Phasing Into Better Subrogation
Determine the costs versus the benefits before starting an expensive investigation or subrogation process.
Subrogation is a unique creature in that you, as the claims professional, get to craft the case from day one following a loss. In most other claims and litigation areas, you have to react to what others may or may not be doing in a given situation. When it comes to subrogation, you drive the investigation, and you determine if you do or do not have the potential for recovery in a case. However, this "opportunity" is also where you will spend a large percentage of your money. Without exception, you must look for ways to minimize or control those costs so that you are free to spend necessary dollars on other cases, leading to even better overall results.
Phase One: The Early Investigation
Here, you must make sure the investigative team you assemble understands, to a person, what a tremendous investment the investigation of the cause and origin of any event is and how to best invest scarce resources in that investigation. First, a cost-benefit analysis has to be done assessing the size of the claim as compared to the anticipated cost of the investigation. For instance, spending $14,000 to investigate a $37,000 event without any cost-benefit analysis will never make sense.
Details matter. Before determining how much to spend on experts in a property damage claim, the adjuster—or the attorney if the claim gets referred out to counsel right away—should determine if the age of the affected structure precludes avenues of subrogation. Some statutes of repose, as they relate to improvements to real property, can be very short and may preclude subrogation altogether or may force a different approach. Likewise, items in a general fire's origin area may be very old, possibly precluding subrogation under products liability under certain jurisdictions' statutes of repose for products. In a landlord-tenant claim, subrogation may be barred as a matter of law in some places, so paying an expert $1,800 to determine that the tenant did, in fact, cause a cooking fire may not be worthwhile. As a final example, a contract between parties (no matter what the relationship) may preclude the subrogation claim between those parties, so once again, this fact should be determined as early as possible, since it may greatly affect the value of the investigation.
Phase Two: Making a Claim
Once you think you have a party (or parties) to pursue for subrogation, make sure your team is as focused as possible. The faster you get the claim pulled together, the better your results. You should let the other party see the scene intact, but do this in a cost-effective manner. It is best to try to streamline attendance at the evidence examinations. If the investigative team believes very strongly that one potential party is not responsible for a smaller claim, it's probably best to leave that party out. The more folks you have involved in an investigation, the more money you will spend. Larger claims may call for more folks to be involved (since your opportunity cost of making a mistake on leaving someone out is greater), and if you do a better job investing dollars on the smaller claims, you have more leeway on the larger claims to bring more people in.
Use lab and personnel time wisely, too. For example, a four-day lab exam for a small fire possibly caused by a faulty extension cord is probably not going to be the most productive use of resources. It would be much better to invest those extra three days of investigative time on metallurgical issues regarding the very large improper sprinkler activation case in which the installer of the pipes is making some "background noise" in the claim about manufacturing defects in the pipe. This takes focus by your whole team—and accountability.
Phase Three: Litigation
Ask whether or not litigation can be avoided. Attorneys' fees are typically less on the front end, so consider if an intense, yet reasonable, push to settle prior to litigation would be more profitable. Figure out what parties need to be identified and involved in the case—whether closely or remotely. Having too many parties involved in a case increases costs by adding to the expense of litigation, making the scheduling of events more difficult, and creating slower recoveries.
Does litigation make sense? Many filed cases demonstrate an anticipated subrogation payoff that is minimal compared to the costs of recovery—they clearly never should have been filed in the first place. Consider whether or not your team has run a realistic cost-benefit analysis for each case. Can you save money by bundling events? For example, will you save money and speed up the process by combining nine depositions over three to four days in a particular city rather than having each deposition conducted individually at different locations over a two-month period? It takes effort and focus, but it may save considerable money in the long run. On a small case, consider what can be conducted via telephone and list those things in your case to which you can stipulate, in order to save money on discovery.
While actual recovery is important, it is equally important to make sure your team is focused on the best possible use of your investigative dollars, in other words, where they will likely bear the most fruit. While subrogation is anything but a perfect science, accountability for the investment into each claim will greatly enhance your bottom line and make for a much more efficient claims handling process.
Hobart M. Hind Jr., Esq., is a partner with Butler Pappas Weihmuller Katz Craig, which is based in Tampa, Fla. He can be reached at firstname.lastname@example.org.