I am an experienced mediator (over 500 cases to date) with 15 years mediation experience and a general practice where I handle employment, family, commercial, personal injury, co-op and condo disputes. It sometimes surprises me how even similar-seeming cases turn out to be so different from one another. Recently I had the opportunity to mediate 30 Storm Sandy cases which was, in essence, a new frontier. None of my previous experience was similar to the Storm Sandy mediations which centered on denied or undervalued insurance payments.
The backdrop was the devastating storm that swept the New York City-New Jersey coastal area on October 28, 2012—one of the most horrific climate events (a hurricane in some eyes, although eventually designated as only a tropical storm) to batter the area in recorded history. The city and surrounding areas were effectively shut down. Public transportation and air travel were cancelled; roads were closed or impassible; schools, parks and many hospitals were closed or virtually non-functioning.
The losses to homeowners and businesses were extreme. Tremendous physical damage and flooding displaced many from their homes and interrupted business activity. The duration of the evacuations, uninhabitability and shut-downs varied from days to months and to date some homes and businesses have not been restored or rebuilt. Many of the home and business owners had insurance policies which they believed would cover the losses, but they often did not.
Thousands of insurance claims were filed in the weeks and months following the storm. Some were settled, but many were not. Floods were not covered by most policies. Furthermore, it was often difficult to determine which damage was caused by floods or storm surge and which by wind. Many home and business owners were not used to seeking coverage and submitted incomplete information to their carriers. And most policies did not include full coverage (flood/water damage) for the damage, coverage which had not been recommended before this incident. As a consequence, there were thousands of unhappy insurance claimants in early 2013.
On February 25, 2013, Governor Andrew Cuomo announced that the New York State Department of Financial Services had established a mediation program for homeowners and business owners and had awarded a contract to the American Arbitration Association (AAA) to administer the program. An emergency regulation required insurance carriers to offer and pay for mediation for all dissatisfied claimants who chose to participate. The program was to be patterned after successful mediation programs established after Hurricanes Katrina and Rita, and also run by the AAA.
Here is how it worked. The AAA put out a call for experienced mediators and quickly accepted and trained over 200 of them. Most had no disaster mediation experience and the training included a videotape featuring mediators who had worked in the Katrina and Rita programs, as well as an insurance law professor. Ten New York City locations in 10 counties were established—in empty courthouse space, borrowed law offices, AAA headquarters, et al. Procedures and forms were developed and revised. Outreach to potential claimants was begun and the program kicked off on April 10th—impressively speedy in my view.
At the end of October 2013, the program had received 2,547 mediation requests and had completed 2,366 mediation sessions, using 142 of the panel mediators. There was no cut-off date and requests for mediation are still trickling in and being mediated.
A UNIQUE TYPE OF MEDIATION
A key characteristic of the Storm Sandy mediations was that mediation was mandated for one party—the party who would pay if anyone did. The carriers were required to participate in and to pay for the mediations, but, of course, not required to reverse their denials of coverage or increase payments. This is, by its nature, a difficult situation. The party from whom relief (payment) was sought was under no obligation to do anything but attend and pay for the mediation and may have had little motivation to do more.
Another salient factor was the power imbalance—the claimants generally had no leverage. In most cases litigating was not an economically viable option and the threat to seek insurance elsewhere didn’t have much impact on the carriers, many of whom had no interest in retaining or renewing the policies. This was different from most mediations. For example, in the flimsiest employment case, a plaintiff can threaten to file a complaint and or to publicize what s/he views as bad treatment by the employer. And even an employer who strongly believes that it will prevail may want to avoid the trouble and cost of defending a lawsuit and possible bad publicity. Hence the common offer to settle for “nuisance value” or minimal litigation costs. But the insured homeowner or small business owner had no such leverage.
This led to another anomaly—a major change to the traditional and much-vaunted mediator neutrality. The carriers had the power, the superior knowledge of the policy terms, and the legal back-up (most claimants appeared without attorneys). The claimants were sometimes at a loss as to how to proceed. Consequently, the mediators often wound up trying to help the claimants rally the salient facts and make as strong a case as possible. We wound up trying to level the playing field. This was noted by a number of Storm Sandy mediators. Many of us were sheepish about admitting it-- but it happened.
Two issues were the cornerstone of the mediations. Was there coverage under the policy—a legal issue. The policy language was often not as clear as could be wished, with exemptions and exclusions and coverage definition overlapping. And if coverage existed, what was the value of the loss—a factual and legal issue?
The protocol allowed for two hours for each session, with the ability to go somewhat longer and to schedule a second session if the carrier was willing. (In all of my cases in which it made sense to gather more information the carriers were willing.) That seemed very short and gave pause to the mediators with whom I spoke. However it turned out to be enough time for most cases---many required less than the full two hours. This was because of the limited scope of the mediations and the fact that there was little history between the parties.
The limited scope of the issues meant that the mediators could rarely enlarge the pie, as we have been trained to do. I always look to see what besides a sum of money could be part of any settlement—pay-out terms, future business, business references, assistance of some sort, etc. But there was none of that here. The claimants wanted money and only money to repair their homes or to compensate for business losses. There were no alternatives to monetary relief.
Furthermore, there was no meaningful pre-existing relationship. Many claimants were angry at the carrier—unhappy that an insurance company to which they had paid premiums for years was denying or underpaying their claims. But they had never dealt with the carrier in most cases (just with an agent), and certainly had never met the claims adjuster who appeared at the mediation. This worked both positively and negatively, and it definitely helped to shorten the sessions.
The representatives from the carriers were a very pleasant surprise. Almost all of them were well prepared, with extensive relevant files on hand. Many of them were disaster specialists who travel the country to deal with the aftermath of hurricanes and such. From their experience they talked knowledgeably about both the causation of the damages and the cost of repairing it. They were polite, pleasant and often quite empathic even when they offered nothing to the claimants. I didn’t expect to, but found myself liking many of them on a personal level.
To my surprise initially, a number of the adjusters did agree to reverse denials or supplement claim money already paid. Some asked for more information, usually documentation, sometimes offering another visit by an adjuster or engineer. The likelihood of the claimant receiving a more favorable result was higher with some carriers than with others. Some carriers stuck to the letter of the policy and professed to have no wiggle room; others were more expansive in their construction of coverage. According to AAA, 64% of the mediated cases resulted in a settlement. (Interesting note: in one of my cases, a claimant, upon understanding why his policy did not offer coverage, was satisfied and asked me to note the case as “resolved”. I heard from another mediator of similar experiences.)
The mediation sessions provide an education (albeit an unwelcome one) about what the policy coverage actually was. Usually it was far more restricted than the insureds believed it to be: many home or business owners probably paid insufficient attention when purchasing their policies. And, based on New York’s typical climate, no one anticipated such flood damage. Moreover, the policies were incredibly difficult for the uninitiated (including mediators) to read, as they were composed of many overlapping modules which had to be read together. They seem to be designed to be user-unfriendly.
A major take-away from the experience is that insurance policyholders (myself included) need to pay a great deal more attention to policy coverage before buying insurance. And they may need professional help to do so.
F or mediators, disaster aftermath mediation is an interesting and very rewarding kind of conflict resolution. Not your bread and butter or law school style mediation, but one with the potential to help.