Ancient mythology and the modern practice of subrogation would seem to be strange bedfellows. Yet one story from the past has particular relevance when it comes to the never-ending toil required for aggressive and successful insurance subrogation.
Sisyphus was the mythical King of Corinth in south-central Greece. He was a sly and deceitful person and was particularly inhospitable to travelers and guests who came to his city. This put him in disfavor with Zeus, who sentenced him to the endless and tortuous task of pushing a heavy boulder to the top of a steep hill in Hades. When he reached the top, the boulder would roll down the other side and Sisyphus would have to immediately start all over again.
Life imitates art, and the tasks and responsibilities of subrogation professionals who must routinely play the persona non grata, battle all of the other parties in a particular case, and even be the focus of concerted schemes and artifices to destroy their subrogation interests, are reminiscent of the plight of Sisyphus.
Four decades ago, the world of subrogation was a much simpler place to be. Liens were inviolate and the trial lawyers’ lobby was in its infancy. The subrogation profession was nothing more than a glimmer in the eye of a growing insurance marketplace. All that was required was a notice of lien letter and the checks would appear in the morning mail. Practitioners got lazy. Personal injury lawyers got creative. An uninformed lawmaker who understood nothing about the societal benefits of subrogation and the huge role it plays for America’s small business and our greater economy was easy prey. Year after year, more obstacles were thrown into the path of the subrogation industry and insurance professionals who were not used to having to fight for what was theirs stood by and their pockets were slowly picked.
The job begins at the beginning—on the day of a serious injury or catastrophic property loss. The forces that be are hard at work plotting against the evils of subrogation from the moment a loss occurs. We must be just as aggressive and immediately take efforts to invest in the endeavor to recognize subrogation potential from the moment a claim is made. Subrogation opportunities are most frequently disguised as hard work, so it is no wonder they are often not recognized. Our industry is no stranger to hard work. But human nature is such that the over-worked claims professional with a full plate simply adjusting claims will rationalize away subrogation opportunities because it means willingly accepting more work and more responsibility. Compound this with the fact that recognizing third-party liability often requires thinking like a plaintiff’s attorney and having a working knowledge of tort law from premises liability to product liability. It requires in-depth knowledge of statute of limitations and repose, and ability to make quick and accurate decisions regarding engaging experts, putting the right people on notice, and taking steps to preserve rights which could easily be lost. Wearing two hats is never easy, but subrogation requires exactly that. Dedicated subrogation staff makes overcoming the fatal mistake of not recognizing recovery potential from day one. Irony is a word often misused. But it is truly ironic that the four largest subrogation recoveries our firm has ever made were all made in cases in which the insurer or their designated TPA had indicated in the file that there was no subrogation potential.
The best way to overcome an innate inability to recognize third-party tort liability is training. A claims handler doesn’t have to agree with enforcing third-party product strict liability, but they do have to take every reasonable effort to produce a recovery on behalf of their insured employer. Our firm presents a series of webinars and training programs dedicated to immersing the claims professional in a thorough overview of tort law and tort opportunities. Graduates recognize opportunity and know how and why the fact that simply because your insured does the rear-ending in a rear-end collision doesn’t necessarily foreclose the potential for third-party subrogation. Understanding and being familiar with statutory and case law in all jurisdictions gives them the tools to recognize and take appropriate action on subrogation potential that the average claims professional might otherwise overlook. Hard work doesn’t guarantee success – but a lack of hard work almost always leaves significant claim dollars unrecovered.
If a product is involved in a subrogation claim, it is our burden to prove a defect or that there was negligence by a third party in maintaining the product. We also have to prove that the condition of the product was unchanged at the time of the injury or damage from the date it was manufactured. These are impossible burdens to meet if the product is not preserved and the chain of custody is not carefully documented and protected. When an appliance which causes a fire is still under warranty and the repair technician (often an “authorized service company”) takes the appliance or the faulty part, this evidence is often misplaced in the shuffle. Sometimes we are able to argue spoliation by the manufacturer, but it is much easier and cheaper to simply preserve the part.
When the cause of a loss seems apparent, don’t stop with simply securing only the product or evidence bearing most directly on the case. Bear in mind that the targets of your investigation will almost always find alternate causes and persons to blame and will quickly cry spoliation if evidence, which they claim may exonerate them, is gone or damaged. Think like the defendant. Take efforts to disprove and eliminate the alternate theories your subrogation counsel will ultimately face. If the claim is significant, engage subrogation counsel or an investigator to conduct the investigation and take thorough statements of all witnesses and, if called for, timely engage experts who are qualified and experienced. The extra work of properly investigating a claim often deters claims handlers from stuffing their saddlebags full of pebbles, but every case is different, and it is often the pebble you leave behind that turns out to hold the key to a full recovery. The pebbles might not turn into brilliant diamonds as in the parable, but they literally can and often do translate into subrogation dollars realized.
Many of us might attribute it to our parents, but the quote, “If it is worth doing, it is worth doing well” is actually traced back to a British stateman named Philip Stanhope in 1774 in a letter he wrote to his son regarding the art of becoming a man and a gentleman. Making the decision not to involve qualified subrogation counsel might intuitively seem like a prudent option moments after a loss, but many corporate decisions made with the best of intentions can be some of the most detrimental to subrogation performance. This is irony at its purest. Making a decision to “save” money when it comes to subrogation often results in a very real, total cost which isn’t realized for years. John Glenn was often asked what he was thinking as he was about to be launched into orbit in the nose of a giant rocket. His reply is instructive: “Well, the answer to that one is easy. I felt exactly how you would feel if you were getting ready to launch and knew you were sitting on top of two million parts – all built by the lowest bidder.” The trend today is seemingly to fall victim to slick marketing promotions by third-party adjusting companies and subrogation vendors – often owned by larger law firms with control over the employees. Repetitive demand letters might have worked in 1980, but they don’t anymore. Times have changed.
