Subro Sense Podcast | Holiday Havoc “Fireplace & Chimney Fire Losses”
December 23, 2020
Success in Subrogation can be measured in many ways, and depends greatly on what type of business is at issue for the underlying recovery claim. There can be different strategies for each type of subrogation claim (Property is different from Health Care which is different from Workers Comp which is different from Auto) but there are some universals, and we will try to discuss those here.
First and foremost, you will never have a successful Subrogation claim if you do not have a system in place to capture your viable Subrogation claims. It sounds axiomatic, but even in this day and age where Subrogation claims are commonplace, some companies do not have a reliable system to catch every claim. This can take many forms: (1) the company can have an entire Subrogation group depending on the number of claims; (2) there can be a person or two who serve as a “clearinghouse” for sifting through claims and referring out to vendors; (3) for companies that rely heavily on independent adjusters, the screening process should be written into the agreements with those vendors; or (4) every claim may get sent to a law firm for review. As the old golf joke goes, 99% of all putts that do not get to the hole don’t go in!
Second, the moment you are aware of a potential claim against another party, you must get those other parties involved in the process. Today, with the electronic tools we have at our disposal every minute of every day, there is no excuse to not get an email into the “in-box” of the claims personnel for an adverse party in a claim immediately. Every court in the U.S. is savvy to the generic spoliation issue (which has now evolved into far more than simply “throwing away evidence”).
When parties are perceived to have not been given a level playing field in the claim process, this will affect how your subrogation case plays out. Recognizing the need for litigation holds on documents possessed by your insured is critical on this playing field. This concept will also affect how the experts are dealt with, how discovery is handled, and most importantly, how the trier of fact perceives your claim. To the extent you are able, keep the relevant evidence at your loss scene in place to give others the same opportunity to see what you are seeing. When you have a contract in place, read the contract to see if you have a “proper notice” provision: If you do, follow that provision to the letter! Another important point on this issue is in understanding how long you have to finalize all scene examinations so that you (1) do not delay the claim – it is rarely a good idea to let the Subrogation investigation impact the claim; and (2) protect the evidence you do have, because invariably the passage of time is bad for evidence. Lastly on this point, make sure your Subrogation investigative team does whatever it can to talk to everyone who knows the most about what happened – surprises in litigation are rarely good for your Subrogation case and will usually cost you money.
Third, not every claim is treated the same way. Just looking at the Property Subrogation world for a moment, how you set up a claim involving an alleged product defect is not the same as how you set up a claim against a roofer who caused a fire. How you set up a claim for “per se responsibility” under a contract is not the same as how you set up a claim for “fire spread” against a vendor who had absolutely nothing to do with the start of the fire. For this reason, how you allocate your scarce resources is crucial. For instance, if you have a sprinkler system failure, you may save yourself tremendous expert dollars over the life of your claim by retaining a Fire Protection Engineer, as opposed to a Mechanical Engineer, who may not truly specialize in the subtleties of sprinkler design and testing. Likewise, when you have a witnessed fire in a piece of machinery in an industrial setting, you may only need a top notch Mechanical Engineer who knows the equipment as issue, and not a fire cause and origin investigator. We as the Subrogation industry need to be very conscious of the ever-increasing costs of litigation (experts cost more, depositions cost more, the legal barriers against many claims are stronger and therefore, more costly to defeat) and always need to look for a carefully orchestrated strategy to reduce the costs of your claims. It makes no fiscal sense to recover $73,000 on a case where your costs are $48,000, when, for that same claim, a better plan from the start could have recovered $65,000 by only spending $20,000.
Fourth, it has been my experience that many Subrogation claims do not get better factually or legally. The value of the claim both in gross recovery dollars and in total expenses utilized to get to that recovery number is often at its highest early on in the claim. The list of things that can go wrong is a long one: (1) subsequent evidence examinations may not go well; (2) employees from your insured may not tell the parties the same thing in deposition they told you on the scene the day after the event happened; or (3) the Judge may decide your expert does not pass muster under Daubert or otherwise, and your case disappears completely.
For this reason, it is crucial that you have a game plan for resolution of your claim from the very start. If you know you will have issues if you had to litigate your claim, the Insurance Claims Professional (ICP) from the company side needs to be in absolute sync with the vendors or attorneys handling the claim to develop the strategy that resolves the case before suit. Just because the claim is a large one is not a valid reason to bypass this step. For example, if you know you will have damages proof issues, embrace that and use this information to devalue your claim early on, and avoid the damages number getting even worse in litigation. To the liability carrier, this makes you look reasonable and easy to work with, and that claim probably gets settled first.
The fifth and last bullet point for discussion is coordination. The most efficient Subrogation recoveries are the best coordinated Subrogation claims; from literally the moment the insured calls the company to report a new claim until the jury delivers a verdict. If the time and attention are given to developing a solid coordinated effort amongst all parties to a company’s Subrogation process, you will make more money. If you do not, you will make less. It is truly that simple. Do you have a list of rock solid experts in a certain state? If not, the scramble to find an expert and the days it may take you will cost you money. Do you have relationships with counsel who can assist you with the legal nuances of a claim from the very start? If not, you may miss an issue and this will cost you money. When your counsel schedules depositions out of state, does she or he bundle as many “tasks” as possible to minimize the expenses in a case? If something can be handled by phone or video-conference for less money, do you and your vendors utilize this? When you retain an expert, do you and your expert work closely together to develop a budget (and then stick to it)? Do you insist on updates from counsel as events happen and adjust your outlook for the case accordingly (to head off surprises later on, which can cause delay and affect the value of your case)? There is no one size fits all for how to coordinate a Subrogation claim, but when your claims are not being well coordinated, you will surely sense it.
The bottom line for Subrogation is, well, the bottom line. An effective subrogation program (or stand alone claim for that matter) is a process that takes a very specific parameter (the amount paid on a claim) and applies a cost benefit analysis to it. However, everything in between can be very complex. In the insurance world, complexity equals higher costs, and by working towards a developed and coordinated subrogation plan, you can minimize those costs which will maximize your return on investment (your recovery!)