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Mediating Suspected Fraud Cases
by Jeffrey Krivis

fraud (fr od), n. 1. An intentional perversion of truth for the purpose of inducing another to part with some valuable thing belonging to him or to surrender a legal right; 2. A false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations; 3. Deceit; trickery; cheating.

You are a well-respected lawyer who has been referred a garden variety soft tissue injury case. The client has been treating with her own selected physician who has referred her to a physical therapist. Upon receipt of the medical bills and report, you mail everything to the insurer along with a settlement demand. Months go by and you hear nothing from the insurer, except that they would like to copy the records of the medical facility. Since the statute of limitations is approaching, you file suit, send a copy to the insurer, who immediately refers it to outside counsel. Next thing you know you are barraged with written discovery requests, depositions and aggressive litigation tactics. There is no settlement in sight, only the prospect of trial.

How many lawyers have had promising cases turn into time consuming, unprofitable pieces of litigation only to find out late in the game that the insurer has sent the case to it's "special investigations unit" ("SIU") because of suspected fraud? Wouldn't it be nice to know early on in the case that the insurer has questions about the legitimacy of some aspect of the claim, so you can either reevaluate your desire to pursue the case, or clarify the information so the insurer is in a better position to settle? Despite the obvious answers to these questions, many lawyers find themselves stuck, never knowing why certain cases are log-jammed in the system with no way out except through the litigation maze.

Drawing the lines in the sand are the insurers who are naturally concerned about paying out on claims that have suspicious qualities about them, such as a medical facility that is on its "watch list," a low-impact case with "excessive" medicals, physical therapy rendered by a chiropractor not in conformity with the Chiropractic Code, examinations going far beyond the range of the injuries involved, questionable treatment cycles, and the like. Strategy or habit often dictates that until the eve of trial neither side will communicate with the other the real reasons the case is stuck. Not until then will the judge require that the parties discuss openly and candidly the various elements of the case.

The Benefits of Mediation In Suspected Fraud Cases

An early investment in mediation can accelerate the learning curve for both plaintiff and insurer, and open the lines of communication so that informed decisions are made about how to resolve cases. While the benefits of mediation have been artfully addressed in other fields, consider the opportunities available in the suspected fraud claim for both plaintiff and insurer:
  • Provides a place for an early evaluation
  • Allows for a strategic exchange of information
  • Allows you to engage in a dialogue in a "safe, non-threatening environment"
  • Requires complete confidentiality
  • Enhances the probability of settlement
  • Eliminates wasteful litigation-a great time-saver for counsel on both sides

1. Early Evaluation

In the mediation which occurs early in a case, the mediator serves the function of an agent of reality. By listening closely to the evidence available, or not available, the mediator can explore the consequences to all parties if their positions are taken to court. The ability to observe the plaintiff and the insured and review the facts of the case may provide both sides with information that was desperately needed to put a reasonable proposal on the table. In addition, the mediation setting provides each side with the chance to review:
  • the demeanor of the other;
  • the veracity of each other's story based on their own version
  • recent medical bills not previously received
  • veracity of counsel from his demeanor
On the other hand, the evidence might also reveal facts which counsel was not aware, including, among other things:
  • improper licensing of the medical facility
  • violations of the chiropractic code
  • inconsistencies between medical bills and records
  • unsubstantiated examinations/treatment
Armed with this "new information," all parties are then able to more intelligently communicate, with the aid of the mediator, different ways to resolve the case. By introducing the resources of a third party neutral the parties are afforded a rare opportunity to strategically manage the flow of information in a way that benefits their case. Faced with new information and the potential need to reevaluate a case, mediation may be the most useful forum in which to explore methods of changing direction and the significance of not doing so.

2. Strategic Exchange of Information

In managing the flow of information, the mediator capitalizes on the strengths and weaknesses of the parties by surveying information each side thinks might make a difference in his case. The dilemma to this examination of information which some parties find uncomfortable in their first mediation of this nature is how much of their investigative efforts should the mediator reveal to the other side. Often times insurers might be armed with information such as a witness statement, questions about the medical clinic, or even proof that the plaintiff wasn't even at the accident scene, but are reluctant to share it with the plaintiff for fear that if the case doesn't settle, they would lose the impact at trial or arbitration.

While the value of using the fruits of the investigative effort at trial are in theory very sensible, the necessary transaction costs and attorneys fees to prove the case as well as the reality that most cases don't get to trial are rarely taken into account. The costs and fees to prove the case could be completely eliminated by offering to share the information during the mediation session. In so doing, the mediator can be the conduit for making the kind of recommendations about settlement or dismissal which the parties and counsel are prepared to accept. By strategically revealing information at certain stages in the mediation, the mediator can slowly assist in rolling out each side's position in such a manner that protects each side in the event they decide to go to trial. Each side maintains control of the flow of information, and decides when to reveal evidence based on calculated decisions about the impact of the evidence and how it might be received during the mediation. This is accomplished through close consultation with the mediator, who gauges the temperature of the parties and recommends the appropriate time to exchange or disclose critical information.

