Conflicts Between Carriers and Insureds at Time of Settlement: Mediating Professional Liability Claims

Defense Digest, Vol. 23, No. 2, June 2017

By David W. Henry, Esq.*

Professional liability claims present some challenges in the context of settlement or mediation that warrant special consideration. Most professional liability policies contain settlement control clauses that impact liability claims. Such clauses require the consent of the insured. There are potential cost and exposure ramifications to an insured that fails to accept and consent to settlement the carrier believes to be prudent.

The consent issue is not usually difficult to navigate when the insured is an individual or a business with clear lines of responsibility and decision-making. But when the insured is an association or organization that operates with a governing board, the question of consent to settlement can become thorny. In many corporations, including charities, home-owners associations, condominiums and not-for-profits, litigation and settlement decisions must be approved by a governing board of directors or members. There may be real or unknown schisms or factions in the board. Some of the board members may be new to the board and may not understand the history of the litigation. Other times, board members may be sympathetic to the plaintiff or overtly favor the plaintiff’s legal position.

There may be vigorous differences of opinion on the merits of settlement and opposition to settlement, even when at a nominal expense. This is particularly common in settlements that may involve more than simply the payment of monies from an insurance carrier. Some negotiations and contemplated settlements involve a discussion of non-economic terms, including, for example, written apologies, changes in HOA bylaws, modifying trademarks or posting information on websites. There are a myriad of “wants” beyond money that the plaintiff might demand as part of a global settlement.

In such situations, the involvement of a trained mediator is particularly helpful. When the lawyer defending “the board” finds himself or herself between bickering factions, the carrier may be precluded from effectuating an economically sound settlement by a deadlock within the board or face heated rancor between members. The solutions are several. Early in the process, well before any formal settlement conference or mediation, involve the mediator in order to flush out those members who may be resistant to any hypothetical settlement. Work early in the case to manage expectations, but make clear to the board that settlements are common. It is important to let the board know that only two to three percent of cases go to trial and that, at some point, a settlement offer is likely to come under consideration. Many board members may think that trial is inevitable when we know it is not. Other board members may have personal vendettas or opinions that are formed from misunderstandings or unsubstantiated concerns over the effect of a settlement.

Another good tactic is to reach out to opposing counsel early to determine if non-monetary considerations are likely to be a part of the negotiations. Additionally, in rare cases, we have come to learn from pre-mediation communication with certain board members that other members of the board may be sympathetic to the plaintiff’s position. In those situations, special care must be taken to limit settlement-related communications to a designated litigation subcommittee comprised of less than the entire board. This will typically take a resolution to enact a litigation committee or working group. One should not cavalierly assume that a governing board will accede to the settlement recommendation of defense counsel and the insurer. Where settlement control clauses are in play, early and in-person communication with the board is strongly advised in order to flush out internal divisions, potential opponents and impediments to achieving a global settlement.

*David is a shareholder in our Orlando, Florida office. He can be reached at 407.420.4418 or dwhenry@mdwcg.com.

_{Defense Digest, Vol. 23, No. 2, June 2017. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2017 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}