by Katherine L. Billingham and Peter Scarpato

In an era of increasingly frequent, costly and uncertain litigations and arbitrations in the insurance and reinsurance industry, mediation offers a relatively inexpensive way for parties to directly control the process of resolving their disputes and to reach commercially reasonable solutions that serve their commercial interests.

The number of legal disputes resolved by trial, and by derivation, arbitration, has declined steadily over the past 30 years. In 2002 only approximately 2% of lawsuits were resolved by trial. Meanwhile, the use of mediation has grown exponentially.  Nearly 90% of Fortune 500 companies now use mediation.  Mediation typically enjoys a settlement rate from 85-90%.

Mediation is facilitated negotiation. Usually, even before the actual mediation session is scheduled, a mediator will hold an initial telephone conference with the parties and their counsel to gain a general understanding of the dispute, set a timetable for any necessary, informal document exchange and the filing of mediation statements and have private, pre-mediation calls with each side to resolve any last minute questions and to ascertain the parties’ interest in settlement.

At the actual mediation session, the mediator will begin with a joint session to explain the process, verify that the decision-makers are present, and will then hear the relative positions from each party.  Thereafter, the mediator will usually meet with each party individually and shuttle between parties until an agreement has been reached.  The mediator will share only information that a party authorizes.  The mediator’s principal mission is to enhance communication, clarify issues and identify interests to  assist the parties in developing options to achieve settlement.

Benefits of Mediation

Persistence is not a sign of weakness: In litigation or arbitration, especially just before a final hearing, lawyers will negotiate unsuccessfully, and will then resume the arbitration/litigation.  To go back and try again is often viewed as a sign of weakness so lawyers are reluctant to instigate new talks.  Parties can also dig themselves into such a positional hole that they would lose face and appear weak if they tried to settle.  In mediation, however, the mediator is gently persistent and encouraging, working to develop trust with each party and define areas of agreement.  Being relentless and optimistic, even while at an impasse, is the gift of a skilled mediator, and any sense of weakness is out of play.  To the skilled mediator, the true mediation begins when the parties reach impasse.  S/he is expecting it, is prepared for it and has prepared the parties for how to deal with it.

Parties educating parties: In mediation the parties take an active role in explaining their positions and do so directly to the other party without the filters of their attorneys.  These candid exchanges often lead to enlightened perception of the issues and also provide each side with a better understanding of the underpinnings of the problems, which can enhance a vetting of solutions.  A good mediator will ask each party to suspend judgment while the other is speaking, and to observe the “4 Rs,” that is, to be reasonable, realistic, respectful and responsive.  The less defensive the other party feels, the more comfortable they will be in presenting a fair recitation of their perception of the matter.

Outlet for moral indignation: Bitter lawsuits aren’t brought about because of substantive issues but usually because two people with power have gotten mad . People tend to assume that the world will sympathize with a wrong they have suffered, especially if they feel abused, and that they will be compensated in a big way.  Some folks just need their day in court and are not open to settlement.  Allowing a party to air such matters before a mediator with an empathetic ear provides an outlet for such emotions and once accomplished, opens the door to productive negotiations.

Client control over negotiations: Sometimes a party is more open to settlement while the lawyer prefers to press on with the case.  A mediator ensures that the party not only has a voice in the negotiations, but that the party has the final say in whether a settlement should be negotiated and on what terms.  Because parties often have a long history with and tremendous faith in their lawyers, a good mediator is careful to recognize the value of the lawyer’s participation.

Decision-makers focus on the case: Business people are busy with business. Mediation requires the participation of the decision-makers with authority to settle. Mediation directs the decision-makers to focus on the case, come up to speed as necessary, and requires the undivided attention of those folks.  The mediator is a “guest at their dispute” – that is, while using his/her best process skills to facilitate a candid discussion, the mediator ensures that the principals take significant responsibility for the ultimate settlement decision.

Dimensions of the Mediator

Focus on areas of agreement: Posturing is the default strategy taught in law school.  During negotiations, lawyers will tend to exhort the strengths of the client’s case, usually for the benefit of the client.  This leaves little room for a frank discussion about the weaknesses of one’s case.  A mediator can bypass posturing and guide the parties to more meaningful progress in negotiations. S/he might begin by moving the parties to settle some relatively insignificant issue, building settlement momentum between them.

Identify interests and discreet impediments: Mediators are trained to listen carefully to a party and gain an understanding of what it is that the party really cares about in settling or what impediments might exist.  (e.g. Is a merger in the works?  Is someone on the verge of bankruptcy?)  Typically in the first caucus, the mediator listens 80% of the time and speaks 20% of the time to ensure that s/he gets as much information as possible – information needed later to effect a settlement.  Often interests will emerge in confidence that were not disclosed previously or of which the attorney was not even aware.  Mediators can and will assist in folding those interests into a workable agreement and exploring ways to overcome impediments.

Assist in developing a more realistic analysis: It is always helpful to have an independent and objective person hear a party’s version of the issues.  More often than not, a party will tend to focus only on the strengths of his case and will discount the weaknesses.  A mediator can assist in developing a more realistic analysis and the likelihood of success.

Assist in exploring options without bidding against self: The mediator will explore various options without disclosing them to the other side and will assess the likelihood of success of each proposal before any is shared with the other side.  In this way, parties can explore options without feeling as though they are bidding against themselves.  A mediator can hold an offer as a condition to the other side also improving its offer, a useful tool that is not available to direct negotiators.  The goal in these critical discussions is to develop options that “let the other side have it your way,” that is, to develop a proposal that a party can feel comfortable making that has a reasonable chance of being accepted.

Assist in reassessment without losing client confidence in the attorney: Clients often retain the attorney whom they perceive will fight the most vigorously.  This leaves the attorney in the position of reluctance to express less than full confidence in the merits of the case.  A mediator can help bring about a more realistic assessment without undermining the client’s confidence in the attorney.

Mediation enjoys many benefits over arbitration and litigation.  In mediation, the parties retain control and tailor their own solution, with the benefit of preserving business relationships and saving significant time and resources.  Rather than a win/lose, mediation is a win/win.