• Understand State’s Mediation Privilege Rules Before Mediation Preparations
  • February 13, 2015
  • Law Firm: Sutherland Asbill Brennan LLP - Washington Office
  • It may be surprising to some, but not all states have the same rules regarding privilege of statements used in mediation. The U.S. District Court for the Eastern District of Pennsylvania recently considered the boundaries of the privilege under Pennsylvania law. In the case, following a workplace injury, a plaintiff received a settlement of $2.5 million, which consisted of a payment of $1,750,000 from an insurer of an involved company and $750,000 from the insured company. The company then brought suit against the insurer alleging that the insurer unreasonably refused to pay more than $1,750,000 to settle the underlying action and forced the insured company to use its own monies to complete the settlement. In the litigation, the insured company sought to compel certain documents withheld as mediation documents or communications.

    The court first rejected the insured’s argument that the mediation privilege does not apply in a bad faith action alleging an insurer’s failure to engage in good faith settlement negotiations. The court found that the privilege extended not only to mediation communications of parties, but also to communications “by, between or among” representatives of the insurance companies present at the mediation. The insured argued that because the underlying claim was a personal injury claim, the mediation communications relating to that claim should be admissible in a proceeding on a different claim (i.e., the bad faith claim) against an insurer. The court, however, rejected this argument on the grounds that the Pennsylvania statutes were clear - the plain language barred use of mediation communications in any and all actions or proceedings subject to only to the exceptions outlined in the statute, and a bad faith lawsuit was not one of the enumerated exceptions.

    Other states, as the Pennsylvania federal court recognized, have less broad mediation privileges. For example, North Carolina’s mediation privilege statute provides, “Evidence of statements made and conduct occurring in a mediated settlement conference or other settlement proceeding conducted under this section, whether attributable to a party, the mediator, other neutral, or a neutral observer present at the settlement proceeding, shall not be subject to discovery and shall be inadmissible in any proceeding in the action or other civil actions on the same claim.” The court also noted that the Pennsylvania statute applied only to communications “by, between or among” the mediator, parties, and participants made during mediation sessions and thus would not apply to discussions outside the presence of the mediator.