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Fidelity Practice Pointer: Considerations for Pre-Suit Mediation and the Importance of the Mediation Privilege

Legal Lagniappe

05/31/2017

By: Ashley Belleau

I. Introduction 

There are a number of factors to consider in determining whether to conduct a pre-suit mediation including: 

1. The size of exposure of the claim;
2. The extent to which the facts have been developed through the claim investigation; 
3. The benefits and risks of pre-suit mediation; 
4. The objective or goal of the parties considering pre-suit mediation; 
5. Whether the opposing party’s position is reasonable; and 
6. Whether the opposing party and/or its counsel has a reputation for abusing the pre-suit mediation process. 

Of course, the insurer must know the law of the jurisdiction where the claim arose regarding interpretation of the policy terms and defenses. The insurer must also know the extent to which communications and documents related to the mediation are subject to the mediation privilege. Such knowledge can provide guidelines for what is disclosed, minimize risks of unintended disclosure in a future lawsuit, and may even be a factor as to whether to engage in pre-suit mediation at all. 

II. Mediation Privilege 

Objectives for conducting a pre-suit mediation may be to educate the insured and the insured’s attorney on the policy provisions that preclude or limit coverage, or to streamline the issues prior to a suit being filed. However, a party’s objective could instead be to use the pre-suit mediation process as a way to conduct free discovery, to hone its own theory of the case or to develop a bad faith claim. One of the concerns with pre-suit mediation is that the mediation could cause dissension between the parties and increase the likelihood of bad faith conduct allegations when the dispute is not resolved at mediation. It is the authors’ collective experience that fidelity insurers that agree to pre-suit mediation act in a good faith effort to resolve a disputed claim. However, it is possible that the insurer or insured could unknowingly provide information that later proves harmful to its case in court, or simply further fuels the dispute. It is important, therefore, that parties engaging in pre-suit mediation have a full understanding of the extent to which information disclosed in the mediation process may be deemed inadmissible under the law of the jurisdiction or the agreement of the parties. 

The mediation privilege can arise by statute, court rule or case law and is intended to encourage mediation by providing the parties some assurance of confidentiality. Many federal courts have recognized the mediation privilege; however, a number of courts have carved out exceptions to the confidentiality of communications in the mediation privilege.1 In determining whether the privilege applies, courts often rely on the four-prong test established by the Supreme Court in Jaffee v. Redmond,2 which is: (a) whether the asserted privilege is “rooted in the imperative need for confidence and trust;” (b) whether the asserted privilege would serve the public ends; (c) whether the evidentiary detriment caused by an exercise of the privilege is modest; and (d) whether denial of the federal privilege would frustrate a parallel privilege adopted by the states.3 Interestingly, the U.S. Fifth Circuit Court of Appeals has refused to recognize the federal mediation privilege.4 

In Altheim v. GEICO General Insurance Co.,5 the plaintiffs, who were prosecuting a first party bad faith case, were seeking access to all materials contained within the insurer’s claim file prior to the entry of final judgment, as well as all documents for which the insurer asserted the mediation privilege. The Middle District of Florida found that since both parties were participants in the mediation, the mediation privilege did not apply, even to the mediation statement.

Similarly, in Carles Construction, Inc. v. Travelers Casualty & Surety Co. of America, the court held that the Florida prohibition on disclosure of mediation communications did not apply to the summary judgment affidavit of the subcontractor’s principal regarding how settlement and prior mediation in a state court dispute was conducted by its surety.6 Part of a multi-entity mediation, the communications at issue related solely to settlement discussions between a party and a non-party. None of the disclosures revealed confidential communications as to opposing parties at the mediation.7 Thus the affidavit was allowed to be considered in the lawsuit alleging bad faith against the surety.8

In another Florida case, Bradfield v. Mid-Continent Casualty Co.,9 the district court found drafts of settlement and mediation agreements were not protected from discovery under the mediation privilege or under the work product privilege. There, homeowners’ actions against the builders’ general liability insurer sought recovery from an insurer for claims, as assigned by the homebuilders, for purported wrongful refusal to defend in the underlying action. If the homeowners were to introduce evidence as to reasonableness of the agreements and as to lack of bad faith, the court reasoned, they could not hide behind a shield of privilege to prevent the insurer from challenging such evidence.

