Most building practitioners carry professional indemnity cover (PI). In some jurisdictions, like Victoria, all building professionals have to carry PI. So how do you prepare for disputes with insurers as opposed to the professionals themselves?
The claims process
If a claimant sues a professional such as an architect or an engineer, the practitioner notifies the insurer. The insurer then assesses the claim and decides whether to grant indemnity. Normally the decision is in the affirmative.
Once indemnity is granted, a panel law firm is appointed to determine whether there is a case to answer.
If the insured has been sued, the law firm will file a defence and consider whether to join any other parties who may be partly responsible by way of third party proceedings.
At an early stage, a building consultant will be appointed to determine whether there are any defects and if so, the repair methodology and the costs of rectification.
In circumstances where there are a number of implicated parties, it will take a while for the dust to settle to the extent that meaningful negotiations can occur.
The mediation process
Back in the day, when I had a full head of hair and the locks were fair rather than grey, mediation was not a mandatory fixture in the dispute resolution tapestry. These were more genteel times and we lawyers used to get on the “blower” or make written offers of settlement well in advance of settlement. Solicitor to solicitor negotiation was the order of the day.
Alas, those days are long gone. Now one sues, defends and then goes to mediation. There's no bipartisan negotiation dialogue, so the best chance of settling a case presents itself at mediation.
At the mediation, all implicated parties should be present.
When trying to resolve a dispute with insured defendants, the claimant needs to understand that:
- It takes time, resolve and a cool head and regrettably a deep pocket.
- The claimant is up against professional litigants. The plaintiff is not a professional litigant - in fact, most plaintiffs want to get the hell out of the conflict arena as fast as possible. There is the odd “litigation junkie” who is addicted to the adrenaline rush of litigation, but this is a pretty rare bird. Plaintiffs are not professional litigants, so they don’t have the ring craft or the level of detachment that is characteristic of a professional litigant. The plaintiff has real “skin in the game” so the psychology of the plaintiff differs profoundly to the insured defendant(s). For one party, it’s about business and financial damage control, for the other it is about life, solvency and sometimes survival.
- It follows that the choice of one's advocacy team is critical. The claimant needs a specialist lawyer and professional consultant who is candid, objective, skilled and realistic. Some clients want a lawyer to tell them what they want to hear, but be warned, a lawyer who tells the client what he or she wants to hear is the last sort of lawyer to retain. You need a lawyer who says it the way it is, who tells you whether it’s a winner or a loser and explains what victory looks like and what loss looks like.
- Assuming one has such a lawyer, the claimant will be well-represented and ready to negotiate.
- Your lawyer will need a spine, and will have to be strong and resolute in getting a settlement that is fair. The lawyer also needs to watch out for the “settlement scalp hunter.” The settlement scalp hunter, fortunately a rare beast, is a mediator who tries to bludgeon, cajole or terrify the parties into settling the case. I remember one such mediator who did their very damnedest to force a client into settling a matter on very problematic terms. I said to the mediator, “look here, if I were to agree to that, I may as well ring my insurer and say I hereby give notice of a circumstance that may give rise to a claim” because it would have been negligent of me not to counsel my client against accepting the settlement proposal.
- Wait for the fashionable mediator line, the cliché, “you don’t know what will happen at trial, there are no guarantees.” This is always an “eye widener” line and although in the strictest sense is correct as the only guarantees in life are death and taxes, the fact of the matter is that there are cases that are overwhelmingly strong. If one has such a case, then one should not compromise unless the compromise is very, very close to the worth of the case. If the offer is token, pull the rip cord, abort the negotiations and say "see you in court." But remember, the caveat is that you must know you are on a winner.
During negotiations, be prepared for a long day. In my experience, when it comes to getting money out of the respondent fraternity, the hand that holds the pen that signs the cheque has very little “fast twitch fibre.”
Don’t expect any windfall. A good insurance lawyer will have audited the living daylights out of the claim with the view to working out what the exposure is and won't pay a red cent more than it's worth. There are no windfalls in these types of negotiations unless one is blessed with a twit for an opponent, but professional litigants are chosen because they are the antitheses of the proverbial twit.
The offer of compromise – take pause – proceed with caution
A professional litigant will ordinarily serve an offer of compromise if a matter does not settle. When you are “graced” with one of these, take pause and focus big-time. A well-crafted offer of compromise can be a game changer in that it will be an offer that represents the respondent's assessment of the exposure and sometimes has a little bit of buffer money thrown in to boot. If the offer isn’t accepted and the case proceeds to conclusion, a judgment will be handed down. When a judge determines that the plaintiff is entitled to less than the amount of the offer, the poor devil plaintiff will have to pay the other side's legal fees along with their own, from the date that the offer was dispatched – very, very sobering.
More than 90 per cent of cases settle well before trial. If a case runs, it runs to conclusion for a number of reasons:
- One party got the law right and the other got it wrong
- One party ran the case on principle rather than logic
- One party wanted to prove a point, wanted to make the other guy pay. There is an old Italian saying, “if you want revenge dig two graves.”
Don’t run cases to prove a point. Only run a case if you know you will win by virtue of the inherent merits of your case and the fact that the sums add up. This is particularly the case when litigating with insurers, as they won't be emotional and they won’t be vengeful. With them, it's about risk management, the math, the liability and what the liability is worth because insurance is an ancient business and the insurer is accountable to the shareholder. The shareholder won’t be enamoured with either largess or vindictiveness.