Presenting a live 90-minute webinar with interactive Q&A Insurance Subrogation, Indemnity and Hold Harmless Releases: Navigating the Complexities Protecting Subrogation Rights and Negotiating Subrogation Waivers, Indemnities and Settlement Releases WEDNESDAY, MARCH 19, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Tarron Gartner, Shareholder, Cooper & Scully , Dallas Steven K. Gerber, Member, Cozen O'Connor , Philadelphia Stephen D. Palley, Founder, Palley Law , Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Insurance Subrogation, Indemnity and Hold Harmless Releases: Navigating the Complexities Tarron Gartner-Ilai Cooper & Scully P.C. 214.712.9570 tarron.gartner@cooperscully.com
Wha What t Is Sub Is Subrog rogation? ation? The Substitution of one party for another whose debut the party pays, entitling the paying party to the rights, remedies or securities that would otherwise belong to the debtor. Black’s Law Dictionary , 9 th Ed. (2004). 6
Why Why Is It Is It Imp Importan ortant? t? Subrogation allocates loss to the party who should actually bear the responsibility. Subrogation offsets the Company’s overall indemnity payout. Subrogation is a valuable claim service that is part of the value-added proposition afforded by the Company. 7
Ho How w Is Is Sub Subrog rogati ation on Rec Recogn ognize zed d In In Law Law? Conventional Subrogation: Arises by contract. Equitable Subrogation: Arises by operation of law. Statutory Subrogation: Legislatively mandated, such as in worker’s compensation statutory schemes. 8
How How Doe Does Subro s Subrogation gation App Apply To Insu ly To Insurance rance? Insurer makes a payment under the policy (typically first party property, auto physical damage and/or UM/UIM physicsl damage claims). Insurer is entitled to seek reimbursement from the tortfeasor? 9
Two Types Of Subroga Two Types Of Subrogation tion Cla Claus uses es Transfer of Right Clause: Typically provides that the “all rights are transferred to the insurer” upon payment under the policy to the extent of the payment made. Reimbursement Clause: Requires the insured to reimburse all sums paid under policy from any recovery realized. 10
What’s The Difference? A Reimbursement Clause is not subject to the “made whole rule.” A Transfer Clause is. 11
Int Interests To Be Prote erests To Be Protected cted Extracontractual Liability to the Subrogating Carrier – Putting the company’s (client’s) interest ahead of the insured. Class Action Potential for Subrogating Insurer – Failure to comply with law; aggregate property damage claims. Market Conduct Exams – Fines, penalties and damage to reputation and rank. 12
The The Made Made Who Whole Rule le Rule The insurer is not entitled to subrogation if the loss exceeds the amounts recovered from the insurer and the third party covering the loss. Ortiz v. Great Southern Fire & Cas. Ins. Co. , 587 S.W.2d 342 (Tex. 1980). 13
What’s The Risk? Putting the Subrogating Company’s financial interests ahead of the insured’s without Investigation What if insured has significant uninsured loss? What if insured has corresponding bodily injury claims? What if insured and insurer are locked in a coverage dispute? Could the insured put a constructive trust on thhe proceeds of recovery? 14
Bes Best t Pra Practices ctices Increase client’s awareness of potential risks and inquire as to whether the client has communicated with the insured; Encourage client communication to communicate with the insured and propose an allocation agreement; Disclose conflict of interest and obtain written waiver; Encourage insured to seek the advice of counsel. If the insured has an attorney, reach out to the attorney to negotiate a joint prosecution agreement allocating recovery and expenses. 15
Pror Prorating ating Rec Recovery, overy, Ded Deductible uctibles s and and Re Recovery covery Co Costs sts Statutory rules in most states with regard to recovery of auto physical damage claims; May require full reimbursement if staff counsel is used; All other lines of business subject to the applicable common law made-whole rule. 16
Exa Example mple Deductible must be included in subrogated demands unless otherwise requested by the insured. Proportionate sharing of attorneys’ fees is permitted provided outside counsel is used. 2 A.A.C. § 26.080 17
All Alloca ocation tion Agr Agreem eements ents Determines priority of recovery. Serves as an assignment of claims for new consideration recited – becomes, in essence, contractual subrogation. Shores up amount of uninsured losses claimed. Bridges gaps caused by claim/coverage investigation – great customer service tool. Allocates unassignable recoveries associated with insured’s personal claims that might otherwise prevent recovery on the subrogated claim. Serves to protect both the insured’s and carrier’s legal and financial interests. Determines allocation of costs. Diminishes extracontractual liability. 18
Ess Essential ential Ele Elements ments Recitals; Statement as to policy terms; Recital of amount of insured and uninsured losses; Consideration; Identification of Joint Counsel; 19
Cont’d… Assignment of non-personal causes of action and/or claim retention; Allocation of money associated with punitive damages claimed; Express waiver by insured of right of recovery; Prosecution of Recovery Suit; 20
Cont’d… Advancement of Interim Costs; Allocation of Interim Costs upon recovery and expression of manner of calculation; Allocation of net recovery and expression of manner of calculation; General terms and conditions. 21
All Alloca ocation tion For Formula mula Simple algebraic formula prorating the total recovery to the deductible or uninsured loss, and costs and attorney’s fees: Insured Loss = Percentage to which Insurer Total Loss is entitled. Uninsured Loss = Percentage to which Insured Total Loss is entitled. 22
All Alloca ocation tion of of Rec Recov overies eries, , De Dedu duct ctibles ibles an and Ex d Expe pens nses es If the Insurer pays a claim of for $47,500.00 ($50,000.00 policy limits less a $2,500.00 deductible), and expends $6,600.00 recovering $20,000.00 from the responsible party, the insured is entitled to .01% of the $20,000.00 ($200.00), and the Insurer is entitled to $19,800.00. From that, the insured must pay .01% of the costs, or $66.00, while the Insurer must bear $6,534.00 of the responsibility. 23
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