Manage Loss Ratios by Implementing Mediation Strategies

By Kevin McGrath, Vice President, Professional Services; Darren Black, National Professional Services Practice Leader

Manage Loss Ratios by Implementing Mediation Strategies

Industry experts predict that 2022 will mark the beginning of a multi-year upswing in growth for the AEC (Architectural Engineering and Construction) sector. Thanks to a massive influx of federal infrastructure spending and the continued strength of the residential construction subsector, proposal activity for AEC firms is on the rise after two years of COVID-19 driven slowdowns.

However, success can come with a price. More projects mean more opportunities for disputes with clients, leaving AEC firms vulnerable to rapidly rising costs in civil litigation. This dynamic has led to an increase in the popularity, and viability, of using mediation to resolve disputes, even in situations where it may not be contractually required.

In addition to controlling both litigation costs and potential damage to a firm’s reputational integrity, mediation can be a critical tool for managing a firm’s loss ratios. By reducing costs of defense as compared to arbitrating or litigating a dispute, mediation can positively impact future professional liability renewals, both in terms of rate and requisite deductibles.

Comparing The Options

To determine a strategy and best practices for taking a dispute to mediation, it is important to understand its place among the various remedies available. In general, a firm will face one of three options to resolve a dispute. The first is civil litigation, the protracted and costly process of resolving a case through the courts. The second is arbitration, conducted through a formal hearing process overseen by a neutral third party who renders judgment and determines a legally binding outcome.

The third option is mediation. By contrast, it is a collaborative negotiation designed to reach a mutually agreeable resolution in place of litigation or arbitration. Like any negotiation, successful mediation depends on both parties’ good faith in seeking a resolution, and it is unlikely that both will approach it with the same conciliatory attitude.

However, it allows all parties to propose their own good faith solutions through productive dialogue facilitated by a third-party mediator. As a practical matter, mediation allows for resolutions that are equitable, confidential, and less costly than other dispute resolution mechanisms.  

Planning for Positive Outcomes

Like any business, design and construction firms are vulnerable to disputes. Some may be foreseeable, but many are not. Either way, as the saying goes, the best defense is a good offense.” It is essential for AEC professionals to understand how to plan properly for disputes using mediation to protect their bottom line and reputation.

Collaborating closely with your legal team or a specialty insurance broker in professional services ensures the development of best practices and minimizes exposures. For a more in-depth look at the people, processes and procedures involved in this method of dispute resolution, join us June 24 at the AIA Conference on Architecture 2022 where we will be presenting on the topic “Mediation for Architects: How to Limit Your Risk”

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The contents of this article are for general informational purposes only and Risk Strategies Company makes no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information contained herein. Any recommendations contained herein are intended to provide insight based on currently available information for consideration and should be vetted against applicable legal and business needs before application to a specific client.