Best Practices for Successful Subrogation Recoveries

Published by MCR LLP at July 14, 2015

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Subrogation Law

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Subrogation has become an integral part of the business of insurance. Recoveries can substantially increase an insurance company’s net income.

To be effective at subrogation, you must be sure that your resources and efforts are channelled in the right direction. Small mistakes can cost millions of dollars.

The following is a list of best practices for successful subrogation recoveries.

Protect your subrogated interest when adjusting a first party claim. Subrogation should not be an after-thought; it should be a key factor in adjusting first party claims.
Put company protocols in place for dealing with claims that have subrogation potential. A coordinated response between adjusters and claims personnel will ensure that proper steps are taken to protect your subrogated interest and maximize recoveries. This includes assembling a team of remediation and repair personnel and qualified experts to investigate losses.
Secure your witnesses. Adjusters should obtain signed statements from key witnesses. Get addresses, telephone numbers, fax numbers and email addresses of witnesses. Liaise with police, fire department or Fire Marshal personnel, Ministry of the Environment representatives, TSSA, Hydro or Building Inspector personnel.
Preserve the evidence. If a product is involved, it is important to ensure that the evidence is preserved and the chain of custody is well documented. Obtain product history from the insured including bill of sale, owner’s manual, installation guide, service/maintenance records and any other related documents.
Determine the cause and origin of a loss. A proper cause and origin analysis is critical to ensure a successful subrogation recovery. Causation can be established in several different ways: by eyewitness accounts, circumstantial evidence, physical evidence, similar fact evidence, records of manufacturing, design, production or maintenance, and by the elimination of all other reasonably possible causes.
Where appropriate, retain a qualified expert. If you decide to retain an expert, make sure your expert has the right qualifications to perform the task. Further, do not permit your expert to conduct destructive testing of key evidence without putting third parties on notice.
Diarize the limitation period. The limitation period to commence lawsuits in Ontario is relatively short – 2 years for most causes of action. A coordinated effort between adjusters and the recovery team, while keeping the two-year deadline in mind, will ensure that the limitation period will not be missed. If you are going to refer a file to legal counsel, do so well before the limitation period expires to avoid last-minute scrambling.
Consider conducting an asset investigation of the third party prior to committing resources to recovery efforts. The purpose of subrogation is to recover money paid out. The ability to recover from a third party should be an important consideration in determining whether to pursue subrogation.
Ensure that all payouts are reasonable, necessary and well documented. Any recovery in a subrogated claim will be limited to actual cash value and not replacement cost. You must be able to justify first party payments in order to recover payouts. Where appropriate, obtain competitive quotes.
Advise the insured early of your intention to pursue subrogation. The insured should be aware early on that you may be pursuing subrogation. You will need the insured’s cooperation if you decide to pursue subrogation. The adjuster should obtain information and documentation about uninsured losses, if any.
Keep the file well-organized and complete. When referring a file to legal counsel, ensure that the file is complete and well-organized. This will go a long way in ensuring that a proper assessment of subrogation potential is conducted.
Send a demand letter to start. Sending a demand letter from legal counsel with a time limit for response is a good strategy for opening up channels of communication and achieving possible settlement. If resolution is not possible, then a Statement of Claim must be issued and served in the appropriate jurisdiction before the expiry of the limitation period.
Early resolution is the goal. Early and continual attempts at resolving claims should be the focus of subrogation counsel. A damages brief and expert reports should be delivered to defence counsel at the first available opportunity. Subrogation counsel should be encouraged to pick up the telephone and call defence counsel or arrange a face-to-face meeting in an effort to narrow the issues or resolve the claim.
Mediate where possible. At the right time, and with the right mediator, mediation can be an effective tool in resolving a claim. Subrogation counsel and the claims person should be realistic about settlement. Consider the strengths and weaknesses of your case, and remember that there are at least two sides to every story. Just as you want to go back to your office saying you achieved a great recovery, the liability adjuster will want to go back to his/her office saying he/she paid the least amount possible.
Do a cost-benefit analysis when deciding whether to proceed to trial. If the case is heading to trial, make sure you have taken into account the costs of going forward. Trial costs escalate quickly. At the end of the day, you should feel confident that you will likely succeed and that the costs of doing so will not exceed your expected recovery.