Southern California Arbitration Mediation and Conflict Resolution : Settle it Now Dispute Resolution Services : Serving Los Angeles, Beverly Hills, Century City : Settle It Now Negotiation Blog

It is a truism that litigation tends to get worse rather than better over time.  This is as true in the law as it is in physics -- things fall apart.  Your client's clean and righteous narrative tarnishes over time; grows more complex and filled with contradictions.  It's a little like a political campaign.  Barack's ground-breaking race relations speech and Hillary's single tear aside, Clinton and Obama tend to look worse, not better, over time. We all do.

Whether the value of your legal "case" is up today or down tomorrow turns not only upon the most recent documents produced, pre-trial motion won or witness deposed, it also turns on those things that fall apart over time -- including currency exchange rates.   

The micro-economics of settlement timing include corporate events such as quarterly and year-end financial reporting requirements; potential mergers and acquisitions; and, how much financial bleeding your client's divisional president can take this year before worrying about demotion.  

In international disputes, currency exchange rates loom large in the macro-economics of settlement timing.  My own last really "big" case before I left practice was potentially worth a quarter billion dollars in "hard" damages -- the total projected clean-up costs for 500 toxic waste sites in every Canadian province. 

The Canadian dollar was not only weak at the time, it was weakening.  Though the question of whose currency would control was contested, my client was confident that Canadian dollars would eventually govern since clean-up costs by the American plaintiff would be paid in Canadian dollars.  I remember a time when the Canadian dollar was tumbling in value so rapidly that every time I saw opposing counsel in court I'd remind him of the day's exchange rate with a warning that "your case isn't getting any better over time." 

Settlement timing in that case was motion-driven, however, and the matter did not settle until after the entry of a pre-trial judgment in my client's favor pending appeal.

Though I was (and would continue to be) driven by pre-trial losses and victories, savvy settlement counsel would be keeping an eye on macro-economics -- which would, in any international litigation, require someone to be tracking currency exchange rates.

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UPDATE:  FOR THE LAW.COM AMERICAN LAWYER ARTICLE ON THE NEGOTIATION OF THIS SETTLEMENT, FAMILIAR FACES CENTRAL TO SETTLEMENT (ETC.) CLICK HERE; EXCERPT BELOW:

When you're negotiating a multibillion-dollar settlement, it helps if you've already made similar deals with the lawyers on the other side of the table.

The veteran dealmakers who put together W.R. Grace & Co.'s settlement of asbestos claims, which was announced Tuesday, "know each other well and know the process well," says David Bernick, the Kirkland & Ellis partner who led the talks for Grace. The lawyers representing asbestos plaintiffs in the negotiations were Perry Weitz of Weitz & Luxenberg, Joseph Rice of Motley Rice, Steve Baron of Baron and Budd, and John Cooney of Cooney & Conway.

"These are the same folks I've done business with for many years," adds Bernick. "That makes it much, much easier."

For remainder of article, click here.

The Baltimore Business Journal announced today the W.R. Grace & Co. tentative $2B settlement on asbestos claims here. 

W.R. Grace & Co. Inc. has reached a proposed settlement of all current and future asbestos-related personal injury claims against the company -- a huge step toward Grace's goal of emerging from bankruptcy reorganization.

Columbia-based chemicals giant Grace (NYSE: GRA) filed Chapter 11 bankruptcy in 2001, facing huge liabilities related to asbestos. The company said Monday that it has reached the tentative settlement with a committee of asbestos personal injury claimants, a representative handling future claims and a committee of Grace stockholders.

The complex settlement would total more than $2 billion and would include:

• $250 million in cash;
• Deferred payments of $110 million per year for five years beginning in 2019, and $100 million per year for 10 years beginning in 2024. The deferred payments would be backed by just over half of Grace's common stock;
• Warrants to buy 10 million shares of Grace common stock at an exercise price of $17 per share. The warrants would expire a year after Grace's reorganization plan takes effect. Grace shares were trading at $26.78 late Monday morning, up 8 percent;
• Rights to proceeds of Grace's asbestos-related insurance coverage;
• The value of cash and stock under settlements of litigation with Sealed Air Corp. and Fresenius Medical Care Holdings.

For the complete article, click here.

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HERE IS THE LINK TO THE ALLSTATE MCKINSEY DOCUMENTS; YOU MUST AGREE TO VIEW THE DOCUMENTS FOR NEWS OR INFORMATIONAL PURPOSES:  CLICK "ACCEPT" AND YOU WILL BE DIRECTED TO A PAGE CONTAINING ALL OF THE DOCUMENTS MENTIONED HERE

See also Tort Burger's Post on the Zero Sum Game Aspect of this Controversy here.

I have had a lot of traffic to this post and comments here and elsewhere on the internet about it and the Slabbed post it excerpts.

Because I never meant to "take sides" on a matter I know next to nothing about, I'm now including along with the Slabbed excerpt originally posted, an excerpt of a recent article from Bloomberg.com - Allstate Releases McKinsey Records (etc.) below.        

This post was originally meant to highlight Allstate's (or its consultant's) unfortunate use of the term "Zero Sum Game," when discussing claims handling procedures.  My original comment was that "those who continue to play it often get their  . . . uh . . . soft parts caught in a wringer."

The Slabbed post highlights the damage done to an admitted "Zero Sum Game Player" who is engaged in a human-harm-cost-benefit analysis.  The Pinto punitive damages award came readily to mind because the case was decided while I was in law school learning about negligence.      

For my non-attorney readers, I need to stress that it's not wrong to engage in a cost-benefit analysis for the compensation of injury under a negligence system.  In fact, this is what the law itself (and injured Plaintiff's attorneys) do, i.e., "calculate" the risk of harm + the potential severity of the injury against the cost of avoiding that harm.

People react badly when they see that type of calculation being applied to human injury or the loss of human life because those losses are considered to be "incommensurable," i.e., no amount of money can recompense someone for, say, the loss of a child. For an excerpt from my own article discussing the concept of incommensurability -- The Cost of a Thing is Your Life, click here.

