Subro shorts

What are your chances of successfully asserting the "mutually repugnant" theory in your Nevada subrogation pursuit?

Answer: 50/50

Many times we are attempting to recover against another insurance policy of our insured and are faced with a defense that the other policy provides that your policy is primary. In four separate cases, individuals rented cars from Alamo in Las Vegas, Nevada and were involved in accidents. Their primary insurers paid out and subrogated against Alamo. Alamo's policy provided it would be secondary. Alamo filed a declaratory judgment and the lower court held that these other insurance clauses were "mutually repugnant" and pro-rated the loss. The Supreme Court however reversed and said from a public policy point of view the legislative wanted insurance companies (State Farm and CNA in these instances) to be the primary carrier rather than a rental car agency which only has temporary contact with a driver with no actual underwriting.
SUBRO TIP: Tell your legal department to rewrite your other insurance language to cover all instances of other insurance, i.e. temporary rentals.

Q: How old is Subrogation?

Answer: Pretty old

Equitable subrogation actually goes back to early Roman but the first reported case involving insurance was the English case of Randall v. Cockran decided in 1748 where an English insurer subrogated against a prize fund accumulated from the sale of captured Spanish ships. The English insurer paid a loss for an English ship sunk by Spain. In 1782 Lord Mansfield, the father of insurance, permitted an insurance company to intervene in a suit filed by its insured for damage caused to his house by rioters. You can begin to see how the war and riot exclusions began to evolve. According to Lord Mansfield, "it would be unconscionable for an insured not to let his insurance company share in any damage her recovers from a wrongdoer."

Q: Has subrogation arrived in the life and health insurance field?

Answer: Yes!

And the Courts seem to be giving it a splendid welcome. A recent case has convinced us that all of our efforts in the automobile and property subrogation field have helped pave the way for life and health insurance recoveries. In fact, the case indicated that such subrogation interests may receive more favorable treatment. The case of Walter vs. Hormel, 120 F.3d 138, was decided on July 17, 1997 by the United States Appeals Court in Minnesota. It dealt with a seriously injured insured who was paid $157,000 in health insurance benefits under an ERISA health insurance plan. The injured insured then sued a negligent third party for causing her injuries and settled for the third parties insurance limits of $250,000 which clearly did not make her whole. Traditional subrogation people will know that if the injured party is not made whole, that they may not recover their subrogation claim and if they do, they typically expect that the insured's attorney will lay claim to one-third of it under his or her fee arrangement with the insured. However, this Court read ERISA as a pre-empting state subrogation cases and paid the whole $157,000 to the plan provider and believe this or not, they reasoned that the attorney didn't have much to do to claim the insurance limits against the negligent party and the plan provider could have probably done this on their own so the attorney was denied his contingent fee. Subrogation is obviously "stepping out" in our judicial systems. It will not be long before it is recognized as a "word" by computer spell checks.

Q: When a town truck operator sets a customer's car in motion down a hill causing property damage and personal injury, which coverage is primary - the tow truck operator or the garage that dispatched him?

Answer: The tow truck operator

Subrogation practice often involves recovery of funds between insurance companies which are attempting to determine who is primary. Both the garage that was called and its affiliate tow truck operator had commercial general liability policies that covered tow trucks. In the garage policy, the tow truck was not described as an owned auto as it was in the commercial auto policy of the tow truck owner. The tow truck driver was manually positioning the vehicle with the customer in it when it rolled down a hill and crashed into a building. The customer sued and recovered $350,000 settlement. The garage owner's insurer paid this amount and then recovered against the tow truck carrier. The California appeals court affirmed, saying the tow truck carrier is primary because the action of the driver was directly related to the tow truck and the tow truck was describe as an owned vehicle. (To receive official citation for this case please call Hennessy & Walker at 1-877-723-0412).

Q: Is that case you are about to send out for litigation really a subrogation case?

Answer: Maybe not!

