Justices: Court can sanction insurer who doesn't show for mediation


CHARLESTON -- The West Virginia Supreme Court of Appeals says a trial court does have the authority to sanction an insurance carrier that fails to appear at court-ordered mediation.

However, in its Nov. 9 opinion, the Court determined no sanctionable conduct occurred in Casaccio v. Curtiss and reversed the Kanawha County Circuit Court's order imposing thousands of dollars worth of sanctions on the insurer, National Indemnity Company.

In May 2003, three people were killed in a car accident on Interstate 64 East's Lee Street exit in Charleston. Two years later, Harold A. Curtiss, the executor of his sister and parents' estates, filed a wrongful death lawsuit against John Tanner and Hartley Trucking Company Inc.

Hartley was bankrupt, but insurance coverage for the accident was available through a policy issued to the company by Converium.

In March 2006, the circuit court ordered the parties to complete mediation by that November. The trial was scheduled for December.

The first mediation in the case was held on Nov. 10, 2006. Jo Knapp, an employee of a third-party administrator, appeared as the designated representative of Converium.

Prior to the session, the company had entered into a Stock Purchase Agreement with National Indemnity whereby National Indemnity agreed to purchase all or certain portions of Converium. However, no representative of National Indemnity appeared at the Nov. 10, 2006 mediation.

Still, Knapp made an unqualified offer of $700,000 to settle the case. The offer was rejected. Ultimately, she agreed to recommend and seek approval for a $900,000 settlement. The plaintiffs agreed to accept the $900,000 offer.

It was at the end of the mediation session that Knapp revealed for the first time the proposed settlement could not be consummated without approval from National Indemnity. National Indemnity later refused to consent to the $900,000 settlement.

In the week following the mediation, Converium then reduced its settlement offer to $350,000 at the suggestion of National Indemnity. The reduced offer was made through National Indemnity's vice president and legal counsel, Joseph Casaccio.

The circuit court ordered the parties try again to mediate the case. This time, the mediator was instructed to inform the parties that certain individuals were to attend, including a representative of National Indemnity.

Casaccio, as the insurer's designated representative, did not appear at the Nov. 27, 2006 mediation. He claimed he missed a connecting flight. However, he did participate by phone.

The circuit court scheduled a third mediation for the following day and again required Casaccio's presence. He attended the Nov. 28, 2006 mediation, which took place in Judge Paul Zakaib's chamber, and the case was settled for $850,000.

Weeks later, the circuit court held a summary proceeding, ratifying the settlement and proposed distribution of the proceeds. Also during this proceeding, the court informed the parties it was setting a hearing to decide whether the conduct of Casaccio or National Indemnity warranted sanctions.

In August 2008, the court entered its first sanction order.

The order awarded the plaintiffs $50,000 -- the difference between the $900,000 and $850,000 settlement offers -- $25,000 as compensation for injuries by Casaccio and National Indemnity's conduct; $150,000 to punish Casaccio and the company; and attorneys fees expended by the plaintiffs since the first mediation.

Casaccio and the insurer refused to pay the sanctions.

It wasn't until 15 months later that the circuit court entered an order ruling that the plaintiffs were entitled to $48,821.79.

Due to an apparent clerical error, Casaccio and National Indemnity never received a copy of the February 2010 order. In fact, they weren't aware of its existence until that July, when they were contacted by the plaintiffs' counsel.

Three months later, the court entered an order clarifying its previous order.

Casaccio and National Indemnity then filed their appeal with the state Supreme Court in November 2010.

At issue in the case is whether a circuit court can impose sanctions on a non-party insurance representative when he or she doesn't show up to a court-ordered mediation.

Justice Robin Davis wrote the Court's 21-page opinion.

According to West Virginia Trial Court Rule 25.10, if furnished "reasonable notice," certain "persons" must appear at such a session.

"Among those persons required to appear at a mediation session are '(1) each party or the party's representative having full decision-making discretion to examine and resolve issues; (2) each party's counsel of record; and (3) a representative of the insurance carrier for any insured party, which representative has full decision-making discretion to examine and resolve issues and make decisions,'" the rule states.

Davis wrote, "The use of the term 'persons' to introduce the list of those who may be required to attend mediation clearly indicates that some individuals whose attendance may be required at mediation will not be parties to the underlying lawsuit."

The rule's language, the Court said, identifies four "distinct" individuals whose unauthorized absence may lead to sanctions.

However, the rule permits a court to impose sanctions only against "the responsible party," the Court noted.

The justices pointed to a California court faced with a similar situation. That court concluded that, for purposes of its mediation rule, an insurer is considered to be a "party" to the mediation.

West Virginia's high court agreed with the reasoning.

In making its ruling, the Court then had to decide whether there was a "factual basis" for the sanctions in this case.

The circuit court's order, the justices said, is "less than a model of clarity."

They noted that several of the grounds for imposing sanctions involved the alleged "egregiously deceptive conduct" of Knapp and Converium in misleading the plaintiffs with regard to her lack of full decision-making authority to resolve the matter -- however, no sanctions were requested or imposed on Knapp or Converium.

First, the Court determined that National Indemnity's failure to attend the Nov. 10, 2006 mediation was not sanctionable.

The evidence, it said, indicates that National Indemnity received no notification of the mediation.

The Court said the circuit court's conclusion that the $350,000 offer was made in bad faith also was not sanctionable.

"To the contrary, the evidence presented at the sanction hearing was that, at the time National Indemnity representatives suggested that Converium offer a settlement of $350,000, National Indemnity had no knowledge that a prior offer of $700,000 had been made, or that there had been mediation in this case," Davis wrote for the Court. "Furthermore, there is nothing in the record contradicting this evidence."

Finally, Casaccio's failure to attend the Nov. 27, 2006 mediation was not sanctionable, the Court said.

Again, Casaccio was not given "reasonable notice," it said.

"According to the evidence in this case, the mediator's letter communicating the circuit court's order that National Indemnity attend mediation to be held on Monday, November 27, 2006, was dated November 19, 2006, which was a Sunday. While the letter indicates that it was transmitted via facsimile and U.S. Mail, the body of the letter reflects that the mediator had no contact information for National Indemnity, did not actually know the identity of National Indemnity, and was relying on Ms. Knapp to provide National Indemnity with notice of the circuit court's order," Davis wrote.

"Assuming that National Indemnity received notice of the circuit court's order on Monday, November 20, 2006, once holidays and weekends are excluded, it appears that National Indemnity received three days notice of the mediation."

The justices said they did not find such notice to be "reasonable."

The evidence demonstrated that Casaccio tried to be present at the mediation but couldn't because of a missed flight, the Court said.

"In addition, it is undisputed that he participated in the mediation by telephone. When that mediation proved unsuccessful, Mr. Casaccio was present, in person, for mediation on the following day," Davis wrote.

In a news advisory released this week, Charleston law firm Steptoe & Johnson said the Supreme Court's ruling serves as a "stark warning" to insurers to make sure they show up for any court-ordered mediation.

Randy Fife, who leads the firm's general litigation practice group and often defends companies and individuals in personal injury litigation, authored the advisory.

"Fortunately for the involved carrier, the Court found the facts of record did not support the sanctions awarded by the lower court," he said of the decision.

Justice Thomas McHugh deemed himself disqualified and did not participate in the decision.

Judge Jack Alsop, of the state's 14th Judicial Circuit, sat by temporary assignment.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

More Stories