After 33 years of practicing in an esoteric area of the law, itis time to explain what my career and the subrogation industry isall about. In order to give the appropriate picture, I really needto start at the beginning.

Confession #1

I have become comfortable with the idea that very few peoplehave any idea what subrogation means, including many lawyers andjudges. This leads me to the great elevator speech that my childrencould give on cue by the time they were eight years old: “If thefurnace in your house malfunctions, explodes, and burns your housedown, your insurance company pays to rebuild your house. It assumesany rights you have. Subrogation, the substitution of one's rightsto another, enables the insurance company to make a claim againstthe manufacturer or installer of the furnace to recover the moneythe insurance company paid to re-build your house.”

This right is not new. It has existed since the 1700s, when itwas created in English law by Lord Mansfield.¹ It hasbeen recognized by common law and equity, and exists specificallyin most insurance contracts in the United States. It has beenrecognized and analyzed by Minnesota courts in countlesscases.² The genesis of the doctrine is that without it,an insured could double recover—once from the tortfeasor and oncefrom the insured's own insurance carrier. In order to prevent sucha windfall, the courts granted the insurance carrier a right ofreimbursement. The reality is that few people have ever heard ofthe word, aside, of course, from law students who hear it duringone session of their contracts class.

Based on many experiences, that one day of contracts class wasnot a memorable one for many judges who get assigned to asubrogation case. Challenging as it might be, I have tactfully hadto give the elevator speech to judges (and juries). Indeed, I haveencountered the phrase “it's just a subrogation case” on moreoccasions than I can remember. Thankfully, our Minnesota SupremeCourt is making great strides in recognizing and explaining theimportance of subrogation. The Court, in a recent opinion, hasbegun to rely on the idea that subrogation achieves an importantresult by holding tortfeasors responsible for theiractions.³

From my perspective, this is helpful analysis by the Court. Theobscurity of the concept of subrogation to the general publicbecomes problematic when an insured first hears the word. Becausemany subrogation claims require involvement and cooperation of theinsureds, it is imperative that they understand how the right isderived. To the insured, it is easiest to refer to the language ofthe insurance policy and the clause that requires the insured tocooperate with the carrier in its subrogation efforts. Despite theclear language of the contractual insurance language, subrogatingcarriers are often accused of trying to take money out of theirinsureds' pockets when a settlement is reached.

Confession #2

I really believe subrogation is a good thing and am proud ofwhat I do. There are three entities that benefit from a subrogationrecovery; the carrier, the insured, and society as a whole.

The Insurance Carrier

The benefit to the insurance carrier should be obvious. Anydollar the carrier brings into the company is a positive. Whetherthe company is a publicly-held company or a mutual company owned bythe policyholders, the benefit is the same. More revenue enhancesthe company's bottom line. There are three main ways an insurancecompany brings in revenue: premiums, investments, and subrogationrecoveries. With over 3,000 insurance companies competing with eachother for the premium dollar, the advertising, marketing, and otherpromotion costs make this dollar an extremely expensive dollar tobring in. Every insurance company is a prisoner to the generalinvestment market environment.

When the market is rising, most carriers make money on theirinvestments. When the market crashes, as happened in 2008 and 2009,carriers will probably lose money on this side of the business.Carriers can do better than their peers at the margins, but aregenerally limited by the general market performance. Subrogation isan area where an insurer has a right to recover dollars. Thequestion becomes whether carriers are set up to properly identifyand execute on opportunities. The subrogation dollar is almostalways cheaper to obtain than the premium dollar. When the stockmarket is down, subrogation may be the second largest source ofincome for a carrier.

Subrogation recoveries can easily make the difference between acompany being in the red or the black in any given year. In theauto subrogation world, companies can recover between 12 and 22percent of their paid losses in a given year.⁴ This is ahuge opportunity for an insurance company to improve theirfinancial performance. Over the last thirty years, as carriers havecome to recognize the financial impact of a successful subrogationprogram, they have begun to dedicate increased attention andresources to their subrogation departments. They are now activelymanaged, benchmarked, and analyzed to maximize revenues.

