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Environmental, Natural Resources & Related Insurance Coverage Dispute Resolution

Claim uncertain? Tips for dispute resolution success

If the costs of the resolution of an environmental or natural resources claim are uncertain, how can you make mediation or arbitration (ADR) successful?

No dispute is immune from uncertainty.  Take a personal injury case where all costs have already been incurred.  Disputed issues still remain as to the facts and law relevant to liability, as to causation and reasonableness of claimed damages, and as to the applicability of any special or punitive damages on the facts of the case.   Despite these uncertainties, mediation is generally successful in this arena, and arbitrations are frequently used, demonstrating that these types of uncertainties will not derail an ADR process.  And they are often timed to occur relatively soon after a dispute has arisen. 

However, as I noted in my last blog, environmental and natural resources cases almost always have additional levels of uncertainty not present in other types of cases.  For example, if cleanup or restoration has not yet begun, what is the scope of the work the agency that must provide approval will require?  How reliably can the cost of performing that work be predicted?  What if additional contamination is discovered along the way?  These can be big dollar questions.  How does answering them fit into the ideal timing of a mediation or arbitration?

Sometimes you will have no choice in timing.  If litigation has been filed, absent the court granting a stay, the case will be assigned a trial date.  If you are going to mediate, it must be done well in advance of that trial date if you expect to realize any cost savings.  If you are headed to arbitration based on some prior agreement, that agreement likely specifies the procedural rules of arbitration to be applied and those rules frequently provide guidance as to how quickly cases should be arbitrated.  Absent stipulations from all sides extending the timeline, an arbitrator will generally follow that guidance in setting the schedule. 

In the case of mediation

Even if no other deadline compels early mediation, remember the guidance from my prior post:  Ideally a case should be taken to ADR as soon as you have enough information to obtain a satisfactory resolution of your claim.  Delaying ADR past this point likely means unnecessary legal fees and the unnecessary investment of your own time and energy.  If you are not otherwise compelled, you have two choices as to timing of mediation.  On the one hand, you can sit back and let (expensive) fulsome discovery and expert preparation in the underlying litigation play out and mediate once that is done, usually right before trial.  On the other hand, if you want to save on those costs, you can focus on (or ask your lawyer to focus on) steps that will bring your case to the point where it can be successfully mediated, which will be something far short of what it will take to present the case at trial.   Each dispute is different, but among the steps you may want to consider are:

  • Perhaps most importantly, start by recognizing you will never have absolute certainty.  Your goal (which is true whether headed to ADR or headed to trial) should be to develop information where it will materially better your chances of reaching a successful outcome.  In deciding if you are ready for mediation, ask yourself what additional information you absolutely must have to evaluate any offered settlement.  If you don’t know whether the cost of the proposed restoration you or your opposing party will have to perform is $100,000 or $1,000,000, that is something to tackle.  On the other hand, developing proof that another party has 60 percent liability rather than 50 percent will not be a priority (for one thing, you can just assure them you will do the work to develop that proof prior to trial!).   
  • If the question of who bears what liability is one of your biggest uncertainties, determine if you can explore this through a phased discovery approach.  Are there key documents or even key depositions that would narrow this uncertainty?  If so, can the parties agree to a limited, focused document production and limited hours of deposition to occur before mediation, without any waiver of the right to revisit?  (For this to work, you need to start well in advance of court discovery deadlines).
  • If the cost of an environmental cleanup is one of those material uncertainties, consider whether it will help to:
    • Work with an environmental consultant to determine whether the nature and extent of the contamination has been sufficiently defined.  I recommend that this consultant be one who routinely engineers remedial actions.  Someone will likely be doing further investigations in the future, but can you do a preliminary phase of investigation to determine exactly what the contaminants are, the rough vertical and horizontal extent and whether groundwater is impacted?  Better yet, can the potential parties to the mediation agree to share the cost of this and the information obtained, reserving rights to claim their share of those costs from the other party?
    • From this information, each party can ask their own consultants to estimate for them a range of remedial solutions and estimated costs, working under attorney-client and work product privileges.  You may have a separate pre-litigation task for your consultant to challenge your opponent’s position as to remedy, but for mediation purposes it is particularly important to know what the remedy you really believe is appropriate will cost and what the remedy your opponent is asking for will likely cost.  Initially, this work by your consultant/expert would be for the party’s own use, but from a mediator’s perspective I recommend that some version of estimated costs be shared prior to any mediation session (understanding that this may be subject to the trial strategy regarding experts). 
    • Depending on which parties have relations with the agency that needs to approve the cleanup (and taking into account that no one should prejudice that party’s position with the agency), consider having an informal meeting with the agency.  You can present what you know, learn if they see any “data gaps,” and test with them your preferred remedy.  Better yet, do this jointly with the other mediation party.
    • Lay the groundwork to determine whether it is likely the parties can reach agreement on the level of cleanup to be applied.  One simple question in this regard is whether the cleanup will be based on residential or industrial exposures.  Sometimes it will be very clear from the governing agency’s rules which will be applied.  There could also be something in a governing contract that calls for one or the other.  Frequently, though, this is an area of negotiation.  Thus, each party must understand what level of cleanup they really want, and how much that is worth to them.  It helps to have an honest answer as to what cleanup you would spend your own money on.  
  • Are questions about other liable parties an uncertainty that could materially affect a negotiated resolution?  In this case, it will matter if that party is liable to one or all of the mediation parties.  If another entity is potentially liable to all mediation parties, there should be a discussion upfront whether that party should be joined and/or invited to the mediation.  If another entity is potentially liable to just one mediation party and therefore not likely to participate in the mediation itself, my experience is that everyone still benefits if that entity has been put on notice of the claim and has opened a dialogue prior to the mediation.  If that entity is an insurer, it is unlikely that the insured party will be able to participate fully without knowing its insurer’s position.  While the other party would not be privy to these discussions, that party should at the very least make a demand on the opposing party in writing and request, in writing, that its demand be shared with any appropriate insurers or indemnitors.
  • Finally, perhaps the most important tool in propelling a dispute to resolution is through agreements upfront as to what is to be resolved.  Consider this the “size and shape of the table” discussion.  In my initial environmental cleanup example in my prior blog post, there could be an agreement that the mediation will only resolve who pays for the currently discovered contamination and that the claimant will not give a release for any unrelated contamination discovered later.  With this agreement up front, the parties could greatly narrow the information gathering required for a productive mediation session.  Without it, parties are likely to incur unnecessary costs in preparation and arrive at the mediation with incompatible expectations as to the scope of an agreement that can be achieved. 

In the case of arbitration

One advantage of arbitration over court litigation is that an arbitrator often has greater flexibility than a court in structuring the ADR process and, if they agree, the parties have far greater control in specifying the process.  That flexibility can allow parties to achieve some of the same cost savings discussed above.  For example, the arbitrator’s preliminary order could allow for the parties to conduct the focused, limited discovery suggested above and the parties could agree to mediate immediately thereafter.  If resolution is not achieved, discovery could be re-opened (though still of a more narrowed scope than that in court litigation) and the arbitration process then proceed.   

As emphasized in the mediation discussion above, the parties should work cooperatively at the earliest possible time to precisely define exactly the dispute to be resolved by the arbitrator.  Including in the preliminary order a clear stipulation as to the specific issues to be resolved, and perhaps describing those that will not be resolved, will go a long way to saving costs and avoiding the risk of any unexpected ruling.

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