Limits vs. Excess: Strategies for Successfully Subrogating an Underinsured Tortfeasor

This article is a companion piece to this video

This article is a companion piece to an episode of RG’s educational video series, On Subrogation: Subrogating Underinsured Tortfeasors. In this episode, experienced subrogation-focused attorney Kim Rathbone breaks down the sometimes delicate, sometimes frustrating circumstances that arise when limits don’t cover total damages in cases of subrogating an auto claim on behalf of an insurance carrier. Kim discusses the important steps needed to have the best chance of maximizing recovery in cases where there simply is not enough in the pot for every interested party to completely recoup losses.

When do Policy Limits Limit Subrogation Recovery?

Successfully subrogating an underinsured auto claim can be tricky. From the outset of the claim, a subrogation legal team of specialists and attorneys need to gather as much information as possible about the incident, the damages, all parties who are pursuing recovery for losses, and the pitfalls of failing to cover all your bases. Unfortunately, it is not always possible to be made whole in cases where tortfeasors are underinsured, but there are steps you can take to maximize possible recovery for your carrier.

A tortfeasor is defined as underinsured when their policy limits don’t cover the amount of all the damages involved in an incident. Subrogation cases like these are typical when the tortfeasor has purchased a state-minimum insurance policy. Every state has minimum requirements for auto insurance coverage, but many are bare bones. Some drivers choose these policies in order to keep premiums low. However, just because the limits don’t cover the damages by no means relieves the tortfeasor of liability for the excess. The trick is figuring out how to recover that excess.

Subrogation Investigation in Cases of Underinsured Tortfeasors

Kim explains the important questions a subrogating carrier’s legal team needs to answer in order to uncover all possible avenues of recovery. The first two questions a subrogation attorney should ask themselves are:

1. What are the policy limits?
2. Who has interest in them?

This is another area where having a legal team licensed and experienced in the jurisdiction of the incident and the location of the tortfeasor is key to properly navigating the subrogation process. In some states, you file claims as they come in. In these jurisdictions, it’s imperative to identify the claim as underinsured as soon as possible. Other states only allow pro-rata portions. This means that claims are not paid until all are known, and pro-rata distribution follows: each party that suffered losses receives partial recovery that is proportionate to the total amount of damages. Pro-rata distributions are not necessarily set in stone, though. As an attorney who is well-versed in subrogating underinsured claims, Kim explains that you might optimize your carrier’s pro-rata portions by requesting the paying carrier to disclose the pro-rata portions that were given to other parties involved in the claim. Sometimes, there are grounds to argue that one party was paid a disproportionate amount and your carrier deserves more.

A factor no subrogation legal team should overlook is the presence of out-of-pocket expenses for the insured. Did they have OOP expenses? Did they make a claim? If so, this will be a part of the pro-rata distribution, too.

Exhausting all Options for Possible Excess Payment by the Tortfeasor

The next question a subrogating attorney needs to ask themselves: Will the paying carrier provide asset and financial information of their insured voluntarily? Most states will not allow discovery until a judgment on the subrogation claim has been made, but that does not mean a carrier is disallowed from providing that information of their own volition if you request it.

Carriers want to avoid the time and monetary expenses of litigating a subrogation claim, so they will often cooperate with these requests. It serves to protect their insured’s interests as well as their own. Why ask the carrier for this information? Because you may be able to also identify other assets the insured has that open new avenues towards recovery of the excess.

An important caution a subrogating legal team should take at this step is to actually look into each of these assets. Kim gives the example of home ownership as an asset. At face value, this might seem like the perfect opportunity. But it is not always so. Maybe the house is old and in disrepair. Maybe the tortfeasor is underwater. Home ownership is not always a matter of equity. Similarly, they may have other “assets” like a boat or cars, but depending on the age and condition, they may be worthless.

If carrier resists providing info it is a good clue there are, in fact, assets to pursue.

Rathbone Group & Trends in Acquiring Payment in Excess

From years of experience in insurance subrogation, RG’s attorneys have noticed two distinct trends in what circumstances a tortfeasor is most likely made to pay in excess:

• People under 35
  • More likely to want lower premium
  • More likely to have parents or other sources to turn to if an incident occurs
• People over 35 where the social security number is known
  • Easier to locate them
  • Easier to determine assets

Avoiding Pitfalls of Resolving Underinsured Subrogation Claims

If the tortfeasor’s carrier can agree that there is an excess that outweighs policy limits, there will be a written agreement and likely a release to sign. But just because it seems there is a resolution at-hand does not mean this is a step where a subrogating legal team can take a breath and relax. In fact, this part of the subrogation process can prove even more delicate than pursuing alternative assets from the tortfeasor.

• In pre-suit subrogation claims, get a written agreement.
• In post-suit claims, get a Consent Judgment Entry.

The written agreement and the release should refer to each other, so you do not accidentally waive your carrier’s rights to one of the subrogation claims (limit vs. excess). Ensure that each relevant document includes:

1. that the other agreement exists,
2. when the other agreement was signed, and
3. the amounts owed under those agreements.

Important things an attorney subrogating a claim where the tortfeasor was underinsured and there is a limits claim and excess claim are:

• Any offer for limit payments pre-suit is not legally binding/guaranteed.
• If you are litigating the subrogation claim, your case can get dismissed for lack of service, so you must be diligent about achieving service. Some tortfeasors are transient, or do everything they can to avoid service.
• If there are signs the tortfeasor might not cooperate, the other carrier can pose a non-cooperation denial of your carrier’s claim. This is not necessarily in your control as the subrogating attorney, but you can minimize the risk of this occurring by keeping the tortfeasor and the opposing carrier as engaged in the process as possible.

Finally, if a settlement is not possible and there are issues with liability and/or witnesses, you may have to take the subrogation claim to trial. It’s imperative that a subrogation legal team understand that if you lose the trial, you have not only lost the excess, you have also lost your carrier’s rights to the limits. Trials are often avoided because of this all-or-nothing nature.