I'm hoping my non-attorney readers will understand that these formal monetary calculations are routinely made by businesses and governments when making decisions about how much risk to human life is worth taking when they engage in potentially dangerous activities for the purpose of creating a significant benefit for many. 

That said, I give you again this excerpt from Slabbed's post on the McKinsey Allstate document furor -- The Herald Tribune Takes the Allstate Challenge --

In a previous post that received a notice in the Silicon Investor BB I spoke of insurers and their lawyers using the court system as instruments of institutionalized bad faith. Indeed Allstate has taken much criticism for ignoring lawful subpoenas over these documents as well as substantial fines as noted by Ms St John. This brings me to the beginning of the main story.

For more than a decade, Allstate Insurance Co. kept a secret from its auto policyholders — a national strategy to force customers to accept reduced cash payouts or face years in court.

Thousands of pages of Allstate documents reviewed by the Herald-Tribune detail how the nation’s second-largest insurer systematically cut payments to customers as a way to boost profits.

The documents describe a two-pronged strategy.

First, the company evaluates claims with a computer program designed to reduce payouts by as much as 20 percent of what the company once paid for the same injuries.

Second, Allstate pushes policyholders to accept quick settlements without the help of lawyers. Policyholders who try to fight for more money face Allstate attorneys coached to refuse to negotiate and to drag out litigation.

The approach often forces car accident victims to take what Allstate offers right away or spend years in court while their bills go unpaid — a strategy Allstate spelled out in guidelines for claims adjusters that “forces the claimant and attorney to think about the obstacles they must overcome …”

Indeed it appears we have a road map of how tort reform is being used against us. Limits on damages only make it easier for these large insurers to get away with outrageous behavior. The story continues:

It was a “Zero Sum Economic Game. Allstate gains … others must lose,” declared a consultant’s PowerPoint slide from a 1994 presentation to executives.

During the next five years of Allstate’s claims overhaul, the same consultant, New York-based McKinsey & Co., chose confrontational words to describe the new system. In PowerPoint presentations and discussion papers drawn up for Allstate executives, McKinsey used “boxing gloves” to characterize how Allstate should treat policyholders who balk at settlements. For customers who hired lawyers, McKinsey urged, “align alligators,” adding these instructions: “sit and wait.”

The documents also show:

Allstate removed much of the discretion of local claims agents to set payouts, requiring them to base their recommendations on a computer program called Colossus. Under that program, average payouts for bodily injuries dropped more than 20 percent in the first few years, internal documents show, a big step toward reaching McKinsey’s goal of “establishing a new fair market value” of such injuries.

Allstate recognized that when an injured driver hired a lawyer, the insurer lost money. In repeated presentations to Allstate executives, McKinsey coached tougher and increased legal action. By 1996, Allstate had doubled its legal force, hiring 225 more lawyers. “The bottom line is that Allstate is trying more cases than ever before,” a corporate newsletter said . . .

For full post from Slabbed click here.

Bloomberg.com's article, Allstate Releases McKinsey Records (etc.) Update No. 2 is here.

Excerpt from Bloomberg.com article below:

Allstate Corp., the second-biggest U.S. home and auto insurer, released 150,000 pages of documents sought by opposition lawyers and company critics related to McKinsey & Co.'s review of claims-handling practices.

McKinsey suggested strategies for the company to become more profitable by paying less in claims, according to videotaped evidence presented in Fayette Circuit Court in Lexington, Kentucky, in a civil case involving a 1997 car accident. Lawyers for policyholders said Allstate's previous refusal to release the documents showed the company wasn't treating its customers fairly. The insurer has said the documents include trade secrets.

``Public criticisms by people with a vested interest in creating an inaccurate picture of the company's claim practices have been based unfairly on only snippets from the documents taken out of context,'' the Northbrook, Illinois-based insurer said in a statement today. ``Because of the need to address misunderstandings resulting from the growing misplaced focus by our critics on very small pieces of the whole, we have decided to make the documents public.''

One slide the consultant prepared for Allstate was entitled ``Good Hands or Boxing Gloves,'' and recommended the insurer put on ``boxing gloves'' to deter about 10 percent of claims deemed to be exaggerated, padded, or fraudulent, according to portions of the report shown to the Kentucky jury. For more than 50 years, Allstate has advertised its employees as the ``Good Hands People,'' telling customers they will be well cared for in times of need.

Rising Claims

The strategy proposed by McKinsey would ``send a message to the attorneys of our proactive defense stance'' in cases dealing with minor impact soft tissue injuries, the consultant said in the document. Lawyers would have to ``think about the obstacles they must overcome to recover significant settlement or the benefits of a smaller, walk-away settlement.''

Allstate implemented the plan in the 1990s because studies showed more people were submitting claims even though accident rates were declining and cars were safer, Allstate lawyer Floyd Bienstock told the Kentucky jury. The McKinsey report found Allstate was overpaying bodily injury claims by 16 percent, Bienstock said.

``It was never a plan to intimidate people,'' he said.

To continue reading, click here.

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How important is insurance coverage to your clients' decision to bring or defend or negotiate the resolution of a commercial dispute?  It's usually the difference between having options and being entirely out of luck.

And when that decision concerns catastrophic losses?  Unless you are an insurance coverage specialist, you make coverage decisions at your peril.

Where do you go?  To Dickstein Shapiro of course! 

Daily Journal article announcing that Steve Goldberg (yes, Mr. Thrifty himself!) has left Heller Ehrman and joined Dickstein Shapiro below.

LOS ANGELES - Longtime Heller Ehrman attorney Stephen N. Goldberg has left the firm for Dickstein Shapiro in Los Angeles, the latest in a string of departures from San Francisco-based Heller Ehrman. . . . . Goldberg  . . . . had been with Heller since 1973 and was a partner in its Los Angeles office.  . . . .

