to the High Cost of Litigation Center for Public Resources (CPR) New York, New York Vol. 7, No. 5 March 1989

Contents Pilot Insurance ADR Project Results in Settlements 37 The CPR ’88 ADR Awards: Wide Spectrum of Winners 37 ADR is Umpire Off the Field 38 Cal. U.S. Court Makes ADR Plan Permanent 39 Study: Job Forms

Quotation of the Month 40 Successful Mediation in

‘Dangerous’ 39

Conn. Apt. Collapse Showcases ADR in Complex Cases Panel of Judges: ’88 CPR Awards Miscellanea Briefs

ADR ‘Taxes’ Rand Study More Manville Case Appraisal

Drawing by Schwadron

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42 43

44 44 44 45

45 In Controversial Land- Use Plan, New Jersey Crafts Novel Neg-Reg 47 Events of Note 51

Pilot Insurance ADR Project

The results of a pathbreaking ADR experiment by a group of Connecti- cut insurers were announced in late October, with the project admin- istrators calculating an auspicious 70 to 92 percent settlement rate, de- pending on the type of measure- ment, and with the vast majority of responding participants judging the project an effective one.

Based on an intake of more than 1000 common insurance disputes- from automobile to construction to general liability-from November 1986 to December 1987, the experi- ment yielded much other fruitful data. For example, researchers

Results in Many Settlements found that both defense and plain- tiff camps were usually willing to try ADR. And many disputes were set- tled prior to ADR-“on the ADR steps,” as it were-often as a result of a simple “confidential listening” process.

The experiment also underscored the institutional pushes and pulls in claims departments that can work against ADR, and pointed toward some promising solutions.

This issue-the resolution of re- curring insurance disputes-has been of great interest to the ADR community in recent years. In 1987, (continued on page 40)

The CPR ’88 ADR Awards: Wide Spectrum of Winners A large city bar association, a For- tune 100 company, a graduate stu- dent in urban planning: This sample suggests the wide range of winners in the CPR Legal Program’s 1988 competition for excellence in the use and study of alternative dispute reso- lution.

Culled from scores of entries in four categories, the honorees in the annual CPR event advanced the ADR cause in ways as varied as them- selves. Twojudges won for their me- diation of lawsuits over a major con- struction disaster in Connecticut, for instance, while a student winner mapped a way to greater use of ADR

in hazardous-waste cases. And, in earning their award, some law-firm lawyers and their third-party neutral resolved a high-tech antitrust dis- pute over bank cash machines throughout Texas.

But amid the variety there were some patterns discernible. In a sign of the maturing of the ADR move- ment, for example, several awardees focused on the design of ADR systems in companies, government agencies and other organizations. This devel- opment suggests that, as the legal community becomes more confident about ADR, attention will turn from (continued on page 42)

Vol. 7, No. 3 March 1989 40 Alternatives

Insurance ADR (continued from front page) a CPR committee of expert lawyers completed a major report on the subject, “Alternative Dispute Reso- lution in High Volume, Third Party Insurance Disputes.” (Alternatives, May 1988.) And the Connecticut ex- periment itself won a CPR Signifi- cant Practical Achievement Award in 1987. (Alternatives, February 1988.)

Project History Conceived of and initially funded by The Travelers Cos. in 1985 and early 1986, the Hartford-based Connecti- cut ADR Project Inc. is supported by a consortium of insurers, originally numbering 14 and later increased to 27. Many of them are sustaining members of the CPR Legal Program.

The project began when Travelers Associate General Counsel Henry Naruk, a former Connecticut state judge, developed the project con- cept in concert with lawyers, claims managers and others. It was to be an independent, nonprofit center that would, for a year or so, test the viability of an institutionalized ADR system for recurrent insurance dis- putes. After the test year, the results were to be scrutinized to see if the program was successful and if it could and should be replicated.

With the appointment of Ex- ecutive Director Donald B. Reder and a board of directors-which in-

Quotation of the Month

No state at war with another state should engage in hostilities of such a kind as to render mutual con.- dence impossible when peace will have been made.

A warning from philosopher Immanuel Kant that is as rele- vant to the courtroom as to in- ternational conflict. Quoted in The Viking Book ofAphorism, by W. H. Auden and Louis Kronenberger (1966).

cluded insurer representatives, a plaintiff lawyer, a law professor and a bar official-the ADR Project took on a more refined form. It was de- cided that the center itself would serve primarily as a marketing orga- nization, promoting ADR and seek- ing agreements for its use. For the substantive ADR work, the Project designated five private ADR com- panies: ADR Inc. of Boston; American Arbitration Association; American Intermediation Service; Dispute Resolution Inc.; and U.S. Arbitration Service.

