You had better believe it and take precautions to see that it does not happen to you.
Though unpublished, this decision from California's Third District Court of Appeal, Palmer v. State Farm,
made me pause.
According to the appellate opinion, a mediator who helped broker a settlement between a policyholder and his carrier drafted an informal agreement for the parties to sign at the mediation - perhaps an OK practice but perhaps not. More about that later.
When the carrier drafted the formal agreement and presented it to the insured, the insured refused to sign, claiming that the mediator's handwritten agreement referred to two policy limits while the formal post-mediation carrier-drafted agreement referred only to a single policy limit.
The carrier moved to enforce the settlement, filing a declaration executed by the mediator affirming that the formal contract did indeed reflect the handwritten one and that both memorialized the parties' alleged mutual understanding that there was only one policy limit.
From the appellate opinion, it does not appear that either party objected to the mediator testifying or to the partiality the mediator showed to the carrier in siding with it against its insured. The trial court weighed the evidence and concluded that the formal contract was not a new agreement -- it was simply a formal memorialization of the handwritten agreement. The appeals court affirmed the judgment - but fortunately chose not to have it published, a rule in California that keeps decisions from being cited to other courts.
What is the take away for the policyholder and its counsel?
First, avoid the problem entirely by bringing a template of your favorite formal agreement to the mediation on a jump drive so that no skeletal term sheet subject to post-mediation 'nibbling' can become the subject of further litigation.
If it is 3 a.m. and no one has the form or the endurance to draft up the final agreement for signature, draft the term sheet yourself. Don't leave it to your opponent or the mediator to get it right. (And ask yourself whether the mediator might not have more of an interest in the enforcement of an agreement he drafted which he or she may swear is clear as a bell -- whether it is or is not -- than in one a party drafted).
If your opponent moves to compel the enforcement of an agreement that does not reflect the terms settled upon and supports it with a declaration from the mediator, immediately object, move to strike the Declaration, and call the mediator demanding that he withdraw his or her sworn testimony not only on confidentiality (section 1119) and incompetence (section 703.5) grounds; but also on ethical grounds.
California, like many states, has specific rules that preclude the mediator from testifying or taking sides about what the parties 'really' meant, an intuition that he or she likely gained during private caucuses with the parties. See California Code of Civil Procedure Section 1775.10 and Evidence Code Sections 703.5 (competence) and 1119 and 1121 (inadmissibility). Moreover, the model rules from virtually every professional organization requires that the mediator remain neutral as part of his or her ethical responsibilities. See the Model Standards of Conduct for Mediatorsf rom the AAA, the ABA, and the Society of Professionals in Dispute Resolution. Bear in mind, however, that the precedural and evidentiary rules may or may not be the same from state to state or in federal court and may or may not be same if the proceeding is deemed to be a settlement conference or a mediation. For example, Rule 408 of the Federal Rules of Evidence is not as strict as the California rules and most parties do not agree in advance as to what law will be applied should any dispute arise. However, the non-binding ethical rules of neutrality should be applicable across the board.
In sum, the key, is try to avoid this problem in the first instance by being proactive and getting the settlement transaction completed in detail and the written agreement executed by all parties at the mediation. But some, and perhaps many, mediators seem not to know of the evidentiary and ethical rules except in the vaguest sense and want to get their concepts of the the agreement to settle before a court if it looks like the agreement he or she thought was reached begins to unravel over the details. Moreover, there is the concern that cannot be quantified and likely does not apply in many instances, that meditors, like arbitrators, often get repeat business again and again from insurance companies and want to undertake the type of support for the insurer as did the mediator in the case being discussed here.
This is not a condemnation of mediators in general or of the mediation process. It is just a warning that the risk manager or the lawyer handling a mediation think of these issues well in advance to reduce the risk that the mediator may be your own worst enemy.
For another perspective on this decision but with not dissimilar conclusions, see Victoria Pynchon's Negotiation Law Blog that discusses this same case. Fair disclosure though, Vickie is my wife.