Goldberg, who practices insurance recovery and complex commercial litigation, was part of Heller Los Angeles managing partner Nancy Cohen's successful insurance practice, an area of focus for the firm, according to firmwide managing partner Robert Hubbell. . . . .

Goldberg has handled insurance coverage in areas such as product liability claims, asbestos liability, environmental damage, first-party property and business interruption losses, director and officer liability and insurer bad-faith claims. His clients have included Texaco, Johns-Manville Corp., Atlantic Richfield Corp., Millennium Hotels and GMAC Commercial Mortgage Corp., according to Heller's Web site.

Goldberg's practice is well-suited to fit with Dickstein Shapiro's strong insurance coverage practice. Dickstein opened its Los Angeles office in 2005, when it acquired insurance recovery firm Pasich & Kornfeld. Linda D. Kornfeld is now managing partner of Dickstein Shapiro's Los Angeles office, and Kirk A. Pasich serves on the firm's executive committee.

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Help me... help you. Help me, help you.  Jerry Mcguire

Two short-short stories.  Both to acquaint you with who I was as a litigator and how I can help you as a mediator.

A Born Moralist

I was on the telephone with my client talking about a Rand Corp. statistical study that was originally prepared as answers to contention interrogatories (!!) but eventually became the centerpiece of Plaintiff's proof that my client had engaged in a massive conspiracy to drive the Plaintiff out of business.  Claimed damages soaking wet:  $250 million.

I was talking about how wrong the opposition was on so many levels -- evidentiarily, practically, legally and, yes, morally.

My client said, "I've finally figured out what you are."

"Yes?"

"You, Vickie, are a born moralist."

And I took that to be a compliment. 

Anything You Can Get Away With

Toward the end of my career all my cases seemed to hover around the quarter-billion dollar mark.  This one was an environmental coverage suit for a major petroleum company's potential liablities for 500 + toxic waste sites in every Canadian province.  This is one of the few cases in which the insurance carrier can wear a "white hat."  My client -- Lloyds of London.

This stuff is complicated.  It involves coverage across a couple of decades and up the ladder of excess policies to the billion dollar mark.  We use "coverage charts" -- often color coded -- to understand the policy profile at a glance.

At every oral argument in the trial court -- up to the winning summary judgment motion -- I arrived with a clutch of color-coded coverage charts that  supported my client's position.  On every occasion, plaintiff's counsel complained about the charts.  But he never brought competing charts with him.  The Judge -- one of the best on the Superior Court bench -- really wanted to understand the issues and get it right.  So she spent each oral argument listening to both parties while scrutinizing my coverage charts.

I genuninely believe that this is why I won.

What Does This Have to Do with Mediation Advocacy? 

Two things.

First, if you believe in the very depths of your soul that your client is right -- as I always did -- your mediation advocacy will improve if you begin to understand the principles of mediation advocacy.  It's banal, already, to say that these principles are non-adversarial.  Yet few litigators are able to shift from a litigation to a mediation model in circumstances in which making the shift would dramatically improve their mediation outcome.     

Second, hellloooooooooooooooo!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!  BRING VISUAL AIDS. 

Most attorneys are likely to settle this case at the mediation if they've brought the right stakeholders, properly prepared their strategic and tactical moves, and counseled their clients appropriately.  Yet they take their summary judgment briefs or demurrers or complaints, change the title to "Confidential Mediation Brief," make a few editorial changes -- primarily by removing references to the Judge granting their motion or providing them with relief -- send these briefs to the mediator, arrive with one (or more) bottom lines and, too often, a "prove you can settle this case" attitude toward the mediator.

This is not an indictment of the litigation bar nor even a complaint from a mediator.  This is the beginning of a series of posts about helping me help you help your client help you win the mediation.

Stay tuned.  Really.  Your mediation practice is about to go thermo-nuclear.  Take it from the "born moralist" who did whatever was (ethically) necessary to win.  Usually with pretty darn good results.

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. . . the Honorable Sam Cianchetti, Los Angeles Superior Court Judge (ret.) for his decision awarding $8.4 million in punitive damages, for a total $9 million award, against Health Net In the Arbitration between Patsy Bates and Health Net, et al. 

Los Angeles Times article here and the opinion itself here.

UPDATE:  For coverage of this case within the industry see The National Underwriter post here.

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I was a commercial, antitrust, IP and securities litigator long before I devoted nearly a decade of my practice to environmental coverage litigation.  In the process, I learned enough about Comprehensive General Liability ("CGL") coverage to make me worry about how well I'd served my commercial clients in regard to the insurance coverage potentially available to them.  

If you are a commercial litigator -- or any type of litigator who defends your clients against claims for damages or for injunctive or other equitable relief -- you must

1. ask your clients for all of their insurance policies, even those that seem unlikely to provide coverage; 
2. carefully review the precise wording of the insuring agreements and research the case law in the relevant jurisdiction to determine how the courts have interpreted those insuring agreements under facts similar to those your client's case presents;
3. except for some narrow additional protections provided to insureds, be aware that there is no such thing as "the law" of coverage under any particular type of policy -- all coverage flows directly from the precise language of the insuring agreement
   1. in most jurisdictions, that language -- if ambiguous -- is interpreted in favor of the insured's objectively reasonable expectations; and, 
   2. in most jurisdictions the rule of contra proferendum will require a court to construe any ambiguity in an insurance policy against the insurance carrier
4. carefully review the exclusions contained in those policies and research the relevant state's case law (as well as federal cases applying state laws) interpreting those exclusions; 
5. before concluding that there is no coverage, read available treatises as well as recent law review articles that may well suggest creative ways of distinguishing adverse authority or extending existing principles to bring your client's claims within the terms of the policy or outside of pertinent exclusions;
6. if you have any doubt whatsoever about the existence of coverage, tender the claim to your client's carrier and let the carrier do the analysis;
7. if the carrier denies coverage, read the reasons for denial critically and respond with any reasonable interpretation of the policy that will support a claim of coverage;
8. if the carrier continues to deny coverage, keep the carrier informed of the progress of the litigation and invite the carrier to respond to all settlement demands and to attend all mediations and settlement conferences.

