Mediation: California's Confidentiality Statutes Get Strong Backing by a Federal Ct (Web)

A federal district court applied Section 1119 of the California Evidence Code to protect mediation communications in a case where an insured alleged that its insurer acted in bad faith by failing to indemnify it and pay defense costs in an earlier action.

Summary judgment was granted for the insurer, and in the process, U.S. District Court Judge Andrew J. Guilford, who sits in Santa Ana, Calif., provided an analysis strongly backing mediation confidentiality under California laws. Houck Construction Inc. v. Zurich Specialties London Ltd., et. al., No. CV 06 3832 AG (PLAX), 2007 W.L. 1739711 (C.D. Cal. June 4, 2007).

Plainfiff Houck filed the federal diversity action because the defendant insurers, including the Insurance Co. of New York (referred to here as Inscorp), allegedly failed to sufficiently defend and indemnify Houck in an earlier “state action.” Inscorp delayed in accepting Houck's tender of defense. Inscorp only accepted the tender after a suit was filed by one of the other co-insurers, requesting that Inscorp contribute to Houck’s defense.

About six months after Inscorp accepted the tender, the state court required the parties to cooperate in a mandatory mediation settlement conference. In opposition to the court's mandate, Inscorp sent a representative who lacked the authority make a final decision on the amount that the company would contribute to its obligated defense of Houck in the state action. The Inscorp representative said he would recommend to his company that it pay $112,500 to help Houck with the state action, as part of its defense and indemnification obligations.

Houck settled the state action, and Inscorp refused to pay its share, claiming that Houck did not receive Inscorp’s “explicit consent.”

In the federal court legal proceeding between Houck and Inscorp, the insurance company asserts that Section 1119 bars Houck from introducing evidence concerning the mandatory mediation conference.

Section 1119 prohibits the admission of “evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a mediation consultation.” Subsection (c) adds that “[a]ll communications, negotiations, or settlement discussions by and between participants in the course of a mediation or a mediation consultation shall remain confidential.”

Houck contends that Section 119 doesn’t apply to communications between an insurer and its insured. The federal court opinion discounts the argument, noting that Houck failed to assert case law support.

Next, Houck claimed that Section 1119 doesn’t apply to state court-ordered mandatory settlement conferences. But, notes Judge Guilford, “Houck provides no support whatsoever for this argument.”

Houck then argues that Inscorp waived the Section 1119 mediation confidentiality protection by failing to assert the privilege in its answer, in response to special interrogatories, and during a deposition of “Inscorp’s person most knowledgeable.”

Again, the district court asserted that Houck didn’t cite analogous case law, and rejected the argument. It held that Inscorp could assert the mediation privilege

The federal court reiterates the established California court practice in reading Section 1119 plainly and with “a broad interpretation.” Thus, the mediation confidentiality privilege applies to communication between an insurer and its insured. The court applied Section 1119 and protected mediation confidentiality.

Houck specifically introduced two pieces of evidence related to the mandatory settlement conference–the Inscorp representative’s settlement conference statement about the $112,500 payment, and Inscorp’s violation of a state court order by not sending a representative with proper authority. The Guilford opinion sustained the privilege claim on the first piece of evidence, but found that the state law violation didn’t involve confidential communications and wasn’t protected.

The court granted Inscorp’s motions for summary judgment.

--Robert A. Irwin, CPR Intern