Orlofsky ADR Services

Court Holds That A Mediation Is Not A “Suit.”

In Sanders v. The Phoenix Ins. Co., No. 15-2539 (1st Cir. 2016), an insured was aware of a potential claim, so he notified his carrier. Although no lawsuit had been filed, the insured agreed to mediate the potential claim and invited his carrier to attend the mediation. The carrier refused to attend, and then denied coverage for the settlement that was reached at the mediation. The court upheld the denial of coverage because the policy limited the duty to defend and indemnify to “suits,” not “claims,” and a mediation is not the equivalent of a lawsuit. Mediation, the court ruled, is different from a lawsuit because it is an informal, ad hoc, proceeding, that the insured voluntarily chose to participate in.

This ruling appears to be correct based on the language in the policy, but it is unfortunate because it will require parties to initiate litigation in order to trigger insurance coverage under policies with this kind of language.