Litigation is rarely cheap, but it is often necessary. Nowhere is this truer than in the area of insurance subrogation, where those who resist paying subrogation claims correctly assume that insurance companies are loath to pull the trigger and file suit. As a result, liability insurers almost never pay full value on subrogation claims with even the clearest liability facts. Successful subrogation requires that the pointy end of the subrogation sword – a genuine threat of litigation – must always be hanging over your adversary’s head. Value, experience, legal knowledge, availability, prompt and thorough reporting, and the willingness to strong-arm top dollar recoveries in every matter entrusted to it are the trademarks of a good litigation law firm and a good subrogation department. Everything else is smoke and mirrors. Successful subrogation requires the best – not the cheapest. Recall the story of the engineering consultant who was called to repair a broken machine that had brought a factory to a stand-still. He tightened a single screw and within about five minutes the whole factory was back online. When a $1,000 bill was received, the factory owner was outraged, “You spent just five minutes here, tightened one screw, and we received a bill for $1,000!” The consultant smiled, “The tightening of the screw was free. The $1,000 was for knowing which screw to tighten!”
There are no short cuts in life, and that is especially true in subrogation. Fast food is popular because it’s convenient, it’s cheap, and it tastes good. But the real cost of eating fast food never appears on the menu and is rarely discovered until it is too late. Refraining from doing some of the simplest acts can result in some of the largest subrogation potential being lost. Notice requirements necessary to preserve and protect subrogation claims are very common and vary from state to state. Notice to governmental entities must strictly conform to statutory guidelines and contain specific items of information to be valid. Frequently, we see “form” notice letters being sent to such entities, and only months or years later do we receive the file, and by then it is too late. Evidence must be obtained and carefully retained to avoid spoliation and alteration claims.
Investigate cases early and thoroughly. Choose the right expert—not the cheapest—and insist on reports which pinpoint a cause and an origin of a fire or a water loss. Ben Franklin’s aphorism, “An ounce of prevention is worth a pound of cure” is very accurate when it comes to describing the value of investing early in subrogation potential. Kicking the can down the road frequently leads to significant recovery potential being lost or seriously compromised. As Ayn Rand famously said, “We can ignore reality, but we cannot ignore the consequences of ignoring reality.”
Invest in thorough subrogation training for your claims or recovery team. MWL would be happy to provide clients and friends with live, custom webinars which train subrogation professionals on the nuances of what is necessary to be successful in specific states in which they most often practice. Opportunities to game the subrogation system frequently present themselves in workers’ compensation insurance. In today’s national and global economy, employees are routinely traveling in the course and scope of their employment throughout the country and are getting injured in states other than the state where the employer is based. Employers with multi-state operations are regularly encountering workers who are being injured and claiming benefits in states other than the state where their home office is located. Most state workers’ compensation laws are extra-territorial. This means that an employee in the enabling state (the state in which he was hired and under whose laws he recovers benefits) who suffers an occupational injury or disease while outside of its boundaries in a forum state (the state in which the worker is injured and files a third-party action), is still eligible for workers’ compensation benefits under the laws of the enabling state. In some circumstances, the employee who is injured in another state may choose to collect benefits either in the enabling state or in the forum state. We frequently see clients who have the ability to select the payment of benefits under one jurisdiction picking a different jurisdiction even though the selection forecloses any possibility of future subrogation.
Manufacturers of defective products know their products much better than you do, and they have perfected the routine of denying defective product claims. They are familiar with their electrical schematics and engineering diagrams, while our expert may have to learn from scratch. It is said that an expert is one who knows more and more about less and less. Every state has specific requirements about what is necessary to allow an expert to testify.
Bad decisions permeate every industry and every profession. Making the most of those bad decisions – learning from them and taking steps to avoid remaking them – is the hallmark of a progressive company. They can be expensive lessons to learn. “Experience is simply the name we give our mistakes,” Oscar Wilde famously said. Quite frequently, the subrogation mistakes we see from even the most experienced claims professionals are disguised as corporate efforts to save money, streamline, or consolidate.
Claims professionals with decades of experience miss subrogation opportunities as frequently as the rookie. Talent alone isn’t going to cut it. As Stephen King once said, “Talent is cheaper than table salt. What separates the talented individual from the successful one is a lot of hard work.” A claim without subrogation recognized lays dormant while other claims are handled. However, once subrogation appears as even a remote possibility, the work begins. Experts must be vetted and hired. Investigation must be undertaken. Inspections and notice letters must be sent. Subrogation counsel should be consulted. Witnesses must be interviewed, and loss scenes should be photographed. Governmental notice periods as short as 30 days begin to run. Police and incident reports must be gathered. Time is the enemy of successful subrogation. Unlike wine, it does not get better with age. It is hard work.
Our subrogation decisions affect more than our own bottom line. Insureds and clients often want their deductible refunded. Risk managers know that the workers’ compensation premiums they will pay three years from now depend on how aggressive and successful we are in subrogating large losses. Whether we value and invest in subrogation is the true test of both our desire to optimize the recoveries we make and the lengths we will go to in order to fulfill the service – and in some states the “duty” – we owe to our insureds and our clients, for it is often our insured which pays the price for missed subrogation opportunities. Like the stone Sisyphus was consigned to roll for eternity, we will no sooner exhaustively celebrate a recovery check in the morning’s mail than another new claim will hit our desk. And we must start all over again.
If you should have subrogation questions or wish to obtain subrogation training, please contact Gary Wickert at [email protected] or (800) 637-9176.