Editor's Note: The following article is a summary ofcommentary provided by Jeffrey M. Zielinski and Richard J. Boyd,Jr., partners at Nelson Levine de Luca & Hamilton.

Missed subrogation opportunities can gravely impact an insurer'soverall profitability. However, discerning viable candidates forrecovery is tricky business. When it comes to handling complexproperty claims, both adjusters and litigators must consideran array of factors and take various precautions,including staying abreast of the latest product recalls andvetting appropriate experts.

Claims recently spoke with Jeffrey M. Zielinski andRichard J. Boyd, Jr., both partners at the law practice of NelsonLevine de Luca & Hamilton, to explore howproperty losses should be investigated and analyzed, and whatadjusting approaches will lead to optimal recovery outcomes.Zielinski, who advises clients on large-loss property subrogationcases with an emphasis on losses affecting community associationsand commercial risks, and Boyd, whose specialty is large lossproperty subrogation matters, with a focus on defective products,shared some interesting insights and resources for litigatorsand claims adjusters alike.

How can insurers maximize subrogationrecoveries in property losses?

Insurers can maximize recoveries by doing some basic,but important, things. Think of the typical property loss thatinvolves a fire in a home. Now imagine that you are a litigator whoreceives a call from a property insurer saying the homeownerwas drying some clothes when, all of the sudden, the dryer burstinto flames. The insurer further tells you the fire happened twodays ago and the homeowners are currently living in a hotel. Likeall insureds, they want to get back into their home as soon aspossible, and the carrier wants to begin reconstruction workimmediately. The subrogation professional is left with manyconsiderations, from ensuring that subrogation recovery issuccessful to ensuring that the insurer's concerns are addressed aswell as those of the insured.

With these concerns in mind, the subrogation professional mustimmediately contact the appropriate experts to quicklyinvestigate. In a case similar to our example, this wouldinclude an electrical engineer if the dryer was electricallypowered or a mechanical engineer if powered by gas. An originand cause investigator would also be essential. At the sametime, the dryer information should be obtained, and proper noticeof the claim should be sent to the dryer manufacturer and/orseller.

Preservation of the entire fire scene should also be conducted.Too many times, the dryer or other product is removed from the homeand stored. The home is then repaired, and only then is subrogationconsidered. Most defendants are looking to make a spoliationargument. By not preserving the entire scene for the defendant toinspect, the argument is easily made for them. To prevent thisproblem, the subrogation professional must get timely notice out,and provide the potential defendant with an opportunity to inspectthe entire fire scene.

What does a successful claims investigation looklike?

Similar to the previous answer, a successful and thoroughinvestigation includes getting critical information early. Thisinformation primarily comes in the form of witness statements. Whatoccurred at the time of the loss and shortly beforehand must bedetermined by speaking with the witnesses. Finding out about anyproblems the homeowners or others were having with the product, aswell as any service performed, is also critical. This informationmust be obtained early as witness memories fade, witnessessometimes move and cannot be located again, and they can alsobecome uncooperative. It is also wise to speak with the local fireofficials about what they found and what they know about the causeof the fire. Often times, your origin and cause investigator willbe a former fire official and, if experienced enough, will know thelocal fire official investigating your case. This can go a long wayin getting the fire report without having to send a subpoena and ingetting the fire official's photographs. So, getting theinformation on your fire early, and in detail, iscrucial.

What are some common culprits thatcatastrophically fail, thereby leading to propertyclaims?

There are many common culprits in the home that can lead toproperty loss. These products can fail catastrophically shortlyafter purchase, which is the early stages of the product's life anda failure mode consistent with most persons understanding ofdefective products, but also these products cancatastrophically fail after being used for many years. While mostpeople associate a defective product with one that is so inherentlydefective that it causes a fire after only a few uses, the factremains that there are many products that fail only after extendeduse.

These common culprits usually have a poor design or common flawin which the defect only manifests itself after exposure over timeto foreseeable external factors. Examples of such foreseeableexternal factors include the accumulation of combustible materialsin the product during normal usage, such as lint accumulation in aclothes dryer or bathroom exhaust fan.

