27th Jul 2013

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Preparation for insurance issues in mediation

Before or during mediation a plaintiff may have the opportunity to settle with one or more codefendants who have been denied coverage under one or more liability policies. Before settlement is in fact entered into, the plaintiff must insist that the proposed settlement defendant agree to the following:

  1. To produce the defendant’s liability policy or policies, including any excess or umbrella policies;
  2. To produce the “tender” letter [see § T9 TENDER – BY GENERAL PRACTITIONER TRANSMITTING INFORMATION TO INSURER OF CLAIM OR SUIT] from defendant to his or her insurer;
  3. To produce the denial letter [see § D25 DENIAL OF COVERAGE] from the settling defendant’s insurer;
  4. To enter into an assignment of rights [see § A103 ASSIGNMENT OF RIGHTS] by the defendant of all rights under the defendant’s liability policy, in return for a covenant by the plaintiff not to execute on the uncontested judgment [see § C135 COVENANT NOT TO SUE OR EXECUTE];
  5. Agree to participate in an uncontested trial before the mediator or trial judge at the time and place designated by the plaintiff [see § S86 STIPULATED (UNCONTESTED) JUDGMENT [§ S86:5 – § S86:8];
  6. To fully cooperate with plaintiff in the suit by plaintiff under Insurance Code § 11580 brought against the insurer after the uncontested trial [see § A13 ACTION ON JUDGMENT BY THIRD PARTY AGAINST INSURER, Compare § A14 ACTION ON SETTLEMENT BY THIRD PARTY AGAINST INSURER];
  7. To agree that if defendant does not perform all of the above promises the uncontested judgment remains valid but the covenant not to execute becomes voidable at the option of the plaintiff;
  8. Defendant must allow plaintiff the right to review all liability policies to verify:
    1. the liability policy term applies to the term of the pending tort action;
    2. that premiums were paid by defendant;
    3. that defendant is an insured under the policy;
    4. that no policy endorsement serves to exclude coverage;
  9. Obtain defendant’s application for insurance for the policies in question if the insured denied coverage on grounds of misrepresentation or omission of fact;
  10. If the settling defendant is a subcontractor, obtain a copy of the additional  insured’s endorsement naming the general contractor as additional insured. See § C107 CONTRACTOR’S LIABILITY POLICY [§ C107:14.1 Contractor’s special condition endorsement];
  11. Obtain copies of all correspondence from insurer to the co-defendant insured  which includes the denial of coverage letter. Other correspondence is relevant to see if the settling defendant “cooperated” with the insurer prior to denial of coverage. See § C116 COOPERATION CLAUSE.

Plaintiff’s demand letter sent before mediation hearing to one or all defendants

If discovery, undertaken prior to mediation, establishes that one or more defendants have been denied a defense under a liability policy, plaintiff should make demand that such policies be produced at the settlement hearing. Also, the defendant’s counsel should be alerted to all of the above demands by plaintiff made as a condition of any settlement. This pre-mediation demand letter will give a potential settling defendant time to consider the possibility of settlement and locate all relevant documents. By showing the above demand letter to the mediator, this will help to obtain a continuance of the mediation hearing by demonstrating good faith on the part of the both parties undertaken prior to the mediation.

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