Lawsuits involving disputes over disability, life, or health insurance rarely go to trial, and most are settled, often by mediation. Mediation is a frequently-used alternative dispute resolution mechanism in both ERISA claims as well as individual health, life, and disability insurance claims. Invariably, clients have questions when the subject of mediation is broached – What is mediation? How does it differ from other forms of dispute resolution? Should I mediate my insurance benefit claim?
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Mediation vs. Arbitration
We are often asked about the differences between mediation and arbitration, which are profound. In arbitration, the parties submit their dispute to a neutral decision maker whose findings are generally binding on the parties and unappealable. Arbitrators take the place of judges and juries; and arbitration can be viewed as hiring a private judge to resolve a dispute.
In contrast, a mediator is not deciding anything. When a party elects to pursue mediation, they are hiring a neutral who will work with the parties to help facilitate a resolution of a dispute. However, the mediator does not issue rulings or judgments, and merely makes suggestions and recommendations. A huge advantage of mediation is that since it is non-binding and can end in an impasse, the parties are free to continue to pursue a litigated outcome if the other side’s proposals are unacceptable.
Evaluative vs. Facilitative Mediation
There are two kinds of mediation – evaluative and facilitative. An evaluative mediation is where each side presents its case and settlement proposal to a mediator and the mediator assesses the parties’ positions and makes a settlement recommendation. While that approach can work, most parties prefer a facilitative mediation. In a facilitative mediation, the mediator meets separately with each party and carries offers back and forth between the parties. But a good mediator is more than a mere messenger. Good mediators help the parties understand the strengths and weaknesses of their cases and assist the parties in reaching a negotiated settlement that represents a reasonable compromise in each party’s position. It is often said that the hallmark of a good mediated settlement is that both sides are equally unhappy with the result.
Why Mediate an Insurance Claim?
Lawsuits are filed because one party believes they were legally wronged, and they seek vindication in court. Typical examples are personal injury cases, but someone who is denied disability benefits when they can no longer work, or denied a life insurance payment when a loved one dies unexpectedly, or even where a health insurer denies reimbursement for a costly medical service, will often file a lawsuit to seek redress for what the claimant believes is owed. When such benefits are denied, litigation is often a “zero-sum” proceeding where one party wins all and the other gets nothing. Hence, a mediation can avoid a potential calamitous result.
With disputes over disability benefits, or in the case of most benefit claims governed by the Employee Retirement Income Security Act (ERISA), the range of potential outcomes is even more discouraging. The late Ohio State University football coach Woody Hayes was once asked why his teams rarely used the forward pass. He responded that when a forward pass is thrown, three things can happen and two of them are bad. ERISA litigation is comparable. For example, in cases involving disability benefits, courts are generally powerless to award benefits payable after the date judgment is entered because the claimant needs to prove his or her disability (and also be alive) each month benefits are payable. Thus, unlike a loan where a stream of payments can be accelerated if a single payment is missed, successful disability benefit litigants still must worry about whether they continue to qualify for future payments. Also, because courts often “remand” ERISA benefit cases to the insurance company for reconsideration even after entering a finding that the insurer acted improperly or unlawfully, a favorable outcome in round one of the litigation does not guarantee that benefits will ultimately be secured.
What Are the Benefits of Mediation?
A case resolved through mediation takes away the risk inherent in all litigation and avoids the risks enumerated above that occur in litigation over disability or other ERISA-governed benefits. Morton Denlow, a retired federal magistrate judge who now works full-time as a mediator, has encapsulated the benefits of mediation into what he calls the “7 C’s,” which are:
- Client control over the outcome (rather than having a judge decide);
- Cost control – litigation can be very expensive and the costs can easily spiral out of control unless a negotiated settlement puts a stop to accrual of court costs;
- Certainty of outcome instead of the uncertainty of when a case will be resolved and how it will be decided. Litigation can take years, especially if there are appeals. Mediation may occur at any point in the litigation; and, if successful, avoids the uncertainties;
- Confidentiality – mediation is conducted in a confidential forum where neither party is allowed to utilize information shared by the other side. A confidential settlement may also avoid having to disclose private and confidential information about medical treatment or other private facts that will become publicly available if a trial takes place;
- Creativity – Mediation gives the parties the freedom to fashion an outcome that may not be achievable in court. For example, a settlement involving disability benefits may result in the payment of a substantial amount of future disability benefits that would remain in doubt even if the court enters a judgment in favor of the claimant;
- Continuing relationship – Mediation can also be used as a means of allowing for a continuing relationship between the parties. For example, a denial of reimbursement for a particular drug or medical treatment, if challenged and then mediated, can create a framework that would permit the service or treatment to be provided in the future without having to go through another claim process; and
- Closure – mediation puts an end to the dispute so the parties can move on with their lives or business without risk of further entanglement.
To that list, I would add an eighth “C” – Communication. One of the major frustrations of litigation, especially ERISA litigation where trials and even depositions are rare, clients rarely get to tell their story – the basis of their claim and how it has impacted their lives. Mediation provides a forum for the claimant to speak and share the important facts that have so dramatically impacted their lives. Mediation also empowers clients to have a more active participatory role in the outcome of the case.
How to Prepare for an Insurance Claim Mediation?
There is only one key thing that every party to a mediation needs to bring to the mediation session – an open mind and a willingness to listen to the other side. Mediation will fail if one side or the other comes to mediation with an inflexible bargaining position and refuses to negotiate in good faith. That does not mean that a party should come to mediation and accept an offer that is truly unacceptable just for the sake of reaching an agreement. But a party to a mediation should always be willing to listen patiently and recalibrate their expectations during the mediation session.
There is also one thing that every party to a mediation should leave at home – their emotions. That can be difficult, but a lawsuit is a business transaction and a party to a lawsuit should focus on their goals and needs rather than their wants. Also, what ultimately happens in a mediation is that offers typically increase during the mediation; and if an offer is declined, the risk of losing in court remains, and must be weighed against the likelihood of winning. Obviously, the more that is on the table, and the lower the level of certainty as to a successful outcome in court, the harder it is to say no. I ask my clients to conjure up two images during the mediation – the first image is one of stacks of dollar bills on a table piled high and representing the offer the other side has made. Once my clients have that image firmly in mind, I ask them to close their eyes and imagine a giant hand sweeping all that money off the table, leaving not a single dollar bill remaining. Those two images, and how the client reacts to each image, should guide how mediation is approached.
Concluding Thoughts About Mediation in Benefits Claims
Mediation is a valuable tool to help resolve difficult cases, but every case is unique, every client is different, and sizing up the odds of winning if the case is not settled varies in each instance. Not every case can or should be settled, but the prospect of a favorable settlement should not be disregarded when a potential alternative is no recovery whatsoever. Even if the mediation is not successful, no one leaves mediation without a better understanding of their case, warts and all, which may create an opportunity for settlement later on. A good settlement is always better than a bad verdict.
