Avoiding Common Pitfalls In the Settlement Process

We have said it for years: Most of our claims are not going to trial and may never see the inside of a courtroom. Instead, in all likelihood, mediation or informal negotiations is where we’re going to get the case resolved. While mediation may not be as stressful or as high-stakes as a trial, there are still issues that consistently arise throughout the process that can quickly become pitfalls for the unsuspecting attorney or claims handler. This article uncovers some of those pitfalls to help ensure a smooth path to dismissal of the claim.

Pitfall #1: Not Having the Correct People at Mediation

One of the first steps in mediation is scheduling it, and one of the first issues to address is, who is going to attend? In many jurisdictions across the country, mediation is mandatory. As a result, the jurisdiction has likely adopted a rule on who has to appear in person. Those who are required usually include: the mediator; all individual parties or a representative of a corporate party; the party’s counsel of record, if any; and, for any insured party, a representative of the insurance carrier.

For a claims handler with a large number of claims, attending every mediation in person can quickly become impossible. The options for such a claims handler usually include: attending in person; seeking permission to attend by telephone; or retaining a local independent adjuster.

However, if you deviate from the rules on attendance, it is recommended to get written permission from opposing counsel because that is where the pitfall lies. Depending on the rules of the jurisdiction, if the correct people do not show up at mediation, a party could be subject to a variety of sanctions, including attorneys’ fees and expenses incurred by those who attended the mediation. Consequently, it is important to make sure this issue is dealt with well before mediation day.

Pitfall #2: Not Being Prepared

A starting point and key step to achieving a successful mediation is preparation. Even though it looks like such a basic pitfall, lack of preparation is one of the most recurring reasons for failed mediations. It is crucial that you know your case inside and out; forward and backward.

It is important to identify the weaknesses and strengths of your case, be mindful of the objectives and motivations of your opponent as well as your own client/insured, and provide the opponent’s side with the requisite information they require to resolve the claim.

Preparedness includes not only knowing your case, but also knowing your opponent’s case. This is important because the mediator can help you convince your opponent that these weaknesses, whether of fact or law, exist, and that compromise may be necessary.

Preparation also involves ensuring that key documents, such as expert reports, deposition testimony, and any other relevant evidence are available. Consider putting together a summary of such key documents to assist the mediator with quickly learning the specific facts, background, and key issues.

Finally, claims professionals and counsel need to prepare themselves physically for mediation, as it has a different dynamic than a regular office day. Make sure to put the mediation date on your calendar in advance. Anticipate that you will have to listen, you will have to disagree, and you might get less than what you want. Realize that attorneys and mediators count on wearing you down during a long mediation. If you are fully aware of the emotional challenges of mediation, you’re less likely to be surprised and derailed by them.

Pitfall #3: Not Negotiating All Necessary Settlement Agreement Provisions

After you have determined who will attend the mediation and you have prepared for it, it is important to determine what provisions you need included in the settlement agreement. While much of your pre-mediation time will be spent planning an opening statement or anticipating arguments from other parties, it is important to consider now what an agreement may include. In fact, we advise bringing a printed copy of the terms you believe to be truly necessary to mediation to circulate to the parties in attendance. Think about including any necessary terms in a checklist to make sure the agreement you negotiate has everything you need before the parties leave the mediation

Two of the most common terms clients and insurers should require are confidentiality and indemnification.  
Confidentiality is important to both client and carriers, especially if you’re dealing with a claim that is easily duplicated. For instance, if you’re dealing with a construction-products case, you certainly don’t want plaintiff’s counsel writing an article in their association newsletter about how much they recovered for their client.

Additionally, while not applicable to every claim, there are cases where indemnification should be an important consideration. For example, if you represent a subcontractor that has settled with the plaintiff without the involvement of the general contractor, an indemnification agreement with the plaintiff could be critical. The client and carrier are not likely to appreciate a subsequent claim by the general contractor if you forget and they are pulled back into the case through a third-party claim.

These provisions are not new or exciting, but they are important and they can often be overlooked at 4:50 p.m. after eight hours of mediation. To make sure that does not happen, think about sending your pre-printed confidentiality and indemnification terms with your first offer, and make sure you tell the mediator these provisions need to be included. Adding these terms at the outset ensures you won’t forget, and it keeps plaintiffs’ counsel from adding a premium at the end of the negotiation, or worse yet, when you send the draft settlement agreement to them for review.

