Published Articles

Subrogating Against God?

By Gary L. Wickert; Matthiesen, Wickert & Lehrer, S.C., Hartford, Wisconsin

The nemesis of most insurance carriers is a natural disaster. When God sends a hurricane, tornado, flood or a naturally occurring fire, the resulting claims can be enough to put many carriers out of business. With no third parties or subrogation potential, these claim payments are simply money down the drain. Such appeared to be the case with the Great Flood of 1993 in the Midwest and along the upper Mississippi River. This naturally occurring flood cost an estimated $21 billion, covered parts of nine states and lasted three months. As the floodwaters rose, 1,369 brand new Subaru automobiles, ready for distribution and valued at over $17 million, were being stored by the Chicago & Northwestern Railroad (now union Pacific) for Subaru of America, Inc. at an old American Motors outdoor storage facility in Kenosha, Wisc., which the railroad had leased for this purpose. Lloyds of London and its lead underwriter, Commercial Union Insurance Company, ultimately paid over $11 million on this claim. The claim also resulted in Lloyds canceling Subaru's policy. Subrogation was looked into by the Lloyds Claims Office and quickly dismissed. It was, after all, the storm of the century. Who could one possibly blame for that?

As subrogation counsel for the Lloyds Claims Center, Gary Wickert, with Matthiesen, Wickert & Lehrer, S.C., had routinely performed quarterly subrogation reviews at his office on Lime Street. During a routine file review, Wickert came across the Subaru claim file in the closed file area. The words "No Subrogation" were stamped across the top of the file. Noticing that there had been a similar flood in this area earlier, Wickert convinced the lead underwriter to invest $50,000 to do a hydrological study and produce a HEC - 2 computer simulation of the flood, which, together with an historical survey of the area, revealed that many of the vehicles might have been stored on the 100-year floodplain. That was enough to file suit on Subaru and Lloyds sued Chicago Northwestern, Wackenhut Security and several other purported owners of the property.

Discovery was excruciating with many of the depositions taking three days or more. Ultimately, an old lease agreement between Chicago & Northwestern and Subaru was produced, which required CNW to maintain certain minimum standards, including drainage that would prevent more than two inches of water to accumulate. Wickert put an ad in a local paper seeking anecdotal stories about previous floods in this area and received favorable responses. Still, the defendants strenuously claimed that the flood as an Act of God.

Faced with the hydrological evidence and the existence of a floodplain, however, they ultimately had to admit that parking $17 million worth of automobiles on a floodplain was not prudent. After several Motions for Summary Judgment, two trial settings and a three-day mediation, the defendants ultimately paid over $7 million. It was $7 million Lloyds never thought they would see. After the recovery, Wickert set a meeting between Subaru and Lloyds, which resulted in Lloyds reissuing their coverage to Subaru. A happy ending that proves the adage that when you have catastrophic losses - you have subrogation potential!