In a recent federal case a television station leased a helicopter with a pilot. The lease provided that the television company would indemnify the helicopter company for the injury or death of any of its employees. The helicopter crashed killing two television company employees and the insurance company for the helicopter company settled with the estates of the employees. The insurance company in its own name, viewing the indemnification agreement, filed both a contractual and equitable subrogation lawsuit against the television station. The Court dismissed the contractual subrogation claim saying that the subrogation clause of the insurance policy provided for subrogation against any party that "caused the loss" and that the television station did not cause the loss. The Court then dismissed the equitable subrogation claim citing the "anti-subrogation" rule that an insurance company cannot subrogation cannot subrogate against its own insured. Under the omnibus coverage provision of the insurance policy the television station was an insured since coverage was provided to any occupant and/or user of the helicopter. SUBRO TIP: Take the time to study the contracts, leases and employment agreements governing the relationship of your insureds to third parties. Subrogation law is complex and subrogation actions are not always favored by the courts. Always look for the best way to keep your litigation complaints simple and whenever possible, present it to the courts as a simple contract action brought in the name of your insured.

Q: Should your company be doing something concerning subrogation of its polybutylene claims

Answer: Yes.

If your company insures residential and commercial properties and/or especially mobile homes, you have paid or will pay claims for water damage caused by failed polybutylene plumbing systems. When these claims were paid, you may not have recognized the subrogation potential because the defective nature of polybutylene plumbing systems was not common knowledge. The law firm of Hennessy & Walker has joined with other lawyers in pursuing a class action dealing purely with polybutylene subrogation claims. We are alerting our clients to do this so that was may represent you in recovery of your polybutylene claims. We anticipate that negotiations toward settlement of these claims will be ongoing in the immediate future. If you have not taken any action, we would like to assist you in understanding the litigation status and, perhaps, receive your consent to represent your interest in this class action litigation. As is our tradition at Hennessy & Walker these cases are being handled on a contingent fee basis. Time is of the essence. To receive further information please call 1-877-723-0412 and speak with an attorney or ask for an information packet concerning this matter.

Q: Can an insurer assert subrogation rights after it is deemed to have acted in bad faith?

Answer: Probably not

In an unpublished opinion, the California Court of Appeals considered this issue. The case involved a mud landslide. The homeowner filed a coverage and bad faith lawsuit against the carrier and while it was pending, the insured recovered funds against a third party tortfeasor. The insured also won the coverage and the bad faith case and while on appeal, the carrier asserted a claim to the recovery against the third party tortfeasor. The court said the insurance company cannot recover under contractual subrogation because it had breached its contract with the insured and, under equitable subrogation, the insurance company cannot sit on its hands and then benefit from the efforts of the insured. Burnaby v. Standard Fire Ins. Co., 20 Cal. Rptr. 44 (Cal. Ct. App. 1993). The case follows the South Carolina's Supreme Court decision in Powers v. Calvert Fire Ins. Co., 57 S.E.2d 638 (S.C. 1950).

Q: Can an insurer's subrogation rights be defeated by a release given to the tortfeasor's insurance company?

Answer: Depends

Generally, a full release given by your insured to a tortfeasor will defeat your subrogation rights since you stand in the shoes of your insured. However, this is not the case when the tortfeasor's insurance company knows of your claims. In Nationwide Mutual v. Dairyland Ins. Co., 191 W. Va. 243 (1994), the West Virginia courts followed the cases in the majority of jurisdictions and quoted with favor a Utah court which stated, "If the settlement was made with knowledge, actual or constructive, of plaintiff's [insurance carrier's] subrogation rights, such settlement and release is a fraud on the insurer and will not affect the insurer's right of subrogation as against the tortfeasor or his insurance carrier." Transamerica v. Barren, 503 P.2d 783. SUBRO TIP - Notify the tortfeasor's carrier at the earliest possible opportunity that you have a subrogation claim, even if you do not yet know the amount of the claim.

Q: Can you improve your subrogation position by the language you use on your "subrogation receipt"?

Answer: Yes!

