Transcript Successful Subrogation Presented to: CEU Institute

Successful
Subrogation
By: Doris T. Bobadilla, Esq.
Presented to CEU Institute
What is subrogation?

Subrogation allows one person to step into the shoes of another,
which transfers certain rights and obligations.

Through subrogation, an insurance carrier can step into the
shoes of the insured and pursue any claims the insured holds.

The carrier will not obtain any greater rights than the insured
already held. Rather, the carrier stands in the insured’s place.

Louisiana and Mississippi recognize that
insurance carriers often have a right to
subrogation for payments made.
Legal Theories of Subrogation

A right to subrogation is found through one of three legal
theories of liability:

Contract– Louisiana and Mississippi recognize an insurer’s
right to subrogation if subrogation is provided for in the
contract. The contract in this case is the insurance policy.

Law– Louisiana and Mississippi have certain statutory
provisions that provide for subrogation.

Equity– In Mississippi, but not Louisiana, subrogation may
be applied through equity. Equity is applied when the
proposed action is the “right thing to do.”
Why is subrogation important?

An insurer is called upon to pay for the harmful effects
of certain risks it has insured. Many times, these harms
are caused by another person. Most jurisdictions require
that the person who has caused the harm should be the
one to pay for it. An insurance company, who pays
according to its contract, is generally entitled to recover
payments from the person who caused the harm.
Why is subrogation important?


What happens if subrogation is not pursued?

First, the insurance company pays money it will not recover.
This means less profit for the company.

Second, less profits means less salary raises, promotions, and
bonuses. This makes adjusters and their supervisors unhappy.

Finally, to compensate for lost profits, the insurance company will
often raise premiums, which makes insured customers unhappy.
It is best to recognize possible subrogation claims when they
occur. Not every claim can be subrogated, but the more
familiar you are with subrogation and the law, the more likely
you are to recognize subrogation claims when they occur.
Allocation of Subrogation Recovery

When recovery is made through subrogation, Louisiana and
Mississippi have certain regulations concerning the allocation of
those recoveries.

Under Mississippi’s statutory priority structure, funds are first
used to pay the reasonable costs of collection. Then the funds
go to discharging the legal liability of the insurer or employer.
Finally, if any funds remain, the funds go to the insured.

In Louisiana, if the employer or carrier intervened in the
employee’s suit against the third party, then the intervenor is
responsible for up to 1/3 of the insured’s costs and attorney’s
fees. These fees are called “Moody fees,” and they can be taken
from the subrogation recovery.
Subrogation Liens

A lien is a claim on property to secure the payment of some debt, obligation, or duty.

A subrogation lien allows the insurer to collect on funds the employee recovers from
a third party after an insurer has already paid the employee for his damages.

Through tort law, an injured insured is capable of recovering from both his insurance
company and from the tortfeasor for his damage caused. A subrogation lien prevents
the insured from being able to “double recover” for the same injury.

Example: In the workers’ compensation setting, if the employee’s
injury or death was caused by circumstances creating liability in a third
party other than the employer:
 The employer or the employer’s insurance carrier may maintain a
suit against the third party, OR
 The carrier/employer holds a subrogation lien against any
judgment or settlement obtained by the employee from the third
party.
Areas Where Subrogation
Claims Often Arise
 Negligence
 Contract
 Strict
Liability
Subrogation & Negligence

An insurance carrier can bring a subrogation action against
a third party that harmed the insured through negligence.

To succeed in a negligence claim, the insurer must prove
by a preponderance of the evidence that:

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The third party had a duty of care to the injured insured;
That duty was breached;
The third party caused that breach; and
The insured suffered damages.
A negligence claim often arises when an employee is
injured in an automobile accident.
Subrogation & Negligence

The standard of care depends on the situation that caused
the harm.

Some negligence actions have their standards of care set in
the statutes. An example of such an action is a medical
negligence action.

