The Expert Podcast

Today we're going to talk about another case that had to do with a mediation result to give you an idea of what mediation can do for both parties to avoid the expense of litigation or court and to have a fair and equitable result for all the parties. This case had to do with a vehicle damage incident, a collision, and also with the insurance coverage on a vehicle. So what happened was an insured had a commercial lines insurance policy called commercial auto. What that means is their vehicles that their company used for business operations were covered under a policy that protected these vehicles, just like your regular automotive policy like through Geico or Progressive. That wasn't one of the companies involved, by the way, but just to give you an idea as a consumer what kind of company we're talking about. And this insurance company had insured this fleet of vehicles. This company had four vehicles for about five years and the company had full coverage on these vehicles, and they used them for delivery and errands in a local market.

They didn't drive too far with them, and the insurance agency that sold the policy to this company was a local insurance agency that sold commercial lines. At the end of their policy term, the business that had these automobiles did not pay their premium. So when their policy came for renewal, the business didn't pay the bill. So the insurance company sent them a notice saying, look, you didn't pay your bill, your policy is going to get canceled. And 30 days later, sure enough, the insurance company canceled their policy.

So they had no coverage. About a month after that, one of these vehicles was involved in a collision that caused damage to the company car, another person's car, and caused significant injury. The amount of loss was in excess of two hundred thousand dollars between the vehicle's damage and the injury to the people — it was two hundred thousand dollars for a claim. So the company put in a claim to their insurance company saying, hey, we had this claim, you got to pay the coverage. And the insurance company said, wait a minute, your policy was canceled. You didn't pay your bill. You don't have a policy. So the insured company with these cars sued the insurer, but they also sued the insurance agent, the broker that brokered this policy.

Why would they sue if they don't have coverage? Why did they sue? Well, here's what they said. They said that at the end of their policy period, they didn't get a call, a reminder from their agent to pay their bill. And what they said was in prior years when they didn't pay their bill at the end of the policy, their agent called them up and said, hey Bob at XYZ company, whatever it is, this is Joe at Joe's Insurance, you know that policy you have for your auto? Well, your bill came due and you didn't pay it, so don't forget to pay it so you don't lose coverage. Their agent did a courtesy call and an email to remind them to pay their premium. Well, this year they didn't do that.

Turns out that the reason they did it in the past was when the agency was slow, there wasn't much going on. They would have agents go through and call up customers that were non-renewing or that didn't pay their bill just as a courtesy when they had extra time. That way people weren't sitting around idle doing nothing. But it wasn't a standard procedure to call every person when their policy was not paid. So this company that had the vehicles said, well, you're supposed to call us up and remind us. If you reminded us, we would have paid the bill. We would have had coverage on these vehicles.

But you didn't call us, so it's their fault. So it was going to go to court. It was set for litigation. And as part of that process, both parties — mostly the insurance company — wanted to have a mediation. Part of the reason is the insurance agency carries a special type of insurance policy called errors and omissions or E&O, meaning that if you're an insurance company and you mess up, you make an error, you have coverage so that you're not put out of business by some big lawsuit.

This insurance agent, this insurance broker, had their own insurance that covered them for mistakes they made. Errors and omissions insurance. Their errors and omissions insurance company stepped in and said, look, let's try to mediate this. Because in reality, the consumer company that had these vehicles, you're probably going to lose in court because you didn't have coverage. You had a notice from the major insurance carrier. Just because one agent didn't call you doesn't get you off the hook for not paying your bill. But you never know what's going to happen in court. It could go to a jury. The jury could side with the people that got hurt, wanted to get them some money. So the E&O company wanted to have some mediation done.

So we stepped in and talked to all the parties: the insurance carrier, the E&O company, the insurance broker, and the people that were injured — the other operator of the vehicle. And what we pointed out was our normal quote, as usual: this is the last time that you have control over your destiny. Once it goes to court and litigation, all bets are off. The jury could do anything. The judge can do anything. The judge could throw evidence. The jury could look at you, even as an injured person, and say, look, you should have paid your bill for insurance. Maybe people on the jury have some prior experience where they don't like when people get away with not paying bills. You don't know what's in people's minds.

We also pointed out that there were some other cases like this that we had seen. That even if you win, the attorneys get maybe $100,000–$120,000 in legal fees. That's going to come out of your winnings. And if you're the insurance company, even if you win the case and don't have to pay this claim for $280,000, you still have to pay $70,000 or $80,000 in legal fees. In addition to that, it wasn't the insurance company's fault for the accident. In fact, the accident was really a non-fault accident. What happened was there was something that went out in the road, and one of the cars swerved off the road and hit the other car.

Because there was nobody at fault, the insurance company for the vehicle that hit the other cars was deemed to pay out. So it wasn't like anybody — one person — was at fault, like went out of their way, reckless driving or speeding. It was a comedy of errors that made the accident happen. During the course of the mediation, what we found was the intention or priority for the people who were injured in the other car was they just didn't want to be out the money. They did not have uninsured motorist coverage on their policy, so they weren't going to get paid by anybody else. They had medical bills, they had lost work, and their car was damaged. All they wanted to do was not be at a loss.