Here's one for the books! In Javed v. British Airways, Georgia considered the case of an importer of jewels who sued British Airways for the full value of a jewelry shipment after collecting only $12,650 from his insurance company. He had signed a "subrogation receipt" saying the insurance company became subrogated to "all my rights and remedies." British Airways argued that he had assigned all of his rights to recover not just for the first $12,650. The lower court agreed and dismissed the case. The appeals court stretched the point a bit and said the subrogation receipt mentioned an insurance policy and the policy says that the insurance was subject to "English law and practice." Thus, the appeals court reversed and advised the lower court to apply English law, which allowed the Plaintiff to recover. SUBRO TIP - Its interesting to note that the court said the insurance company and the insured have the power to spell out the terms of the subrogation agreement, and the courts will respect their agreement. Have you ever paid out a large sum on a fidelity fee or fire loss (the limits) and later learned that your insured recovered substantially more? Why not specify in the receipt that the "first dollars" are assigned to you!?

Q: Does an intervening criminal act always prevent you from recovering your subrogated automobile damage loss?

Answer: Not always

How many times have you written off a subrogated injury or property damage loss caused by a stolen vehicle? You should examine these losses closely. A Utah court has! In Cruz v. Middlekauff, 909 P.2d 1252, the court did an extensive review of these cases and held that the owner of the vehicle, garage, or parking lot where the vehicle was taken from can be held liable if the circumstances of the theft made it foreseeable that not only would the vehicle be stolen, but that the injury or damage to third parties was likely to result. The court noted empirical data that in approximately twenty-five percent of vehicle thefts, the keys were left in the ignition and that the accident rate for stolen vehicles is at least forty seven times the accident rate for the general public. SUBRO TIP - Look for keys left in the ignition, high crime areas, lack of security or surveillance, attractiveness of vehicle to a thief, access to the public, prior thefts, and time of day when vehicle was stolen.

Q: Does anybody really understand what the "economic loss" doctrine is?

Answer: Yes!

The United States District Court for the Eastern District of Michigan seems to have a good grasp of the concept! A recent case decided there involved a defective ceiling fan that ignited and caused substantial fire damage to an insured of Republic Insurance Company. Republic brought a subrogation action against the manufacturer of the fan suing in negligence and strict liability. Republic instantly faced a summary judgment motion based on the "economic loss" doctrine. Simply stated, the doctrine bars tort (products liability) recovery and limits remedies to those available under the Uniform Commercial Code. The Court correctly held that the economic loss doctrine only applies as between commercial parties, i.e., a contractor and his supplier. Since Republic's insured was a consumer, the Court held the doctrine did not apply. Furthermore, the Court stated that products liability law made no distinction between property damage and personal injury, so the consumer and its insured could recover under tort products liability for the property damage to the house. SUBRO TIP - When suing under tort liability, if you have the option of including a consumer as a plaintiff through assignment or otherwise rather than a commercial party, always include the consumer. Also, given the choice of suing the defendant manufacturer of the entire product versus the defendant who manufactured the faulty component, sue the component manufacturer so you can recover the damage caused to the rest of the product, i.e., a defective spark plug that destroys an entire automobile.

Q: Can you recover your worker's compensation or health insurance medical benefits lien from your insured's attorney or his malpractice carrier?

Answer: Perhaps

Most state and federal statutes permit an insurance company to recover payments made to an insured from settlement funds or judgment proceeds recovered by the insured from a negligent third party. However, many insurance companies are having success in recovering funds from the insured's attorney who distributes the funds without recognizing the insurance company's lien. The United States District Court for the Eastern District of Pennsylvania has acknowledged this principle as it applied to an attorney who distributed third party funds to his client and refused to acknowledge the worker's compensation lien of an insurance carrier. The court stated, "the employer's subrogation rights . . . are statutorily absolute." The court extended the right of recovery to anyone in possession of these funds including the injured party's attorney. Sometimes you can recover against an attorney's malpractice carrier. Although traditionally professional liability actions have been limited to actions between a client and the attorney, the trend is to extend coverage to those the attorney's actions were supposed to benefit. SUBRO TIP - Give early notice of your subrogation rights to the insured and his/her attorney, monitor the third party recovery process, consider adding the insured's attorney as a defendant if a law suit is necessary to recover your lien and draft the summons and complaint in a manner that will trigger the attorney's malpractice coverage.