If the cost of the lawsuit is beyond your client's means or will deprive it of capital necessary to meet its business goals for the next few years, retain coverage counsel for a second opinion. 

Have I mentioned that my beloved husband is one of the best coverage attorneys in the country -- having litigated the World Trade Center coverage action on behalf of Larry Silverstein's lender GMAC?  And that I formed my opinion about his brilliance while I was representing the London Market Insurance Carriers and he was representing the policy holder?  Even if your case does not justify hiring someone like my husband to give you a second opinion, there are lots of good coverage attorneys out there who can so that you can complete your coverage "due diligence" for your client.

At last, to the 2007 Fifty State Environment Coverage Analysis

I ran across this great resource while doing a little online research.  It's a comprehensive review of the law pertaining to the interpretation and application of insurance policies to potential or actual environmental liabilities entitled Environmental Insurance Litigation 2007   --  A State by State Case Law Survey by Michael F. Aylward, Esq. of Morrison Mahoney LLP.

If your clients have been hit with demands to clean up toxic waste, this is an invaluable resource.  A specialist in the field, however, should be consulted to maximize the chances that coverage will be provided.

Have I mentioned that I'm on the Insurance Coverage Mediation Panel of Neutrals with the  International Institute of Conflict Prevention and Resolution ("CPR")?  And since I'm a former defense coverage attorney currently married to policy holder counsel, you're unlikely to find many other mediators who are both extremely knowledgeable about the law of coverage and deeply neutral!

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Getting Your Ducks in a Row

Check out Day on Torts for What it Takes to be a Great Trial Lawyer.

Why are these abilities the same as those required to settle a case on the most favorable terms? 

Because trial is the Best Alternative to a Negotiated Agreement. 

If you don't have your trial ducks in a row and can't convince the other side that you're prepared to try the case -- and try it to a highly favorable judgment in your client's favor -- you've got -- sorry to use the term -- squat for bargaining power.

"Show me the salesman," said a savvy and seasoned defendant recently, "and I'll tell you what I'm willing to pay him for his case."

And while we're talking sales -- why is it that no one ever brings demonstrative exhibits to a mediation?

Hand me a visual diagram of the parties and the facts (including the facts that are bad for you).  The chart or diagram should "connect the dots" in the way that is best for your client. 

During the mediation, repeatedly refer me to that diagram.  

When I was litigating insurance coverage cases with hundreds of millions of dollars at stake, I arrived at every oral argument with a color-coded coverage chart representing my client's position on the issue at hand -- like whether the policy holder was required to horizontally exhaust coverage before any of the excess carrier limits would be exposed.

For reasons I never understood, opposing counsel chronically complained about this last-minute demonstrative exhibit motion practice of mine but never brought competing charts into the courtroom. 

Because the Judge -- one of the best on the L.A. Bench -- needed the coverage chart to make sense of the oral arguments, she always denied Plaintiff's request  to disregard them.  More importantly, she spent nearly the entire course of both parties' presentations checking my coverage chart to understand their position -- which position the chart contradicted.    

This is not rocket science.

I genuinely believe that I won a series of successive motions, culminating in a successful summary judgment motion, against a formidable adversary because of those darn color-coded charts.

Though I'm deeply committed to maximizing the value to be obtained in any settlement for both parties, like that Judge, I am subject to persuasion, fallible human being that I am. 

Take advantage of me.  It's your job!

See e.g., Visual Persuasion in the Law and this series of books by Frank D. Rothschild on Power Point for Lawyers and others. 

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This blog follows insurance coverage issues from time to time because insurance reimburses us for losses; litigation presumes loss; and, the negotiated resolution of litigation requires the parties to understand the benefits and limitations of everyone's insurance policies.

We also talk a lot about ethics here because people and businesses embroiled in litigation are -- contrary to popular belief -- seeking a just or equitable or fair or ethical resolution.  

I cannot say this enough -- IT IS NEVER ONLY ABOUT MONEY.

Nevertheless, I was surprised this morning to see the National Underwriter Blog ask and attempt to answer the following question:  Is the Concurrent Causation Clause Ethical?

I also have to tell you that I never once, not on a single occasion, in 25 years of legal practice, a decade of which was spent concentrating on insurance coverage issues, did I ever hear anyone ask whether any underwriting or claims practice was ethical!

Before weighing in, I'm going to just let this question percolate in my consciousness for awhile.  If you go to the linked article, you'll see some thoughtful answers.  Aside from a little predictable judge-bashing, the readers who paused to answer this question -- both from an underwriting and a claims perspective -- did so with a depth of understanding of the issues involved and the history of the clause at issue -- the one that is at the heart of the hurricane damage claims.

If you're reading this from the land of hurricanes, you might want to check out this resource that was serendipitously emailed to me this morning:  25 Tips to Secure Your Home During Hurricane Season. 

Fellow Southern Californians can also find tips to protect your house against wildfires there.

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If I were allowed to give only two pieces of gratuitous advice to every lawyer and business person in 2008, they would have to be as follows:

1.  if you think an insurance policy * will not  indemnify you or your client against a particular loss or provide a defense to a legal action, you haven't thought deeply enough unless you have, at a minimum:

• researched the law pertaining to the pertinent policy language in the jurisdiction in which the loss occurred or suit was brought;
• painstakingly compared the law in that jurisdiction to the precise language contained in the insurance policy;
• researched the most recent case law in that jurisdiction pertaining to burdens of proof on potentially applicable exclusions and exceptions thereto; 
• distinguished apparently negative case law that is actually dictum;
• creatively considered all of the ways in which you might bring the loss or potential liability within the terms of the policy, focusing on the fact that nearly every jurisdiction will require the court to interpret the policy broadly in favor of the "insured's objectively reasonable expectations of coverage" and will -- unless you have the bargaining power of Exxon -- construe all ambiguities against the carrier;  
• investigated and determined whether you or your client are named as "additional insureds" by the policy of another; and,
• consulted with a policy holder insurance recovery specialist -- I understand that this attorney  -- Stephen N. Goldberg of Heller Ehrman -- who represented GMAC in the World Trade Center coverage action is one of the best in the country.   

