Canada: Cloudy With A Chance Of Money: Overcoming Obstacles In Subrogated Claims

First presented at a Client Subrogation Seminar.

Subrogation is the process under which an insurer, which has paid a loss under an insurance policy, becomes entitled to the rights and remedies of its insured against the party responsible for the loss. Because an insurer pays on its policy for losses suffered by the insured to make that policyholder whole, subrogation can be an effective mechanism for an insurer to recover its losses from the responsible party, depending on how the claim has been handled. Subrogation cases are often won and lost as a result of the actions and steps taken within the first few days of the incident. As a result, active involvement in the process, alongside open communication with all involved parties, is crucial to maximizing recovery.

PART I: GETTING OFF ON THE RIGHT FOOT WITH THE INSURED

Needless to say, because an insurer "steps into the shoes" of its insured during the subrogation process, getting the insured comfortable with the process and on your side is key. In the initial stages of the loss, it is critical to preserve evidence and investigate the cause of the loss. It is necessary to obtain and produce any documentation and information relating to the loss, which often lies in the hands of the insured. Doing so at an early stage will facilitate an earlier resolution of the case. Apart from a stellar expert report, the insured is likely the strongest asset you have as claims counsel during the initial stages of a subrogated claim. The insured often holds the key to missing information and is in the best position to provide you with documents you may need. Therefore, developing a good relationship with the insured and maintaining open lines of communication will likely encourage the insured to cooperate in providing the required documentation and information. The following are some practical tips to develop a strong rapport with the insured:

  1. Explain your role: Often, the standard letter sent to insureds by counsel sets the tone for their willingness to cooperate. It is important to clearly explain that you have been retained on behalf of their insurer to commence a subrogated action to recover the indemnity paid as a result of the loss. It is also important to follow up the initial letter with a phone call or email to re-introduce yourself and to ensure that initial retainer letter does not fall by the wayside.
  1. Explain their role: Emphasize that the insured is not in trouble. That is to say, they are not liable for the loss and have no personal risk in the subrogated action unless they are seeking uninsured losses. Highlight who you believe the responsible parties are and that you are looking to recover the loss from them. Explain that they are best placed to assist with your assessment of the case since the loss happened to them. Give them an overview of what to expect in terms of their required cooperation during the lifespan of litigation (i.e. attendance at examinations for discovery, answers to undertakings, etc.).
  1. Uninsured losses: In order to do this, you must first explain what an uninsured loss is (i.e. a loss or damage that was not covered by the insurance company as a result of the incident in question). Confirm at the outset whether the insured sustained any uninsured losses and whether a deductible was paid. Request the insured to provide you with substantiating documentation regarding these losses. In the event that there are uninsured losses, be clear as to who will cover this portion of the claim. Document in writing how a potential settlement will be divided between the insured and insurer (whether on a pro-rata basis or some other arrangement) so that there are no surprises down the line.
  1. Information on the loss and supporting documentation: Be proactive and request an opportunity to speak directly with the insured to obtain additional details of the loss and whether the insured has any documentation relevant to the claim. Explain to the insured that their cooperation can facilitate an earlier resolution of the claim, potentially avoiding the need for them to attend Examinations for Discovery to testify about the loss.
  1. Maintain communication with the insured throughout the process: A key way to maintain a good relationship with the insured is to keep them apprised of any updates regarding the status of the claim and certainly keep them in the loop as to any settlement or dismissal of the action.

PART II: OBTAINING THE NECESSARY DOCUMENTATION

In order to maximize recovery, obtaining detailed documentation identifying the loss is essential. The first few days after the loss is critical since it is often the first and only chance anyone may have to identify, retain, document, and investigate valuable information upon which the success of the subrogated claim depends. Building a good relationship with the insured from the outset can facilitate this document-gathering process since the insured often has the relevant documents in their possession.

Property Damage

A substantial effort should be made to preserve all the evidence possible from the outset of the loss. Before any remediation or repairs take place, it would be prudent to take photographs of all evidence to preserve as much physical evidence as possible. Detailed inventory lists taken room by room can be very helpful. Obtaining estimates, invoices, and cheques firmly establishes the damages paid as a result of the loss. An independent assessment by an adjuster of the actual cash value and replacement cost can also prove to be helpful. It is also important to determine the amount of the deductible and whether it was waived by the insurer at the onset of the claim.

Contents

Photographs, receipts and other substantiating documentation are key in establishing not only the value of the contents damaged in the loss, and also their age, which will factor into any deductions for depreciation down the line.

Additional living expenses and extra expense claims

It is important to obtain receipts for hotels, restaurants, and any other documentation demonstrating the amount paid and for what purpose. The claims file should also contain an explanation of the amount paid and the reason for payment, including a computation, to assist counsel in determining how to present the claim for recovery.

Loss of income or business interruption claims

In many instances, an independent accounting firm is retained to determine the business interruption claim. These reports are highly beneficial since they often contain backup documentation and explain how the claim was computed. For loss of rental income, ensure a copy of the lease is obtained from the insured. We would also require the entire business records of the company to determine if there is a successful business interruption claim. An effective method of early settlement entails preparing a detailed and summarized Damages Brief, which is a useful tool in subrogated claims. This should be the first document prepared after filling a Statement of Claim. Once the action is served, a well prepared Damages Brief can help in obtaining an early resolution with a subrogated release.

The plaintiff is required to prove his or her damages. A defendant is usually only held liable for reasonably foreseeable damages. In subrogated claims, property damage must be proven in order to be successful in proving the quantum of its case. A claim for property damage that is based on little or no documentary evidence of its losses will appear weak and likely destroy good recovery prospects.

Conclusion

The more information and documentation that can be gathered and preserved at the outset of the loss, the more likely subrogation can successfully be pursued. Since the majority of information and documentation is often in the possession of the insured, fostering a good relationship and open lines of communication with the insured is vital to the success of the subrogated action. Being aware of these best practices will assist in enabling insurers in obtaining a settlement earlier in the process and obtain maximum recovery.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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