As a full-time mediator for the past decade, I have come to learn that trust is a critical element in any successful negotiation. However, in an adversarial negotiation, trust is a relative thing. You may never come to fully trust your adversary, but that doesn’t mean parties can’t mutually engage in a good faith negotiation process—a simple and honest approach that is often derailed by parties looking to gain an advantage. I have seen many good faith negotiations sabotaged by parties using a variety of bad faith negotiation tactics, many of which are repeated all too often and can ultimately prevent a settlement.
What are those tactics and what can be done to ameliorate the situation?
Prior to the mediation process, there has been some discussion with respect to demands and/or offers. Good faith requires that the pre-mediation demand/offer not be raised or lowered on the day of the mediation. As basic as this may sound, I have witnessed previously made demands or offers changed without justification during the joint session of the mediation process. This is bad faith, breeds distrust and may terminate the mediation. Very simply, you cannot be a moving target at the inception of, or during, the mediation process. If you make a demand or offer, you are expected to stick with it.
There are times, however, where there is a legitimate basis to raise or lower a demand:
• The court may have rendered a decision on a dispositive motion;
• A decision on the admissibility of expert testimony after a Frye-Daubert hearing; or granted a spoliation or preclusion motion;
• There may be newly discovered evidence or witnesses;
• A claim or defense that was not previously considered comes to fore;
• There are new factors that affect how damages are calculated;
• All reasons that form a good faith basis to alter a demand/offer
The rule is to communicate any demands and/or offers and let your adversary know well in advance of the mediation. If a change in circumstance affects your demand or offer, your adversary needs time to consider whether it will affect their evaluation of the case.
If a demand or offer is made prior to the day of the mediation process and it is a “non-starter,” good faith requires you to let the other side know in advance. All too often, after the joint session of the mediation process, a party will refuse to negotiate until the demand is lowered or the offer is raised. The request that the mediator “get a real number” creates distrust and is often a total waste of time. If your position is that a demand or offer is a non-starter, let your adversary know in advance of the mediation.
There are settlement terms that are reasonable and to be expected.
Good faith requires that if there are settlement terms that the other side may not anticipate they should be discussed up front. A good practice as a mediator is to address this issue early on with both parties. Why? Quite simply, parties are often focused on reaching a monetary settlement first, and do not disclose special conditions that may attach. There is nothing worse than reaching an agreement on an amount of money to be paid, only to find out that a significant settlement condition has been concealed. Some examples of these conditions include:
• A substantial liquidated damages clause;
• Payment to be made over a protracted period of time;
• The settlement being conditioned on a resolution which encompasses other potential claims;
• A condition of payment of attorney’s fees to a third party;
• A requirement that a percentage of a settlement in a catastrophic injury case be placed in a structure;
• An overly broad confidentiality/non-disparagement clause;
• A hold harmless/indemnification agreement
Any such conditions should be discussed at the same time as the monetary negotiation. Certain conditions may impact on what a party is willing to pay or accept. To disclose in good faith creates trust, to conceal may prevent a settlement.
Disclosure of Insurance Coverage/Disclaimer/Consent
During the course of discovery, a court will issue an order directing the disclosure of all insurance coverage and available limits by the defendant. Good faith requires that all coverage, both primary and excess, be disclosed in advance of the mediation. If there is a self-insured retention (SIR) that must be exceeded before coverage comes into play—this should also be disclosed. Coverage limits and whether there is a SIR often directly affects the demand that is made by the plaintiff.
If the defendant has a policy of insurance, but there is an issue as to the availability of coverage due to a disclaimer, or if a defense is being provided with a reservation of rights, good faith requires that this be disclosed prior to the mediation. If a declaratory judgment action has been commenced based on a disclaimer, this should also be disclosed. All too often declaratory judgment actions are commenced on the eve of the mediation. It is an unacceptable tactic routinely used to diminish the plaintiff’s negotiating position and can create very serious ethical issues.
Frequently, there is the disclosure of the primary policy limits prior to the mediation but the existence of excess coverage is disclosed for the first time at the mediation. Again, excess coverage limits may significantly affect the demand made by the plaintiff and must be disclosed in advance. The identity of the excess insurers should also be disclosed so the plaintiff knows who he or she will potentially be negotiating with. Good practice on the part of a plaintiff’s attorney is to ensure that they have all of the foregoing information in advance of the mediation. If there is a representation that there is only primary coverage, plaintiff’s counsel should obtain an affidavit of “no-excess.”
A separate issue is that of eroding policy limits. Coverage may be eroded by counsel fees or by other claims that have been paid out during the same policy period. This is common in professional liability, employment, and construction policies, among others. Good faith requires that this be disclosed in advance of the mediation.
In a recent case I mediated, it was represented during the joint session that there was $5 million in available coverage. In the first break out session it was disclosed that the policy had eroded to $3.5 million. In another, it was specifically represented at the joint session that the policy of insurance had no erosion provision. In fact, the policy did have such a provision and the available coverage had been substantially reduced, triggering an excess layer of coverage with a different insurer. The failure to disclose the foregoing—if one has knowledge of the existence of the additional coverage—is not good faith and, again, raises serious ethical issues.
Finally, if a policy requires the consent of the insured to settle, and consent is an issue, good faith requires that this be disclosed well in advance of the mediation. It is understandable that the purpose of the mediation may often be to obtain the insured’s consent, but in fairness, all parties should be aware that this is an issue that will eventually have to be addressed at the mediation.
Conduct of Counsel During the Mediation Process
While not all of the following may fall into the good faith/bad faith rubric, certain types of conduct by counsel may help and/or hinder the mediation process as the case may be.
During the mediation, listen with an open mind. Hear what your adversary and the mediator have to say. You have two ears and one mouth, which is why you should listen twice as much as you talk. You and your client are not the only ones who need to be heard.
Please do not try to impress with your legal prowess and your many victories at trial. If you are all that, we all know; puffery is boring, annoying, and a waste of precious time. More often than not, bragging yields a negative impression, and leads to the conclusion that you need Waze or Google Maps to find your way to the courthouse.
Treat your adversary with respect—never make it personal. Refrain from personal attacks, threats, bullying and other intimidation tactics. On the flip side, if you are being attacked by an adversary, do not fall into the trap of responding to this type of behavior—you will be playing into a ploy that is designed to throw you off your game. Keep your cool and stay focused on what your end game is.
Finally do not make settlement proposals that you are not fully ready to honor. Your adversary will never trust you again, and neither will the mediator.
As a mediator one should always be acutely aware of the aforementioned issues that impede the mediation process. Try to be proactive and head problems off at the pass. It is the good faith of counsel that serves as the bedrock for productive negotiations and will ultimately lead to a settlement.
John P. DiBlasi is a retired Justice of the Supreme Court, New York, Commercial and Civil Divisions and a member of NAM’s (National Arbitration and Mediation) Hearing Officer Panel.