Simply put, mediation is a settlement conference managed by a trained neutral mediator. Its benefits are many – the main one being that it is the parties’ best opportunity to control their own fate, avoiding the uncertainty of tendering the ultimate decision on legal liability and the amount of any damages to a judge, jury or arbitrator. When successful, it is also a money saver; trials and trial preparation are expensive. But compromise is required in order to get there.
Because it is a settlement conference, statements made during mediation are subject to New Hampshire Rule of Evidence 408, restricting their admissibility at trial to prove or disprove liability or damages. (When I act as a mediator I often give the parties a “reverse”-Miranda warning: “Nothing you say can or will be used against you in a court of law!”) As a result, parties can speak more candidly about the merits of their claims and defenses.
Ideally, everyone with potential liability arising out of a construction project, even if not a party to the lawsuit, should attend the mediation. The range of potentially liable players in a complex construction project can be extensive. Depending on the nature of the dispute, contractors may want to bring their subcontractors, insurers or bond sureties to the table; owners may want to do the same with their design professionals. Unless the various contracts between these players contain a requirement of participation, the only way to compel their attendance at mediation may be to make them parties to the lawsuit by filing indemnity or contribution claims. Sometimes an after-the-fact agreement to participate can be wrested from non-parties as a quid-pro-quo for forbearing from suing them until after mediation runs its course.
In the course of litigation the timing of mediation is a matter of agreement between the parties, and they may not share the same motivation to speed or delay it. One party but not the other may want the benefit of the “discovery” process to obtain potentially critical documents and testimony before mediating. Each side must weigh the benefits of “discovery” against the cost of obtaining it, and against the likelihood that one side or the other may discover or reveal facts that help or hurt its position.
There is no requirement that parties agree to a settlement at mediation, or even compromise their positions at all. The only requirement is participation in good faith – but bad faith is difficult to prove if the parties have actually shown up. (An insurer’s refusal to settle a claim is treated differently; “an insurer has a duty of reasonable care in the settlement of a third-party liability claim” because the “insurer is in a position to expose the insured to a judgment in excess of the policy limits through its refusal to settle a case,” Bennett v. ITT Hartford Group, Inc., 150 N.H. 753, 757, 758 (2004).)
If the case does settle, a formal settlement agreement should be drawn up and signed as soon as possible to avoid later disagreements over what was agreed upon. In construction cases this is particularly important with respect to the scope of any releases. For example, a general release may end up inadvertently forfeiting unexpired warranty rights. Settlements in construction disputes may include non-cash components, such as extended warranties, an obligation to repair certain items, indemnification against claims by others or express reservation of claims against others. Withholding or escrowing payments pending fulfillment of specified obligations may also be needed. As always, the devil is in the details.