Another common failure that can occur from exposure over time toexternal factors are defects in the materials used to constructsome products, such a certain types of plastics that degrade fromexposure to certain chemicals. For example, certain plumbingfixtures, such as toilet supply lines and fill valves, are madefrom plastic, such as acetal, that can degrade over time whenexposed to common household cleaners and chlorinated water. Thistype of degradation can cause the plastic to weaken resulting infractures that can lead to substantial water damages. Suchwater losses can be particularly excessive when the failure occursat the top of a multi-story structure when the property is notoccupied.

In the absence of a manufacturer recall, how canadjusters identify trends or specific products that are proneto failure?

In the absence of a public recall, an adjuster can identifyproducts with a history of failure through other trustworthy means.A beneficial resource is the National Association of SubrogationProfessionals (NASP). It has a list service that includes manysubrogation professionals, from adjusters to attorneys, who areconstantly posting about matters they are handling. Becoming a partof the list service can provide one with lots of valuableinformation regarding typical product failures and issuesencountered on a daily basis in these types of cases. There is alsothe Consumer Products Safety Commission (CPSC) website. This sitenow includes consumer complaints about products, and not justrecalls. A subrogation professional is wise to review this site anytime a loss involving a product is encountered. Searches throughGoogle are also very beneficial. It is amazing how many chat roomsthere are where people discuss problems they have with almost anyproduct. A search through Google or other search engine can alsoreveal complaints that have been filed in court, verdicts renderedand discussions regarding certain manufacturers and issuesthey have had with defective products. A general search on theinternet is a great place to start.

What factors can lead to failure? What about product ageand contamination?

Before discussing the factors that can lead to or cause aproduct to fail catastrophically, it is imperative that theanalysis begin with the understanding that a product, regardless ofage, should never fail catastrophically. Products should bemanufactured and designed in a manner that allows them to operatesafely until the end of their useful life, at which time theproduct should simply cease to operate- never failingcatastrophically.

Generally speaking, there are an infinite amount of factors thatmay play a role in or contribute to the failure of aproduct. As mentioned previously, such factors may include thebuild-up of lint within the product or the use of chemicals thatmay cause degradation of the materials in which the product wasconstructed. Regardless of the factor(s) that potentially played arole in causing the product to fail, the central question indetermining the viability of a subrogation claim against a productmanufacturer is whether it was foreseeable to the manufacturer atthe time of sale that normal usage of the product would expose itto the external factor(s) that played a role in the productsfailure.

Sticking with the example from above, the question that must beasked is whether it is foreseeable to the manufacturer that aplastic toilet supply line would be exposed to normal householdcleaners during use. If the answer is “yes,” then a validdesign defect claim exists against the toilet supply linemanufacturer for failing to properly design a product withmaterials that could withstand exposure to the chemicals containedin normal household cleaners.

Once an insurer finds evidence of product defect, whatis the next step in subrogating against themanufacturer?

As discussed above, it is absolutely imperative that after aparticular product is determined to possibly be the cause of a lossthat the scene and evidence be preserved, as well as themanufacturer be put on notice of their potentialresponsibility.

After the above, the next step in the subrogation against themanufacturer is to conduct a joint evidence examination. Thejoint evidence examination is often performed several months afterthe scene exam and is almost always destructive in nature. The joint evidence examination is the event where all of theevidence retained from the scene inspection is taken apart, tested,examined and photographed in an effort to conclusively determinethe cause of the loss.

Such an evidence examination not only includes the analysis ofthe allegedly defective product, but also all of the other evidenceremoved from the scene that could have potentially been the causeof the loss. As a result, the joint evidence examination isconducted to not only determine if the alleged product was causethe loss, but to also rule out all other causes.

Given the destructive nature of the joint evidence examination,it is essential that a written protocol be drafted prior to theexam that summarizes the actions to be undertaken by all of theparties, including any and all tests that the parties intend toconduct. The protocol should always be drafted and reviewed by theexperts that have been retained to participate in theexamination. While the written protocol should allow for somedeviation based on circumstances that may arise during the actualexamination, it is crucial to have a protocol in place prior to theexamination so that all parties have an understanding as to thescope of the exam.

While each case is different, upon completion of thedestructive exam your experts should have more than enoughinformation to form an opinion as whether the subject product wasthe cause of the loss. If you experts agree that the product was infact defective, then it is time to file a complaint and pursue thedamages owed by the manufacturer.