Tuesday, January 18, 2005

COULD AN INSURANCE COMPANY BE LIABLE FOR FAILING TO HEED A MEDIATOR'S ADVICE? A Massachusetts Superior Court Seems to Think So

The January 10, 2005, Massachusetts Lawyers Weekly reported on a Massachusetts Superior Court case which could have significant repercussions for the mediation field in Massachusetts. This case raises two issues of great importance to dispute resolution practitioners: 1) confidentiality within mediation and 2) how mediation and the role of the mediator are defined.

In a story captioned “Company That Ignored Mediator Could Be Liable for Bad Faith”, Massachusetts Lawyers Weekly reported that “An insurance company that ignored the advice of mediators during post-trial negotiations could be held liable for bad faith settlement practices.”

(To download the decision in PDF format, please click here.)

In this case, Massachusetts Port Authority v. Employers Insurance of Wausau, a Mutual Company (Lawyers Weekly No. 12-406-04) (21 pages) (Sikora, J.) (Suffolk Superior Court) (Civil Action No. 95-3079-A) (Dec. 16, 2004), the Superior Court judge denied the motion for summary judgment of the defendant Employers Insurance of Wausau (“Wausau”) against the Chapter 93A and Chapter 176D claims by the plaintiff Massachusetts Port Authority (“MassPort”).

(For those readers unfamiliar with Massachusetts law, Chapter 93A is more commonly known as the Massachusetts Consumer Protection Statute, and Chapter 176D protects consumers against unfair or deceptive acts or practices committed specifically by insurance companies.)

The court concluded that there was sufficient evidence of bad faith to warrant the denial of Wausau’s motion for summary judgment. This evidence included the defendant’s failure to heed advice from two different mediators.

In the words of the court, “the detailed chronology recited above contains abundant indications of issues of irrational or bad faith behavior...includ[ing]...Wausau’s imperviousness to the views of mediator Steadman...[and] Wausau’s continuing immobility against the views of mediator Shubow”. Decision at 12. (Emphasis mine.)

This post will consider this decision and the possible ramifications it holds for mediators in Massachusetts.

A. Mediation and confidentiality.

The first issue this case raises is relatively straightforward. Under Massachusetts law, communications made during the course of a mediation are privileged. The relevant statute, Massachusetts General Laws Chapter 233, Section 23C provides that:

All memoranda, and other work product prepared by a mediator and a mediator's case files shall be confidential and not subject to disclosure in any judicial or administrative proceeding involving any of the parties to any mediation to which such materials apply. Any communication made in the course of and relating to the subject matter of any mediation and which is made in the presence of such mediator by any participant, mediator or other person shall be a confidential communication and not subject to disclosure in any judicial or administrative proceeding; provided, however, that the provisions of this section shall not apply to the mediation of labor disputes.

The law is clear: such communications are confidential and cannot be disclosed, as they evidently were here, in “any judicial or administrative proceeding”. The only exception the statute allows for is the mediation of labor disputes, which this case plainly did not involve.

The question then is how in the world did evidence of Wausau’s refusal to consider the mediators’ opinions come in? It was inadmissible as a matter of law (at least in the opinion of this humble blogger).

Our analysis does not end here, however. There is a second paragraph to this statute which is also important, since it defines who a mediator is for purposes of the statute:


For the purposes of this section a "mediator'' shall mean a person not a party to a dispute who enters into a written agreement with the parties to assist them in resolving their disputes and has completed at least thirty hours of training in mediation and who either has four years of professional experience as a mediator or is accountable to a dispute resolution organization which has been in existence for at least three years or one who has been appointed to mediate
by a judicial or governmental body.

This means that the statute is triggered when the mediator a) enters into a written agreement with all the parties (a document mediators often refer to as an “Agreement to Mediate”), b) has completed at least 30 hours of training and c) meets one of three additional requirements (experience, accountability to a dispute resolution organization, or appointment by a judicial or governmental body).

This therefore raises many threshold questions which the MassPort decision leaves unanswered. Were there no written agreements between the mediators and the parties? Did the mediators fail to meet the requirements specified by the statute? Was this perhaps not a mediation at all, despite the fact that the judge in his decision uses the terms “mediator” and “mediation”?

If we assume that this was in fact a mediation, and if we assume next that the mediators met the requirements specified by the statute, then how did evidence of Wausau’s “imperviousness to the views” of the mediators come in when communications made during the course of a mediation are privileged and confidential? The answer to this question may well lie in the pleadings themselves or in the motion for summary judgment and the opposition to the motion that were filed with the court by Wausau and MassPort.