2.  treat others as you would expect to be treated yourself (this is the conflict avoidance part)

OBJECT LESSON OF THE DAY

In yesterday's Kingman Daily Miner (Northern Arizona) we read City settles e-mail suit for $40K. 

Two points worth noting for the health of any small city's fisc.

First, as Kingman resident and Plaintiff Travin Pennington is reported to have said, "communication and accountability, could have prevented a bill for [] attorneys' fees that exceeded $40,000 following a seven-month battle with the city for e-mail records."

The Back Story?

In June, Pennington filed public records requests for thousands of pages of e-mail from then-City Manager Paul Beecher and two other employees. He said Beecher took him into the city hall parking lot, and instead of asking how to resolve the issue, Beecher allegedly made some comments that pushed Pennington to "the tipping point."

"I said, 'this guy's out of control. I'm going to take this guy to task,'" Pennington told the Miner. And he did. After the city failed to disclose more than 8,000 pages of e-mail whose contents the city claimed were personal, Pennington filed a lawsuit in the Mohave County Superior Court.

The Conflict Avoidance Point?  Be civil; be responsible; be accountable; and if you fail, be willing to course correct.

But when civility, responsibility and accountability haven't worked, check your insurance coverage. 

The Kingman story continues:

The city's insurance policy will cover much of the costs of the lawsuit, including the city's own attorneys' fees, which topped $32,000, according to City Attorney Carl Cooper.

Good work on the City's part in tracking down the necessary insurance coverage!

Resolution:  Cutting the baby in half.

Pennington's attorneys offered $48,337.65 - 75 percent of the $64,448.50 in the plaintiff's total fees. The city came back with a $32,225 offer, and the two parties settled in the middle, at $40,281.30.

We mediators do try to generate solutions other than the one arising from the descriptive (not prescriptive) rule that any zero-sum negotiation will resolve half way between the first two reasonable offers.

The good news:  you don't need a mediator to achieve this result.  Even your fifth grader is capable of adding two numbers and dividing them by two.
_________________________

Types of insurance include Automobile; Aviation; Boiler; Builder's risk; Business; Casualty; Credit; Mortgage; Crime; Crop; Workers'compensation; Directors and Officers Liability; Disability; Errors and Omissions; Expatriate; Fraternal; Financial loss; Fire; Hazard; Health; Kidnap and Ransom; Homeowners; Renters; Environmental Liability; Professional Liability; Locked Funds; Marine; Nuclear Incident; Pet; Political risk; Pollution; Prize Indemnity; Property; Protected Self-Insurance; Purchase Insurance; Stop-loss; Surety Bond; Terrorism; Title; Travel; Volcano; and, Workers' Compensation. 

Thanks to Wikipedia for this ridiculously comprehensive list (see lay explanations there; always consult an attorney -- and if you are one -- always consult a coverage specialist).

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(right $5700 by Andrew Magill)

Thanks to David Rossmiller for posting Maniloff's Top 10 coverage cases of 2007 -- the .pdf of Mealey's Insurance-Palooza - 7th Annual Look At The Year’s Ten Most Significant Coverage Decisions there and here.

There's nothing more important to the settlement of litigation than knowing where the money to settle it can be found.

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(right:  '94 quake damage)

Though I've participated (as co-mediator) in the settlement of some of these Northridge Earthquake cases, I'm going to let the insurance bloggers address the wisdom of this decision -- just sent down by the California Court of Appeal in Village Northridge Homeowners Association v. State Farm Fire and Casualty Co.

As the Court itself acknowledged, under its holding,   

a plaintiff could settle a disputed insurance claim, keep the money paid, and then sue for fraud (rather than on the released claim) if it was fraudulently induced to settle the claim by a misrepresentation of policy limits.

We must say we're surprised by this holding and imagine the insurance carriers are as well.  The "parade of horribles" raised by State Farm, however, was dismissed as exaggerated by the appellate court, stating that the

consequences of applying this principle are not dire. Indeed, to avoid them, the insurer need only avoid misrepresenting policy limits when it settles claims. We seriously doubt insureds who settle their claims can be expected thereafter to assert groundless claims of misrepresentation of policy limits on a routine basis.

Is this a case of bad facts making bad law?  Or am I missing something? 

I'd love to hear from Declarations and Exclusions blogger George Wallace on this one!  George?

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(photo:  Reading the tea leaves by Joel Carranza)

In Judiciary's Role in Arbitration Weighed, AP reports on the tea leaves that lawyers and business people will be reading for the next several months as we await the Supreme Court's ruling on this issue --  may the parties to an arbitration agreement contract for  judicial review of any resulting arbitration award.  

While asking my arbitration expert posse Jay McCauley, Les Weinstein, Eric van Ginkel and Jack McCrory to please weigh in here, I'll provide you with my semi-tutored two cents.

Because the central policy issue supporting arbitration under the Federal Arbitration Act is to allow contracting parties to control their own destiny, I'd wager the Supremes will permit them to do what they want to do here, i.e., allow federal courts to review any arbitration award the parties want them to.

Here are the tea leaves: 

• Chief Justice John Roberts suggested expanded judicial review is appropriate, noting the two sides negotiated an agreement with court review as an option. But Roberts also questioned whether federal law allows the expanded review the agreement between Mattel and the property owner calls for.
• Justices Anthony Kennedy and John Paul Stevens pointed to court review as a tool that can be used in business disputes to encourage the use of arbitration. 
• Justice Ruth Bader Ginsburg suggested the property owner is seeking more latitude than the law allows for judicial review of arbitration cases.
• Justice David Souter told the lawyer representing Hall Street Associates that "you want to get rid of" the section of the arbitration law that specifies limited circumstances under which courts can step in and overrule an arbitrator's decision. 
  
