The Expert Podcast

Here’s another reason where mediation can come in handy, and your mediator may point this out to you. If you’re involved in a litigation dispute over some type of damages and there’s a settlement offer—either through mediation, arbitration, or just with your attorneys—if you reject that offer or the other side rejects your offer, in some instances, the attorney’s fees incurred after that rejected offer can sometimes be recovered by your insurance company, by the other side, or you could recover consequently from the counterparty.

Let me give you an example of how this works. Let’s say you sue somebody for $100,000 because of damages from some corporate contract or other litigation exposure, and the other side offers you a $75,000 settlement. If you reject that offer of $75,000 and proceed to court where it’s litigated with evidence, depositions, and trial, resulting in a judgment of, let’s say, $80,000 or $90,000, you win. However, in many cases, your insurance company, the other insurance company, or the counterparty can go to you and argue that you rejected the $75,000 offer. They could claim that all of the litigation fees incurred to go from $75,000 to $90,000 would not have been required or expended had you accepted the initial offer. Consequently, you might be liable for those fees, or if the other side rejected your offer, they might be liable.

If your commercial insurance policy covers defense claims, those fees might also be recoverable. However, according to this particular example, the fees must be reasonable. They can’t just make up arbitrary fees. The party requesting reimbursement would need to show all their billings and hourly rates to ensure that the charges are legitimate.

Remember, we’re not attorneys and are not giving legal advice. However, mediation can be a way to avoid not only the liability of the case or settlement but also this hidden cost of attorney’s fees, including the other party’s fees. The other side could potentially come back and claim that you rejected a legitimate offer, seeking to recollect their attorney’s fees.

Offers made within mediation are not disclosable—they remain private and secret. However, if there’s an offer made during mediation and it’s rejected, leading to a stalemate, any subsequent formal offer made through the court or attorneys becomes public. You then have to decide whether to accept it or not.

Make sure to use mediation to your advantage. It helps you avoid exposure to liabilities outside the scope of your case. Even if you win your case, you may still face liability for your own attorney’s fees and possibly the other side’s attorney’s fees. Furthermore, if you have insurance coverage, that coverage might be reduced by the amount paid for expenses stemming from decisions that were not deemed reasonable.