The mediation privilege does not automatically apply to documents simply because they are used in the mediation. In Washington, a district court found that if documents prepared prior to mediation would otherwise be admissible, those documents are not shielded merely because they were provided to the mediator.10 Likewise, in Rojas v. Los Angeles County Superior Court,11 the California Supreme Court held that: (1) the mediation privilege for “writings . . . applied to witnesses’ statements, analyses of raw test data, and photographs prepared during mediation;” and (2) the mediation privilege was not subject to a “good cause” exception.12

Communications or disclosures prior to or outside of the mediation, even if they are related to the mediation, may not be privileged. In Pennsylvania, the district court found that the parties may be able to avoid this issue if they keep the mediation open and involve the mediator in all communications.13 For example, the Louisiana Mediation Act provides that all oral and written communications and records made during the mediation, whether or not they were conducted under the Act and whether before or after institution of formal judicial proceedings, are not subject to disclosure, and may not be used as evidence in any judicial or administrative proceedings.14 However, the Act provides exceptions. Those exceptions include:

1. Reports made by the mediator to a court, pursuant to that court’s order, only as to whether the parties appeared as ordered, whether the mediation took place, and whether a settlement resulted therein;

2. In connection with a motion for sanctions made by a party to mediation, based on a claim of the party’s noncompliance with the court’s order to participate in mediation proceedings; however, the disclosure of any communications and records made during the course of the mediation should be strictly limited to the issue of non-compliance with the court’s order; and

3. A judicial determination of the meaning or enforceability of an agreement resulting from a mediation procedure if the court determines that the testimony concerning what occurred in the mediation is necessary to prevent fraud or manifest injustice.

The examples above demonstrate that it is critical that counsel research the law in the jurisdiction where the claim arose and identify the confidentiality and mediation privileges that govern. Such knowledge beforehand should provide strategies to shape disclosures both before and during the mediation process.

III. Other Considerations

Another factor to consider is whether counsel for the insurer or the insured is licensed in the jurisdiction where the claim arose. For example, claims counsel may have been retained to represent the insurer in a jurisdiction in which he or she is not licensed. If the mediation is to take place in that jurisdiction, counsel should review the Rules of Professional Conduct of that state as well its mediation laws to determine whether he or she can participate in mediation without violating the applicable provisions.

Also, be aware that the American Arbitration Association (“AAA”) promulgated its Model Standards of Conduct for Mediators, which set out, in part, the standards for confidentiality. “The Model Standards have proved to be an influential ethical source for mediators, mediation scholars, and legislatures. They have inspired many codes of conduct for mediators in the United States and abroad and influenced their content. Many commentators and mediators treat them as an authoritative statement on the ethical conduct expected of mediators.”15 AAA Model Standard of Conduct for Mediators Standard VI provides that a mediator should promote honesty and candor between and among all participants, and shall not knowingly misrepresent any facts or circumstances in the course of mediation.16

Finally, when considering pre-suit mediation, due diligence by counsel includes: investigating the facts of the claim, the substantive law of the jurisdiction where the claim arose, the laws governing mediation in that jurisdiction, the proclivities of the attorney representing the insured including whether he/she will engage in good faith mediation, and the type of mediator best suited to mediate the claim. In selecting a mediator, claims counsel should investigate the proposed mediator’s qualifications including information from other counsel with personal experience with the proposed mediator’s effectiveness and style. Is the mediator’s approach evaluative or facilitative or a combination of both? Generally, the mediator should not impose his/her view on the parties, but should assist the parties in moving toward a settlement that all parties can live with.

IV. Conclusion

When considering pre-suit mediation, one size does not fit all since each case has its own unique factors that can influence the decision. Upon receiving a new case, the attorney should review the claim, the coverage, and identify actual and potential issues, both legal and factual. It is important to determine if the claim investigation is complete. If not, identify issues for further investigation. If the investigation is complete, ascertain whether the claim determination is supported by the facts and the law. It is also essential to review the law governing mediation in the claim jurisdiction and to determine what communications are subject to the mediation privilege. Finally, a legal and cost benefit analysis must be performed and reviewed with your client to decide whether it is better to engage in a pre-suit mediation, defer mediation until discovery has been conducted or decline to mediate and proceed to litigation. Successful mediation generally confers many benefits, including some control in the outcome by each party and an agreement as to the result. Obviously, once the suit goes to the judge or jury, the outcome will be determined by the trier of fact, which can be a risky proposition.

