Defense Resistance To ADR Is Killing the Golden Goose

Legal disputes have traditionally been resolved by each side taking a position, digging in and hoping that a judge or jury will award them a decision. In the final analysis, the dispute cripples the losing participant, and buries both parties in expenses that sometimes exceed the value of the entire dispute. Nevertheless, some lawyers find it necessary to follow this tradition wholeheartedly and recommend that their clients repeat this process every time they have a problem that needs to be solved.

Against this backdrop, many insurance companies have mandated the use of alternative dispute resolution procedures as a required tool for good risk management. Simply telling the insurance company that a case is defensible and should be tried is no longer the solution for managing legal disputes. ADR is now considered a reasonable option which accelerates the process and results in cost savings and usually mutually acceptable solutions.

ADR forces the parties to think about the issues of the case, not just the position taken on paper. Besides the obvious advantages of cost reduction and the positive resolution of conflicting claims, ADR offers the parties an opportunity to design their own process, in the manner they consider the most efficient, to resolve the conflict. This flexibility affords the opportunity to experiment with different rules, which often go beyond the well-established judiciary limitations.

It is no wonder that many attorneys have generally resisted the opportunity to integrate ADR into the typical dispute. Clearly it is most comfortable, and typically more profitable, to litigate cases rather than solve problems. The rules we lawyers spend years understanding become so much a part of our makeup that the prospect of change, even through something as positive as ADR, brings out the worst in people. Generally, when ADR is recommended to a defense attorney, it is instinctively rejected. Defense attorneys often object to ADR for their lack of knowledge of the ADR process and fear of losing insurance business. It is this fear that could kill off the goose that has laid the golden eggs. What is needed is the recognition that one can live very easily off the eggs without killing the golden goose.

Insurer Expectations

While ADR is not the panacea for proper case evaluation, it does act as a catalyst for lawyers to start considering specific actions which must be undertaken to resolve a dispute. These actions have always included litigation. While litigation is certainly the best option for advocating a case and building a position, it is on the far end of the spectrum for risk managers in the business of managing legal disputes.

Insurance companies are no longer accepting at face value the typical defense evaluation of a case which does not include a specific settlement strategy. Most lawyers are getting around that by telling the carriers that it is too early to discuss settlement since discovery has not been undertaken. Interestingly enough, it is unusual for a defense attorney to contact the other side to determine what the case is all about. By not contacting the other side, the defense attorney gets to fulfill the prophesy of waiting until discovery in completed before evaluating the case. If talking to the other side about the facts of the case is considered ADR, then so be it.

Some defense attorneys are of the belief that recommending ADR in the early stages of litigation is a sign of weakness. This comes from a misplaced premise that when a case is assigned to defense counsel, it is there because the insurance company does not want to pay on the claim. In fact, verifiable data confirms that at least 90 percent of all cases are settled without a trial. Given this reality, the basic assumption under which attorneys have been operating must be re-evaluated to align with the interests of the insurance company, or the carrier will start aligning with other attorneys.

This means change in the way defense attorneys view their rules in the context of dispute resolution. It requires a broad case evaluation and strategy which provides the insurance companies with specific options available to resolve the claim.

Is That All There Is?

Once an attorney accepts the role of problem solver in addition to that of an advocate, innovative solutions become obtainable which match the needs of insurers. In fact, the usual attorney fear of losing business because of the potential drop off in litigation will likely disappear. This is because insurance companies reward defense counsel with more business when innovative solutions are suggested for streamlining cases. In fact, the volume of defense files may rise since insurance companies will be getting the value-added service of an attorney to mediate claims which would normally be handled by an adjuster.

Creative Approaches

One option is a hybrid mediation/arbitration process. Specific rules of engagement are agreed upon between the litigants which allows for meaningful settlement negotiations. A neutral mediator analyzes the issues on the table, and helps the parties consider objective criteria concerning the evaluation of their positions. Objective criteria includes jury verdicts, medical research and independent expert evaluations. Removing the subjective part of the evaluation forces the parties to focus on realistic solutions which are mutually acceptable.

If the parties are unable to reach agreement through the mediation, they then have several days within which to continue negotiations on their own, without the benefit of a mediator. If the parties are unable to reach agreement by a specific date, the mediator then issues a binding decision, supported by a written explanation. This “med-arb” approach encourages the parties to in- vent options for mutual gain while still at the table, since they recognize that a failure to reach agreement will result in a third party issuing a binding decision.

While certainly this approach not applicable to all cases, it is an effective solution to certain types of cases, such as the modest personal injury case. Insurance companies appreciate this type of alternative for cases which simply do not justify years of litigation expense.

Another valuable option in the arsenal of ADR processes is the “baseball” procedure. The parties each submit a last, best offer to the neutral hearing officer. The hearing officer must choose one or the other without modification. Because an extreme position will usually lead the hearing officer to choose the opposite position, the parties have an incentive to be realistic in their final offers.

Another variation on the baseball theme is what is called “night baseball.” The hearing officer evaluates the case but does not immediately disclose the recommended dollar figure. Instead, the award is kept in a sealed envelope while the parties provide their last, best offers. The closest to the arbitrator’s award wins the case. Once again, the chances of a party taking an absurd or extreme position are reduced dramatically.

Posturing And Judge-Shopping

ADR is not a substitute for the judicial system. The value in ADR comes from its recognition as a balance between the all-or-nothing attitude associated with litigation and the encouragement of honest discussions of interests and needs. It is the latter that results in the type of flexibility typically associated with ADR, and permits the exploration of settlement possibilities that are aligned with insurance companies’ interests in reducing risk.

A typical defense response to the suggestion of mediation is that there is no value in going through such a process since the insurance company will only have to pay additional monies for the mediator and for its attorneys to prepare and participate in the case, with no guarantee of a final resolution. This response is simply a way to sidestep the opportunity to engage in problem-solving, and perpetuate the more familiar.

The reluctance to mediate can also be traced back to the mistaken assumption that insurance companies want to go to court on every claim. This “all-or-nothing” premise, if followed through on every case, would put insurance companies out of business. Nevertheless, attorneys rationalize that it is the job of the courts to decide cases, and not a job for the disputing parties and their attorneys. Mediation requires the parties to have honest discussions about their mutual interests and perceptions of the case, rather than the normal posturing found in litigation. Since lawyers are not trained in defining interests and considering needs, it is predictable for defense attorneys to resist the opportunity to mediate a case.

Nevertheless, in the spirit of settlement, and usually after volumes of discovery have been undertaken, defense attorneys go on a Judge shopping” spree in order to find a neutral who might be available to handle a settlement conference. Judge shoppers look for a certain type of retired judge who they know is defense-oriented and will grind the plaintiff into submission. Interestingly enough, some of these defense attorneys, when asked, will argue that what they engage in during these judge shopping sprees is actually mediation! To say that the defense attorney in this case does not understand ADR is an understatement.

For true mediation to occur, and to get the results that naturally flow from mediation, judge shopping must be eliminated. Lawyers must study the various mediation processes that are available and evaluate their usefulness. In addition, defense lawyers must also volunteer their time as mediators on cases so that they can get acquainted with the process, and learn the value in considering options and interests rather than rhetorical positioning. Without this background, lawyers will not be prepared to recommend mediation to their clients.

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