Alternative Dispute Resolution Provision Not Satisfied Where Parties Communicated with Mediator During Cooling Off Period

The United States District Court for the District of South Carolina has held that an insurance policy’s alternative dispute resolution condition precedent prior to initiating litigation was not satisfied where the parties communicated with the mediator during the provision’s cooling-off period, even though the parties disputed whether the communications concerned insurance coverage.  Allied World Surplus Lines Ins. Co. v. Blue Cross & Blue Shield of N.C., 2017 WL 3671172 (D.S.C. Aug. 24, 2017).

An insurer issued E&O and D&O policies to a health insurer.  The policies contained mandatory Alternative Dispute Resolution (“ADR”) provisions requiring the parties to arbitrate or mediate “all disputes which may arise under or in connection with this Policy.”  The ADR provision also had a cooling-off period of 120 days, providing that no judicial proceeding may be commenced until that number of days following the “termination” of mediation had elapsed.

Following a coverage dispute, the D&O/E&O insurer brought a declaratory judgment action against the health insurer.  The parties engaged in mediation prior to the filing of the declaratory judgment action.  However, the parties disputed whether the mediation had “terminated,” and the insured health insurer moved to dismiss on that ground.  The court looked to American Arbitration Association rules, which provide that a mediation terminates “[w]hen there has been no communication between the mediator and any party or party’s representative for 21 days following the conclusion of the mediation conference.”  The court asked the parties to answer whether the mediator had “communicated with any party in the 21-day period following the last relevant mediation.”  In response, the insured health insurer stated that the mediator had done so.  The D&O/E&O carrier agreed that there had been communications with the mediator about the mediation of the underlying actions, but stated that there had been no communications with the mediator about the mediation of the instant coverage dispute.

Following the supplemental briefing, the court dismissed the action without prejudice, holding that the suit was not ripe because the mediation condition precedent was not yet satisfied.  The court refused to “undertake an evidentiary hearing” as to the “substance of matters discussed during mediation of a dispute,” noting that doing so would contradict Federal Rule of Evidence 408 as well as a local rule.  Because the court would not do so, it found that the parties’ shared view that communications had occurred between the mediator and the parties in the 120 days prior to the litigation was sufficient to conclude that mediation had not terminated.


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