To conclude my series, How to Negotiate an Insurance Claim, these last two posts will concentrate on Mediation as a settlement tool. Insurance claims can, at times, be difficult to resolve for a number of reasons. There may be honest differences of opinion on liability or the amount of general damages. There may be more serious issues involved, including coverage, available policy limits, or the insurance company may actually question the extent of your injuries or damages. Whatever the issue, mediation is a fairly risk-free and low-cost next step.
Mediation is often referred to as “ADR,” or Alternative Dispute Resolution, because it serves as an alternative to simply filing a lawsuit and heading down the long, pricey road of litigation. If you’re new to the concepts, here’s a brief glossary of terms:
- Litigation: Litigation is the process between filing a lawsuit and the resolution of the lawsuit, whether it be settlement or a trial. Typically litigation involves a process of formal discovery, which is the exchange of information including providing deposition testimony. A trial can be in front of a jury, or before a Judge only.
- Arbitration: Arbitration is an alternative process to formal litigation. There are some arbitration forums, like the American Arbitration Association, which follow a process similar to the court system. However, an arbitration does not involve a jury. Arbitrations can either be binding or non-binding, by agreement of the parties, and are held before an arbitrator (or sometimes a panel of arbitrators) chosen by the parties. Many contracts have clauses which require disputes to be resolved by arbitration rather than through litigation, as they are typically much less expensive.
- Mediation: A classic definition would be “an intervention between disputing parties.” However, the process of mediation has evolved over the years so that a more accurate definition (in my opinion) is “A process of guided or facilitated negotiation or collaboration.” Under either definition, mediations are informal, non-binding meetings between parties of a dispute under the guidance of an impartial mediator, agreed to by the parties. (More thoughts on what mediation is here.)
The Judicial Mediation Model
Mediation, being an informal process, can take many forms. I will focus here on two general models of mediation. The first is what I will call the Judicial Model, which is quite similar to how a Judge would conduct a Settlement Conference during litigation, and also the most common form of mediation used in resolving insurance claims. In this model, the parties are kept separate for the most part while the mediator relays demands and offers back and forth in shuttle-diplomacy fashion. In this model, the mediator plays devil’s advocate with each side, essentially negotiating each side into where the mediator thinks the case should settle.
In the Judicial Model, it is not unusual for the parties to feel like they have lost control of the negotiation, because in a sense they have. However, in a situation where one or more parties have entrenched themselves, this might be a necessary approach.
Another downside to this model is that it typically creates what is called a zero-sum negotiation, where a gain by one party is a loss to the other. With an insurance claim, the issue is typically limited to money, and the parties already find themselves some distance apart. Obviously, for the Claimant to receive more, the Insurance Company must give more. To resolve such a claim, typically both sides must move from their position into the the space between; in a sense, both parties “lose” a bit.
I’ve heard many mediators tell parties that if they both leave unhappy, it was a fair settlement. There is a sense in which this is true, but it reveals another flaw in this model: It lends itself to settlements in which the parties perceptions never catch up with the negotiation. What I mean is this: You may think your claim is worth $50,000 at the least, and the Insurance Company thinks it is worth $30,000 at the most. A settlement at $40,000 may be the proper amount, but you may leave still believing you should have received $50K, and the Adjuster leaves feeling they overpaid the claim. Many mediators using the Judicial Model fail to see the value in negotiating perceptions, focusing only on the dollars.
The Facilitative Mediation Model
The Facilitative Model (also known as the Problem-Solving or Transformational Model) is what you typically find in neighborhood, workplace and small-claims mediation programs. In this model, the mediator sees his job as facilitating a problem-solving conversation between the parties. While occasionally it is beneficial to separate the parties for individual caucuses with the mediator, this process only works if the parties are in direct communication. The model is also called the Transformational model because a focus of the conversation is to transform the parties perception of what is a proper resolution.
One of the theories behind this Problem-Solving Model is that by helping each party see the problem (the Shared Goal) from the other party’s point of view. Theoretically, the more the Adjuster sees things from the Claimant’s point of view, the more apt he or she is to recommend a higher settlement amount, and vice-versa.
However, this model has it’s share of problems, too, as pointed out by John Wade in this article.
A Creative Approach
A good mediator should have more than one trick up his sleeve, so to speak. Often a blend of these different models is helpful in resolving Insurance claims. While an insurance claim is essentially a business issue where the Claimant and Adjuster should have no personal issues between them, it is important to realize that negotiating an insurance claim is still a conversation between two human beings.
If you find yourself mediating an insurance claim, watch the mediator for clues as to his strategy and mediation philosophy; it can be of great help in knowing how to respond to various aspects of the mediation process.
NEXT, some tips and tricks of mediating your claim.