A number of public adjusters and contractors have inquired whether I’ve seen recent forms that require the selection of a mediator by the flip of a coin. I was going over a policy sent from a mid-west public adjuster yesterday and came across the following negotiation and mediation condition in the loss settlement portion of the policy:

1. Negotiation and Mediation

The Insured and the Company shall attempt in good faith to resolve any controversy or dispute arising out of or relating to this POLICY promptly by negotiations between representatives who have authority to settle the controversy. If the dispute cannot be resolved by negotiation, the parties shall endeavor to settle the dispute through a confidential mediation with the assistance of a mediator mutually selected by the parties. To the extent the parties are unable to select a mutually agreeable mediator, each party will propose three mediators. Each party then shall strike two of the mediators proposed by the other, leaving one mediator as proposed by each party. A coin then shall be tossed, with the Insured calling heads or tails, with the prevailing party in the coin toss having its remaining proposed mediator jointly engaged by the parties to mediate the dispute, with the cost being split equally among the parties.

I have no clue whether a court would uphold the selection of a mediator through the “flip of a coin” method which is commonly known as flipism. I guess it may be better than a cutting of cards or rolling of dice. In a quick legal search, I found nothing about the ultimate selection of a mediator as being inappropriate through the flip of a coin, although the skills, background, and bias of a mediator can impact the resolution of a claim. Still, the mediator is not a person making binding judgments. Selecting an arbitrator with such a random election process might be more easily challenged.

The policy also has the following provisions:

  • Arbitration
  • Jurisdiction and venue of courts are only in New York.
  • New York law applies.
  • The Statute of Limitations is 12 Months
  • The mediation is in the locality of the loss.

As I have mentioned, these arbitration clauses with New York law and venue clauses need to be fought by The National Association of Insurance Commissioners, state legislators, Congress, agent associations, and policyholder advocates. Hauling the controversy far away from the place of loss is inherently unfair and provides leverage of underpayment to the insurer. These clauses remove local state law and strip insurance commissioners of their ability to regulate insurance.

But what about the mediation clause? Is it good policy? It would seem to mandate one more step before a more adversarial process such as arbitration has to be invoked. It might make litigation of the claim—either in the form of arbitration or formal lawsuit—unnecessary.

I predict we will probably see more of these mediation clauses in the future because they are certainly less costly than litigation and give the parties one last attempt to settle in a more formal settlement format. My insurance attorney colleagues may not like this, but the resolution of insurance disputes has never been about insurance lawyers making money.

Thought For The Day

The most dangerous negotiation is the one you don’t know you’re in.
—Christopher Voss