Last week Allstate lodged a $3 million lawsuit against Toyota Motor Corp., seeking to recover expenses associated with the claims it paid for accidents involving vehicles the automaker recalled for potential unintended acceleration issues.

The suit, which was filed in Los Angeles Superior Court, is certainly not the first to be filed against the Japanese auto company. However, it does appear to be the first made by an insurance carrier for subrogation purposes.

In federal court there are multi-class action lawsuits stemming from the acceleration problems that have been acknowledged by Toyota, which is being heavily pounded by the mounting U.S. civil litigation. In these tough economic times, insurers continue to emphasize the area of the subrogation potential. We first reported on this matter in the March, 2010 issue of Claims; please refer to this previous article for more subrogation information.

For those who may need some clarification or a quick refresher, subrogation can be described the following way: When an insurer pays a policyholder for a loss, the insurer then has a right of subrogation against any person or persons responsible for the loss. Basically, the right of subrogationallows the insurance company to pay its policyholder and then pursue the responsible or "at-fault" party to recoup costs. When the insurance company collects against the responsible party or its insurance company, then the policyholder will receive a pro-rata share of the deductible applied to the original loss payment made to the policyholder.

Allstate Spokesperson Christina Loznicka says that the lawsuit is a last-resort measure due to Toyota's failure to repay Allstate for damages and claims caused by the acceleration problems.

"Pursuing the recovery of dollars paid out by Allstate against the at-fault party, Toyota, helps us keep the cost of insurance down for our customers," Loznicka said. "The subrogation will compensate for deductibles paid by Allstate insureds."

As for any increase in premiums that Allstate customers may have encountered because of these accidents, Loznicka explained that the insurer has a process in place to "re-examine those claims involving the recalled [automobiles] in order to remove and repay any surcharge that may have been applied." These are certainly issues that other insurers need to address, and Allstate believes that other companies will follow its lead.

Just as other pending suits allege, Allstate charges that the automaker long ignored evidence of acceleration problems in its vehicles and failed to install a brake override system that would have prevented accidents. The Allstate suit also alleges that the malfunctioning acceleration problems were because of a defect in an electronic throttle system that Toyota introduced in the 1990s.

Allstate accused Toyota of "essentially hiding the problem" instead of recalling the cars or changing the design. Furthermore, the insurer asserted that this resulted in "numerous claims of property damage and injuries, including some fatalities."

Allstate reportedly paid more than $3 million to policyholders or third parties for at least 725 accidents, 304 injuries, and 18 fatalities -- all involving unintended acceleration.

At this time, Progressive states that it is "continuing to review claims and subrogate as necessary." Back in 2007, State Farm had notified the National Highway Traffic Safety Administration about possible acceleration issues in Toyota and Lexus models.

State Farm Spokesperson Phil Supple said that State Farm had not filed suit as of yet, but that each claim the insurer handles is typically evaluated for subrogation potential anyway. Regarding the Toyota recall specifically, Supple said, "We are looking at the Toyota subrogation on a case-by-case basis, and each claim will vary regarding varying circumstances of the claim. We are talking to Toyota at this time and we hope to resolve the matter without litigation."

This may represent substantial cost to the industry and could entail a lengthy investigative process. To learn more about the obstacles insurers could face in court when setting out to prove claims, I spoke with Jim Pattillo, a litigation partner in the Birmingham, Ala. firm of Norman, Wood, Kendrick & Turner.

"Subrogation litigation could prove to be costly," Pattillo said. "Insurers like Allstate and others that may follow will have to prove each separate claim. That will bring a host of evidentiary obstacles, such as identifying and finding witnesses, locating vehicles, and hiring experts to link accelerator problems in the recalled vehicles to the damages paid for by the insurer.

"Once the witnesses and cars are located, insurers then will have to address evidentiary issues that could make or break the claim," he continued. "A vehicle that has either been totaled or has been driven significantly since the original accident may be of no use as evidence of an accelerator problem. Of the numerous subrogation claims Allstate can assert it likely has a top ten or 20 that it can work up from an evidentiary standpoint. Because it will be costly to litigate every subrogation claim, insurers need to lead with their best cases. If Toyota sees some of these claims as threats and even loses some at trial, insurers may have an opportunity for a global settlement."

In February 2010, the House Energy and Commerce Committee Oversight and Investigations Subcommittee requested that five major automobile insurers provide information about reported problems with vehicles manufactured by Toyota. The companies with the largest market share in the U.S. private passenger auto market in 2009 were State Farm Group, with an 18.13-percent market share; Allstate, with 10.69 percent; Berkshire Hathaway Insurance Group, with 8.36 percent; Progressive Insurance Group, with 7.6 percent; and Farmers Insurance Group, with 6.47 percent. A.M. Best Company's Global Insurance & Banking Database has assigned Allstate Insurance Group with a rating of A+ (superior).

Toyota continues to deny that there is a problem with the electronic throttle control system and maintains that pedal entrapment caused the cars to accelerate. Although the source of the problem remains somewhat unclear, it is likely that others will file similar suits, especially if the automaker chooses not to repay the subrogation claims that have already been presented.

Special Reports /

Allstate Files $3 Million Subro Suit Against Toyota

Related Stories

Recommended For You