating both sides will often see that the other is serious and acting in good faith but simply has a different view on issues.

This may even result in later discussions. So even when there is no settlement value from going through the effort on occasion is reward. The process is of course confidential and what is discussed stays in the room with the parties. Thus participants may feel at ease speaking freely.

Mediation as a process is also valuable because if a settlement is reached it is an agreement of the parties, not something being forced upon them. Arbitration and of course litigation are different. The reaching of an agreement is a good manner in which to settle. Of course as most readers know even when there is a settlement many times neither party is totally satisfied, but that is not such a bad thing. I rarely have seen both parties leave a mediation conference in which a settlement has been reached totally satisfied. They generally, however, see the value in reaching a settlement and putting an end to the matter and moving on.

The parties should also understand that with a settlement there is certainty. Where no settlement is reached a matter may move into litigation, or if in court previously, continue. Perhaps it is not the best way to phrase things, but in court it is a little like shooting dice, one cannot guarantee results. Outcomes may indeed be predicted with some degree of likelihood, but especially where a jury is involved nothing is done until a verdict is given, and sometimes not even then should it be appealed.

So, the purpose in large measure of this relatively general article is to encourage consideration of mediation as a tool useful in attempting to settle disputes. Even if a settlement agreement is not reached, consider that valuable views on the matter from the perspective of all parties may have been obtained. This may be of use in further decisions.

Special Reports /

Settling Claims Disputes: Mediation and Other Matters

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