Cases were sought and gotten pri- marily from the participating insur- ers, but a significant portion-11 percent-originated with plaintiff lawyers. After one side or the other submitted a case, Project personnel would contact the other side, seeking their agreement to use ADR. Willing parties would select both one of the “Providers,” as the five private ADR companies were called, and one of the available binding or nonbinding ADR procedures. Insurers paid a $75 submission fee upon bringing a case to the Project, and both sides paid it a $375 user fee when an ADR agreement was reached.

As the Project proceeded the initial plan was revised. Early on, for in- stance, the board of directors aban- doned the Project limitation to auto- mobile cases with less than $50,000 at issue. That opened the Project up to all kinds of insurance matters, some with six- or seven-digit sums at issue. Most cases had less than $50,000 in dispute, however.

Another change arose from “the realization that, in many cases, an ADR procedure with a hearing of- ficer or mediator was not necessary to achieve settlement,” notes the final report. “One or both of the par- ties would indicate. . . that there was a good deal of negotiating room in their settlement position but that, for any number of reasons, they did not want to present their actual settle- ment position to their opposing party.”

This unanticipated attitude led Project personnel to revamp their original role as only the expediters,

promoters and administrators of ADR. They began to do substantive ADR, mediating some disputes, often through a confidential-listen- ing procedure, for a modest $75 fee.

The discovery of this disputant at- titude was one of the most important of the Project. “This experience cer- tainly suggests the value of a neutral third party simply listening to what the opponents have to say about the merits and real value of their cases,” says the final report. “These real set- tlement positions, if known, often re- sult in early settlement of a signifi- cant percentage of cases lingering in the files of plaintiffs’ attorneys, claim offices and the courts.”

If confidential listening did not re- solve the case, it could be sent to one of the ADR “Providers,” as originally planned, for either (nonbinding) mediation or (binding) adjudication.

Other Results Realizing that many parties wanted a confidential listener was only one of the dramatic results of the Project. Two others were its high “conver- sion’’ rate and its high settlement rate.

The “conversion” rate is best de- scribed in the context of Project pro- cedure. Simply put, one party in an insurance dispute-usually the in- surer but sometimes the plaintiff- will submit a case to the Project. The next task is to contact the other party about the Project and to attempt to secure its agreement to try ADR. The conversion rate measures the Project’s success at gaining these agreements.

That rate was an impressive 80 percent or so, with the Project failing to secure both sides’ agreement to ADR in only 192 of the total of 1037 submitted cases. Most refusers were plaintiff lawyers. The Project final report divided the 192 into two groups: 43 in which the rejecting lawyer “simply refused outright to consider the ADR process in any case,” and 149 in which the rejecting lawyer “declined to participate based on the characteristics of the par- ticular case or insurance company.” (continued on page 46)

46 Alternatives Vol. 7, No. 3 March 1989

Settling Rate Runs High in Insurer ADR Project (contimed from page 40)

These rejections left the Project with 845 cases. At the time of calcula- tion, 86 of these were awaiting a Pro- vider’s ADR procedure, leaving 759 cases in which a disposition had been reached.

Of these 759 matters, 731 were set- tled at one of several junctures in the Project’s process. Some settled after the non-submitting party was con- tacted by the Project but before he or she agreed to participate (168). Some settled after the agreement to par- ticipate (214). Some settled still later, after the referral of accepting parties to their designated Provider (26), and the largest group-323 cases- terminated after the completion of the nonbinding or binding ADR procedure they had chosen. Only 28 of the 759 cases were unsettled after the completion of the ADR proce- dure.

By any one of many possible mea- sures, this is a notable incidence of settlement. If the 731 settled cases are compared to the whole set of 1037 submitted disputes, for in- stance, it is a 70.5 percent settlement rate. Or, if settlements prior to Proj- ect acceptance are subtracted along with pending cases and those in which ADR was rejected, the settle- ment rate exceeds 74 percent. By still other computations the rate is more than 90 percent.

The final report highlights an “un- anticipated phenomenon” in these settlement figures. Fully 408 cases- 39 percent of total settlements-set- tled before the agreed-to ADR proce- dure. Those cases may have been set- tled simply because the parties started talking to each again, or be- cause of the mediating, “confidential listening” process of the Project, or because of meetings just prior to the ADR procedure.

