Mediation is an increasingly popular approach to resolving claims of insurer bad faith without resorting to litigation. In bad faith claims, the insured alleges that their insurer unreasonably denied a valid claim or failed to handle the claim appropriately, often breaching the duty of good faith and fair dealing. When this occurs, the policyholder may seek compensation beyond the value of the original insurance claim. 

Examples of insurer bad faith are when an insurance company fails to properly investigate a claim before making a decision; intentionally delays the claims process to avoid paying out promptly; refuses to cover a claim despite clear evidence of coverage; or offers an unreasonably low settlement that does not reflect the actual damages incurred by the insured. 

Mediation offers a way for both the insured and the insurance company to resolve these grievances in a non-adversarial forum. An impartial third-party (the mediator) facilitates negotiations to reach a settlement. Here’s how the process generally works:

1. Selection of a mediator — Both parties must agree on a neutral mediator, who is usually an attorney knowledgeable in insurance law. The mediator’s role is not to make decisions or impose a solution but to guide the discussions and help the parties come to an agreement.

2. Pre-mediation preparation — Before mediation begins, the insured’s legal team will gather evidence, such as correspondence, policy documents, claims filed and proof of damages. The insurer likewise will prepare its defense. In most cases, both parties will draft and submit position statements, summarizing their stance in the dispute.

3. Initial joint session — Mediation often begins with a meeting where both sides have the opportunity to present their positions. The insured’s attorney explain why they believe the claim has merit. The insurer will outline why the claim was denied or delayed. The mediator may ask questions to clarify the issues and set the stage for negotiations.

4. Private caucuses — After the joint session, the mediator typically meets with each party separately in what is known as a private caucus. During these sessions, the mediator can discuss the strengths and weaknesses of each side’s case, explore possible settlement options, and help manage expectations. These private discussions allow the mediator to understand the underlying interests of both parties and seek points of compromise.

5. Negotiation and settlement proposals — The mediator will move between the parties, conveying offers and counteroffers. Through this shuttle diplomacy, the mediator helps both sides inch toward a resolution. Unlike litigation, where a judge or jury issues a verdict, the outcome in mediation is fully within the control of the parties. They are free to accept or reject settlement proposals at any time.

6. Reaching an agreement — If both parties agree on a settlement, the terms will be put in writing and signed. This agreement is typically binding, meaning the insured cannot later pursue litigation based on the same bad faith claim. If mediation does not result in a settlement, the insured still retains the right to file a lawsuit.

Mediation is generally faster, less expensive and less formal than a court proceeding. Additionally, mediation allows for more creative solutions, such as structured settlements or changes in future claim-handling practices. Importantly, it provides both sides with an opportunity to avoid the unpredictability of a trial and the possibility of a large punitive damages award.

At Quinn & Kronlund, LLP in Stockton, California, we understand how useful mediation can be in resolving insurance claims. If you or a loved one faces an insurance dispute, learn how our mediation services can help. Contact us online or call us at 209-943-3950 today.