A Tool for Multi-Party Insurance Litigation Mediation with "Additional Insureds"
April 2008
The settlement of a basic, two-party case
at mediation is often hard to accomplish. When three parties are involved, the
task is generally much more difficult. With multiple parties, the challenges
increase exponentially.
by Jeff
Kichaven
JAMS
Advocates and mediators alike are all too familiar with the challenges that
multi-party cases present. Among the most frustrating situations are those in
which warring defendants or multiple plaintiffs place conflicting conditions
on the negotiation that cannot be satisfied. Most commonly, parties will insist
that their financial participations bear inconsistent relationships to other
parties' participations. So, for example, Defendant A in a multi-party case
may insist that it will not contribute 100 percent to a settlement fund unless
Defendant B first contributes 125 percent. Meanwhile, Defendant B may insist
that it will not contribute its 125 percent unless Defendant C first contributes
150. Defendant C then almost invariably insists that it will not put in its
150 percent unless Defendant A agrees to match it. Clearly, these conditions
cannot all be satisfied at the same time.
In other cases, Plaintiff 1 announces that it will not state its demand unless
it first knows Plaintiff 2's number. When that happens, you can count on Plaintiff
2 making the reciprocal announcement.
Variations on these themes are endless. Problems of these types are sufficiently
common, though, that all mediation participants need as many Alexandrian Solutions
as they can get for these Gordian Knots. The goal is to encourage simultaneous
movement and hence eliminate the paralysis that the inconsistent conditions
can create.
The Surowiecki Ballot
Here's one tool that can help with this dilemma: The Surowiecki Ballot. In
a multi-defendant mediation, this ballot has three columns: the first column
would list each defendant; the next, "Percentage of Fault"; and the third, "Percentage
of Financial Responsibility."
Each defendant gets a ballot and is instructed to indicate, for each defendant,
the percentage of fault and the percentage of financial responsibility each
should bear in a settlement. The two numbers may be different—sometimes dramatically
so—because of the financial resources of the parties, the availability of insurance,
the existence of additional insured endorsements on insurance policies, indemnification
agreements between the parties, or other reasons. In any case, though, the percentages
in each column should total 100. The ballots are not to be signed. The defendants
are instructed to complete the ballots without consulting with each other.
The defendants are also told in advance that the information on the ballots
will be compiled as follows: The mediator will collect the ballots and tabulate
the averages. The mediator will then distribute to each defendant a summary
sheet which reports those averages, and a complete set of copies of the ballots
cast. (In this example, of course, the plaintiff neither votes nor learns the
results.) The results are not binding but are designed to give the defendants
valuable information regarding how to move forward.
Every time I've used the Surowiecki ballot system, it has worked. It breaks
the impasse and the defendants are able to make a collective offer, with the
defendants almost always contributing in exact compliance with the average percentage
of financial responsibility numbers.
Why Does It Work?
To answer that question, we must first ask why is it called the "Surowiecki
Ballot"? The Surowiecki Ballot is named in honor of
New Yorker business reporter James Surowiecki
and his 2004 New York Times Business Bestseller,
The Wisdom of Crowds. Mr. Surowiecki's
thesis is well-stated on the back-cover blurb of the 2005 Anchor Books paperback
edition:
(The Wisdom of Crowds)
explores a deceptively simple idea: Large groups of people are smarter than
an elite few, no matter how brilliant—better at solving problems, fostering
innovation, coming to wise decisions, even predicting the future.
To prove his thesis, Mr. Surowiecki begins with a whimsical example, based
on a review of every episode of "Who Wants To Be a Millionaire." On that program,
when a contestant was stumped as to the right answer to a question, two of the
contestant's possible "lifelines" were to call a friend or to poll the studio
audience. According to Mr. Surowiecki, calls to friends (presumably the smartest
people the contestants knew) yielded correct answers 65 percent of the
time. Polls of the studio audience, "those random crowds of people with nothing
better to do on a weekday afternoon than sit in a TV studio," however, gave
a staggering 91 percent of correct answers.
Mr. Surowiecki follows this analysis through a dizzying array of examples,
ranging from jellybean counting to stock market predictions to ascriptions of
responsibility for the disastrous Challenger spacecraft disaster. Although counterintuitive,
Mr. Surowiecki's evidence shows that "each time, the crowd did just as expected:
its collective guess was very accurate, and was better than the vast majority
of individual guesses," even the guesses of most so-called experts.
For the crowd's wisdom to shine through, certain preconditions must exist.
According to Mr. Surowiecki, those are "diversity, independence, and a particular
kind of decentralization." In the use of Surowiecki Ballots in mediation, each
of these preconditions are met.
Diversity
First, the crowd must represent diverse viewpoints and perspectives, because
"the best collective decisions are the product of disagreement and contest,
not consensus or compromise." In the litigation context, "disagreement and contest"
are usually not in short supply. Each defendant vigorously advocates its own
position and is rarely shy to put its best foot forward or point out weaknesses
in the positions of others. Mr. Surowiecki cautions that "collective wisdom"
generally does not arise from "a group of diverse but thoroughly uninformed
people." Again, in the litigation context, this is usually not a problem.
Independence
Independence results from the fact that the defendants are not allowed to
consult with each other when they complete their ballots. This allows the true
diversity of viewpoints to be expressed. It does, however, also create an incentive
to mark one's ballot strategically, to minimize one's own share of financial
responsibility. Two factors mitigate against this possible abuse of the system.
First, each defendant is allowed to record "Percentage of Fault" before "Percentage
of Financial Responsibility." If its temper at work, some of that steam can
be blown off in the prior column before being asked to cast a vote in the latter.
And, indeed, there is generally greater variation in the percentage of fault
numbers than in those which ascribe percentages of financial responsibility.
Second, the ballots are both unsigned and distributed to the group after
votes are cast. The initial anonymity of the ballots is designed to protect
each defendant from the fear that an honest but "politically incorrect" vote
will subject the voter to unjust retaliation. The eventual distribution of the
ballots to the group encourages each defendant to allocate a fair share of financial
responsibility to itself. If a defendant wants to retain its anonymity, it cannot
try to skew the results by letting itself off easy. Everyone will know. And,
there's a risk that everyone will retaliate, perhaps by leaving our hypothetical
strategist out of a settlement that gets everyone else a release. There's not
much worse in multi-party litigation than to be the "last player standing,"
having to bear the full costs of litigation alone and being the only defendant
left at trial. So, there's an incentive to vote honestly.
Decentralization
Finally, the necessary decentralization refers generally to the way the wisdom
of the crowd is aggregated. In the mediation of litigated cases, the aggregation
of averages, plus the distribution of all underlying ballots to each defendant,
generally results in a simultaneous move by all parties to those average "Percentage
of Financial Responsibility" allocations. It's just obvious, and the negotiation
can proceed.
Conclusion
In time, smart advocates will probably figure out ways to outsmart the Surowiecki
Ballot, and its effectiveness may diminish. But for now, it is a tool that can
help. Although this example discusses defendants who want to make a joint offer,
the concept can easily be adapted to multiple plaintiffs who want to make a
joint demand, multiple insurers for one defendant, or other contexts.
The key, though, is for advocates and mediators alike to remember that the
collective wisdom of the crowd will be superior to the insights that any one
of them may have. The opportunity to harness that wisdom, in whatever way or
by whatever means, should not be overlooked.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.