Pitfall #4: Not Setting Aside Sufficient Time

Claims professionals and counsel need to consider the time required. One size does not fit all in mediation. A couple of factors to consider for the time appropriate for each mediation include: the type of case, the number of parties, their level of emotion, and the complexity of the issues.

Before making a final decision on how much time the mediation will take, it might be beneficial to call your mediator and opposing counsel to get their views on the subject. With this advance preparation, the likelihood of a successful resolution at a half-day or a full-day mediation can be increased, leaving the parties with not only a settlement, but also a feeling that their time was well-spent.

Pitfall #5: Leaving Without an Enforceable Settlement Agreement

The mediation is coming to a close. All required parties attended, all necessary terms were agreed to, and the parties came to a number everyone can live with. The attorneys shake hands, clients and carriers leave, and counsel starts drafting the settlement agreement.

You send the initial draft to plaintiff’s counsel for review. Unfortunately, they respond by telling you their client has gotten cold feet and won’t sign the agreement. Now the question becomes, is the agreement signed at mediation an enforceable settlement agreement?

Many states have adopted specific rules on what an agreement must have in order to be enforceable. Accordingly, it is important to take a quick look at the local rules of civil procedure or other authority to make sure any agreement signed at mediation is going to be sufficient, on its own, to settle the case.

For instance, in South Carolina, Rule 43(k) of the South Carolina Rules of Civil Procedure indicates that, to have a binding agreement, counsel must (1) have a draft consent order or written stipulation, signed by counsel, and entered in the record; (2) note the settlement in open court; or (3) have an agreement in writing signed by the parties and their counsel. Note that an agreement signed only by counsel is not sufficient under this rule.

Accordingly, even in mediation, the old law school adage of “read the rule” remains applicable. Whether this is your first mediation or 50th, it is important to make sure you take a quick look at the local rules to make sure any agreement you nego-tiate on mediation day is worth more than the paper it is printed on.

Pitfall #6: Not Getting Certain Settlements Approved

Now that you have a properly signed agreement with all necessary terms, you should be ready to get this file closed—unless of course the settlement is one that requires court approval. You will likely need to check your state’s statutes to determine whether this is the case, but there are several typical scenarios when court approval should be a consideration.

The first is when the case settles claims for minor children or incompetent persons. When it comes to minors, usually the higher the settlement, the more difficult the process. In South Carolina, for example, if the settlement is over $25,000, a conservator must be appointed; however, if the settlement is below $2,500, then no court approval is even required. [See S.C. Code Ann. § 62-5-433(A)-(D)]

Many jurisdictions also require court approval of settlements for wrongful death claims and class actions. The question you should ask yourself is whether the claims you are settling are being brought by the plaintiff directly or whether the plaintiff is bringing the claims in a representative capacity. If the claims do not actually belong to the plaintiff, you should check your jurisdiction’s statutes to see if there is an extra step to get this case settled.

Pitfall #7: Not Dismissing the Case Correctly

Now that the case is officially settled, we need to make sure the case gets properly dismissed. Many counsel take this step for granted, and in small cases with only a few parties, this issue doesn’t normally arise. However, in large construction-defect claims where different parties may settle at different times, getting a proper dismissal is important so the firm can end its representation and the claims professional can close her file.

There are usually two ways a case can be dismissed by the plaintiff: by stipulation or by court order. Most settlements are effected by stipulation, so, again, the question becomes, what are the requirements for dismissing a case by stipulation? Rule 41(a)(1)(A)(ii) of the Federal Rules of Civil Procedure requires a stipulation to be “signed by all parties who have appeared.” Furthermore, Rule 41(b)(1)(B) indicates that “unless the notice or stipulation states otherwise, the dismissal is without prejudice.” Many state rules are in accord with the federal rules.

Ultimately, after you get a properly enforceable settlement, it is extremely unlikely that a failure to have all parties sign the dismissal will become a problem. However, it is much easier to make sure you comply with the rules rather than try and fix a problem after it arises. Accordingly, make sure to review your jurisdiction’s rules of civil procedure and draft your stipulation of dismissal to comply with those rules.

We spend a lot of our time each day pushing claims toward resolution. Looking out for the above pitfalls can make those days a bit more pleasant.