Does pursuit of subrogation on low dollar property claims have value?

Each year hundreds of thousands of Property subrogation dollars are left on the table as not every insurance carrier has the workforce in place to pursue recovery on-low dollar Property claims for a variety of reasons.  Many subrogation law firms and subrogation vendors also have little or no interest in pursuing these claims, as the payoff may not seem worth the effort. 

However, in a recent examination of 650 Property recoveries pertaining to losses involving claim payments equal to or less than $10K there were $2,195,177 in recoveries from gross loss payments totaling $2,865,042 representing a 77% recovery to paid loss.  In a similar study of 277 claims with gross paid losses between $10K and $25K, totaling $4,471,700, recoveries equaled $3,031,634 representing recovery to paid percentage of 68%!  While there are some business reasons for choosing a dollar amount before placing a matter into subrogation, that can be avoided by outsourcing Property claims under $50,000 where recoveries just may be over $5M without doing much more than providing your trusted subrogation vendor with a closed file data run!

Clearly $5M recovery dollars would make a positive impact to a carrier’s loss ratio and benefit the bottom line but unfortunately some low-dollar Property claims are passed over for the more robust recovery opportunities and the opportunity is lost.  Fortunately, some vendors have found that it’s a definite benefit to their clients to pursue subrogation on low value Property claims and have figured out a way to get it done judiciously.  While no vendor is totally dollar agnostic, a good recovery vendor will find a way to make it work, especially for client satisfaction.  How then, does a dedicated subro vendor handle the increased volume of all cases Property while maintaining a company whose bottom line is in the black and not over hiring?

Automation plays a key role

Identifying all claims with a potential for recovery and moving them to your recovery platform is only part of the arduous task because the next phase involves further investigation, gathering support documents, placing all parties on notice, maintaining a diary for continual follow up, and hopefully attaining an ultimate settlement.  The identification and handling of low dollar Property claim recoveries becomes more feasible when the vendor has developed cost saving software, and utilizes OCR, Data Mining and Data Parsing programming. Vendors who have created automated demand modules are definitely ahead of the game.  Every task that can be performed electronically rather than manually by a recovery representative saves time and money.

Controlling expenses

Choosing the right expert may be critical to the success of your subrogation claim but can also be expensive to do so.  There is definitely an art, a balance, to increasing the number and ultimate dollar amount of property recoveries while being cognizant of expenses being incurred. Consideration should be given to hiring experts on a flat-feerather than on time & expense.  Having a discussion with your expert to review the merits of the case may present alternatives to initially conducting physical testing. Your expert may be able to provide their opinion by just reviewing the photographs the IA took at the scene.  In some instances viewing these pictures can tell the expert there is no subrogation, thus saving the cost of an actual physical inspection and testing.  If the expert advises it looks like there may be something there, the evidence can then be sent for non-destructive testing.

It is reasonable that not every case should immediately be assigned to an expert.  Obtaining the make, model and serial number of a failed appliance will alert the recovery rep as to the age of the product and allow them to apply the statute of repose to eliminate claims where the product likely failed due to age.  It will also enable the recovery rep to search for a product recall.

Allowing the manufacturer to conduct non-destructive testing rather than assigning an expert to conduct either a singular review or joint review will also save on expenses for low dollar claims.  Unless authorization for destructive testing was given to the manufacturer, further testing can be done by the carrier or subro vendor at any time in the future.

In many instances, detailed notes and well documented photos taken after the loss and during the repairs of the actual damages are good, but even more important are clear photos of the suspected cause of loss showing the defect, i.e. a washing machine supply line showing the crack in the hose coupled with proof of the age of the line could result in an offer being made by the manufacturer.

Detailed witness statements from all parties who could testify as to how, when and why the occurrence was caused by a third party can lead to credible testimony as to the cause & origin of the loss.

In some instances, obtaining non-traditional expert reports from the contractor performing the repairs can certainly assist in obtaining a recovery, especially with a detailed description of the defect which caused the loss and is thus requiring the repair.

Although very difficult to arrange, getting the adverse party(s), adverse carrier or manufacturer to inspect the loss scene before the commencement of repairs may be persuasive in ascertaining the cause of loss justifying that a recovery payment be negotiated.

There are many times the recovery representative must make a determination as to whether the cost of incurring such an expense is warranted based on not only the facts of the claim, but also the amount paid.   Certainly such a decision is easier on high dollar cases where the costs of retaining all experts such as a cause & origin expert or engineer can be justified, and in fact might be subject to criticism if not obtained. 

Conducting a thorough claims investigation

While it may seem obvious that a prompt and thorough claims investigation in to the facts of a loss will increase the likelihood of a successful subrogation recovery, it happens all too often that critical evidence and details are not captured and preserved.  The gathering and preserving of evidence along with an early and thorough claims investigation may develop other responsible parties and other sources of insurance especially on product liability cases.  Even low dollar claims should be fully investigated by the claims handler if there is any hope of recouping the paid claim dollars

Understanding your options

How many subrogation claims are closed based on the assumption that if the policyholder hasn’t previously placed a neighbor on notice about a potentially rotten tree that subrogation is not possible?  How untrue.  In so many instances that neighbor knew they needed to have the rotted tree taken down but just didn’t get around to it, and they report the claim to their liability carrier with those facts.  A Demand sent to the carrier will often generate a drop check to the subro vendor.

Don’t make assumptions about liability based on prior experiences of poor cases.  A Demand letter should always be sent out on cases where there is liability on a third party.  It may be too easy to dismiss a subrogation opportunity based on prior experiences rather than expertly reviewing the facts in the case before you and completing a thorough investigation.  Truly understanding liability and being able to identify it is imperative to subrogation success.  There is one fact that you can be totally sure of; if you don’t send the Demand Letter you can count on not getting a recovery.

While recovery efforts may often include litigation on larger cases but not on smaller losses giving rise to looking for other options to support and prove a theory of negligence.  Arbitration is often the answer in situations where both carriers are members, and the paid loss is way too small for litigation but just perfect for Arbitration.

Most low dollar property losses will never be sent to a subrogation law firm as litigation would not be justifiable, however placing the negligent third party on notice generally requires nothing more than a postage stamp, unless of course you email your demand to the at fault party(s). Nothing ventured; nothing gained speaks volumes in situations like this.

Remember, every recovered claim has value, and a lot of a little is a lot.