As a national subrogation law firm, we know better than most that subrogation is misunderstood. Even though the subrogation process happens behind the scenes, it is important to understand how it works and why it matters. However, its complexity and the not-so-kind public view of insurance carriers have kept even industry professionals in the dark, leading to damaging misconceptions.
Here, we discuss the five biggest falsehoods our subrogation lawyers, adjusters and specialists encounter in our practice as advocates for insurers’ right of subrogation:
Myth 1: Subrogation only benefits the insurer.
Speaking of – why does the insurer’s right of subrogation exist? Many assume this process only benefits the insurer – that the subrogation process isn’t anything but a money grab for major carriers. This is probably the most harmful of the misconceptions around subrogation. Not to be self-important, but subrogation theory benefits the whole of society!
Consider a case of arson that results in a fire subrogation claim on property. The victim’s insurer pays the claim under their policy, so they’ve been compensated for fire-related damages. But now there’s an arsonist who’s off scot-free and an insurer who has suffered a loss someone else is responsible for.
For an insurer, this situation happens countless times, because that is exactly what an insurer is for. But without the ability to recover those losses by leveraging a property subrogation demand, the insurer just accumulates loss after loss without any offset by the truly responsible parties. Being able to pursue negligent and/or tortious parties who have caused damage has three big benefits that radiate from the insurer to the insureds to the entire judicial system:
- Recovering losses from legitimate paid out claims allows the insurer to remain competitive in the marketplace by offering quality policies at affordable premiums.
- The policyholder then benefits from these quality, affordable policies, encouraging them to get more than the minimum coverage, better protecting them from future harm.
- Bad actors are held accountable. Whether it’s a wayward teenager who sets things on fire or a construction conglomerate that ignores safety standards, subrogation serves as a deterrent for negligent and tortious actions.
Why subrogation? Very few incidents resulting in insurance claims constitute a criminal case; civil filings are the most direct and effective route to make sure those bad actors think twice before causing more harm. So, you see, the subrogation process benefits all of us.
Myth 2: The subrogation process requires lengthy lawsuits.
While some subrogation claims result in litigation, there are many other routes to recovering an insurance dispute without proceeding to litigation. These alternate routes to subrogation benefit all parties, as they are often less costly, take less time, and are less contentious. The majority of subrogation liens can be resolved with one of the following methods:
- Pre-suit negotiations. Especially with large insurance companies, direct negotiations – especially when liability is clear – is the most efficient way to resolve a subrogation case.
- Mediation. While this process still relies on good faith agreements between parties, it offers a more formal, careful approach to resolving a claim.
- Arbitration. Arbitration Forums, specifically, provide carriers a route to subrogation settlement that can be faster and less costly than litigation.
These strategies for resolving a subrogation claim foster cooperation between carriers who will repeatedly encounter each other throughout the course of business. All parties streamline their subrogation efforts, which reduces cost in labor, fees and time for everyone involved.
Myth 3: Subrogation is only useful in large claims.
As we discussed in Myth 1, an insurer pays out countless claims where liability of one or more parties is clear. While not every loss is worth pursuing from a cost-vs-reward perspective, insurers should not write off small claims, because they add up – hundreds of small losses unpursued can result in financial hemorrhaging.
Having a law firm take a second look at smaller paid out claims can be invaluable to an insurer’s long-term viability in the market. Millions of dollars in subrogated claims are recovered from smaller claims.
Education About Subrogation Maximizes Recovery Potential
Because subrogation is such a niche area of insurance law, partnering with the right subrogation company is key to maximizing claims recovery on as many viable claims as possible.
As we’ve discussed, an understanding of the complexities of the subrogation process is the greatest asset you can carry into any insurance dispute. But insurers are busy – most do not have the time to pursue these claims in-depth, or with the eye to detail a subrogation-focused law firm can offer. Outsourcing subrogation efforts means you can focus on providing your policyholders with the excellent policies and competitive premiums they expect.
Rathbone Group is committed to advancing the quality of our insurance industry partners through education on important subrogation topics. Dispelling myths and making opaque subjects easy to understand empowers insurers. The more you know, the more you will find there is to recover.
Interested in more subrogation tips and strategy from the legal professionals at Rathbone Group? Visit our blog, YouTube channel and podcast library for more, or inquire about our services to start your journey to maximizing recovery with a subrogation partner that adds value to all steps of the claims process.