Medical negligence can only be established by expert medical
testimony that the defendant breached the standard of care.
Common Negligence Defenses

A defendant can first claim that an element of negligence
was not met:



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There was no duty.
The duty was not breached.
Another party than the defendant was the cause of the breach.
The defendant was not injured.
A defendant will often claim that the insured was
contributorily negligent. For contributory negligence, the
defendant must prove the insured’s own negligence
partially or wholly caused the harm.
Subrogation in Contracts


To determine subrogation rights, a court will look to the contract
between the parties, the insurance policy, to learn the parties’
intent.

In Louisiana, an insurer must specifically reserve its right to
subrogation in the policy, else it is not entitled to subrogation.

In Mississippi, subrogation clauses are not enforceable until the
insured is made whole.
A contract must also be valid to be enforced. Often, defendants will
argue that a contract is invalid. Common justifications for the
invalid contract defense include: fraudulent transfer, true consent
was not given, and unconscionability.
Subrogation in Contracts

Common contractual relationships where
subrogation arises:
 Buyer
/ Seller
 Realty
Lease
 Bailment
Contracts: Buyer/Seller

Many sales performed today are done through a contract.

When a buyer cannot pay his debt to the seller, a third
party will can step in and pay the buyer’s debt to the
seller, unless the contract states otherwise.

The third party takes the place of the seller and the buyer
now owes his debt to the third party.
Contracts: Realty Leases

Realty leases are leases for property, usually between a
landowner and his tenant.

Realty leases will often contain waivers of subrogation.
 The contract must specify a waiver of subrogation.
 The insurance policy must agree to waive
subrogation or agree to allow the insured to waive
subrogation. Else the waiver is invalid.

Subrogation waiver is a common defense to contractual
subrogation claims, as well as invalid waiver.
Contracts: Bailments

A bailment is the physical transfer of property from one
person to another, often done for safe-keeping. This is called
a deposit in Louisiana.

A “constructive bailment” is a bailment created in contract.
When a person accepts payment for holding another’s
property, he is required to take the same care of the property
in his possession as would a reasonable and prudent owner
and is responsible for any damage to the property caused by
his negligence.
Contracts: Bailments

Bailments can have important effects for subrogation.

If the holder of the property damages the property,
the insurer of the owner of the property can assert a
right of subrogation against the holder.

The holder of the property has the burden of proof
to show that he did not damage the property
through negligence.
Contracts & Liability Waivers

Defendants will sometimes attempt to obtain legal
protection through a waiver of liability for negligent
conduct.

Such waivers are intended to shield the defendant
from suits by parties injured through their negligence
and can also work to shield defendants from the
insurers’ subrogation claims.
Contracts & Liability Waivers

Both Louisiana and Mississippi rarely permit waivers
of liability for the defendant’s negligence.

In Louisiana, any clause that limits or excludes liability for
the physical harm on party causes the other is null.

In Mississippi, a waiver of the defendant’s liability will only
be upheld if the parties understood the terms and
specifically negotiated for that provision. The court will also
strictly construe the clause against the party seeking to
enforce it.
Subrogation & Strict Liability

Subrogation often arises with strict liability
claims in three contexts:

Dangerous instrumentalities

Ultrahazardous operations

Products liability
Dangerous Instrumentalities

A dangerous instrumentality is a product or device that is
inherently hazardous or has a high potential for harming
people through careless use.

When the damages complained of were caused by use of a
dangerous instrumentality, subrogation may be available.

Dangerous instrumentalities demand a higher degree of care than
other devices. The insurer can allege that a third party’s negligent use
of a dangerous instrumentality caused the damages the insurer paid.

The insurer could also bring a products liability action against the
manufacturer for a defective dangerous instrumentality.
Ultrahazardous Operations

Louisiana and Mississippi define certain operations as
“ultrahazardous.”

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Ultrahazardous activities in Louisiana are limited to pile driving
and blasting with explosives.
Mississippi has only recognized liability for ultrahazardous
activities in activities involving the disposal and use of dynamite
and other explosives.

