On MEDIATION
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Zela G. Claiborne
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This column continues the list of tips for successful mediation advocacy that first appeared in the ABTL Report of November '98.
Cooperative Tone
It would seem obvious that, in the context of a voluntary settlement negotiation, it is unproductive to insult the opposing party. Calling opponents "liars" or "thugs" is seldom conducive to prompt resolution. Although lawyers sometimes hurl insults-perhaps to impress their clients-it is far more effective to focus on making a forceful presentation of the facts and the law. Impress the decision-makers on the other side with their litigation risks and with the strengths of your client's case. Insults only arouse anger and may eclipse productive negotiation.
Insurance Issues
Many complex cases involve insurance issues. If you represent an insured party, be sure that the carrier's representative attends the mediation and is not just on telephone standby. If the claims person is not present, the other side may assume that you, your clients, and the carrier are not serious about settlement. Problems also may arise if the carrier's representative is not at the mediation to hear the presentations of the other parties and, therefore, cannot or will not change positions as strong arguments are made and new facts are outlined. When the carrier's representative attends, it is possible to reevaluate the case as the mediation progresses and, perhaps, change positions on the dollar amount for settlement. As a mediator, I want all decision makers to be present and, when they are not, may ask the parties to reconvene at a later date when everyone can attend.
Confidential Statements
Be open with your mediator. Given the rules on discovery, it is practically impossible to keep a "smoking gun" hidden until trial. If you have information or documents you think the other side is unaware of, it may be a good idea to use the material to advance settlement. Sometimes, parties may want to give the mediator information in caucus that they do not want repeated to the other side. A good mediator will be careful to protect confidentiality, but may be assisted by the disclosure nonetheless.
Preparation of Settlement Agreement
No matter how tired you are at the end of the mediation, work with all counsel to be sure that the key terms of the settlement are outlined in writing and signed by the parties and their attorneys before anyone leaves. Be sure that this outline agreement specifically states who will release whom and for what. If the settlement includes a confidentiality agreement, mention it and agree about who will draft that provision and the rest of the final agreement by a specific date. That executed outline agreement will be legally enforceable and should prevent the settlement from falling apart later because of a disagreement over terms.
Resist the impulse to take a laptop to the mediation to prepare a detailed, polished settlement agreement. After a long day of negotiation, often late at night, every lawyer in the room will want to make changes. The revisions will be endless. The process will be far more efficient if one lawyer agrees to prepare the final agreement later and circulate it for changes and final approval by all counsel.
Selecting a Mediator
There is a debate about whether it is important to choose a mediator with subject matter expertise or simply someone with good mediation or "process" skills. While the ideal mediator would have both, it is important, especially in a large and complex case, to work with someone who has expertise in the substantive area at issue.
For example, in a construction case, a mediator with a construction background will understand the construction process generally, including the relationship of the parties involved in the project and the technical terms. He or she will understand what schematics are, what roles the architect and the contractor play on a project, how RFIs and COs are handled, and so forth. Such a mediator also will understand indemnity and insurance issues and a wide range of other specialized matters. Working with an experienced construction mediator will save time and prevent lengthy discussion of peripheral issues. Even more important, this mediator can provide you and your clients with the insights and evaluation of someone experienced in the field.
Counsel's skill in using the mediation process can have an enormous influence on whether a complex case will settle and on whether the settlement will be favorable to the client.
Ms. Claiborne is a mediator and arbitrator on the National Roster of the American Arbitration Association.
E-mail: zclaiborne-med-arb@lmi.net
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On INSURANCE
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Mary E. McCutcheon
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As companies continue to experience increasingly serious employment-related claims, insurers continue to draft increasingly onerous "employment practices exclusions." A careful review of these exclusions demonstrates, however, that they are not as ironclad as carriers would have you believe. The policyholder's attorney can exploit loopholes in these exclusions which might raise at least the potential for coverage and thus creates a duty to defend.
As always, the search for coverage begins with a painstaking review of the policy language. For example, some older exclusions refer only to claims arising out of the hiring and termination of an employee. In a case where an employee alleges a pattern of wrongful conduct over a period of time, some of that conduct may be covered under the policy's personal injury coverage (e.g., claims for defamation and invasion of privacy) but not related to the employee's termination.