  The case is Hall Street v. Mattel, 06-989. 

For a thorough analysis of the issues raised, see  Hall Street:  Contract vs. Statute at Ross' Arbitration blog.

By the way, I get alerted to articles like this on a daily basis here -- Laywers U.S.A.  It's been my best and easiest source for breaking legal news for quite some time now and it appears in my in-box on a daily basis.  For curmedugeons like Mr. Thrifty who say they don't have time to read ANYTHING online, it takes about 60 seconds to scan the news items.  Then one second to delete if there's nothing there of interest to you.  I highly recommend it and give a long belated "thanks" here to the people at Lawyers U.S.A.

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(photo by Steve Rhodes)

Geek heaven!!  My two obscure specialties -- environmental insurance coverage and arbitration law -- have converged in a case to be decided by the U.S. Supreme Court this term.  To confirm my total nerd credentials, I give you the news not from the New York or L.A. times, but from Yahoo! News, excerpted with link below:

High Court Weighs Role of Judiciary in Arbitration Case Involving Toymaker Mattel

WASHINGTON (AP) -- The outcome of an environmental cleanup dispute now before the Supreme Court could determine the future of arbitration as an alternative to lawsuits.
Tens of thousands of disagreements in the business world are resolved through arbitration each year, a process often regarded by the business community as a cost-saving, time-saving substitute for going to court. 

The risk in arbitration is that the losing side cannot appeal to the judiciary except in limited circumstances. That's the subject of Supreme Court arguments on Wednesday.

The Supreme Court will consider whether the parties in arbitration can agree to take their cases to court for review of arbitration awards.

here's the link to the remainder of the article.

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(an image of Snoopy at his typewriter with the caption "gradually a shot rang out" graced the Shell v. Winterthur opinion holding that the term "sudden" meant "quick" and not simply "unexpected.") 

Every deal you negotiate must eventually be "reduced to writing." 

I haven't talked much about negotiated agreements here.  I usually defer the entire topic of contract drafting to the experts, particularly to the meticulous and scholarly Ken Adams over at Adams Drafting.  

Ken recently ran a hypothetical by me, however, that gave me pause.  You can find his question,  together with answers by Eric Goldman of the Technology and Marketing Law Blog and  Charles B. Craver, Fred H. Alverson Professor of Law at George Washington University Law School here. 

(Professor Craver's useful text on basic negotiation skills, by the way, can be found here). 

Although my own response to Ken's ethical question (it's not unethical until you pull the trigger) can also be found on the linked post, it's really the pragmatic question that interests me:

IS IT EVER GOOD BUSINESS OR LEGAL PRACTICE TO INCLUDE IN A NEGOTIATED AGREEMENT AMBIGUOUS TERMS THAT ONE PARTY BELIEVES THE OTHER PARTY WOULD NOT AGREE TO FOR THE PURPOSE OF EXPANDING THE CONTRACT'S REACH AT SOME LATER DATE? 

As is often the case, I find it easiest to answer that question with a story -- this time, with one about a word that cost American and U.K. businesses at least a billion dollars in legal fees.

Sudden. 

Does Sudden Mean Quick?

This question consumed at least half a decade of my professional life.  Why?

Because I was engaged in litigation for years concerning (among other issues) the meaning and application of the “sudden and accidental” pollution exclusion common in comprehensive general liability ("CGL") policies from the early 1970’s to the early 1980’s.

Because sudden's story is lengthy and complicated, I’m forced to reduce the tale here today to its bare essentials.  If you wish to understand its well-documented journey through the American regulatory and legal system, click here or here.  If the pragmatic question interests you, read on.  

The Word that Launched an Entire Legal Specialty 

Once upon a time, a few creative and persistent litigators of great reputation demanded insurance coverage for the environmental liabilities imposed upon their chemical and petroleum company clients by the Federal “Superfund” law (CERCLA) enacted in 1980. Many equally creative and persistent litigators of great reputation represented the insurance carriers who refused to provide coverage for many reasons, one of which was the presence of the “sudden and accidental” pollution exclusion in the “polluters’” insurance policies.  Many of the names of these attorneys are here.

That provision excluded coverage for

any liability of any insured, arising out of the discharge [etc.] . . . of . . . . . pollutants into or upon land, the atmosphere or any . . . body of water unless such discharge . . . . is sudden and accidental.

The 64 hundred million dollar question?

“Does ‘sudden’ mean ‘quick’ or only ‘unexpected’?

Because most environmental contamination took place over decades as the result of the slow seepage of chemicals and petroleum products into the land, water and air, the answer to this question was worth billions of dollars to corporate insureds and to the carriers that insured them. If “sudden” meant only “unexpected,” rather than “quick,” those billions of dollars would likely be paid by Lloyds of London or AIG – two of my clients -- rather than by Texaco or ARCO, two of my husband’s clients.

The petroleum and chemical companies accused the insurance industry of dissembling about their contractual intent when seeking approval of the "sudden and accidental" exclusion language.  The carriers, contended policy holders, had represented that the use of the word "sudden" would not narrow existing coverage -- coverage that would have excluded unexpected -- but not "quick" -- releases of pollutants into the environment.  (see here, note 5)  

Assuming that the insurance industry "gamed" regulators and policy holders by placing narrow language in a contract while simultaneously intending to interpret it broadly, and without addressing the ethical issues raised by that assumption, would it have made good business sense to have done so?

I answer with another story.  

When negotiating the settlement of a $250 million environmental insurance coverage action, the General Counsel for one petroleum company said the following to me about the cost of the looming three-month trial:

You don’t seem to understand.  We pour hundreds of millions of dollars a day into dry holes searching for oil. We are not risk averse. The expense of litigation does not deter us.

