A Funny Little Thing About Authority in Mediation

by | Sep 17, 2020 | Mediation | 0 comments

Florida has an attendance requirement for insurance carrier representatives tied to the policy limits or the last demand by the claimant. It is Rule 1.720(b). There are some problems, pragmatic and philosophical, with the existing authority rules.

Suppose in a premises liability case the insured, its claims representative, and its counsel have round-tabled before mediation. Due to the exposure, a senior claims officer weighs in on the matter and concludes that the reasonable settlement value is somewhere between $250,000 and $300,000. The carrier has a $1 million policy limit.

Florida authority rules

The senior claims manager gives the claims representative authority of $310,000 to resolve the case at mediation. Prior to mediation, Plaintiff’s counsel had made a demand of $750,000. With an existing policy limit of $1 million, Florida rules would require the claims representative to have $750,000 in authority. Absent authority, the insurance carrier has “failed to appear” at mediation.

During mediation, a final demand of $375,000 is made at 5:30 p.m., which is $65,000 above the carrier’s self-imposed limit. The senior claims representative cannot be contacted. The attending claims representative, fearful of exceeding his superior’s instructions and authority, asks that the offer be kept open for 48 hours.

Plaintiff’s attorney refuses and insists the offer be accepted on the day of the mediation. As he leaves the mediation, the claims representative says, “I don’t have the authority today to resolve this matter, but I believe I can get the case resolved in a day or two.”

The mediation concludes with an impasse. The Plaintiff’s attorney later rejects a $375,000 offer by the insurance carrier.

Sanctions?

Plaintiff’s attorney files a motion for sanctions against the defendant and its liability carrier for failure to appear at the mediation with proper authority. The attorney argues that prior to the mediation, Plaintiff had served a $750,000 demand and, not surprisingly, argues the claims representative should have had $750,000 in authority to resolve the case at the time of mediation.

In the Motion for Sanctions, Plaintiff correctly recites verbatim the statements made by the insurance carrier representative during mediation: “I don’t have the authority today to resolve this matter.” The motion seeks sanctions including the cost of mediation and time spent preparing and attending the mediation, which totals approximately $7,000 including travel and Plaintiff’s share of the mediator’s fee.

Should the motion be granted? No.

The Mediation Confidentiality and Privilege Act, codified at Section 44.401 et seq., provides a broad evidentiary privilege. The confidentiality rules restrict the use of statements made during the mediation process with limited exceptions. Unless there is a waiver of the privilege, the Plaintiff’s Motion for Sanctions will fail for lack of proof.

Privilege Claim

Section 44.405(2) provides that a mediation party has a privilege to refuse to testify and to prevent any other person from testifying in a subsequent proceeding regarding mediation communications.

Therefore, under the literal language of Section 44.405, the disclosure by Plaintiff’s attorney of the statements made by the insurance carrier representative regarding his lack of authority violates the confidentiality and privilege provisions.

There are six exceptions to the rules governing confidentiality under Section 44.405(4)(a). None purport to admit evidence of a statement made by the insurance carrier regarding the presence or absence of authority. Therefore, Plaintiff has no admissible evidence of non-compliance with the authority rules.

The little-known secret is that when Rule 1.720 was modified to specify authority requirements for insurance claims representatives, the drafters of the revised rule knew or should have known there was a legal impediment to bringing a claim for sanctions based on statements made during mediation. The confidentiality and privilege provisions in Chapter 44 were not amended. No new exception for statements “evidencing the absence of authority” was statutorily enacted.

The Motion for Sanctions fails because the confidentiality and privilege provisions within Section 44.405 are sufficiently broad to preclude a party from offering statements concerning the absence of authority. See MEAC Op. 2010-02. In this hypothetical, Plaintiff’s attorney who filed the affidavit and motion offering the statements of the claims representative during the mediation process would be violating the Mediation Confidentiality & Privilege Act. That would render the plaintiff’s attorney subject to sanctions for filing the motion.

The philosophical objection to the authority rule is apparent. Except in rare instances, the insured defendant has no control over the insurance carrier’s chosen mediation representative, or the authority afforded to him or her. So, requiring the party Defendant to certify the carrier’s authority under Rule 1.720 ten days in advance of mediation is illogical and simply unfair. The interests of the carrier and the insured regarding authority are not co-extensive.

Appearance-and-authority rule

The Florida Supreme Court adopted the appearance-and-authority rule apparently to address the problem of claims representatives having tight purse strings but incongruously places the onus on the insured to certify the authority of the insurer. That has the tail wagging the dog.

The current scheme evinces a concern for having “enough” insurance limits in play, but at the cost of forfeiting the doctrinal or philosophical integrity of the mediation process and the inherent right of self-determination: the right to decide who attends and what to pay. Foisting liability for sanctions on the insured when the carrier has an inadequate reserve and declines to settle is simply perverse.

While the Defense must comply with externally imposed authority and attendance rules that Plaintiff does not face, the process works pretty well most of the time in practice, if only because evidence of non-compliance with the authority provisions is largely beyond redress owing to the robust confidentiality and privilege protections within Chapter 44.

David Henry

David Henry

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