Subrogation Legal Strategies

Expertise on Every Level

Consider the example of a defective product made in China that causes damage in the United States. While there may be a cause of action determined during the pre-litigation investigation and a judgment rendered as the result of litigation itself, collection will be virtually impossible because of China's limited participation in the Hague Convention.

To collect on this type of judgment, a carrier must use the services of a recognized attorney in the People's Republic of China and present the case before an administrative law judge. In turn, this other judge must render a decision, as those entered by the U.S. are not recognized.

While this is a more complex example than adjusters typically encounter, it reinforces the need to have proper expertise at every level of the claim process, from the first notice of loss (FNOL), to line adjusters, branch management, legal counsel, and business partners. Those who are most successful have adopted this effective strategy, which leverages both internal and external expertise.

From the outset of any claim, carriers should have a uniform goal of fair and accurate settlements. A critical element of this involves not only paying what is owed, but also in identifying subrogation opportunities. Ultimately, this provides carriers with an edge in the marketplace by enabling them to keep premiums affordable for consumers.

Rank-and-file line adjusters should be cognizant of steps that must be taken during the claim investigation while management and counsel focus on the legal avenues that can lead to improved recovery opportunities, from assessment of comparative negligence to identification of all potential tortfeasors. While this may seem elementary, the reality is that 15 percent of all subrogation opportunities are missed during the claim investigation, largely as the result of comparative negligence not being assessed. As an exercise in staff knowledge, discuss the concept of joint and multiple liabilities at your next staff meeting to determine the current level of understanding.

So what happens when you identify potential tortfeasors? What legal maneuvers can you take to secure your rights to recovery? With certain claims, you will be able to intervene and protect your rights; however, this may not be a viable option in others.

When it comes to your own insureds and intervening, many questions crop up concerning the "made whole" doctrine. Just how much of a settlement is a carrier entitled to? A clear majority of states follow the "insured made-whole doctrine," which means that the carrier cannot recoup its payments until the insured has been "made whole."

As this body of law varies from state to state, it is critical to stay current on case law, as there have been some very surprising results. In one such occurrence, the California Supreme Court rules that an insurer need not consider the amount of attorney fees its insured has paid when determining if an insured has been "made whole." (Chong v. State Farm Mutual Automobile Ins. Co. (2006) 428 Cal.App.4th 263, Allstate Ins. Co. v. Superior Court of San Diego (Delzano) (2007) 60 Cal.Rptr.3d 782, 21st Century Ins. Co. v. Superior Court (Quintana) (2007) 2007 WL 1705663.)

Tortfeasors' Desirability

Beyond intervention comes strict subrogation, whereby an insurer may opt to pursue the tortfeasor but should only do so in the event that it can determine if a claim is "suit worthy." What is the benefit of pursuing a tortfeasor with no assets, job, or potential? In my more than 20 years of experience with multiple insurers, it was not uncommon to pursue judgments irrespective of financial position. This is not atypical in the industry and unfortunately takes away resources that could focus on better identification of effective and strategic litigation.

Subrogation is generally not considered a debt. It is not usually governed by the federal Fair Debt Collection Practices Act (FDCPA) or state fair claim collection practice acts. But this is not always the case, and thus it is imperative to proceed with caution in states such as Colorado, where subrogation is considered a debt and is governed as such.

Those who most effectively leverage knowledge with legal maneuvering have the highest probability of affecting a positive outcome for the carrier. Once it is time to litigate, obtaining prompt service of process is critical. This becomes less of a challenge if an investigation to determine suit worthiness was completed. Should the carrier decide to proceed with litigation, there is often a benefit of using the small claims courts, which have varying thresholds that can be as high as $7,500 in a state such as California. Not only are judgments equally as valid as other courts, but they are also often obtained in fraction of the customary time, and for minimal costs.

During the discovery process, carriers will have the ability to gather even more extensive documentation pertaining to a person's financial status and ability to pay a potential judgment. It is absolutely critical that carriers focus on the lowest ultimate cost, which factors in not only ability to pay but also in just how much must be paid to obtain the judgment. Let's keep in mind that it never makes sense to throw good money after bad.

Obtaining the judgment is only part of the equation. With more than 80 percent of all judgments going uncollected, one of the biggest opportunities to effectively leverage your legal strategies is with post-judgment remedies. Again, this is where having a winning team comes into play. Adjusters can do a great job of investigating claims for subrogation potential, while attorneys can effectively get judgments. But who actually steps up to the plate to collect them?

Far too often, judgments are used to simply accomplish the suspension of a drivers' license. Unfortunately, this rarely results in judgments getting paid, and the reality is that many with suspended licenses continue to drive anyway. So you must ask yourself the following: How many judgments has your carrier obtained in the past ten years? How many have you collected on? Which staff member is diligently pursuing this money that is rightfully yours?

The reality is that once the judgment is obtained, the collection of proceeds often takes a backseat. Often this is because of time constraints or perceptions that judgments just aren't collectible. In some cases, there is a lack of jurisdictional understanding as to what should transpire once the judgment is obtained.

How does one go about placing property liens or levying bank accounts? What about garnishing wages or overcoming obstacles in debtor states such as Florida or Texas? Does your carrier have the necessary staff to install keepers or till tappers? Do you have the capability to investigate fraudulent transfers? Can you afford to pull resources to conduct debtor exams or go to the courthouse to seek turnover orders? These post-judgment legal strategies are some of the best available but the least utilized.