The Insured

Subrogation exists in many lines of insurance, including auto,health, property and workers' compensation. In each arena, theinsured benefits from a recovery in different ways: In an autosubrogation claim, the insured usually suffers a loss of his or herdeductible when a motor vehicle accident occurs. The carrier'ssubrogation efforts are the most effective method of recoveringthat loss. When both parties to an automobile accident haveinsurance (which is required under Minnesota law), the carrierseach pay for their own insured's damages, less the deductible. Theythen negotiate the claim. If they cannot agree to a resolution,most carriers belong to an arbitration agreement. The claim issubmitted and a decision on liability and damages is rendered.

The insured deductible is recovered from the liable carrierthrough this process. Unfortunately, many individuals in Minnesotadrive without insurance. In the circumstance where the uninsuredperson is at fault, the carrier's subrogation efforts are the bestchance the insured has of ever getting back any part of his or herdeductible. As deductibles continue to increase in size, insuredsbecome more interested in this process. I rarely meet an insuredwho understands why she or he has incurred a deductible when theother party is at fault. Recovery of the deductible becomes animportant customer service issue where insureds do not expect tohave any financial loss because the accident was not theirfault.

In property loss cases, deductibles are also increasing rapidly.Some insureds have deductibles that are a percentage of theircoverage. It is not unusual to see a deductible on a homeowner'sclaim in excess of $10,000. On a commercial loss, there may be verylarge deductibles or self-insured retentions. In all of thesecases, the insureds are usually very concerned about the carrier'sattempts to recover these losses. In the workers' compensationarea, a business's premiums are based on an experience rating.

This means any loss can cause premiums to rise. A recovery willhave the effect of lowering rates. Companies have a vested interestin the recovery efforts. In addition to deductible recoveries,insureds benefit when an insurance carrier's investigation into thecause of a loss creates the evidence necessary for the insured tomake his or her own claims for uninsured losses. A homeowner wholoses her or his house to fire may be paid for his insured loss,but what about the portion of the loss that exceeded availablecoverage? Without the subrogation investigation, such an insuredmight reluctantly accept the policy limits and absorb the uninsuredloss that should be paid by the party that caused the fire.Subrogation investigations yield evidence, theories of liabilityand viable third parties to pursue.

Society

Whenever there is an airplane crash in this country, the FederalAviation Administration conducts an investigation. One purpose isto find out the cause of the accident so that other accidents canbe avoided. When a fire occurs in a home in Minnesota, fireofficials usually make one determination: Was the cause of the fireintentional or accidental? If intentional fire is ruled out, mostofficials leave the actual determination of cause to the insuranceinvestigators. If there was no right of subrogation, there would beno need for any further investigation. Let us assume there is adefective brand of furnace that is causing fires around thecountry.

It is often the subrogation investigations conducted byinsurance companies that identify this defect and make it public.If these investigations never occurred, how much longer would ittake to get these products off the market? How much additionalproperty damage or personal injury would occur? One example of aninsurance investigation resulting in a safer society was writtenabout in the Wall Street Journal (Sept. 6, 2000).A researcher at State Farm received multiple reports of Firestonetires on Ford vehicles that were failing and causing propertydamage, injuries, and deaths. He ultimately reported his findingsto the National Highway Transportation Safety Administration, whichhelped lead to the recall of over 14 million tires, andundoubtedly, safer vehicles. In many insurance claims, thesubrogation investigation is the only inquiry into the cause of aloss. The community as a whole benefits each time a defectiveproduct or procedure is identified. While the benefits ofsubrogation seem quite obvious, it may surprise you that there isoften great opposition to the practice by the plaintiffs' personalinjury bar.

