In Long v. American Family Mutual Ins. Co., No. 19-4036 (D. Kan. Nov. 7, 2019), a federal district court in Kansas addressed questions that I’m sure lots of people have wondered about when it comes to court-ordered mediation.  I certainly have.

The court ordered a mediation of a coverage dispute over a residential fire loss.  The parties retained a private mediator who reminded them, prior to the mediation, about their obligations under Kansas local rule 16.3(c)(2), which governs who must attend mediation – each party or its representative with settlement authority along with the party’s attorney responsible for resolution of the case.    

The insured and its counsel attended the mediation.  The insurer’s counsel attended, but without an in-person representative of the insurer.  The opinion suggests that the insurer’s representative was available by phone.  The insured’s demand was $320,000.  The insurer’s counsel had $20,000 in settlement authority.  The mediation was not successful.  

The insured filed a motion for attorney’s fees and costs, and sought an order for a second mediation, arguing that the insurer did not act in good faith because the insurer’s counsel lacked full settlement authority and by sending only counsel to the mediation.
  
The court addressed whether a party attends a mediation with adequate settlement authority.  

On one hand, the court concluded that it does not mean automatically mean “authority to meet the other party’s demand.”  However, that could be a factor in some cases.  The court described the test for awarding sanction as follows:  “[A] plaintiff seeking sanctions on the basis of the party representative having inadequate settlement authority must, at a minimum, demonstrate that the plaintiff’s settlement demand was reasonable and that the defendant’s settlement offer was unreasonable.  Here, Mr. Long has not presented any evidence suggesting that his $320,000 demand was reasonable or that American Family’s $20,000 offer was unreasonable.  On the other hand, American Family provides at least some minimal basis for its settlement offer, which Mr. Long addresses only by generally disputing the applicability of the policy exclusions. But, even setting aside whether any policy exclusions apply, the record is insufficient for the court to determine that plaintiff's $320,00 settlement demand is reasonable. So, based on the record, the court cannot find that defense counsel lacked full, meaningful settlement authority solely because he only had $20,000 in settlement authority. The court therefore declines to award sanctions[.]”

However, the insured fared better with its argument that the insurer should be sanctioned for its failure to have a representative present at the mediation.  The court ordered the insurer to pay the insured’s counsel’s attorney’s fees and costs of the mediation, explaining its decision as follows:

“American Family does not explain how sending only counsel to mediation met the purpose of mediation outlined in the local rules—‘to improve communication among the parties and provide the opportunity for greater litigant involvement in the earlier resolution of disputes[.]’ D. Kan. Rule 16.3(a). The mediator’s letter to the parties also expressly contemplated attendance by the ‘parties and their counsel’ and reminded the parties that D. Kan. Rule 16.3 governed mediation in this case.  If American Family did not intend to bring a client representative with settlement authority to mediation, it should have notified the mediator and Mr. Long about this sufficiently in advance of the mediation so that they could have determined how to proceed, and/or American Family should have sought the appropriate permissions to have the client representative excused from personally attending the mediation. American Family did neither.”