Insurer's statements at mediation of claim against insured may be discoverable in later bad faith coverage suit
Most parties generally assume that whatever they say at mediation is confidential and cannot later be used against them in court. But the protections provided by Evidence Rule 408 and state mediation statutes like the Uniform Mediation Act are not absolute. In some circumstances, statements made during mediation can be admissible or at least discoverable.
One instance in which mediation communications may not be confidential, inadmissible or exempt from discovery is in bad faith coverage claims against an insurer. A recent decision by the United States District Court for the Eastern District of Washington in Mutual of Enumclaw v. Cornhusker Casualty Insurance illustrates how an insurer’s statements at mediation can be used to support a later bad faith claim. Cornhusker and Enumclaw both insured the same defendant in a motor vehicle personal injury case and both participated in a mediation of that claim. Cornhusker, however, asserted at the mediation that it had coverage defenses such that it would only contribute a limited amount to settle the claim. In response, Enumclaw funded a settlement without Cornhusker’s participation, took an assignment of the insured’s claims against Cornhusker and filed claim against Cornhusker.
In addition to seeking contribution for the settlement paid, Enumclaw alleged that Cornhusker had acted in bad faith based upon its conduct at the mediation. Cornhusker requested a protective order to preclude Enumclaw from pursuing any discovery regarding Cornhusker’s mediation conduct. The court denied the request reasoning that the mediation was for the underlying motor vehicle personal injury claim only and Cornhusker’s statements about coverage were beyond the scope of that dispute. The case serves as a reminder that insurers and insureds may need to pay careful attention to whether or not coverage defenses have been raised and made one of the issues to be addressed at mediation. If not, statements regarding coverage could later be used to attack an insurer’s conduct.