If you and your clients can say that – or something remotely like it – including ambiguous terms in a contract to take advantage of the uncertainty thereby created might make good business (if not necessarily ethical) sense.

If you cannot, I would suggest that contracts be used for the purpose they are intended – to create as much certainty as possible in your clients’ unpredictable future so that their plans today can make them profits tomorrow.

GC boasts aside, even the richest players far prefer planning that profitable future to fighting over an unprofitable past.

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(right:  key players with a model of Freedom Tower)

Settle in for a long and satisfying read in this stellar article that chronicles six years of litigation, mediation, negotiation and valuation in the World Trade Center case.  Here's just the first paragraph and a link to the full article.

Silverstein's Army by Ben Hallman of The American Lawyer

Wachtell dedicated more lawyers to helping Larry Silverstein rebuild at Ground Zero than to any other project in its history.

Rebuilding was the developer's dream-and his right, according to his lawyers from Wachtell, Lipton, Rosen & Katz. But after the towers fell, New York city and state authorities seemed to have done everything possible to elbow him out of the way, even as Silverstein ponied up $100 million a year to rent a hole in the ground. Now, at almost midnight, he was huddled in a conference room in the Park Avenue offices of the Port Authority of New York and New Jersey, the quasi-governmental agency that had leased the Twin Towers to Silverstein in July 2001. Executives from his development company and his financial backers were there with him, as were Wachtell partners Martin Lipton and Robin Panovka. Silverstein ordered two cups of coffee. He was ready to stay up all night. "Let's get this thing done," he told the group.

to read the rest of the story, click here.

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(right:  12 Angry Men because this post will end up being about depositions, settlement and trial and not simply -- yawn -- reinsurance)

Business Insurance reported yesterday that the California Supreme Court has Shield[ed] Reinsurance Details in Abuse Case.  As B.I. wrote,

In Catholic Mutual Relief Society et al. vs. The Superior Court . . . , victims sought to learn whether the nonprofit entity, which administers self-insurance funds for more than 300 archdioceses and other Roman Catholic entities in the United States and Canada, could meet its policy obligation should they enter into a settlement with the Archdiocese of San Diego.

In 2004, a Los Angeles County trial court judge said the victims could seek reinsurance information . . . A state Court of Appeal . . . rul[ed] that California law authorizing limited discovery of a defendant’s insurance coverage does not authorize pretrial discovery of reinsurance agreements with a “nonparty” liability insurer.

On Monday, the California Supreme Court agreed. It found that discovery of reinsurance is allowed when a reinsurer’s policy functions “in the same way as a liability policy (fronting arrangement), or where the reinsurance agreement is itself the subject matter of the litigation at hand.”

I'd just been musing on this issue (really! -- listen, only nerds blog) because I think attorneys should use discovery as much as possible to settle litigation as to try it. 

Conducting Discovery to Settle the Case

I'm just back from vacation so I haven't yet read this Supreme Court opinion.  I have, however, fought the reinsurance issue more times than I care to remember.  I also once sought to discover the extent of a privately owned corporation's ability to pay a sizable judgment only to be thwarted by the rule that discovery must be relevant to the subject matter of the action (etc.)

Still, I recommend that counsel find creative ways to learn facts that will assist them in settling the case during depositions (where "background" questions receive less scrutiny than interrogatories).

What information pertinent to settlement is useful to obtain other than the ability to fund an award?  Plenty! but since I'm still on Hawaiian time and in an Hawaiian mind, I'll provide only a few -- let your own imagination make far longer lists than the following.

1. The identity of those making the settlement decision is question number one, not only to assure that you have the proper parties at your first settlement conference, but also because -- as McElhaney recently suggested -- you want to "hip" corporate deciders to some of the dangers of proceeding that the company's attorneys might not have mentioned (or couldn't stress strongly enough).  
2. Where the corporate entity is split into operating divisions, which division is going to take the "hit" if the case settles.
3. Whether there are any corporate acquisitions or mergers on the horizon -- or any major upheavals in management -- that might suggest that the executive team green-lighting the litigation is on its way out and less litigation-friendly management about to come on the scene.
4. Whether other litigation on this same issue, product, financial practice, etc. is pending, making the possibility of bad precedent an issue for any eventual settlement "team."

How can you obtain answers to these questions during a deposition when none of them are relevant to the subject matter of the action or likely to lead to the discovery of admissible evidence?  The same way you do everything else in your legal practice -- with chutzpah, imagination, creativity, preparation and sheer good luck.  

I'd innocently sprinkle most of these questions into the background portion of the deposition when opposing counsel is generally less attentive than during "substantive" questioning.  You can also get away with "it's just background, counsel" when s/he begins to awake with his/her morning latte.  If it's a big case with less experienced attorneys assigned to less important depositions, I'd first ask these questions of low level corporate representatives who might be, shall we say, under-represented. 

Then there's always simple dumb luck.  When I was a first year taking one of my first depositions, opposing counsel fell asleep after lunch!  He was snoring while his client innocently waited for me to continue questioning him as if this were a normal event!

I genuinely didn't know what to do. Could I legitimately and ethically continue to question my opponent's client in his "absence"?  I suppose a more experienced or aggressive attorney might have done so.  But because it just didn't seem right to me, I woke him up before continuing with my line of questioning. 

Some defenders, however, might just as well be asleep.  As I teach my NITA students, you can do that which you can (ethically) get away with in a deposition.  And that is quite a lot if you are a skillful poker player who doesn't let on that the questions you're asking might be strategically beneficial even though entirely irrelevant to the substance of the litigation.

It's the beginning of a new "school" year.  Go get 'em!

