The obvious answer to the question is “yes” if there is a viable target. However, since I work for the subrogation department of a law firm, some may consider the answer to be a bit biased. Despite any misplaced perception of bias, there are benefits to insureds, insurers and society as a whole when insurers pursue subrogation. These benefits support having insurers pursue subrogation.
Benefits to Insured
You might ask how subrogation benefits insureds, who may be inconvenienced by perceived delays in pursuing an investigation of targets and often have to assist the insurer with its pursuit subrogation. As an initial matter, delays with respect to investigating an occurrence such as a fire or a water leak are not typically delayed as a result of subrogation. An insurer generally involves a subrogation professional from the outset of an investigation in order to not only identify possible subrogation targets, but also to determine what occurred, and why. Absent determining what occurred and why, an insurer cannot make an informed decision with respect to determining whether there is coverage for the loss. Thus, while investigations and the resolution of a claim may involve subrogation professionals, investigations are not unnecessarily delayed by that involvement.
In addition, while an insured generally has to cooperate with subrogation efforts, requiring cooperation from the insured can also provide a benefit to the insured. For instance, if an insured incurs a deductible, insurers pursuing subrogation can – and many do – include the insured’s deductible in subrogation demands. Obviously, including a demand for an insured’s deductible can lead to the return of all or part of the deductible to the insured. Similarly, subrogation can – with the use of a joint prosecution agreement – lead to the recovery of out-of-pocket, uninsured losses and, possibly, the return of large, self-insured retentions.
Another possible benefit to insureds is the subrogation professional’s investigation itself. If an insured has uninsured losses or a large, self-insured retention that it wants to try to recover by itself, the insured and insurer may proceed in a cooperative manner. In that case, the insured will benefit from evidence gathered by the insurer during the subrogation investigation. In addition, the insurer’s subrogation investigation helps the insured to identify targets and produce theories of liability to use against the target.
Benefits to Insurer
While the insured can benefit from subrogation, so can the insurer. For instance, the insurer can benefit from goodwill generated by attempting to recover the insured’s deductible. In addition, if the insurer’s premiums or rates are lowered based on subrogation recoveries, these lower premiums can benefit the insurer as lower premium rates may attract more customers.
Insurers can also see additional benefits associated with an increase in profitability, which insurers can, and probably do, measure. Without subrogation, insurers only pay out claims, with no recovery of benefits paid.
There are also benefits to insurers that are more difficult to monetize. For instance, if claims handling staff – i.e., adjusters – are trained to recognize subrogation opportunities, they likely have additional training in tort law, products liability, the statute of limitations and/or repose and spoliation. Having a better trained claims department benefits insurers in ways that are often difficult to quantify. Clearly, however, adjusters who have more training can provide better customer service.
Further, trained claims handing staff should – because of their subrogation training – have a better understanding of the need to avoid the spoliation of evidence. In addition, better training allows adjusters to understand that, in order to avoid spoliation claims, they may need to – and should – involve a subrogation professional at the early stages of the investigation. Being better trained also allows adjusters to timely recognize recovery opportunities.
Insurers, moreover, can benefit from utilizing outside subrogation professionals because these outside professionals typically work with a national network of experts on a regular basis. These experts can assist the subrogation professional – such as an attorney – with developing a case and/or identifying trends, such as repeat product failure claims. In addition, outside subrogation professionals can develop relationships with liability adjusters and/or third-party administrators handling the defense of a product liability or other claim. The relationships developed by subrogation professionals will assist insurers with moving a case forward.
Insurers who pursue subrogation can also benefit society. For instance, when insurers pursue products liability claims that would otherwise not be pursued and/or conduct accident investigations, they increase safety for all. This increased safety may be manifested by a change in the behavior of the target manufacturer or the person/company that caused the loss. In addition, any change in behavior may prevent future accidents from happening.
Society also benefits from subrogation because subrogating insurers hold companies and/or individuals liable for their actions. Further, insurers benefit society if they and/or their experts identify trends, such as recurring product failures. This identification of trends leads to increased safety for all.
Thus, not only are there societal benefits to pursuing subrogation, there are also benefits for insureds and subrogating insurers. Insurers who are not pursuing subrogation, therefore, should reconsider their positions because subrogation provides many benefits, only some of which can be measured by an analysis of how much the insurer recovers in subrogation.
To answer the question posed: insurers should subrogate.