Confession #3

Subrogation counsel can assist plaintiffs' personal injurycounsel, and have a positive effect on a case. I often work withlawyers for injured parties who are making auto accident, worker'scompensation, or health insurance claims. Some are adversarial fromthe outset, worried about one thing: Is my client going to takemoney out of their clients' pockets when settlements are reachedwith the tortfeasor? Plaintiffs' counsel have the ethical duty torepresent their clients' interests. I have the ethical duty torepresent mine. I firmly believe that these two goals can co-exist,and that by working together, plaintiffs and subrogated carrierscan maximize results. Below is a list of benefitsthat a subrogation attorney can provide: Subrogation counsel mayhave access to more information about what happened initially thanany other participant in the case. Because of the volume of claimsthat subrogation attorneys handle, they work with a cadre ofexperts around the country on a regular basis who are often leadersin their field of forensics. Subrogation attorneys may have moreexperience with product liability cases than most plaintiffs'firms. Subrogation attorneys develop specialized expertise in thehandling of product cases due to the volume of cases they receivefrom insurance carriers. In injury cases involving a work-relatedinjury, workers' compensation subrogation counsel can often obtainthe cooperation of the employer, and therefore gain easier accessto relevant evidence which can be important to a case. Subrogationcounsel may have better relationships with the defense counsel thanplaintiffs' counsel might have. Subrogation counsel has a highvolume of cases and can develop relationships over time that assistin moving cases towards resolution Subrogation counsel is sometimesviewed as a neutral observer by a mediator and may help themediator find an avenue to reach consensus.

Confession #4

I am a plaintiff's attorney. In my early days of practice, Iused to belong to the plaintiffs' trade associations. I firmlybelieve in the power of organizations to make professionals betterat their jobs. I have always viewed my practice as a plaintiffs'practice. I do plaintiffs' work for the insurance industry.However, when I attended the plaintiffs' bar meetings, I was alwaysasked why I was there. I would reply that I handled plaintiffs'cases. The response from the other plaintiffs' lawyers was alwaysthat I worked for insurance companies, as if that disqualified myparticipation. I never had any interest in belonging to the defensebar associations. I was not a defense attorney. It became clear tome that subrogation was perceived by others as a world unto itself.The only solution was to create an association for the subrogationcommunity. In 1998, the National Association of SubrogationProfessionals (NASP) was born. Approximately 2,500 professionalsbelong to the association, including lawyers, insuranceprofessionals, and others who support the industry.

Interestingly, people at the insurance companies who worked insubrogation had the same isolated feeling. They were that onepercent of people in the insurance business who made claims insteadof defending them. There was very little understanding of the worldof subrogation by the rest of the claims world. NASP has helped ourindustry by creating a sense of unity and understanding. Oneconstant about subrogation nationally, leads me to my lastconfession.

Confession #5

Truth is stranger than fiction. Many people may view the work ofan attorney representing an insurance company as boring andmundane. I can tell you without a doubt that representing aninsurance carrier in a subrogation case can be anything but boring.The factual scenarios giving rise to a subrogation claim can rangefrom the case of turkey bowling in a super market aisle, to firecaused by spontaneous combustion of oil rags, to something astragic as the 35W bridge collapse. The work of a subrogation lawyerrequires ingenuity, creativity, and open-mindedness as thesubrogation team develops and follows through on a theory ofliability aimed at a recovery. It is the experience of workingthrough the challenging and unique cases, often with other lawyersrepresenting the injured parties and defendants, that gives mesatisfaction in my field. Most Minnesota lawyers really do goodwork for their clients, even subrogation lawyers.

² Westendorf by Westendorf v. Stasson, 330 N.W.2d 699(Minn. 1983); Travelers Indemnity Co. v. Vaccari, 310 Minn. 972, 45N.W.2d 844 (1976); Time Ins. Co. v Opus Corp., 519 N.W.2d 470 (Minn. Ct. App. 1994). ³ RAM Mut. Ins. Co. v Rohde, 820N.W.2d 1 (Minn. 2012). ⁴ (National Association ofSubrogation Professionals Automobile Subrogation BenchmarkingSt