Civil claim settlement talks involving third parties and insurance company adjusters: When should lawyer conduct standards apply?

St. John's Law Review, Summer 2003 by Parness, Jeffrey A

II. IN RE NOVAK

In In re Novak, the Court of Appeals for the Eleventh Circuit interpreted the 1983 version of Federal Rule of Civil Procedure 16 to allow parties with attorneys and agents of parties, including adjusters employed by nonparty insurers, to be ordered to personally attend certain pretrial settlement conferences.32 Rule 16 at that time only expressly permitted unrepresented parties or lawyers for parties to be compelled to attend pretrial conferences.33 The court in Novak found these expressed limits too narrow, explaining that where the parties are represented, problems can arise at settlement conferences attended only by lawyers in two different circumstances.34 The first circumstance is when an otherwise represented party refuses to delegate full settlement authority to her lawyer.35 The second arises when a nonparty insurer in charge refuses to delegate settlement authority to either the named party or to her attorney.36 In these situations, "a pretrial conference participant's ability to discuss settlement is impaired, and the value of the conference may be limited."37 Thus, while Rule 16 does not expressly allow for compulsory attendance orders "directed at represented parties or nonparty insurers,"38 the court in Novak found that such orders are permitted.39 Authorization was found in two sources. One source was the inherent power of the court;40 the other source was Rule 16.41 Beyond the court's inherent power, the Novak court found that "a party who refuses to give full settlement authority to his attorney and who retains control over settlement negotiations is, in fact, his own attorney for settlement purposes."42 Therefore, because the party is then seen as unrepresented for settlement purposes, the court interpreted the 1983 version of Rule 16 to permit the court to compel the attendance of an otherwise represented party at a settlement conference.43 If a nonparty insurer is truly in charge, the insurer's attendance can be accomplished through an order directed at the insured,44 with the adjuster as his agent as in Novak, where the adjuster had the authority to make settlement decisions and the interests of both parties were "aligned."45

Presumably, insurance company adjusters, like Roger Novak, who are compelled to attend pretrial settlement conferences in civil actions must act as or "akin" to46 lawyers under civil procedure rules because they serve as representatives of the parties. Civil procedure standards usually require, inter alia, substantial preparation and good faith participation, with sanctions available upon noncompliance.47

Similar to Jones, while the result in Novak seems correct, there were better avenues to achieve the same result. Inherent power, while "a potentially useful tool for effecting settlement, even if there is some difficulty in finding a legal basis for [it],"48 "encourages judicial high-handedness,"49 invites "judicial abuse,"50 and undermines "uniformity of practice" by permitting each trial court "to march to its own drummer."51 Additionally, a rule seems overly stretched when a provision on unrepresented parties covers some parties who are chiefly represented by counsel.52 As in Jones, judicial rule making is a better avenue to resolving issues of adjuster conduct.53