Settlement Communications Within Ten Days Of Mediation Protected From Discovery In Coverage Litigation By California’s Mediation Privilege

The United States District Court for the Northern District of California has held that, pursuant to California rules of evidence, a mediation privilege applied in coverage litigation to preclude discovery of underlying settlement communications between an insured and a claimant within ten days following the mediation. Silicon Storage Tech., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 2015 WL 5168696 (N.D. Cal. Sept. 3, 2015).

In the underlying litigation, the insured and the claimant attended a mediation with an insurer in attendance with the insured. The mediation was unsuccessful, but following the mediation, the claimant made a $20 million demand on the insured to resolve the misappropriation of trade secret allegations asserted by the claimant against the insured and certain of its employees. The insurers rejected the settlement demand, but the insured agreed to settle the underlying litigation for the $20 million. The insured then sought coverage for the entirety of the settlement from its insurers. According to the insurers, the $20 million settlement also included a settlement of separate patent litigation between the two parties. For this reason, the carriers contended that an allocation was necessary between the settlement amounts attributable to the trade secret litigation and the separate patent litigation.

In the ensuing coverage litigation, the insurers requested discovery of communications between the insured and claimant concerning the $20 million settlement demand following the mediation and the resulting discussions that ultimately led to the settlement approximately 15 days after the mediation.

On appeal of the magistrate judge’s ruling that the insurers were entitled to discovery of the underlying settlement communications following the mediation based on the insured’s counsel’s admission at argument that such documents were discoverable, the district court held that, pursuant to California Evidence Code § 1119(a)-(b), the underlying settlement communications through ten days following the mediation were protected by the mediation privilege. The court also held that counsel for the insured “could not have waived the mediation privilege because [the claimant], which also participated in the mediation, did not ‘expressly agree . . . to disclosure’ of the communications at issue,” as required by the mediation privilege rule to waive the privilege.


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