Filed Under:Markets, Workers Compensation

The Year’s Top Cases Impacting Subrogation Actions

(Editor's Note: This article was contributed by William N. Clark, Jr., a member of the subrogation and recovery department at Cozen O’Connor.)

2012 was significant for decisions impacting property damage and workers’ compensation subrogation. Several state Supreme Courts and Federal Circuit Courts tackled everything from immunity to repair costs that will affect subrogation claims for years to come. Here is a brief look at these decisions and the potential future implications for claims professionals.

The Second Circuit held that the foreign government had a duty to comply with New York City building codes when it renovated a townhouse used as a mission to the United Nations. The Republic of Nambia could not delegate the duty to comply with New York building codes to its construction contractors. Finally, the court held that while the decision to renovate a structure is discretionary, once a foreign government decides to undertake a construction project, compliance with building codes is mandatory, and the foreign government is not immune and is subject to jurisdiction in the United States. This could open the door for cases against foreign governments and their agencies for violations of construction and building codes. 

Government Agencies
In Re: Katrina Canal Breaches Litigation, the Fifth Circuit (binding on District Courts in Texas, Louisiana and Mississippi) tackled U.S. federal tort immunity as it applies to property claims against the U.S. Army Corps of Engineers for claims arising out of Hurricane Katrina. In September 2012, in a surprise reversal of its previous decision in March 2012, the Fifth Circuit expanded tort immunity for the U.S. Army Corps of Engineers.

As a result, if faced with a potential claim against a government agency, it is critical to identify whether the agency involved violated a statute or regulation. The first step is to retain experts who are knowledgeable about statutes and codes. Such experts can assist in determining if, in fact, the government’s action violated a statutory or regulatory requirement. This can help build the argument that the governmental activity was nondiscretionary and will subject the government to tort liability for violating those requirements.

Immunity was also an issue on the workers’ compensation side. The Supreme Court of Pennsylvania held that a 1993 amendment to Pennsylvania’s workers’ compensation statute provided complete immunity to government actors for related subrogation claims in Frazier v. WCAB (Bayada Nurses Inc.). After interpreting conflicting provisions in the statute, the court ruled that a workers’ compensation insurer has no subrogation rights against a negligent government actor. Moreover, the court also held that the workers’ compensation carrier has no lien rights from a claimant’s settlement with a government agency. For claims professionals, this means that workers’ compensation carriers for private employers may not subrogate against state, county and municipal actors.

The Georgia Supreme Court ruled that stigma damages are valid since the purpose of an insurance policy is to place the insured, as nearly as possible, in the same position they would have been in without the damage. The court wrote “recognition of diminution in value as an element of loss to be recovered on the same basis as other elements of loss merely reflects economic reality…the measure of damage…is intended to place an injured party, as nearly as possible, in the same position they would have been in had the injury never occurred.”

The Royal Capital decision is likely to spur an increase in coverage claims for stigma damages. To the extent that an insured alleges stigma damages, claims professionals will likely have to undertake the standard cost of repair analysis and might have to engage valuation professionals to determine if the property suffered stigma damage. 

Based on this decision, computer-generated estimates and even actual repair bills, without specific testimony that the repairs were reasonable and necessary, are no longer sufficient evidence to prove damages in property-damage subrogation cases in Texas. Regrettably, the court did not provide instruction or clarification as to what evidence is needed to prove that damages are reasonable and necessary. Claims professionals should be prepared to defend the cost of repairs by documenting why the repairs were necessary to fix the property and why the cost of repairs were reasonable under the circumstances involved in each case.

Whether deciding governmental immunity defenses, or the measure of damages or the standards of proof required to establish the cost of repair, these top 2012 court cases underscore new challenges and opportunities for claims professional seeking recovery.  

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