What lines of business are seeing increases in subrogation activity? How is legislation affecting the subrogation process and results? And finally, what can insurers do to better identify subrogation opportunities?
Are there any lines of business that are seeing an increase in subrogation activity, and, if so, what is driving that activity?
Kathleen Smith, Spartan Recoveries, LLC: Spartan has seen an increase in reported and claims able to be subrogated in all lines of business post-COVID-19. We attribute the reason to people being back on the road, hence more automobile losses; people getting back to work and incurring the usual workers’ compensation losses; as well as most people no longer working from home where they might have witnessed and intercepted a homeowner’s loss or at least mitigate the damages.
Megan Aloisi, Fleet Response: Yes, we are seeing a major increase in subrogation in the cannabis industry. This is due to the major challenge of finding qualified drivers for company vehicles, which creates a safety issue. The industry has rapidly increased so much that some of the transportation is being done by self-owned vehicles that are basically operating as Uber Eats drivers delivering the cannabis. This can lead to a loss of product, crashes resulting in injuries, and property damage.
What are the challenges faced by workers’ compensation carriers and self-insurers in increasing subrogation results?
Megan Aloisi, Fleet Response: Delayed recovery is one of the biggest challenges for both self-insurers and carriers because you are not only dealing with a physical injury, but also psycho-social consequences of the injury and the current economic downturns, remote-work ergonomics, the safety of home environments, and determining whether or not injuries are compensable when they occur while an employee is working from home.
Kathleen Smith, Spartan Recoveries, LLC: The most challenging aspect in increasing subrogation recovery results is in the initial identification of cases involving third-party recoveries. Even the most experienced workers’ comp representative does not generally conduct a subrogation-focused investigation into the facts that caused an injury because they are primarily focused on the extent and severity of the injury, with the main objective being getting the injured worker back to work in the shortest period of time possible to reduce costs and premium dollars. Therefore, a liable third party is very often not identified, and subrogation not pursued. Both the assertion of liens and direct-action subrogation can be significantly improved with the early identification of liable third parties. In addition, most workers’ comp representatives are not familiar with workers’ compensation subrogation statutes in various jurisdictions. Recovery vendors with proven and demonstrated recovery results are very aware of the issues in each jurisdiction and can handle and pursue recoveries in each state accordingly.
Have there been any court decisions or legislation around the states that you believe will impact subrogation efforts either positively or negatively?
Kathleen Smith, Spartan Recoveries, LLC: The Sutton decision, although not very recent, definitely had an effect on an insurer’s ability to subrogate against liable tenants pertaining to fire losses. In very simple terms, the Sutton Rule prevents insurers from seeking subrogation from a liable tenant because the tenant is considered an implied co-insured on the landlord’s policy. As a matter of law, the insurer is precluded from subrogating against their own “insured.” The prevailing case, Joella v. Cole, holds that an insurer must look to the lease to determine who is required to insure the property. In instances where the landlord is required to insure the building, it has been deemed reasonable for the tenant to expect that they would be considered as an implied co-insured and would be tantamount to suing its own insured. There are exceptions to this decision, however, predicated on the language in the lease between the tenant and landlord.
Megan Aloisi, Fleet Response: Louisiana HB 9 and SB 418 are almost identical bills, and they both seek to reduce the cost of motor vehicle insurance by extending the statute of limitations for auto accidents to two years and lowering the threshold for jury trials to $5,000. They would limit plaintiff’s recoveries to amounts paid or payable from collateral sources (workers’ compensation cases would be limited to fee schedule). They also would limit the circumstances under which a direct action could be taken against an insurer, and they would also repeal the limitation on presenting evidence of comparative negligence for failure to wear a seatbelt. Finally, they would mandate certain filings that an insurer must make with the state insurance commissioner regarding proposed savings it anticipates as a result of these changes (estimated to be 10%).
Utah HB 66 limits the liability of electrical corporations for damages arising from wildfires if a wildland fire protection plan has been put into place and properly executed by the electrical corporation. Each electrical corporation must submit for approval to the Public Service Commission a wildland fire protection plan. The plan must include procedures and standards for vegetation management, upgrades, and any modifications to decrease the potential of equipment to start fires as well as outlining a process for de-energizing power lines and disabling reclosures to mitigate wildfires. Liability for causing wildfires will be changed so that if an injured party seeks to recover property damage resulting from a wildland fire, an electrical corporation may not be considered to have negligently caused the fire if its work for vegetation management and other preventative procedures outlined in their plan is followed. Additionally, damages to real property including damages to vegetation land and trees will be recoverable as the lesser of the cost to restore the property or the difference between pre and post fire fair market value of the real property.
Finally, United States HR 6909, the Pandemic Heroes Compensation Act of 2020, would create a compensation fund for essential workers who experience economic and non-economic loss from COVID-19. Any compensation would be reduced by collateral source compensation a claimant has received or is entitled to receive. Also, the government would have a right of subrogation with respect to any claim paid under the act.
Apart from technology, what can insurers do from a leadership and training perspective to be better at identifying subrogation opportunities?
Megan Aloisi, Fleet Response: Training on how to utilize technology such as natural language processing and OCR, which are both tools to help identify claims that have potential to be severe or have poor outcomes earlier in the life of the claim. This can help management apply the right people to do what they do best.
Kathleen Smith, Spartan Recoveries, LLC: It would likely be very productive for an insurer to train their first-report takers as well as their claims handlers on how to capture information needed to pursue subrogation, and to correct the loss description once a more accurate one becomes available. In addition, the first-report taker should advise the policyholder to preserve all evidence and not allow it to be destroyed or spoliated until a company claims representative or independent adjuster can determine if subrogation is a possibility. The policyholder should also be asked if they filed a police report on automobile losses, and, if possible, to obtain a copy of the report from the police department in order to save a substantial amount of time rather than having the carrier request it through a service.
Megan Aloisi, CSRP, is senior subrogation manager at Fleet Response/Paragon Subrogation Services, LLC.
Kathleen Smith, CSRP, is managing director at Spartan Recoveries, LLC.