New California Law on Mediation Disclosures: What Employers Need to Know to Avoid Litigation Delays
Moire Morón, Esq, Assistant Vice President, Claims Practice Leader, QBE North America
California’s Evidence Code Section 1129(a), which became effective on January 1, 2019, now requires an attorney representing a client participating in a mediation or mediation consultation to provide the client with a printed disclosure outlining the confidentiality restrictions and obtain a printed acknowledgement signed by the client stating that he or she has read and understands the confidentiality restrictions2. The disclosure is known as the "Mediation Disclosure Notification and Acknowledgement.”
Notably, insurers are not exempt from this new law and are also required to execute the disclosure by virtue of the tri-partite relationship between the insurer, insured and external counsel retained by the insurer to represent the insured. The Court of Appeals of California, Fourth District confirmed that a “client” includes both the insured and the insurer in its decision in the matter of Bank of America, NA v. Superior Court of Orange County, (212 Cal.App.4th 1076 (2013)3. The Appellate Court held that a tri-partite attorney-client relationship arises when an insurer retains counsel on behalf of its insured, regardless of whether the law firm was retained to defend or prosecute litigation on behalf of the carrier.
As a result of this new disclosure requirement, employers and their counsel that mediate claims in California should be aware of the new statute and work proactively to ensure the appropriate insurers are in full compliance. All mandatory disclosures must be executed before the parties agree to mediation. Failing to do so could potentially result in the loss of opportunities to resolve claims in a way, and at such time, that is most beneficial to the employer.
To help prevent non-compliance and the risk of continued litigation and exposure, here are three actions employers and counsel can take:
a) Know Policy terms. In the event an employer is faced with a lawsuit, it is important to work with the insurance agent or broker to know what insurance coverage may be available, if any. In particular, companies should be familiar with the language in their Cyber Liability, Employment Practices Liability and Errors and Omissions Policies. Employers should understand the policy’s settlement provisions, and work with external counsel, the insurance broker and the insurer to ensure compliance with the insured’s and insurer’s settlement consent provisions.
b) Work as a team. All parties should be aware of the tri-partite relationship and work collectively to limit exposure by exploring alternative dispute resolutions. Defense counsel should keep both the insured and the insurer up to date on any statutory or legal developments that may impact their case. The employer and counsel should be confident that the insurer’s claims team is well versed in applicable laws.
c) Stay involved. The employer and their counsel should be confident in the insurer’s capability to work proactively with them to ensure they are receiving timely and comprehensive status reports pursuant to the Policy terms and any applicable Litigation Management Guidelines.
This new obligation is the result of a series of lawsuits and legislative amendments, beginning in 2011 with the case of Cassel v. the Superior Court of Los Angeles (51 Cal.4th 113 (2011)4. In Cassel, the California Supreme Court expanded the application of the confidentiality requirements, holding that mediation confidentially protections also applied to attorney malpractice matters, thereby preventing the client/plaintiff in the malpractice suit from introducing mediation communications in support of his malpractice claim.
“In California, it is settled that absent a conflict of interest, an attorney retained by an insurance company to defend its insured under the insurer’s contractual obligation to do so represents and owes a fiduciary duty to both the insurer and insured.”5 Relying on precedent, the Appellate Court found that the insured, insurer and law firm are a “unitary whole,” sharing the “common purpose” of defeating or settling the third party claims6. Therefore, the insurer and insured are considered joint clients, such that insurers must also execute an acknowledgment that communications between all parties are protected by the attorney-client privilege.
About QBE Professional Lines Coverages
Our Professional Lines team provides companies with the solutions that make it possible for them to feel secure in spite of financial uncertainty. We offer a wide range of coverages, including Commercial Errors & Omissions, Directors & Officers Liability, Employment Practices Liability, Fiduciary/Crime and Bonds for all types of customers – from public to private companies and not-for-profits to financial institutions.
For additional information on how QBE assists organizations with reducing exposure regarding employment practice liability claims, please contact Moire Morón at Moire.Moron@us.qbe.com.
1The subject matter and opinions expressed herein are the opinions of the individual author and may not reflect the opinions of QBE. The contents herein are for informational purposes only and not for the purpose of providing legal, regulatory, or compliance advice. The reader should contact his or her own attorney or compliance professional to obtain advice with respect to any particular issue or problem.
2Stats. 2018, Ch. 350, Sec. 2. (SB 954) Effective January 1, 2019.)
3Bank of America, NA v. Superior Court of Orange County, (212 Cal.App.4th 1076 (2013)
4Cassel v. the Superior Court of Los Angeles (51 Cal.4th 113 (2011).
5Gafcon, Inc. v. Ponsor & Associates, (98 Cal.App.4th 1388 (2002)
6See American Mut. Liab. Ins. Co. v. Superior Court, (38 Cal.App.3d. 591-592 (1974))