There are several possible expla- nations for this pattern. For cases that settle just prior to the chosen ADR procedure, for instance, the pheonomenon may be analogous to that in which parties settle just be- fore trial. “On the courthouse steps”

becomes “on the ADR steps.” For cases that settle earlier, the sim- ple reactivation of party contact in an unhostile atmosphere may do the trick.

“(M)erely by talking,” the report suggests, parties may “reassess their position” and settle. The document elaborates: “The Project’s message is that cooperative communication in the context of a voluntary ADR pro- cess has a much greater potential for resolving cases at impasse than the continuation of the adversarial ne- gotiations which brought the case to impasse in the first place.”

The Connecticut ADR Project produced other valuable informa- tion as well, such as the disputants’ choices of ADR procedures. The

97% of plaintiff lawyers said the project helped to settle cases.

parties chose nonbinding processes in fully 80 percent of the 351 ADR procedures conducted. Interest- ingly, most of those plaintiff lawyers who submitted 11.7 percent of the Project’s 1037 cases opted for bind- ing resolutions.

Why did some tavor binding pro- cedures? Disputants variously ex- plained that they wanted “guaran- teed closure;” that the adversaries were too far apart to make a non- binding procedure worthwhile; or that a nonbinding procedure would only expose their case to the other side.

Why did others favor nonbinding processes? As suggested above, many selected the confidential-lis- tening technique, and others chose mediation. As with the binding pro-

cedures, these choices came from both sides. Some plaintiff lawyers, for instance, “were extremely and understandably resistant to recom- mending to their clients that they give up their trial rights.” And some insurers “would flatly refuse any type of binding hearing.”

Still other participants had no preference. “Many insurers indi- cated the acceptability of all [avail- able] procedures,” says the report.

Good Feelings As to the Project as a whole, most participants had positive attitudes. Among claims managers responding to a questionnaire, a decisive 82 per- cent judged the Project and the Pro- viders effective in aiding settlement. 92 percent said they settled cases through the Project, and the same high percentage said they saved de- fense costs.

There was less consensus on the size of settlements and decisions. For nonbinding ADR, 55 percent of re- sponding claims managers said the settlements were proper and 45 per- cent said they were too high. For binding ADR, 57 percent found the amounts awarded proper and 43 percent found them too high.

What was the reaction of par- ticipating plaintiff lawyers? Signifi- cantly, an overwhelming 97 percent said the Project helped in settling cases; 100 percent said they would use ADR again; 91 percent settled Project cases; and nearly all esti- mated that much time was saved, with two-thirds judging that savings at 12 months or more. And the plain- tiff side seemed very satisfied with case dispositions, with 74 percent saying that settlements from non- binding hearings were proper, and 67 percent coming to the same con- clusion about awards in the binding ADR procedures.

Insights into the dynamics of claim departments are among the wealth of other data rounding out the re- port. For instance, the document (continued on page 52)

52 Alternatives Vol. 7, No. 3 March 1989

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Connecticut Insurers Assess ADR (continued f;m page 46) cites some of the impediments to greater ADR use by insurers: the sig- nificant turnover of claims person- nel; their not uncommon perception that ADR is a low priority and that its use does not benefit them person- ally; and the time and effort re- quired to prepare for and participate in ADR. Two possible solutions to these dilemmas are to appoint an ADR Coordinator to take some of the burden off claims personnel, and to create a reward system to boost ADR use, the report suggests.

The report concludes with the judgment that the Project “firmly es- tablish(ed) that ADR settles cases in a satisfactory and economical man- ner.” Along the way, participants also learned a lot about “the psychol- ogy of resolving claim disputes.” For example, the Project highlighted the simple and cathartic need of litigants to air their grievances. The report explains:

“One recent hearing . . . settled a food poisoning case when the plain- tiff, once she had told her story, set- tled after steadfastly having refused previous offers. She said that the ADR hearing satisfied her that the claim person understood how sick she had been.”

Building on the Project experi- ence, the report also forwards ideas on the best way to organize and fund similar future projects, should insur- ers and others decide to replicate the effort. For instance, the report rec- ommends a broad base of support for such a project, coming not only from a number of insurers but also from the state judiciary and plaintiff and defense bar groups.

For more information, contact The Connecticut ADR Project Inc., 179 Allyn Street, Suite 508, Hartford, CT 06 103. Telephone: (203) 277-9642.

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