For example, if the defense has a sub rosa film of the plaintiff that completely undermines the plaintiff's case, the defense would explore with the mediator the right moment to allow the plaintiff to know about this information. When the mediator senses that the information would have an impact on the evaluation of the case such that resolution is possible by revealing the information, the mediator would get permission from the defendant to discuss the information with the plaintiff. This analysis holds true if the plaintiff presented evidence to the mediator that would undermine the defense position. In short, the power in the mediation of this type of case is in the information available to the parties. If one party chooses to bargain by keeping their cards close to the vest, the other party will not likely make a concession or even consider the outcome contemplated by the party with all the information.

By systematically controlling the flow of the information through a seasoned mediator, the ice can be broken and a fair negotiation of the claim can be accomplished. In a recent mediation, multiple parties were claiming injuries sustained in a low-impact bus accident. Given the impact, the involvement of an unlicensed clinic, and the high percentage of passengers injured (100%), the insurance carrier referred this case to its SIU from which it was sent to mediation. In mediation, the active participation by several of the plaintiffs resulted in a better understanding by their counsel of the risks of going to trial, and the ultimate value in settling quickly.

For example, in this case, it became evident during a confidential meeting with the mediator that counsel was not made aware of the fact that one of his clients never received any medical treatment, despite a report prepared by a medical provider and submitted to the carrier. Faced with that knowledge, counsel then began questioning other clients and discovered that at least one other plaintiff was having difficulty recalling significant events and dates. This potential bombshell was disclosed to the mediator privately, out of earshot of the defendant and counsel. Plaintiff counsel, however, knew what she had to do and was happy to do it without the embarrassment of facing defense counsel in the same room. She filed appropriate Requests for Dismissal the same day. The participation of the clients in the mediation assured a full understanding by them of the significance of this information and made unnecessary any lengthy explanation of the need to abandon their cases.

In a similar case, fraud was believed due to the involvement of a "suspect" clinic, extended treatment that remained substantially unchanged from start to finish, and a delay of several weeks in starting to treat. At the beginning of the mediation session, the parties described the details of claimant's physical examination and course of treatment. New information in this case was provided to the defense counsel which indicated a very credible injured party who had obtained a thorough, professional, and effective course of treatment that was entirely justified. The adjuster made an immediate offer substantially greater than either party might have expected, and the case settled at mediation.

What are the factors common to both of these examples? The new information provided by the mediation process enabled the recipient of that information to make a decision based upon greater intelligence and to do so earlier rather than later. In each case, one party minimized its losses and another maximized its gains. Thus, it was to the advantage of the bus plaintiffs to abandon a loser rather than spending additional wasted effort. The benefit to the defense was obvious. Likewise, in the second case, defense minimized its losses and plaintiff maximized its gains through the cost-effective exchange of important information.

3. Establishing The Safe Environment

To establish a safe environment is to create a process within which parties are encouraged to communicate productively. It is an environment in which they are comfortable enough to send and receive clear messages. This environment is generally created with a simple ground rule prohibiting comment, criticism, or any other form of behavior that might in any way distract a party while he/she is speaking. The mediator acts as a sort of filter in which the discussion will be allowed to drain through. The result of using this procedure may include any of the following:
  1. When meeting together as a group, the parties may express their entire view of the dispute without fear of interruption, criticism, or even comment.
  2. When meeting privately, the parties are open to brainstorming openly because they are not obliged to make commitments at that time. At the same time, the discussion of the case is realistic as opposed to simply posturing about positions.
  3. In private, parties may explore settlement scenarios with the aid of mediator, i.e. use the mediator's "sense" of where the other side is at and hence more effectively explore options for resolution.
  4. Throughout, the safety of the process permits the parties to achieve a sense of having reached their optimum resolution
In other words, the safe environment of mediation is for lawyers who want to get their point across to the other side with the client in attendance, for lawyers who want to be sure all alternatives have been fully explored, and for lawyers who want to get a greater sense of what caused the other side to take their position before disclosing fully its own position. For example, if the defense wants to deliver the message that it thinks elements of plaintiff's case are suspect, it can do so without fear of retribution or retaliation because the mediator may do the talking. This allows each side the ability to explore the full potential of each other's case before committing oneself to a position that might be both embarrassing and financially challenging.

4. Confidentiality

The idea of confidentiality is the foundation upon which mediation is built, and the reason mediators are able to resolve cases. What does that mean to the consumer? It means that they are encouraged to tell the mediator their secrets without fear of having information used against them at anytime in the future. This is a powerful asset to an injured victim who might have sensitive issues surrounding his claim such as preexisting injuries, questions concerning the medical treatment and so on. Using this asset as a sword to get a case settled is precisely why mediation works.

To confirm the availability of the asset of confidentiality, the mediator usually promises not to divulge any information without the permission of the parties. This allows the mediator to build trust and openness, and encourages an honest disclosure of information and cooperation. Without it, parties are hesitant to reveal too much, fearing delicate information might be used in a later court proceeding. Confidentiality therefore encourages candor, a full exploration of the issues, and the possibilities of settlement.

