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The Mediator’s Proposal: Know When to Walk Away, and Know When to Run

TIPS Property Insurance Law Committee Newsletter
Spring 2017

By Jennifer L. Gibbs
To view this article in PDF format, please click here.

There comes a point during mediation where it is obvious the parties’ expectations for settlement are not aligning. One party may have indicated they are willing to walk, or a party may have given the mediator their “firm and final offer.”

When the mediator senses an impasse, where further negotiations are likely futile, the mediator may offer what is called a “mediator’s proposal.”

What is a mediator’s proposal?

A mediator’s proposal is generally a “take it or leave it” number proposed by the mediator, typically in writing. Each party will generally be given a certain amount of time to accept or reject the proposal. Sometimes a mediator’s proposal is given at the end of the day. Other times, the mediator will extend a mediator’s proposal a day or two after mediation. The mediator’s proposal is often a number neither side likes (and the mediator plans it accordingly).

How does it work?

The typical mediator’s proposal is issued by the mediator at the end of mediation or a day or two after. If both parties agree, the case is settled. If one party agrees and the other does not, the mediator does not disclose the acceptance to the other party, but merely advises both parties there is no deal.  If neither accepts, there is no settlement, and the mediator notifies both parties there is no deal, even though the parties should know that already.

Benefits

The benefit to the mediator’s proposal, is that the mediator can suggest to a number neither side felt comfortable offering. This could be because neither wanted to make the first move, or because the parties did not have authority at mediation to offer or consider the number. Additionally, the mediator can assume the role of “bad guy” – take the blame game away from one side or the other.

Moreover, because the proposal often comes a day or two after the mediation, the parties have had a chance to cool off, and the emotion of the day has worn off. One or both parties may also have more authority than they did the day of mediation and the once hypothetical path toward protracted litigation is now a reality.

Draw Backs

The potential drawback of the mediator’s proposal, from the defense side, may be that a neutral party has now placed a value on the case that wasn’t there before. This may embolden the other side. The mediator’s proposal may also negatively affect the plaintiff in that counsel may have inflated the expectation of the plaintiff, and now the plaintiff is staring down a number far below what they expected to recover. Additionally, the mediator’s proposal may tarnish the relationship between counsel and the mediator, affecting future work on the mediator’s behalf. Thus, the mediator has every incentive to get it right.

The Mediator’s Perspective

Mediator Will Pryor of Dallas reports that roughly 20 percent of his mediations result in a mediator’s proposal.  Of those cases where a mediator’s proposal is issued, the “success rate” varies dramatically, depending upon whether circumstances dictate — or the lawyers insist — that the proposal be made “on the spot”, while all participants are still present, or whether the proposal is offered the following day, the following week or at a later date.  “On the spot” proposals have a success rate in the 10 percent to 20 percent range.  Proposals offered later succeed in the 75 to 85 percent range.  There are a several reasons for this disparity.  Sometimes it is a Friday afternoon and the parties are picking a jury on Monday morning.  Sometimes there is a deposition of an expensive expert the next day, and the expert’s fee could be the difference in a settlement or impasse.  But absent these kinds of considerations, it is far more effective to send the participants back to their homes, offices, or airports disappointed that a settlement was not achieved.  When the mediator’s proposal arrives, it represents one last chance to salvage something from the commitment of time and money at the mediation”.

In deciding on whether to issue a mediator’s proposal and for how much, Pryor considers "any number of factors.  It is important not to resort to a proposal every time you reach an impasse.  Lawyers are fairly quick to figure out that if a mediator “over relies” on proposals, that the mediation itself becomes a negotiation to a bracket, and then a wait for the mediator to “split the difference’.  But this is risky.  Proposals are risky. If they fail, more often than not there is not much, if anything, the mediator can do.  So the mediator has to be selective”.

There is a popular misconception that mediator proposals are “recommendations” and that advocates can present the proposal to a client as such.  "A mediator’s proposal should never be characterized as a recommendation”, according to Pryor.  "When a mediator couches a proposal as a recommendation, has the mediator not crossed an ethical line, and become an advocate for a position?”  Instead the proposal should be based on a mediator’s experience, intuition, and discernment; it should be nothing more than a suggestion as to what the mediator thinks both sides might be willing to do, irrespective of whether it is “fair”, “rational”, “based on an objective valuation”, etc.”

Conclusion

Although it appears that the minority of cases are resolved through a mediator’s proposal, the trend seems to be moving in that direction. Whether it is because neither party wants to be the first to move, or whether the expectations of the parties do not match - in any event, a mediator’s proposal can be a valuable tool in resolving disputes; further solidifying the point that selection of the proper mediator can be the most important decision the parties make in the litigation process.

Jennifer Gibbs is a partner at Zelle LLP where her practice is focused on first-party property insurance coverage disputes resulting from catastrophic losses. A prior insurance agent and risk manager, Jennifer has over twenty-years’ experience in the insurance industry.

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