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Bob’s client, a well-known insurance company, never thought it should provide coverage in the first place to an insured in a catastrophic personal injury case. Playing it safe, however, the insurer defended the case, and paid out several million dollars to the injured plaintiff in a settlement. But that was not the end of the story. Bob represented the insurer in its suit against the insured, seeking reimbursement for the multi-million dollar settlement amount and the considerable defense costs it incurred in the underlying action. After interminable delays and extensive motion practice, the parties figured it was better to try to resolve the dispute privately and confidentially in mediation. Bob performed admirably at the mediation that took place two weeks ago. After two days of back-and-forth wrangling, the insured agreed to pay $1.5 million to Bob’s client: not the full loaf that Bob’s client sought, but a solid settlement nonetheless. So why does Bob have a pounding headache? It is not because the insured failed to make the first payment of $750,000 under the settlement. That check came in on time, and Bob forthwith transmitted it to his happy client. Nor is it because the insured does not have the funds to pay the second and final installment of $750,000 under the settlement agreement; those funds are currently sitting in a bank account. But, unfortunately, it is not Bob’s bank account. The insured instead has thrown the money into an escrow account. It claims that, under the settlement agreement, it has the right to seek insurance coverage from an affiliate of Bob’s client. Not surprisingly, Bob’s client says no dice. The parties never discussed this issue during the mediation. During the drafting of the settlement papers, Bob and his client assumed that the to-be-signed mutual general release meant that the matter was over and done with. On the other hand, the insured assumed that it would have a second bite at the apple, and at least would have a shot at recovering some or all of the settlement amount that it was agreeing to pay to Bob’s client. To bring this matter to closure, Bob filed a motion to enforce the settlement agreement. He argued that the plain and unambiguous language of the release supported his position; and anyway, he argued, the parties during the mediation proceeding never discussed giving the insured a shot at seeking insurance coverage from the affiliate of Bob’s client. Bob’s adversary fired back, arguing that Bob was not allowed to refer to the mediation at all and that Bob was subject to sanctions for doing so. What started as a dispute over the settlement agreement has turned into an ugly attack on Bob’s integrity, and could leave him open to sanctions. The relevant mediation-confidentiality statute states that “[m]ediation communications . . . shall not be admissible as evidence in any action or proceeding including but not limited to a judicial . . . proceeding.” Can the court consider the fact that, as Bob accurately contends, the parties never discussed giving the insured another bite at the apple? Or should the court close its eyes to any reference to the statements and “nonstatements” that took place at the mediation? A recent Commerce Program case, Aetna Inc. v. Lexington Insurance Co., concerned facts similar to the facts in Bob’s case. There, Judge Albert Sheppard concluded that the lawyer in Bob’s shoes, in seeking to enforce a settlement agreement, properly referred to the facts that the parties during the mediation did not discuss whether the insured would retain the right to sue an affiliate of Bob’s client. Sheppard held as follows: “The fact of what was not discussed, in and of itself, evidences the facts that the parties did not intend to release [the affiliate], . . . The [mediation confidentiality] statute . . . do[es] not bar this court’s consideration of what facts or positions were not disclosed or negotiated.” Sheppard stated that “the court [could] consider communications related to the mediation in order to ascertain the parties’ intent with regard to the settlement agreement, [and that] the purpose of the Pennsylvania statute would not be defeated.” His basis: The purpose of confidentiality in mediation is arrive at a “just resolution of a civil dispute;” and, presumably, a dispute cannot be justly resolved if the court is not allowed to consider all of the evidence relating to the settlement of the dispute. Sheppard went even further, suggesting the parties are not entitled to rely on the confidentiality protections of the mediation-confidentiality statute any time there is a dispute regarding the meaning of a settlement agreement that they reached during the mediation. Assuming the court in Bob’s case follows Sheppard’s holding, Bob can go to sleep knowing that he did not do anything wrong referencing the mediation proceeding in his motion to enforce the settlement agreement. Although Bob’s current headache will go away, has he unwittingly opened up a Pandora’s box? Will the confidentiality so fundamental to mediation be compromised if parties in seeking to enforce settlement agreements can reveal mediation communications? Will adversaries in the future truly be able to arrive at a just resolution of their disputes if they know that mediation “confidentiality” does not really mean confidentiality? Indeed, if Bob prevails in his motion to enforce the settlement agreement, you can bet his adversary will appeal, arguing – among other things – that mediation confidentiality is sacrosanct, and that the parties will be frank and open during mediation proceedings only if they do not have to worry that their statements and conduct will be revealed to a court or other third parties, or used in any later proceedings. CHARLES F. FORER is a member in the Philadelphia office of Eckert Seamans Cherin & Mellott, where he is engaged in all types of alternative dispute resolution. He is a former co-chairman of the Philadelphia Bar Association’s alternative dispute resolution committee, and he is a frequent lecturer and writer on the use of ADR in a variety of settings. He can be reached at 215-851-8406 and by e-mail at [email protected].

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