Van Winkle: Mediation process issues to watch

Attorneys participating in mediations in Indiana may want to follow the appellate course of two recent federal court orders. The orders relate to two important mediation process issues: the circumstances under which an indemnitee may recover a voluntary contribution to a settlement, and the circumstances under which an expert’s participation in mediation could result in that expert being precluded from testifying at a subsequent trial.

Right of indemnitee to recover contribution to mediated settlement

Common law in most jurisdictions has long generally provided that an indemnitor denying liability and refusing to participate in a mediation may be bound by a reasonable settlement reached by its indemnitee in its absence. A recent federal court order, however, demonstrates that the rights and obligations in such cases are complex, nuanced and fact sensitive.

The case, Axis Insurance Company v. American Specialty Insurance & Risk Services, Inc., 2023 WL 2560833, (N.D. Ind. March 17, 2023), involved an action brought by an insurer/indemnitee against its underwriter/indemnitor, seeking reimbursement for the contribution the insurer made to a settlement of a tort claim against its insured. The insured, upon being sued by an employee, claimed that the policy of insurance issued by the insurer either covered the underlying tort claim or should be reformed to provide such coverage.

Although the proposal and binder for the applicable policy referenced the relevant coverage, the final policy was issued without it. The insurer denied coverage based on the final policy and notified its underwriter that if the policy was reformed, it would seek indemnification from the underwriter for negligence or breach of contract.

Although neither the insurer nor underwriter were parties to the underlying suit, the defendant notified both of the scheduling of an upcoming mediation and invited them to attend and participate in the mediation. The insurer, while maintaining its position that there was no coverage for the underlying claim, agreed to participate in the mediation and requested that the underwriter also participate. The underwriter did not attend the mediation and, in its absence, the insurer made a contribution to a settlement, the amount of which it subsequently sought to recover from the underwriter in the suit for indemnification.

The underwriter filed, and the trial court granted, its motion for summary judgment, finding that the insurer did not designate evidence showing that it gave the underwriter the opportunity of defending the underlying case, nor that it asked the underwriter to approve the settlement before it was made and that, in the absence of such facts, the insurer proceeded at its own risk to settle voluntarily. The order granting the motion for summary judgement is being appealed and, when finalized or modified, may serve to inform, if not guide, parties as to the course to take to both protect coverage or litigation positions while still being able to participate in a settlement without waiving potential indemnification rights.

Potential consequences of expert participation in mediation

The second recent federal court ruling involved circumstances under which an expert’s attendance at a mediation and/or its exposure to confidential mediation information could result in the expert being precluded from testifying at a subsequent trial. In that case, Indiana GRQ, LLC v. American Guarantee and Liability Insurance Company, 2023 WL 26, 0166 (N.D. Ind. March 22, 2023), the tendered testimony of two experts was challenged on the basis that their proposed testimony was tainted by their receipt of confidential mediation communications.

The trial court found that one expert’s mere attendance at the mediation session was not grounds to exclude his proposed testimony as there was no evidence that the expert had access to or was provided mediation briefs or submissions, nor that he based his opinion on confidential information. The court also noted that the expert left the mediation room when the parties and counsel discussed making a settlement demand.

The circumstances involved with the second expert were the mirror image of the first: The second expert did not attend the mediation session, but had been provided mediation submissions and exhibits of both parties. Ruling on a pretrial motion to preclude the expert’s testimony, the court stated: “Given the sanctity of the mediation process, its protection in law as confidential, and the imprimatur of the process by the court through local rules, the court remains troubled by the disclosure of confidential information to [expert] and his reliance on that information.”

The court subsequently, after an evidentiary hearing on the issue, granted the motion and precluded the expert from testifying. After a jury verdict in favor of the plaintiff, the defendants filed motions for a new trial, raising various issues as error, including the order excluding the testimony of the expert.

The eventual resolution of this issue could have a significant impact on the participation of experts in the mediation process. How can lawyers ensure that discussions to which the expert might be privy don’t include confidential mediation communications? Is it realistic to expect that further rulings in this case, or clarification in other cases, may provide bright lines, or at least adequate guidance for lawyers to follow to ensure that experts can participate and/or assist in the mediation process without concern of potential exclusion from testifying at a subsequent trial? Or will the cautious default result be to simply not have experts participate in the mediation process at all?•

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John R. Van Winkle, of Van Winkle Baten Dispute Resolution, was a participant in the founding of and was the second chair of the American Bar Association’s Section of Dispute Resolution. Opinions expressed are those of the author.