What we also found was the actual damages to their car were probably only about $7,000, and the unreimbursed portion of their medical was really only about $60,000. The extra money was from loss of work and some insurance and some medical bills that, if the insurance wasn't going to pay them, would probably be waived anyway. On the side of the insurance broker who sold the policy, they looked at some industry best practices and found that, yeah, even though it seems like a good idea to call customers and tell them you didn't pay your bill, it's actually considered an industry standard maybe to not do that — unless you're going to do it with every customer, don't do it with any of them. Looks like you're doing somebody a favor, but it might set a precedent.

So they found that maybe what they did had some contributory cost to this. The insurance company that wrote the policy, the insurer, the major company, they looked at it and said, well, we noticed that this insurance agency and other agencies have a higher percentage of people that originally don't pay their bill and then pay it later. There's an industry average: if somebody doesn't pay their bill, X percent never pay it, they just get dropped from the policy. This company had a higher rate of retention of non-payers. It may seem like a good thing that you get to keep that policy, but if it's being done through artificially retaining customers that really — if you don't pay your bill on time, maybe that's not a good risk to have as an insurance company. Maybe you should just drop that person. Let them drop. If they're not going to pay their bill without being reminded 20 times, maybe that's not the kind of customer you want. So they found internally that that's something maybe they should look out for.

So they see that they have some contribution to this chain of events happening. What happened is the people who had the loss — the other car that got hit — their out-of-pocket was about $67,000 plus another $7,000 or $8,000 already for legal fees, not counting what would be going into the case. So about $75,000. The insurance broker and the insurance company split that. They each put up about $37,000–$38,000 and they covered them. The company that had the cars that had their insurance cancelled, they had no injury but they had a loss to their car. Their car was a total loss. It was a $12,000 car, total loss. They ate that loss. They didn't get any coverage for it. But they didn't have to also pay out to this person who was hit.

So if you really think about it, it was a win-win-win-win. Everybody came out ahead from what it could have been because they hadn't gone to trial. Even if the plaintiff, the person who was hit and damaged, won the case, they might have won, let's say, $280,000. They would have had maybe $120,000 in legal fees. That would have put you at maybe $160,000. Certainly, the insurance company would have appealed and would have had other legal fees, and you have that risk. And it wouldn't have been much of a windfall because they would have to pay tax on it and it would have taken a year and a half or maybe two years to get the money.

This was — and they became whole. They didn't go backwards, other than maybe a little bit of lost income that wasn't covered. But it did take the risk out of going to litigation. And I have to tell you, at the end of that mediation, it took several weeks of going back and forth with the different parties. It wasn't a negotiation. It was more of people seeing really what their loss was and really what their risk was, and also what the common ground was. Look, none of the parties had ill will towards the others. None of them felt that anybody did anything wrong. Everybody just wanted to be okay. Nobody wanted to hurt somebody else or damage somebody else or get revenge on somebody else. Everybody just wanted to be okay.

And for the insurance company, the major carrier coming out of pocket $30-something thousand could have been worse. That's okay for them. They would have spent easily that much in legal fees had it gone to trial. The insurance agency — it's even better because, look, for an agency to be out of pocket a couple hundred thousand, that could be changing the future of your business. That's a lot of money. So to have it only be thirty thousand is much better. Plus, their E&O coverage, their E&O carrier paid for the majority of it. They had a $2,000 deductible, so they had to come out of pocket $2,000. The E&O carrier paid $33,000 or $36,000, whatever it was. And they have a claim, which means their rates will probably go up a little bit. But they learned a valuable lesson. And the company who didn't pay their insurance premium and had the car that was a total loss, they're out $12,000. But they learned a valuable lesson too: keep an eye on your bills. You can't ignore premium due dates.

So everybody ended up being okay. Anytime there's some type of conflict or litigation or problem with a legal issue, there's going to be losses, right? There's going to be losses. What you want to do is make sure it's not catastrophic and you want to manage the risk. This was a case where everybody's loss or everybody's downside was mitigated. And at the end of it, we had conversations with all the parties and everybody was very happy with how it came out. Even the company that lost their car — the $12,000 car that had no coverage for — in hindsight, they said, look, it actually was a good result of what it could have been. We could have been out a couple hundred thousand in legal fees. We could have people hurt. We learned a lesson from this to make sure we keep an eye on the premiums. They weren't trying to get over on anybody or get free insurance. They just let their policy lapse. They weren't trying to shop around insurance or go somewhere else. So everybody said, yeah, this was, you know, we're a little bit less off than we were when this started.

But in the scheme of things, our contribution to this damage was equal to what we came out of pocket. Like, the amount of consequence or liability or the amount of fault that we had was equal to what we put in, what we threw into the pile. And that's what a good mediation does. It takes the personal animus out of the conversation. It takes the personal feelings out of the conversation. It just makes it about what is a good resolution. And most of the parties came to that conclusion at the same time. And we didn't put the resolutions out there. It's just seeing what the other parties are already thinking and what would already work for them and just putting those pieces together. We're not cutting and pasting and building something. We are seeing what solution is already there that other people can't see. It's just a vision. Most times, the solution is already materialized. It's just somebody has to see it from above and put those pieces together from what you already want.

Nobody's trying to coerce another party into something. It's what you want to do probably already matches something the other party will do. And that's what a good mediator does. So hopefully that story gives you some insight behind the scenes of how a mediation comes together. And you can check out our website Telemediator, and we'll be glad to be of assistance.