Q: Is your workers' compensation subrogation lien protected even though you haven't yet made any payments?

Answer: No!

In past Subro Shorts, we mentioned that if you put the third party on notice of your subrogation interest, then you have protected your interest even if the third party settles with the insured. However, this may not be true in the case of workers' compensation benefits that have not yet been paid. In a Georgia case, an employee of a plumbing company was injured by a negligent driver of another automobile. The workers' compensation claim was not initially paid, and, before the claim was finally decided in the employee's favor by an administrative law judge, the employee settled his case with the negligent driver's insurance carrier for $50,000 and gave a full release of liability. Prior to this settlement, the insurer of the negligent third party had notice from the employer and is compensation carrier that they were claiming a subrogation lien because the employee had filed a claim. Later, the employer and its insured asserted its claim, after the settlement, against the negligent third party's carrier. The Georgia court said the employer and his carrier were out of luck because, under Georgia's workers' compensation statutes, they had no right to a lien until workers' compensation benefits were actually paid. SUBRO TIP - If you are claiming a lien for benefits not yet actually paid, you may need more than mere notice to the other carrier. In these cases, try to obtain an agreement that no settlement will be reached without notice to you so you can determine the amount of your claim or conclude it so your interest will be included before the negligent third party is released.

Q: Can you subrogate before you pay?

Answer: Not You, Not Yet

Many times we have one eye on our subrogation rights and the other on the applicable statute of limitations which may run before we actually pay a benefit such as uninsured motorist benefits. You may be tempted to file a subrogation action to beat the statute. However, unless you are the real party in interest, your case could be dismissed. In a recent Arizona case, Safeway Insurance had not yet paid out its uninsured motorist benefit, so, to play it the "Safeway," the company filed a civil action in its own name against the uninsured motorist. Although Safeway got a default, it did not obtain a money judgment before the statute of limitations ran. The trial court dismissed the case. The appellate court said that the tortfeasor, if he appeared, could have forced Safeway to dismiss its case. Since the tortfeasor did not appear, the appellate court allowed Safeway to amend its complaint to add the insured as a real party in interest. The appellate court suggested in such situations that the court allow the joinder of a plaintiff as an involuntary plaintiff and that Safeway should have joined its own insured before the statute ran. SUBRO TIP - When you have not yet paid, you can’t sue. So make sure your insured’s attorney has filed suit to protect the statute while you are negotiating or file an action in your name. Additionally, file a motion to bring in your insured as a real party in interest.

Q: When can you only recover $9.07 per pound on you subrogation claim?

Answer: When the Warsaw Convention applies to your claim

The Insurance Company of North America paid its insured, Zomaya Group, Inc. of Los Angeles, California, $495,000.00 for personal computer modules which were lost while being shipped by Federal Express. INA received a subrogation receipt from the insured and went after FedEx. Zomaya ordered the computer modules from a Canadian supplier and they were placed in four boxes weighing a total of 275 pounds. The shipment left Canada and went to Federal Express’s holding facility at Memphis International Airport for international shipments - “the customs cage.” The shipment was then reported missing from the “customs cage” and it was never found. Since this was an international shipment and the US and Canada were members of the Warsaw Convention, the shipment was subject to the terms of the Warsaw Convention. The Warsaw Convention presumes that the air carrier is liable; however, the carrier’s liability is limited to 250 francs per kilogram or $9.07 per pound. The court examined the air waybill and found that it met with the terms of the Convention and limited INA’s recovery to $2,494.25. Insurance Company of North America vs. Federal Express Corp., CV 97-9155-CAS, 1998 U.S. Dist. Ct. 21313, Entered June 25, 1998. SUBRO TIP - Advise your insured to declare a higher value than $9.07 per pound on international shipments and always examine the airbill to see if it complies with the Warsaw Convention, i.e. state that the W.C. is applicable, nature of the goods, description of the route, etc. See Article 8 of the Warsaw Convention. 49 U.S.C. Sec. 40105.