Many states, such as California, have statutes which provide limited protection against the release of confidential information in civil proceedings. For example, Evidence Code 1152.5 protects disclosure of settlement discussions in a later court or administrative proceeding. Skilled mediators will make certain that any information is not transmitted across the table without the permission of all parties involved.

5. Enhances The Probability of Settlement

There are at least three reasons why the process enhances the probability of settlement:
  1. The information is coming through a neutral, increasing the chances that it will be heard objectively, and not defensively. As such, it is more likely to be analyzed effectively.
  2. Because the parties are present, participate actively in the exchange of old and new information, and understand the process in which new directions are explored, they are more likely to understand recommendations of others.
  3. The Mediator has created a safe environment by developing ground rules that preclude interruption and unwelcome cross- examination and assure a respectful and polite atmosphere. In this environment, the parties feel empowered and are in a frame of mind to resolve their dispute.
The safe environment of mediation and the confidential sessions with the mediator offer an opportunity to explore alternative outcomes. This joint effort of parties, to produce, with the aid of a mediator, an outcome based on both old and new information leads to a greater likelihood of achieving an expedited result that reduces or eliminates drawn out litigation.

6. Eliminates Wasteful Litigation

The idea of abolishing litigation that is either going to resolve quickly or go nowhere fast is the goal of mediating suspect fraud claims. This goal can be achieved in every case with the determination of counsel who is willing to look at his case with candor and openness. At minimum counsel learns why the case is dragging out so long and might find an exit strategy for a case that is going nowhere fast. At best the case gets settled and a settlement draft is received within a few days of the mediation conference.

Litigation is wasteful if it is either initiated inappropriately or maintained beyond a point where resolution appears reasonably feasible. Inappropriately initiated litigation is litigation that does not require the intervention of the judicial process but that could be resolved through more meaningful communication among the parties to the litigation.

In the area of fraud, the elimination of wasteful litigation often results when a mediation session provides an opportunity to review scenarios likely to occur outside the courthouse as well as inside. These scenarios may include pending or likely agency actions, the value of ongoing relationships with either the plaintiff or the defendant, and the desirability of controlling the outcome of a matter as opposed to "rolling the dice" where ethics, morality, and perhaps even criminal conduct have been brought into question.

While it would generally appear to be in the best interests of attorneys and their clients to prevail in court, the existence of other, and potentially larger, interests may dictate that the legal positions be abandoned. Frequently, the mediation session produces an awareness of broader interests and an assessment of their importance relative to the legal action which is the subject of the mediation. This assessment, assisted with the potentially more reasoned objectivity available in a safe environment often leads to the termination of actions otherwise labeled as fraudulent.

Convening The Parties To Mediation

How would you respond to a telephone call from a mediation service who has been requested by a carrier to mediate your case? Is there a downside in investing in a private, confidential conversation with an insurer about the case? If you are an insurer, how would you respond if the plaintiff made the same request of you? There is a perception on the part of both carriers and trial lawyers that he who recommends mediation first is viewed as weak. They wince at the idea of agreeing to come to the bargaining table, particularly when fraud is suspected. A simple strategy works - allow the neutral to act as the go between or "convener" i.e. the person that makes the call. This allows for face saving in the event the other side says no, and might even provide you with some clues as to why the case is dragging on for so long.

Another strategy is to encourage parties to participate in a "pledge," or agreement to mediate any cases with a particular insurer. Here is an example of how some trial lawyers and insurers addressed the issue of convening a mediation without looking weak: The insurance carriers entered into an agreement in which they pledged to mediate certain types of disputes submitted by plaintiff's counsel. The pledge enabled either party to serve upon the other a Request to Mediate followed by the selection of a mediator and scheduling within 90 days. Given the widespread acceptance of mediation, it is not surprising that the program has received broad support from both the insurance industry and the Plaintiff's bars.

Furthermore, the existence of the pledge alone makes it simpler to convene the mediation. For those still clinging to the fear that a request to mediate may be a sign of weakness, the pledge is helpful because it applies to all cases and as such does not imply a "message" as to any single case. Litigants in other areas of law have expressed interest in entering into a pledge similar to the one above. Given the potential savings of time, effort and cost, and given the fact that mediation is entirely voluntary and can terminate at any time, the implications of the pledge remain primarily positive.

For counsel involved in large volume personal injury cases, the potential, through the pledge, for productive discussions and early resolution of cases through mediation is enormous. The insurance industry has already evidenced its broad acceptance of the mediation concept. This acceptance is an opportunity for the Plaintiffs' bar to assess the potential for broader-based, more productive, settlement discussions available through the simplified access to mediation offered by a pledge to mediate. Before dismissing mediation as just one more "hoop" to jump through, skeptics should remind themselves of the potential benefits of this hoop which has a settlement rate in excess of 85%.

Conclusion

The ability to find out the reasons why a claim is bottle necked in the system is a smart business practice. Mediation can be used as a tool to unlock the door to settlement of the case, or at minimum understand why things have stalled. With that understanding, an intelligent strategy can be designed for the case.

 


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