The National Association of Subrogation Professionals published Ana Zgela’s article “Beyond the Courtroom – Maximum Recovery in Arbitration Forums Leads to $165,000 Property Damage Award” in their Summer 2018 issue of The Subrogator. Ana Zgela is the lead attorney of Rathbone Group’s arbitration department.  

Insurance Carriers often enter into agreements voluntarily forgoing subrogation litigation in favor of arbitration through Arbitration Forums. AF is a private company specifically for settling insurance and subrogation disputes. Often, parties in a subrogation lawsuit will pursue alternate routes to recovery than litigation, as resolution methods like mediation and arbitration reduce court, counsel and time costs for both the subrogating and adverse carriers. 

Another advantage of utilizing Arbitration Forums in subrogation is that the decision-making panels are more well-informed on insurance law and the specific legal mechanisms used in subrogation disputes. Zgela’s article chronicles one claim that overcame jurisdictional defenses to Arbitration Forums and resulted in a maximum recovery of $165,000 property damage award, a recovery that technically exceeded AF’s monetary jurisdiction. 

A Case Study in Overcoming of Resolving Subrogation Claims in Arbitration Forums

Zgela’s article details the story of a subrogation case where a homeowner’s insurer was seeking recovery for $165,000 in damages because of a fire at the insured’s home that started in a dryer. The Applicant pursued the dryer Manufacturer, Distributor and Installer, and filed litigation in 2010. All parties agreed in 2012 to stay litigation for the subrogation claim in favor of using Arbitration Forums (AF) to arbitrate the case. Arbitration was filed in May 2015, and the case was dismissed in July 2015. 

Respondents used 3 Affirmative Defenses:

Obstacle #1: Statute of Limitations

Respondents tried to claim AF had no jurisdiction over this subrogation matter per AF Rules 1 & 2, because they were 3 years past the 60-day statute of limitations. Zgela argued that since the case was still pending until July 2015, AF retained jurisdiction. Zgela, Applicant’s subrogation counsel, won this argument.

Obstacle #2: Monetary Limits

Respondents claimed the Applicant could not pursue over $100,000 of recovery per AF Rules 1-3, which state AF’s jurisdiction for compulsory arbitration for subrogation is limited to $100,000. Zgela argued that AF’s Article Fourth rule applied because each party gave written consent to use AF instead of litigating the subrogation matter. 

Respondents claimed they had not given consent, but Applicant produced the original agreement to put the case into arbitration, in which all parties agreed to the $165,000. Under AF’s rules, written consent by all parties in an insurance dispute renders AF’s monetary limits null and void. As a result, Arbitration Forum’s panel ruled for the Zgela’s client on this issue as well.

Obstacle #3: Product Liability Exclusion

At this point, only the Manufacturer still claimed AF had no jurisdiction over product liability claims.  However, this is true only in compulsory cases. Applicant subrogation counsel again argued that since all Respondents gave written consent to use AF, this rule didn’t apply. The subrogating carrier also argued that once consent is given, it cannot be taken away. AF ruled for the Zgela’s client on this third issue as well.

Arbitration Decision: Applicant Carrier Recovers in Full

Once Zgela overcame these obstacles for her client, the next and final step was the liability review and decision by the arbitration panel. In subrogating fire damage, the investigation stage of the case is integral to proving sequence of events, and this is where that initial subrogation investigation played a key role in the Applicant carrier meeting their burden of proof. An expert report found that the vent and exhaust specifications were not properly adhered to during the installation. The dryer installer also admitted to neglecting this step.

The subrogating insurer proved that the installer acted negligently by not inspecting the installation of the dryer exhaust and vent properly, which caused overheating and resulted in the fire. Manufacturer instructions were not adhered to, so the manufacturer was also found not liable for the damages. Arbitration Forums ruled the installer was 100% responsible for the fire and resulting loss, and the subrogating insurer achieved 100% recovery through Zgela’s arguments.

Subrogation Arbitration Requires Savvy and Strategy

Choosing to solve a subrogation claim via arbitration, as opposed to litigation, can help an insurer maximize recovery and minimize costs of a given subrogation case with quick, binding resolutions that result in speedy recovery. However, Arbitration Forums’ jurisdiction can become a hurdle for a subrogation lawyer to overcome, just like this case. 

Arbitration Forums is a great resource for insurers looking for fast resolutions at limited costs.  Attorneys who specifically focus on subrogation arbitration have to understand the varying state subrogation laws as well as AF Rules offer the best of both worlds. At Rathbone Group, Ana Zgela has been the lead Arbitration Attorney since 2014, and in this capacity she is able to use her extensive understanding of subrogation arbitration to benefit her clients.

Categories: Published Articles