In this episode of On Subrogation: Interpleader, RG attorney Jason Sullivan talks about how Interpleader affects the process of settling a subrogation lawsuit, especially in cases where many parties might have claim to recovery from the at-fault party.
Interpleader applies to subrogation when a party causes a loss, the at-fault party has insurance, the insurance policy does not cover the total damages caused, and the carrier does not want to deal with settling multiple cases and multiple payouts. Instead, they give the court the money and make the other parties decide who gets what and how much. Simply put, Interpleader is a civil case mechanism to force the opposing party(ies) to litigate the issue.
A Hypothetical Application in Multi-Party Property Loss Subrogation
Jason illustrates with a hypothetical situation of multiple subrogation property claims:
There is a warehouse where people store large vehicles like boats and RVs. The warehouse is not properly maintained, an employee smokes in a non-smoking area, throws the cigarette butt on some old, oily rags, and causes a massive fire. Now there are hundreds of claimants with property damage.
Each property owner’s carrier pays for their respective losses, and now look to pursue subrogation recovery from the at-fault warehouse. Say the warehouse has liability coverage for $1 million, but total damages are around $5 million. How does the liability carrier proceed?
First, they should hire insurance dispute counsel. Then, file an Interpleader, give the court the $1 million and walk away from the situation, leaving the claimant parties to deal with pro-rata portions, additional asset pursuit from the tortfeasor, and any other matters that may follow.
Jason advises two actions when answering an Interpleader:
- Respond directly to the allegations made.
- Assert a cross-claim against the at-fault party claiming that they were the negligent party so they are required to recover the loss.
How Interpleader can Benefit Liability Carriers facing a Subrogation Demand
Interpleader is a mechanism that reduces resource expenditure for the liability carrier, both time and money. It allows the liability carrier to pay out all at once to one party instead of dealing with multiple claims, settlements and lawsuits. This puts the onus on the other parties to decide who gets what money and if any other claims might be made against the tortfeasor.
Jason cautions subrogation professionals to remember that liability is not a foregone conclusion. A liability carrier has an ethical duty not to admit fault and not to put full fault on their insured. Instead, they will state an ambiguous denial of responsibility and offer the money they have on-hand.
While paying out may seem like an admission of guilt, the subrogating carrier is still responsible for satisfying the burden of proof that the tortfeasor was negligent. In most cases, parties will stipulate liability when settling for interpled funds, but if the tortfeasor is the one held responsible for the additional damages, a subrogation team should advise their client that litigating the claim is likely.
Interested in other important issues in the field of insurance law and carriers’ rights to subrogation? Visit our Education page for links to our YouTube channel and podcast library, featuring Rathbone Group’s educational media on subrogation law: On Subrogation, and learn more about Rathbone Group’s comprehensive services for subrogation claims and other insurance dispute matters.