For these ultrahazardous activities, the user/owner is
strictly liable for whatever harm they cause, regardless of
negligence.

However, subrogation may be available if a third party
caused the harm occasioned by the ultrahazardous
operations.
Products Liability

A manufacturer is generally held strictly liable for the
damage his product causes. A manufacturer that is found
liable for a design defect shall indemnify a seller, unless the
seller had actual strict liability.

In Louisiana and Mississippi, a product is unreasonably
dangerous either by:


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A mismanufacture defect
A design defect, or
Inadequate warning or instructions
Products Liability

For ineffective warning, the claimant must prove that at
the time of manufacture, the manufacturer knew or
should have known of the danger that caused the
damage and that the ordinary consumer would not
realize the danger.

The manufacturer or seller is not liable if the plaintiff
knew of the defective condition, appreciated the
danger, and deliberately and voluntarily chose to
expose himself to the danger.
Products Liability

Louisiana also considers whether there existed an
alternative design for the product.

A product is unreasonably dangerous in design if, at
the time the product left the manufacturer’s control,
there existed an alternative design that would have
prevented the claimant’s injury and the likelihood
the design would cause injury and the gravity of that
injury outweighs the burden of adopting the
alternative design.
Common Defenses to Strict Liability

Because negligence is not a factor in strict liability, an
award cannot be lessened for the contributory
negligence of the plaintiff.

In Mississippi, comparative negligence is a defense to
strict liability.

A defendant can allege that the damages were caused
by the fault of a third party.
Common Defenses to
Strict Liability

A defendant can allege the accident was the fault of the
victim, such as when the victim misuses the item.

For example, in products liability, a manufacturer is not
strictly liable when the product was misused. If this
misuse was not reasonably foreseeable, then the
manufacturer did not have a duty to warn either.
Subrogation Claim
Investigation

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Identify all causes of loss
Recognize the relationships between all the
parties and their responsibilities to each other
Document your investigation
Use experts as needed
Identify Causes of Loss

Because the policy defines the law between the parties, the
policy is what will control payment of claims as well as what
the insurer can assert its subrogation right through.

If a certain harm is not covered through the insurance
policy, then the insurer is not required to pay it and thus
would not recover funds through subrogation.

However, if the insurer does pay the insured for their
damages, the insurer should look to any causes of loss that
could allow the insurer to recover against a third party.
Recognize Party Relationships

In workers’ compensation subrogation, if either the
employer or employee or his dependents files suit against a
third person, then that party is required to notify the other
in case the other wishes to intervene in the action.

The Louisiana statutes also require employer approval of
any settlements between the employee and the third
parties. Failure to do so will result in the employee’s or his
dependent’s right to compensation in the future, including
medical expenses.
Document the Investigation

Some helpful documents may include:

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Reports of official investigations
Relevant appraisals
Invoices

Interviews with the insured and any potential witnesses to
the damage would be advisable.

Sometimes these documents are not available at the time
of making coverage decisions; however, they should be
retained for subrogation purposes.
Judicious Use of Experts

Picking the expert

Pick an expert based upon his or her expertise. Do not retain an
expert who is offering opinions outside his or her area of
expertise.

Resist the “do-it-all” expert who has expertise in everything or
has offered opinions in numerous areas. It is better to pick
experts who regularly practice in their field and whose workload
is less than 50% litigation based.

It is also helpful to have an expert whose litigation is split
between defense and plaintiff’s work, rather than one or the
other.
Judicious Use of Experts

Using the expert

Listen to the expert. Often, an expert can give you insight into
other areas of inquiry you may need to make.

It is best to instruct experts in a way that will not suggest the
outcome.

When an expert asks for additional information, be careful what
information you give them to avoid predisposing him or her to
one conclusion or another.

Ask them to do a physical exam first, and then afterwards
forward questions to you that they need answered.
Questions?