What do you do if the insurer you are subrogating against goes into liquidation? In this episode of our educational video series, On Subrogation, RG subrogation lawyer Jason Sullivan discusses possible avenues to pursuing recovery from an insurer when it seems there is nothing to recover.
When a person buys insurance coverage, they expect to be protected from liability in cases where they cause damages. Naturally, this requires the carrier to pay out in cases of insurance policy and subrogation claims. Each state has insurance laws that help carriers pay out on policies, overseen by that state’s Department of Insurance:
When an insurer goes underwater, the state’s Department of Insurance will first create a Receivership. They assume management of the company and try to return the insurer to a point where they are able to pay out on claims.
If a Receivership does not succeed in resolving the issue, the state’s Department of Insurance will move onto Liquidation. As Jason explains, liquidation for a carrier is much like bankruptcy for an individual. The Department will marshal the company’s assets and sell them off, then pay outstanding claims with that capital.
How Do these Circumstances Affect a Subrogation Case?
If a carrier is in liquidation, the tortfeasor is almost always exempt from personal liability for the damages. The reason being, it is unfair for the tortfeasor to pay for damages that should have been covered under the insurance premium they paid for. An exception to this is if damages clearly outweigh what the policy would have covered.
It might seem these factors make it impossible to pursue subrogation recovery, but before a subrogation team closes the file as a lost cause, Jason encourages exploration of other avenues to recovery:
- Are there other parties responsible for the loss?
- Does the tortfeasor have another policy of insurance that might pay the claim?
- Does the state allow subrogation claims during a liquidation? This subrogation law varies by state; some do not allow it, like CA and IL.
If there are not any other tortfeasors or relevant insurers, and state insurance laws allow it, a subrogation professional can submit a Proof of Claim. Once there is a formal liquidation, there is a short deadline for submitting a Proof of Claim to pursue subrogation recovery. The Trustee overseeing the liquidation will review these claims.
As with many subrogation processes, a subrogating attorney must weigh cost vs. reward before moving forward with a claim during liquidation. However, as Jason explains, Proof of Claims are low labor and time costs to submit. This makes it possible to recover at least some loss from a subrogation claim you might have initially thought was dead.
If you are curious to learn about other subrogation topics, Jason, as well as several other members of Rathbone Group’s subrogation team, discuss subrogation process and law on our podcasts and YouTube series, On Subrogation. Feel free to submit any questions to Rathbone Group for educational advice on all things subrogation.