This article originally appeared in the Spring 2017 issue of the American Bar Association's Fidelity & Surety Law Committee Newsletter. Lugenbuhl shareholder Ashley Belleau collaborated on the article with Christina Craddock, senior surety counsel at Liberty Mutual Surety, Southeast Region Surety Claims in Duluth, Georgia, and Lee M. Brewer, a principal of Bryan & Brewer, LLC in Columbus, Ohio.  

1. Cleveland Constr., Inc. v. Whitehouse Hotel Ltd. P’ship, C.A. 01-2666, 2004 WL 385052 (E.D. La. Feb. 25, 2004); Thrasher v. Metro. Prop. & Cas. Ins. Co., No. 06-2317, 2007 WL 4553605 (W.D. La. Dec. 18, 2007); see also Solorzano v. Shell Chem. Co., No. 99-2931, 2000 WL 1145766 (E.D. La. Aug. 14, 2000) (rejecting the creation of a federal ombudsman privilege).
2. 518 U.S. 1 (1996).
3. Id. at 9-14. See also John V. Burch & Christina A. Craddock, Negotiation and Mediation of Fidelity & Surety Claims (Apr. 2011) (unpublished paper submitted at the Twenty-Second Annual Southern Surety & Fidelity Claims Conference).
4. In re Grand Jury Subpoena, 148 F.3d 487 (5th Cir. 1998).
5. No. 8:10-cv-156-T-24TBM,, 2010 WL 5092721 (M.D. Fla. Dec. 8, 2010).
6. 56 F. Supp. 3d 1259, 1272 (S.D. Fla. 2014).
7. Id. at 1274.
8. The Carles court, based on the mediation-related evidence, also found issues of fact precluded summary judgment as to (1) whether surety for subcontractor violated duty of good faith and fair dealing in how it settled subcontractor’s claims against contractor and contractor’s claims against subcontractor; (2) whether subcontractor’s surety conspired with contractor to fraudulently conceal subcontractor’s valid claims; and (3) surety’s counterclaims and third-party claims seeking specific performance of indemnity agreement and exoneration, and alleging breach of contract. Carles, 56 F. Supp. 3d at 1259. This highlights the significance performing a risk/benefit analysis before engaging in pre-suit mediation.
9. 15 F. Supp. 3d 1253 (M.D. Fla. 2014).
10. Western & Clay, LLC v. Landmark Am. Ins. Co., No. C09-1423 MJP, 2010 WL 1881880 (W.D. Wash. May 10, 2010).
11. 93 P.3d 260, 265 (Cal. 2004).
12. Id. at 424.
13. U.S. Fid. & Guar. Co. v. Dick Corp./Barton Malow, 215 F.R.D. 503, 506 (W.D. Pa. 2003).
14. , La. Rev. Stat. Ann. § 9:4112 (1997).
15. Omer Shapira, A Critical Assessment of the Model Standards of Conduct for Mediators (2005): Call for Reform, 100 MarquetteL. Rev. 83 (Fall 2016).
16. The American Bar Association and FINRA have similar conduct standards for mediators. 


A veteran and award-winning attorney, shareholder Ashley Belleau’s primary areas of practice include bankruptcy, corporate and commercial law, estate planning, professional liability defense and litigation. Located in the New Orleans headquarters, Ashley works with business owners through the corporate lifecycle of launch, growth, development and dissolution when necessary. She also consults with individuals on how to protect their personal assets through estate and trust vehicles, and she mediates and arbitrates business disputes. For more information, visit her profile.

The content of this article is not intended to serve as an exhaustive review of the laws, statutes or issues related to pre-suit mediation and is not intended to provide legal advice. The opinions expressed through this article may not reflect the opinions of the firm, individual attorneys or clients.