Magazine article Risk Management

Avoiding Litigation with Alternative Dispute Resolution

Magazine article Risk Management

Avoiding Litigation with Alternative Dispute Resolution

Article excerpt

IN RECENT YEARS, MANY U.S. EXECUTIVES have become increasingly disenchanted with attempting to resolve disputes through litigation. In the current business and legal environment, contracting an outside law firm to file a lawsuit that will - it is hoped - lead to a speedy and successful trial has become a complicated, time consuming and expensive process for many organizations. Because of these problems, many corporations are investigating less costly ways to resolve their disputes with other parties.

In response to the highly competitive marketplace, many property/casualty insurers have decided to avoid litigation whenever possible in an attempt to hold down costs. Through good faith negotiations, insurers can work with their insureds to settle claims directly, either through claims representatives, a company lawyer, or through claimants and their attorneys. By analyzing the claim, creating an appropriate bargaining strategy, and engaging in good faith negotiations, many of these claims can be settled at a reasonable cost.

Alternative dispute resolution (ADR) is an extension of this negotiation approach. Besides employing traditional negotiating techniques, ADR also utilizes certain novel methods such as mediation and arbitration, which have proven successful in helping disputing parties reach prompt, rational and mutually agreed-upon settlements. Because of the successes ADR has engendered, corporate risk managers will need to gain an understanding of how these techniques work and how they can help disputing parties reach settlements.

For companies wishing to pursue ADR, virtually every form of ADR can be obtained privately through one of the 35 regional offices of the American Arbitration Association (AAA). Best known for its work with arbitration, the AAA has also played a pioneering role in sponsoring mediation and other private dispute resolution procedures; many organizations find it useful to become an AAA member so they can receive information on a contractual basis.


Depending on the facts of the case, and the applicable law, insurance claims often involve significant liability and damage issues. However, rather than letting the courts determine the outcome of these issues, mediation involves using a mediator to convince both parties to settle their disputes. Throughout this process, the mediator helps the parties analyze the relevant issues and warns them of the risks of being unable to reach agreement. Mediation is a very successful technique; settlements are reached in more than 80 percent of the cases involving professional mediators.

In regard to casualty claims, the dispute often boils down to how much the insurer will have to pay to obtain a general release. An experienced mediator, familiar with the results of similar cases, can help the parties reach a settlement. Often, the amount that a court might award, minus the costs associated with litigation, provides a target amount that both parties can work toward.

Mediation facilitates the bargaining process by convincing the parties that they will be better off by reaching a settlement than by continuing to litigate. After considering this fact, the parties often work harder to settle their dispute. Another advantage to mediated settlements is that they do not appear on a public court record or in the press; this strict confidentiality can be an important consideration for both parties.


Since it does not rely on procedural rules, mediation is essentially an unstructured dispute resolution approach; the parties' willingness to bargain and the mediator's skill are the driving forces in the movement toward a successful resolution of the case. A mediator does not hold evidentiary hearings; instead, he or she conducts informal meetings with both parties to discuss the claim. When working with a mediator, the parties involved should be prepared to negotiate; generally, the parties are represented by their attorneys during this negotiation phase. …

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