It is true that one of the questions which the courts have not yet addressed is to whom does the privilege belong—to the mediator or the parties, and who has the ability to waive that privilege. It is a topic on which mediators themselves are divided. I think a very strong argument could be made that the privilege belongs to both. And after all, settlement is to be encouraged, not discouraged. Mediation is an attractive option for disputants precisely because of the privacy and confidentiality it affords, giving parties the opportunity to talk through difficult issues and negotiate in confidence. (For a discussion of the privilege and the rationale behind confidentiality in mediation, see the opinion of the single Massachusetts Appeals Court justice in Leary v. Geoghan, Appeals Court Docket No.: 2002-J-0435.)

B. The definition of mediation and the mediator’s role.

The other issue this case raises is a complicated one.

Mediation is often (although not always, by any means) a facilitative process in which the neutral has no power or authority to impose a decision that binds the parties. The mediator assists the parties in negotiating with each other and as part of that process can assist each of them in realistically assessing the strengths and weaknesses of their own cases. (This stands in contrast to arbitration, in which an arbitrator is hired specifically to evaluate the parties’ cases and render a decision that is usually final and binding.)

Mediation is based in part upon the widely-accepted principle of party self-determination—it is up to the parties, not the mediator, to determine the outcome of the mediation. (See, for example, The Model Standards for Conduct developed through a joint effort of the American Arbitration Association, the American Bar Association Section of Dispute Resolution, and the Society for Professionals in Dispute Resolution, which provides that “Self-determination is the fundamental principle of mediation. It requires that the mediation process rely upon the ability of the parties to reach a voluntary, uncoerced agreement...The primary role of the mediator is to facilitate a voluntary resolution of a dispute.” (Emphasis mine.) See also the Supreme Judicial Court Uniform Rules on Dispute Resolution, Rule 9 (Ethical Standards), in particular Rules 9(c)(iv) and (vi), which provide respectively that “A neutral may use his or her knowledge to inform the parties deliberations, but shall not provide legal advice, counseling, or other professional services in connection with the dispute resolution process” and that “[i]n mediation, case evaluation, and other processes whose outcome depends upon the agreement of the parties, the neutral shall not coerce the parties in any manner to reach agreement.” (Emphasis mine.)

Part of what makes analysis of this issue so challenging is that there is much disagreement within the mediation community itself as to what constitutes the practice of mediation and how the mediator’s role is defined. There are a number of schools of philosophy of mediation practice, and there exist different models based on those philosophies. These models include the transformative, the facilitative (probably the most commonly taught in mediation training programs), and the evaluative. (For an analysis of these different philosophies, see the article by Zena D. Zumeta on Mediate.com.)

It may be significant that the mediators referred to in this case were judges, who tend to have an evaluative rather than a facilitative or transformative style. In evaluative mediation, mediators do make predictions about how judges might rule with respect to the claims and defenses each party raises.

It is certainly possible that the processes in which MassPort and Wausau participated were not mediations at all. It is not uncommon for dispute resolution professionals to engage in an activity which they call mediation but which is in fact another dispute resolution process entirely and more closely resembles case evaluation or a settlement conference.

In the MassPort case, the Superior Court judge endows the mediators with an authority and power which many in the dispute resolution community would argue that mediators typically do not (and should not) have. Whether to reach agreement or not in mediation is voluntary. A mediator does not possess the power to order parties to reach agreement or to impose a binding decision on the parties (unless the parties have contractually agreed to this), regardless of whether the mediator is using an evaluative or facilitative approach.

It ultimately matters what kind of processes MassPort and Wausau participated in because the applicability of the Massachusetts mediation confidentiality statute turns upon whether these were mediations or another kind of process entirely. The answer may rest upon the signed writing entered into between these parties and the mediators. The decision itself, however, does not address this threshold issue.

It is clear that much confusion exists about what constitutes mediation and what does not, and what activities may or may not be defined as mediation. This is a problem for the field and one which practitioners need to address. We need clarity here, not just for judges deciding cases in which issues like these arise, but more importantly for the public which uses these services.

The fallout from this case on the mediation profession could be great. It is conceivable that this decision could act as a deterrent to parties contemplating mediation and drive away whole categories of disputants, particularly insurance companies who are major consumers of dispute resolution services. Why would anyone have any incentive to come to the mediation table at all when privilege can be disregarded and communications which a party believed were offered in confidence could later be introduced to that party’s detriment?

The good news is that this is a Superior Court decision and therefore carries relatively little weight in terms of setting judicial precedence. This will bear close watching, however, since there is always the likelihood that Wausau could appeal the denial of its motion, which means that this case could ultimately end up before the Supreme Judicial Court. And a decision from the highest court in the Commonwealth on an issue of this importance could hold serious consequences for the future of the mediation profession.

Many thanks to my friend and colleague Ericka Gray for bringing this case to my attention, as well as for the highly stimulating conversation about the issues raised by this decision.