As another example, most commercial general liability policies contain four coverage parts-bodily injury, property damage, personal injury and advertising injury liability. One insurer has issued an extensive employment practices exclusion, encompassing nearly every conceivable injury to a past, current or future employee. The exclusion, however, explicitly applies to "bodily injury, personal injury or property damage" suffered by an employee. So, it does not extend to any advertising injury committed against an employee.
Now, you might assume that an employer cannot commit advertising injury against an employee. Several advertising injury offenses, however, simply are personal injury offenses committed "in the course of" the insured's advertising activities. Depending on the policy's definition of "advertising injury" (or lack thereof), potentially defamatory statements about employees made in press releases, sales meetings or communications to customers may in fact constitute covered "advertising injury."
In the past, employers argued that post-termination defamation did not fall within the scope of an employment practices exclusion because it was committed against someone who was no longer an employee. California courts eliminated that argument in Loyola Marymount University v. Hartford Accident and Indemnity Co. (1990) 219 Cal.App.3d 1217, 1223. The Loyola court found that an exclusion for personal injury "directly or indirectly related to the employment" of an individual encompassed post-employment defamation. The Loyola court explained that the exclusionary language was not limited to personal injury "committed during the employment." Rather, it covered all "personal injuries" "alleged or potentially at issue in the [employees'] actions, because all of them arise from or derive from, and hence are Ôrelated to,' [the former employees'] employment and termination." See also Frank and Freedus v. Allstate Ins. Co. (1996) 45 Cal.App.4th 461, 471 (post-employment defamation is "employment-related").
This argument, however, was revived by two federal cases, which noted that injuries to current or former employees might not necessarily arise out of the employment context. In HS Services, Inc. v. Nationalwide Mutual Ins. Co. (9th Cir. 1997) 109 F.3d 642, 646, the court found that defamatory statements concerning a former employee were not "clearly employment-related" and therefore not subject to the employment practices exclusions contained in that policy. The former employee (Cade) had started a business which competed with his former employer (Cade-Grayson) and was telling Cade-Grayson's vendors that Cade-Grayson was experiencing financial difficulties. Cade-Grayson instructed its sales managers to respond to inquiries regarding the company's financial status by stating, among other things, that Cade had been terminated by Cade-Grayson for acts involving dishonesty. Cade subsequently amended his pending wrongful termination claim to include a claim for defamation. In the ensuing coverage litigation, the court ruled:
The remarks related directly to the competition between Cade and Cade-Grayson in the marketplace and the latter's attempt to protect itself against the remarks made by Cade, not as an ex-employee, but as a present competitor; that was their context. While it may be literally true that the remarks "related" to Cade's employment, that relationship was too indirect and attenuated to qualify under the exclusion.
A second federal case held that an employee's claims of false arrest and imprisonment did not fall within the "catch-all" phrase of "or other employment-related practices, polices, acts or omissions" of an insurer's employment-related practices exclusion. Zurich Ins. Co. v. Smart & Final Inc. (C.D. Cal. 1998) 996 F.Supp. 979, 988. These two cases demonstrate that the policyholder's attorney must scrutinize the complaint, as well as other relevant facts and allegations uncovered through discovery or investigation, for any claim arguably outside of the employment context.
Finally, primary commercial general liability policies are not the only sources of coverage for employment practices claims. The provisions of excess/umbrella policies are not necessarily identical to those of the primary policy. There may be coverage for employment-related torts in an upper layer of coverage even if not available in the primary layer. And directors and officers liability policies often provide at least some limited coverage for employment practices claims if the company's directors and officers are sued as well.
As I write this article, underwriters are probably drafting new exclusions to close these and other possible loopholes in employment practices exclusions. Nevertheless, policyholders' attorneys who carefully study the policy and the employee's claims may yet find new loopholes for the policyholder to squeeze through.
Ms. McCutcheon is a partner in the firm of Farella, Braun & Martel LLP.
E-mail: mccutchm@fbm.com
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