One of the characteristics of multi-state or nationwide subrogation experienced by claims professionals, lawyers, and judges alike is the frequency with which we run into subrogation issues or questions which seemingly have no clear answers. Quite often we receive uneducated opinions, best advice, or likely answers to these issues, but there are no clear-cut case decisions on point and no solid precedent to guide us in dealing with these irresolute and/or nascent issues. This could be true even when there are significant amounts of subrogation dollars hanging in the balance.
Built into the DNA of subrogation professionals is the notion that there is an answer to every legal and factual situation they run across—it’s simply a matter of discovering it. But as the years tick by we soon realize that there are lots of situations where there simply isn’t an answer and we must rely on our experience, training, and wits to craft an argument in favor of a position we must take on behalf of a subrogated insurance company.
Legal precedent, also known among lawyers as stare decisis, refers to the principle that courts should follow the decisions made in previous rulings when resolving similar legal issues. This system ensures consistency, stability, and predictability in the law. When a higher court makes a ruling, lower courts are generally bound to follow that decision in future cases involving the same or similar facts and legal principles. Precedent allows for the development of a cohesive body of law, where legal rules evolve gradually based on past decisions, providing clarity to litigants, legal professionals, and the public.
However, not all legal questions have clear answers based on precedent. A “matter of first impression” arises when a legal issue has not been addressed by existing case law or statutory interpretation, meaning that no prior court has ruled on that specific question. These situations occur when new facts, technologies, or societal changes create novel legal issues that have not been foreseen or governed by earlier rulings. In such cases, courts are required to analyze the facts, interpret relevant statutes, and consider analogous cases to reach a decision. While judges may look to existing principles of law and draw analogies from related cases, the absence of direct precedent means the court must forge new legal pathways, often influencing the future direction of the law.
Legal issues which come up often will usually have precedent to govern them. Issues which come up less frequently might not. Because subrogation on average involves more nuanced, less-frequently-encountered issues and smaller amounts of money than personal injury damages and would require the investment of manpower, attorneys’ fees, and time to appeal and run through our civil justice system’s appellate gauntlet, they are often not appealed; and therefore remain “undecided”—while other legal questions which are encountered more frequently have more precedent to guide them.
Sometimes, when a subrogation principle or rule is applied over and over, it is assumed that they represent established legal precedent or principles; when, in fact, they do not. For example, many insurance professionals assume that if a state employs or recognizes the “Made Whole Doctrine,” the insured in a subrogation claim must be totally reimbursed for its out-of-pocket deductible and any uninsured losses, before a carrier can subrogate. Unfortunately, this over simplistic view and application of the Made Whole Doctrine is not only erroneous, but also results in reduced subrogation recoveries for carriers across the country. While the specific law involved may change from state-to-state, the consensus is that the Made Whole Doctrine does not give an insured an affirmative right or cause of action against its insurer to be “made whole,” beyond the payment of the insurance policy proceeds involved. Schonau v. Geico General Ins. Co., 903 So.2d 285 (Fla. App. 2005). Rather, the Made Whole Doctrine may be used only as a defense by insureds to protect the insured’s direct recovery from a tortfeasor, where the insured also lays claim to a limited amount of third-party proceeds based on subrogation. Florida Farm Bureau Ins. Co. v. Martin, 377 So.2d 827 (Fla. 2005).
When a workers’ compensation lien is claimed and the attorney for the employee challenges certain workers’ compensation payments, whether or not certain payments properly constitute recoverable elements of a statutory lien is a highly-debated question. Payments may include case management costs, medical bill audit fees, independent medical exam (IME) fees, expert fees, rehabilitation benefits, third-party vendor costs, nurse case management fees, workers’ compensation case attorneys’ fees, and the like. Plaintiffs’ attorneys will argue that these are not “benefits” like medical expenses or lost wage indemnity payments. They payments such as those listed above are merely forms of overhead which cannot and should not be subrogated. Surprisingly, these issues have been decided in only a handful of jurisdictions. Judges like things that fit neatly into neat legal categories and clearly established rules. Where such things are not available, the best argument usually wins. For that reason, subrogation professionals are often left to craft their own explanations and arguments as to why these payments should be reimbursed by an employee when he or she makes a third-party recovery.
Frequently, a legal issue will have firm and clear precedent in a handful of states, but be unaddressed in all the others. In these situations we have some “guidance” and a basis from which to make an argument in the undecided states, but until the question is appealed and becomes legal precedent; the answer is truly unknown. For example, whether or not a subrogated automobile insurance carrier must pursue the insured’s deductible along with the subrogation amount and what portion, if any, of the insured’s deductible should be reimbursed to the insured if it is pursued, is undecided in twenty-one states. The state of Alaska has not yet decided if a workers’ compensation carrier can seek reimbursement of its lien from uninsured and/or underinsured payments made by the employer’s or employee’s auto policy to the employee. Alaska has also not addressed the issue of whether it can seek reimbursement from a medical malpractice settlement. California, Arkansas, Georgia, and 25 other states have not answered that question with regard to legal malpractice recoveries. Few people understand whether or not a future credit is allowed to a workers’ compensation carrier when the third-party recovery represents only non-economic damages.
Property insurers subrogating in states which strongly adhere to the Made Whole Doctrine are often pleased to learn that in some states, the subrogation clause of their insurance policy can modify the doctrine and allow subrogation even when the insured is not made whole. Yet that question still remains unanswered in states such as Iowa, Iowa, and Michigan. Whether subrogation is successful is often determined by how persuasive subrogation counsel can be.
Whether or not a landlord’s insurance company can subrogate against a tenant whose negligence caused damage to the landlord’s property has no answer in Iowa and Montana. How can this be? Do property insurance carriers not like money? Have they not subrogated in those two states up until now? Of course they have. But those particular issues have simply not made it into the appellate process and been spit out on the other side as established precedent. They remain questions around which subrogation professionals must dance and creatively argue that they have such a right.
In some instances, the complexities of no-fault insurance leave us scratching our head when it comes to subrogation questions which seemingly have no answer. Take New York, for example. in New York City, the Taxi and Limousine Commission (TLC) requires a higher Personal Injury Protection (PIP) limit of $200,000 for all licensed TLC vehicles, which is in addition to the basic $50,000 PIP limit required by New York State law, for a total of $250,000. If a workers’ compensation carrier wants to engage in Loss Transfer Arbitration to recover against a livery vehicle, is the first $50,000 exempt, or is it $250,000. Plaintiffs’ attorneys have been telling our clients that the limit is actually $250,000 because there was a livery vehicle involved and regulations in New York require that limit of coverage. The truth is that the answer to this question is another of subrogation’s imponderables. There is no answer.
When faced with subrogating the unknown without any guidance or precedent to help us, the winner is usually the one who can craft the most persuasive argument. Subrogation counsel with extensive experience in all 50 states are usually better equipped to draw parallels to the laws of states where the undecided issue has been decided. It is in these situations where it is best to remember the words of Mark Twain, “Whatever you say, say it with conviction.”
