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Mediation is an alternative to resolving a dispute without going to court. Instead, a neutral third-party works with both sides to resolve their differences.

What is mediation?

Insurance mediation is a way of settling claim disputes without filing a lawsuit or going to court. Both sides appear before a mediator, an impartial third party who acts like a type of counselor to help them reach an agreement.

This process is less formal than a trial, and is much faster and less expensive than a lawsuit.

Another advantage to mediation is that it avoids the publicity and public disclosures of a lawsuit and potential court trial. Lawsuits and court trials are part of the public record, yet mediation cases are not.

In fact, many states have laws declaring that mediation settlement negotiations and decisions are privileged communications that aren’t subject to any legal discovery process.

A key difference between legal decisions and mediation is that court rulings are binding and enforceable by law, whereas mediation conferences and decisions are not.

Some insurance policies require that a good faith mediation program is attempted on a claim to resolve a dispute out of court, such as with professional liability insurance and management liability insurance.

How does mediation work in business insurance?

Insurance companies have a “duty to defend” their policyholders on claims involving their insurance coverage, such as someone accusing a realtor of making a mistake that cost them money. This would be covered by the realtor’s errors and omissions insurance.

The insurance company's objective will be an efficient resolution of a dispute, at the lowest expense possible, so it would likely request mediation with the other party to avoid a costly legal battle over a covered claim.

The insurer would usually provide an attorney to represent the realtor and offer legal advice, through mediation or in court.

Once the insured has covered the cost of their deductible, the insurance company would be responsible for the mediation and legal strategy, along with the insurance company’s claims examiner, who represents the insurance company’s interests by overseeing negotiations.

If both sides agree to mediation, they present their information and views for the mediator to consider. The mediator’s job is to work with both parties to resolve any insurance coverage disputes and find a solution that both sides can agree on.

Neither side is required to accept the mediator’s decision and it’s not enforceable by law.

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Examples of mediation with an insurance claim

One common small business lawsuit and mediation claim is over customer injuries, such as a slip and fall accident with bodily injury while visiting a business.

This would be covered by the owner's general liability policy. The insurance provider would have a claims adjuster examine the facts of a case, such as the cost of the injured person’s medical bills, any claims of pain and suffering, and related issues.

If a lawsuit is filed, and if the adjuster believes the injured party’s claim is illegitimate, the insurer might still consider mediation as a way of reducing its costs, or it might ask a judge to simply dismiss the case outright.

If the adjuster considers the plaintiff’s claim to be legitimate, the insurance company will likely pursue mediation and a settlement on behalf of the policyholder, as a way of avoiding an expensive and time-consuming lawsuit.

Either way, it would be up to the insurance company to determine how to resolve such a personal injury claim.

Other examples of policies that may use mediation include:

What is the difference between mediation and arbitration?

Arbitration is similar to mediation because they both offer alternative dispute resolutions using a neutral third-party, instead of taking a case to court.

The main difference between mediation and arbitration is that mediation is more of a collaborative effort. A mediator works with both parties by offering a neutral evaluation, helping them resolve their differences and to reach an agreement. An arbiter acts more like a judge who imposes a decision on both parties.

Another difference is that mediation is always a non-binding process. Neither party is legally obliged to agree to a mediator’s decision or a mediated settlement.

Arbitration may involve either binding or non-binding decisions. With binding arbitration, both sides agree that the arbiter’s decision is final and cannot be appealed or overturned in court. In non-binding arbitration, either party could choose to reject an arbitrator’s decision and pursue a legal remedy in court.

How small business owners can benefit from mediation

Mediation has many benefits for business owners. Fighting a lawsuit can be much more time-consuming and expensive than resolving a dispute through mediation. Mediation might take days or weeks, whereas lawsuits can last for months or years before they’re settled or taken to trial.

Even if you had a lawyer representing you in a mediation process, you could expect your legal bills to be a lot smaller with a mediation case than fighting it out in court.

Another key benefit is that unlike lawsuits, mediation cases and their results are not part of the public record, so it protects a business owner’s privacy.

A lawsuit could involve sensitive business information or details about the owners that they’d prefer to keep out of the public eye. In most cases, any information contained in a lawsuit could be viewed by any member of the public, such as your competitors or the media.

Mediation can also help you maintain your business relationships. If you have a dispute with a customer or supplier, a mediator can act like a type of counselor to help you resolve your differences in a way that satisfies both parties.

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Updated: May 28, 2024
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