Mediators: To Be or Not to Be Insured

When I first got involved in mediation back in 1991, most mediators were in the community arena and not realistically contemplating any professional opportunities. Mediation was "too touchy feely." In the same vein, mediators had no inclination, knowledge or interest in malpractice insurance coverage. After all, why bother? We were being assured carte blanche that mediators had a special immunity because we were "neutral."

With the changing times and the advent of lawyers jumping into the fray with the conviction that this will be a cottage industry for them, the heretofore "silent" practice of mediation has become center stage. Either because of lawyer involvement or the inkling that all was not as we had thought in the beginning, the increase in appellate decisions in the field indicate that mediators do indeed have a problem in answering for ramifications of their practice as neutrals.

As late as this past month, I was surprised to learn one of my close friends who is an experienced mediator operating a successful mediation center of long standing asked me if I thought she should be insured. I replied in the affirmative and gave her a reference for coverage. I am sure more and more neutrals are beginning to realize the era of the omnipotent mediator has long since passed, and all of us are going to be held accountable at some point in time when our paths cross those of disgruntled parties who are unhappy with our particular brand of "neutralism."

Errors and omissions coverage is a real necessity for the careful neutral. What we as neutrals consider "doing the right thing" will many times not coincide with what the parties consider to be that clear from their respective points of view. That is when the proper malpractice coverage needs to be in place.

Robert A. Badgley, Esq., of Locke Lord Bissell & Liddell in Chicago, has written about mediator liability from the standpoint of a survey and a "snapshot" look at the problem. He cautions that while there may be no basis for a claim this will not stop a disgruntled claimant. That means immunity for mediators is not universal and may not even be available where the arena is court-annexed mediation. This is because mediator liability may be outside the scope of the mediation process, e.g., causes of action for gross negligence, breach of contract as well as breach of confidentiality, and exposure to state bar disciplinary processes. The litigation defense cost to these mediators has nothing to do with whether they were actually at fault.

Mediator liability can forage through the underbrush of the entire field of controversy. These include the highly charged emotional area of family law, where mediators need to be concerned about possibilities such as post-mediation murder, expression of bias and misstatement of qualification credentials, faulty marital settlement agreements, and the inappropriate rendition of ancillary services. Following close behind as a field of concern fraught with problems for the unwary mediator is labor and employment. There can be severe costs to the mediator who truly seeks to preserve confidentiality. The defense against discovery requests in the protection of confidentiality can be very high to the dedicated mediator.

Lest it be concluded the way to avoid these costs and exposure to potential liability is to avoid mediating cases in such specialized areas, the court decisions are replete with examples of disputes in the civil and commercial law arenas where severe problems of liability for mediators have been reported. The cost of defense to a mediator in one case where the neutral was not guilty of any improper conduct has been reported to exceed $400,000. That case involved charges against the mediator for conspiracy with the other side and bias. It was still active when the costs reached that level notwithstanding the quasi-judicial immunity afforded him as court-appointed. Similarly in another mediated dispute where the mediator failed to disclose his prior professional relationship with one party and its attorneys, the disgruntled party went after the mediator for bias and failure to disclose, claiming he would not have accepted the mediator had the prior history been disclosed.

Not to be left out are those parties who agree to a settlement and then have "buyer's remorse." Their claim is the mediator coerced them into agreeing to a compromise, so the court should vacate the settlement. The imagination of the disgruntled party as to the amount of damages claimed in one of these lawsuits against the mediator has set the sky as the limit. And, if the neutral is a lawyer-mediator, the inference may be greater that the mediator did indeed pressure the party to settle.

Justified mediator liability has nothing to do with the problem. Just as there generally is nothing to prevent a person from driving down the street and throwing a large stone into the unprotected bay window in the front of your house, the same problem pervades the mediation profession. Absence of actual mediator liability will not prevent a claim, and an unjustified attempt to recover damages against the mediator may nevertheless generate sizable defense costs as well as an extensive commitment of time to defend.

Specificity is not demanded when a disgruntled party goes on the warpath against a mediator. So-called "judgment calls" made by a mediator can result in claims by a party against the neutral for misconduct for various actions not the least of which may be misrepresentation. Here again a claim of immunity by the mediator will not avoid the expense of defense, especially where the disgruntled party claims the mediator "forced" a settlement.

In another interesting situation, the mediator recommended a lawyer for one side. The disgruntled party later alleged the recommended lawyer was ineffective and blamed the mediator for the result that followed. The mediator's actions were compounded because there was also a claim the conduct of his firm in connection with the mediation provided evidence it had been practicing law without a license in that case.

As if the foregoing were not enough, mediators need to be concerned about potential disciplinary actions resulting from their activities as neutrals. The unlawful practice of law is one such problem because in many situations the lawyer who is acting as mediator is considered to be functioning in the limited capacity of a neutral rather than as a lawyer. For example, if the mediator actually drafts the settlement agreement, the mediator technically is practicing law without a license in that narrow respect. The hat worn by the mediator and the one by the lawyer are entirely different. So when the lawyer is functioning as a mediator, the neutral is considered to be like any other lay person without benefit of bar licensure. Even if the lawyer-mediator has errors and omissions coverage it may not be available in such circumstances unless premiums were paid for special disciplinary proceedings costs coverage.

So let the games begin.