Who pays for what and when?

Elizabeth Birch and Melissa Kirby, of London-based ACI dispute resolution service, highlight the dangers of not reading the small print

IF you are transporting $1.4m-worth of commercial video duplicator equipment that gets damaged in transit, what do you do? Any company worth its salt would claim on its insurance. However, problems can arise if your insurers don’t read the fine print and get it wrong.

In one case, the claimant insurers initially dealt with the claim on the - probably incorrect - assumption that it fell under the insured’s special risks property policy. They wrote ‘100 per cent’ on the relevant form and settled with their insured under that policy.

Some time later a smart cookie trawling through the claimant insurers’ papers realised that the claim should not have been made under the insured’s special risks property policy, but under the marine policy. As the claimant insurer wrote only fifty per cent of the marine policy, it claimed half the cost of the settlement from the co-insurer, who insured the other fifty per cent.

The defendant co-insurer saw things in another light – it wasn’t the marine policy that was relevant here but the property policy of the insured. That had been paid and, in any case, the defendant co-insurer did not subscribe to it. The defendant co-insurer also claimed that, even if the marine policy was applicable, the claim would be excluded because the insured had failed to pack and prepare the goods properly. The video duplicator equipment was repairable and had been sold on, probably undersold, for salvage.

Not surprisingly, there was a lot of egg on faces by this point. The difficulty was that the insurers could not agree on the construction of the policy wording or even on the facts of the case, despite all the expert reports that had been produced by that time. The profile of the insurers was such that going to court could well mean unwelcome publicity, as well as potentially enormous legal costs. They decided, instead, to try mediating the dispute.

The mediation process generally takes one or perhaps two days. It can be an intense experience, with the dynamics of the process changing sharply throughout the day. The skill of the mediator is in bringing to bear a good sense of humour and in building a rapport and a relationship of respect and trust with each of the parties. These are the skills which enable the mediator to manage the process as a neutral rather than as an adjudicator, and which enable the parties to come to a mutually agreeable solution.

Unlike an adjudicatory process, mediation addresses not only the issues in dispute but also the relationship between the parties and their individual needs, which may be psychological as well as economic in nature. The process has been described by some as cathartic as it allows the parties to explore the nature of the dispute honestly and constructively.

In the case in question, the parties were miles apart in terms of the amounts of money on the table – typical of most mediations at the preliminary stages. By the end of the day they had become very close in monetary terms but unable to reach an agreement. The mediator decided to adjourn the mediation to allow the parties to consider their position with their barristers, but later followed up the matter with a number of telephone conversations with both the solicitor representatives and directly with the party representatives who attended the mediation.

Six weeks after the mediation had taken place, the parties came to an agreement and avoided further litigation costs to resolve the matter – all without having to sever their relationship.