Insurance Coverage Issues in Construction Mediation
By Leslie King O’Neal
Backups Play Important Roles in Music — and Mediation
Backup singers and groups play important roles in all types of music, sometimes with credit and sometimes without. Rock & roll fans may find it hard to imagine Gladys Knight without the Pips or Tom Petty without the Heartbreakers.[i] The Academy award winning documentary, Twenty Feet from Stardom[ii] details the lives of backup singers such as Merry Clayton,[iii] most famous for her duet with Mick Jagger on Gimme Shelter. As in that iconic song, there are times when the backup shares the spotlight with the star and is an essential part of the performance. So it is with insurance coverage at mediation, especially in large, complex, multi-party cases. Insurance coverage may take center stage in putting together the economic package to settle the case.
Getting Insurers Out of the Background
Several earlier blog posts discussed the need to notify insurers of claims, provide them with information before mediation to evaluate the claims and obtain authority to settle, and ensure adjusters know the date for mediation. (Strategies for Success in Multi-Party Mediation https://theconstructionadrtoolbox.com/2024/10/tips-for-successful-multi-party-mediation/; A Bank Robber, the Matrix & Mediation https://theconstructionadrtoolbox.com/2025/02/insurance-is-important-in-mediation-thats-where-the-money-is/; Mediation Success With “Guided Choice” https://theconstructionadrtoolbox.com/2024/10/guided-choice-makes-mediation-more-effective/). But merely notifying insurers of claims is only part of the job. Having an insurance policy isn’t the same thing as having insurance coverage for a claim. Failing to consider and address coverage issues before mediation day may derail settlement. Nothing deflates a mediation session faster than an insurer announcing it filed a declaratory judgment action the day before, requesting a judgment that there is no coverage for the claims.
Insurance Coverage—Not Just a Background Player in Mediation
Lee Shidlofsky[iv], a well-known insurance coverage attorney and mediator, inspired this post with his recent LinkedIn post on insurance coverage at mediation.[v] Lee wrote: “Insurance coverage issues can make or break a mediation. Yet too often, they’re treated as background noise—or worse, left unaddressed until mediation day.” Taking a narrow view of the issues for mediation—focusing solely on design and construction details without considering insurance issues—ignores the crucial role insurance plays. Leaving insurance coverage issues lurking in the background, hoping they’ll resolve themselves is not a sound strategy.
Tips for Mediating Construction Disputes with Insurance Coverage Issues
The International Academy of Mediators’ blog offers some tips for mediating construction disputes with insurance coverage issues.[vi] This is a useful checklist for evaluating insurance coverage in construction disputes[vii].
- Look at the big picture when evaluating the case for mediation. Successful mediations require a broad understanding of the parties’ interests, including insurance coverage. Are there issues about policy limits?
- Delve into coverage issues. Parties may need personal counsel or coverage counsel to advise them on these since insurance defense counsel cannot. If there are multiple insurers for one insured, they should discuss allocation issues before mediation. Also, consider discussing coverage issues with the plaintiffs since coverage affects the settlement amount at mediation.
- Have the right parties at mediation to address coverage issues. There won’t be any progress without the right decision-makers.
- Give the insurers what they need to evaluate coverage issues before mediation. Carriers should not be exchanging core information about the identity of other carriers or indemnitors or exchanging copies of policies on mediation day.
- Plan the mediation to address liability and coverage issues.
- Consider co-mediators—one for coverage & one for liability
- Consider holding separate mediation sessions on coverage and liability.
- Be creative. Consider a blind system of offers or demands (carriers don’t know each other’s offers or the total) or a double-blind system (the plaintiff doesn’t either).
Understand Coverage Complexities
Insurance policies are complex. Coverage issues come in many varieties and may be affected by state law (important in multi-party cases). Some frequently encountered coverage issues in construction cases are:
- CGL “wrap” vs. “traditional” policies
- “Property damage” vs. “defective work or materials”
- Occurrence-based coverage triggers
- Additional insured status
- Tenders and responses
- Indemnity clauses & validity
- Consent to settle provisions
- Allocation among multiple carriers for same insured
- Reservations of rights
- Policy exclusions
Takeaways
Rather than letting insurance coverage issues languish in the background, take a pro-active approach in dealing with them to make the most of the mediation process. Advance planning and preparation helps mediation hit the right notes, getting all the participants to sing in harmony to reach settlement.
[i] See, After the Ampersand: Pickled Priest’s 25 Best Backing Band Names of All Time (listing some of rock’s best known backing bands) https://www.pickledpriest.com/single-post/after-the-ampersand-pickled-priest-s-25-best-backing-band-names-of-all-time
[ii] https://en.wikipedia.org/wiki/20_Feet_from_Stardom#bodyContent
[iii] https://en.wikipedia.org/wiki/Merry_Clayton
[iv] linkedin.com/in/lee-shidlofsky-3152897
[v] https://www.linkedin.com/posts/lee-shidlofsky-3152897_part-4-of-my-version-of-deep-thoughts-by-activity-7335862895722811392-Z7Dj?utm_source=share&utm_medium=member_desktop&rcm=ACoAABVzQVUBoD8b0NAYuRZPvRN2xEP4Eyp4JJg
[vi] Paul J. Van Osselaer, 7 Tips for Mediating Disputes with Insurance Coverage Issues, International Academy of Mediators Blog (April 7, 2016). This list is adapted from this blog post. file:///C:/Users/loneal/Documents/7%20Tips%20for%20Mediating%20Disputes%20with%20Insurance%20Coverage%20Issues%20-%20International%20Academy%20of%20Mediators.html
[vii] See also, Shant Karnikian, A Primer on Insurance Coverage Issues in Construction-Defect Cases, Advocate Magazine (May 2023) https://www.advocatemagazine.com/article/2023-may/a-primer-on-insurance-coverage-issues-in-construction-defect-cases