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(photo by Lainey Powell)

A few days ago, I posted an article on the Mediation Privilege and Bad Faith by insurance coverage policyholder counsel Kirk Pasich.  The coverage bar is relatively small and tight-knit.  So for those of you who don't know who Mr. Pasich is, here's a short bio from his firm's web site:

Kirk A. Pasich is a partner in Dickstein Shapiro’s Insurance Coverage Practice, and serves on the Firm’s Executive Committee. According to Chambers USA: America’s Leading Lawyers for Business, Mr. Pasich “is an unmistakable feature of California’s insurance landscape,” while Lawdragon has said, “When it comes to representing policyholders, there’s no bigger name on the West Coast.”

I am compelled to say here that my husband, Stephen N. Goldberg, a 35-year attorney (and shareholder) at Heller Ehrman, is no policy holder slouch himself, but I do know Mr. Pasich's reputation and I'd recommend his services just after my husband's

Mr. Pasich conducts an active trial and appellate practice, representing insureds in complex insurance coverage matters, as well as motion picture studios, television networks, and others within the entertainment industry in insurance coverage and intellectual property matters. . . . He has negotiated large insurance recoveries for his clients, including recoveries of more than several hundred million dollars, and has served as lead trial counsel in major jury trials. Furthermore, Mr. Pasich has advised clients on policy renewals and policy language. He also has served as an arbitrator and as an expert witness on insurance and ethical issues.

So, that's the high quality of Mr. Pasich's work.  We thank him for the following generous response to our post on coverage and mediation confidentiality here.

The Dangers of Protecting Potential "Bad Faith" in Mediation [Mr. Pasich's View]

What I think is missing [from Ms. Pynchon's analysis] is that [it ignores the possiblity that] rhe insurer will act in bad faith again.

What happens if the plaintiff makes a take it or leave it offer in mediation that the insurer refuses to accept and that offer is not repeated again (not frequent, but certainly not unheard of)?

There's a question of how to establish that fact given the insurer's liability for an excess judgment when it refuses to accept a reasonable settlement offer. What happens in that circumstance if the insured accepts the offer and sues for reimbursement? How does it show that the insurer refused to fund and that it exercised its right under the law to pay and sue? The risk to the insured and to the mediation process is very real in such circumstances.

Or, from the insurer perspective, how does it find out what transpired between insured and plaintiff, whether there was collusion, whether the insured and plaintiff agreed to allocate in a way to arguably unfairly put a settlement into the "covered" category?

I have encountered this issue on more than one occasion--that is, where the insurer complains about lack of access and claims prejudice. Furthermore, even the courts have recognized that sometimes the confidentiality results in undesirable things happening. So, my concern is more about the impact on settlements and what happens when a settlement could have happened, but did not, or happened without carrier participation.

If I were being a bit more aggressive, I might ask: Why should a carrier get a license to act in bad faith in a mediation? Cases settled, and still settle, in mandatory settlement conferences without that same shield. I don't think a process should exist that encourages, rather than discourages, a party from acting in bad faith.

You Won't Be Surprised to Hear I Have Thoughts on The Issues Raised

But I do have to earn a living sometime and so will have to come back to this issue soon.

Thanks again, Kirk.  This is the precise type of conversation that attorneys and mediators should be having every day of the week.  I appreciate your time to share your thoughtful concerns with me and our readers.

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(right -- the wet part of the ocean -- photo by beglib at morguefile)

As we noted yesterday, some members of the insurance policy holder bar suggest that coverage counsel hold non-confidential "mediations," either by calling them settlement conferences or by agreeing that no party will subsequently assert the mediation privilege.    

Why?  Because policy holder counsel is concerned that the insurance carrier will commit acts of bad faith during the mediation without having to answer for its wrongful conduct due to the protections of the mediation privilege.

I propose here that talking about the confidential part of mediation is like talking about the wet part of the ocean.

Why?  Because confidentiality is what makes mediation possible.  It is what permits the parties to take a time out on the battlefield where everything we say and every move we make can and will be used against us. Private, confidential mediation time is a time when the parties can come together as people rather than as combatants.  And this is true no matter how many zeros follow the first number at issue nor how "fictitious" the "people" are.  Legal entities like corporations, after all, can and do work only through people who have personal interests at stake in, and genuinely felt emotions in response to, the litigation. 

Mediation time is a time when the law allows people to recognize that they share a mutual problem, one that yokes them together. It is a time when they can give up carrying the burden and cost of the dispute alone; a time when they are given the opportunity to realize that by drilling a hole in the other guy's side of the boat, they will sink their own.

But What About the Unremediated Bad Faith?

Mediation commences and ends on dates certain.  If the insurance carrier commits bad faith in refusing to accept a settlement offer during the mediation, you can rest assured that it will continue to commit bad faith thereafter.  So what if you can't reveal the offer and counter (or refusal to deal) that occurred during the mediation.  Make the same offer again after the mediation is over.  The carrier will once again respond with the same bad faith counter or the same refusal to deal.  Or, to your vast surprise, act in good faith and pay the claim and all damages associated with its earlier refusal to be accountable for the policy terms.

I cannot think of a circumstance in which acts of bad faith that take place during a mediation session couldn't or wouldn't be replicated both before or after that mediation session.  The carrier has 365 days of the year, 24-hours in the day and seven days every week in which to commit bad faith.  And the plaintiff may gather evidence of that continuing wrongful conduct on every single one of those days other than the day the parties mediate their dispute.  

All we're asking -- the alternative dispute resolution squad -- is one day -- a single day -- to assist you in the resolution of your lawsuit according to mediation principles and practices.  I don't think that's too much to ask, is it?

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(left:  the talented Mr. Pasich)

A very very long time ago, I defended my first coverage deposition at a firm named Troop Meisinger. 

I'd just joined the Buchalter firm and was struggling to learn both the law of coverage and the folkways of the new practice, which were considerably more genteel than I'd previously experienced representing garment industry and entertainment clients.  Which is a low-key way of saying that I'd developed a fairly obstreperous defense style before joining the coverage bar.  

The morning of the first deposition day, the questioner was a young -- and extremely frustrated -- associate.  After lunch, the highly experienced policyholder litigator  Kirk Pasich appeared and more or less put me in my place.  

The year