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Subrogation is the process by which an insurer steps into the shoes of its insured with regard to any claim the insured may have against a third party tortfeasor, which caused the insured to sustain a loss covered by the applicable insurance policy. Subrogation actions may sound in any variety of legal theories, such as negligence, res ispa loquitur, product liability, or breach of contract/warranty. No matter the underlying basis for a subrogation claim, the following strategies and tips will assist you in achieving the best possible result for your client.
Upon Notice of the Loss, Fully Document the Scene and Engage Appropriate Experts
Where subrogation counsel is engaged soon after a loss, consider hiring an appropriate expert to investigate the loss and determine the cause and origin. Particularly in large loss cases, the initial inspections can be critical to identifying potential causes of loss and at fault parties. Consider and discuss with your cause and origin expert if a specialized expert, such as an electrical engineer or metallurgist, should be engaged, and confirm whether your client has an approved list of experts from which to choose. Where counsel is retained after the inspection is complete or, in some cases, where the adjustment is complete but no substantial inspection by an expert was ever performed, you will have to decide and recommend to the client whether further investigation/inspection is warranted and if so, the type of expert required. Set clear guidelines and time frames for your experts and specify if you do not want the expert to generate a written report reflecting his investigation. Communications between experts and counsel are generally not protected by the attorney-client privilege. It is also wise to obtaining a proposed budget from your expert and to discuss same with your client.
Identify Target Defendants and Place Them on Notice
As soon as practicable, any and all parties who bear any real or potential liability for the loss should be placed on written notice of the loss. They should be informed of the date and location of the loss, any scheduled site inspection and any destructive or non-destructive testing. They should be advised to place their liability insurance carriers on notice and to contact you directly should they have no such insurance. If your claim is under $100,000, you may be able to submit your claim to Intercompany Arbitration if both insurers are members. If a municipality or other governmental agency is involved, confirm whether any notice requirements must be complied with prior to making a claim for damages.
A key component of the expert’s role in investigating the loss is interviewing witnesses. Witnesses may include the insured, employees, tenants, co-tenants, landlords or other individuals who may have witnessed all or some part of the subject incident or damage sustained by the insured. As the investigation progresses, it may become necessary for you to speak to the insured directly. While most insureds will be inclined to speak with you, you may encounter instances where an insured refuses to do so or is shy about providing information. In these instances, it will be important to communicate with the adjuster handling the claim and to remind the insured of his obligations and duties under the policy. Similarly, it is imperative to communicate with the general and/or independent adjuster(s) working on the claim to determine if there are any coverage issues you should be aware of.
Secure Physical Evidence
In many circumstances, the insured or the insurer’s cause and origin expert will secure the physical evidence. Where the insured retains custody of evidence, be certain that the insured understands not to destroy or otherwise dispose of the evidence so as to avoid a claim of spoliation. Where an expert retains the evidence, he will typically maintain a written chain of custody, demonstrating where and how the materials have been handled. Be sure to retain this document for your records in the event it is needed during the course of the claim or in any later litigation.
Obtain Key Documents
Typically, your expert and/or insurance adjuster will identify documents that are needed to completely adjust the insured’s claim and evaluate the case for subrogation. Key documents may include a lease, contract or other written agreement and service/maintenance records. You will want to review these documents for waivers of subrogation, indemnification and other clauses that may affect subrogation recovery.
Representing the Insured
The insured may have out of pocket expenses or uninsured losses that he desires to recoup from the at fault party. Assuming there is no conflict and the insurer is agreeable, you may consider asking the insured if he would like you to pursue the uninsured portion of the claim on his behalf. In most instances, it is advisable to enter into a pro rata agreement with both insurer and insured, which breaks down the scope of the claims and damages, attorneys’ fees, and authority for settlement and litigation decisions. Be conscious of insured-made-whole jurisdictions and discuss the ramifications of such laws with your client.
Statutes of Limitation and Repose
Upon receipt of a new subrogation matter you should verify and diary the applicable statutes of limitation and repose. Investigations can go on for months and in some cases, years, particularly where there is testing that must be performed in order for the experts to complete their investigation of the loss and to be in a position to assign fault.
Communicate with the Claims Adjuster
In many cases, the adjustment of the insured’s claim and the investigation into both the claim and potential avenues of subrogation happen simultaneously. In some cases, it becomes necessary to file suit even before the adjustment of the underlying claim is complete. Thus, it is necessary to keep the lines of communication open with the general adjuster, such that you are aware of the status of the claim and how close the claim is to being finalized at any given time.
About the Author
Dana M. Horton is an associate with Robinson & Cole in Providence, Rhode Island.