This article is a companion piece to this video
When it comes to insurance subrogation law and how best to resolve subrogation suits and claims, the devil is in the details. In the above YouTube episode of RG’s educational series on subrogation process and procedure, On Subrogation: Release Language in Subrogation Claims, subrogation-focused attorney Kim Rathbone explains vital aspects of negotiating a successful release.
Safely Signing a Release for a Subrogation Claim: Reading Between the Lines
Releases are meant to bring finality to a subrogation claim by memorializing the parties’ agreement, and they also serve to protect both parties. A release may be signed before or after the subrogated matter has been litigated.
The language used in a release is always critical, and there are concerns with release language specific to subrogation disputes. While a release is not required to resolve a subrogation claim, if the parties choose to sign a release, the details of its language can make or break your client’s rights to recovery.
Kim discusses important guidelines for following best practices, taking note of issues particular to subrogation claims:
General Tips on Drafting a Release
- Have an attorney carefully review the subrogation release language
- Be sure to follow any in-house procedures your company has in place regarding legal documents
Goals of a Subrogation Release
- Memorialize the agreement you have reached with opposing party
- Protect both parties
- Bring finality to the claim
Properly Defining the Terms of a Subrogation Release
- It is critical to pay close attention to every detail of your subrogation release language. A poorly-written release may accidentally release a wrongdoer from claims beyond the intended scope of the release.
- Does the release specify the date of loss, location of accident, and claim number? These identifiers protect you from releasing more than necessary, and other serious consequences further on in the subrogation process.
- Is the relationship between all parties clearly defined whenever possible? For example, rather than referring to in insurer as “ABC Insurance Company,” your release language should specify “ABC Insurance Company, as subrogee of Jane Policy Holder.”
- Are you aware of and familiar with all parties listed on the release agreement? If not, you could be leaving money on the table if there is another third party that can be held liable for the loss.
- Finally, does the release accurately and clearly reflect your understanding of the original agreement?
Know All the Parties Involved in the Subrogation Case
- If the release names someone you don’t recognize, be sure to seek clarification on their identity. It could be a third party who may have liability under the claim. You don’t want to inadvertently release them from liability.
- Avoid language such as “any and all parties.” This could prevent you from proceeding against an unknown third party who you later determine to have liability.
Preserving the Possibility of Additional Subrogation Claims
- If the policy holder has separate claims against the tortfeasor, such as out-of-pocket expenses, the release language should expressly preserve those separate claims.
- Be sure to preserve future claims, even if they are not yet apparent. For example, while you may have the property portion of a claim finalized, medical issues may be paid at a later time.
- If your subrogation release language is too general, it may prevent you from recovering against third parties later found to have exposure.
- Even if you have a separate payment agreement with a tortfeasor, a poorly-drafted subrogation release might inadvertently release that tortfeasor from responsibility for making future payments under that agreement. What follows is sample language that might assist in this scenario: “This release is not a release or waiver of any claim or obligation owed by [tortfeasor’s name] under the installment agreement signed on [date] and has no effect on it other than to reduce the amount owed by the consideration referenced herein.”
Insured/Employee Signature: Protecting the Individual
- Sometimes, the insured or employee is required to sign the release. This should only be required when the insured or employee is resolving their out-of-pocket claims at the same time that the subrogation claim is being resolved, or if they expressed that they are not pursuing any out-of-pocket claims.
- If the insured or employee must remain on the release, encourage the insured to obtain independent attorney representation, especially if there’s any question on the language of the release.
- It is important that neither the subrogation attorney nor the insurance company provide direction to the insured that would be adverse to their interests.
Confidentiality Clauses Create Obstacles
- Most parties want a confidentiality clause. This presents a particular issue for insurance companies in a subrogation context. A confidentiality clause in your subrogation release could prevent an insurer from speaking to its insured, the agent or other employees about the claim resolution. It also could conflict with the terms of the insurance contract; therefore, confidentiality clauses should be removed if at all possible.
- If the opposing carrier objects to removal, there is a modification that can be used as an alternative.
- Sample confidentiality clause: The parties agree that this settlement agreement is confidential and neither the receipt, nor the amount of payment provided for in this agreement, nor any other term contained herein shall be disclosed to any third party.
- Suggested modification language: add “with the exception of discussions with the insureds and their agents.”
Indemnification & Hold Harmless Language Cause Complications
- This is a sensitive issue with regard to release language in subrogation claims.
- Sample hold harmless language: Releasors hereby covenant and agree to protect, indemnify, and hold harmless the said Releasees from and against any and all claims, actions, suits and demands, whatsoever, which we or any other person may now have or have had at any time heretofore or may have at any time hereafter.
- In a subrogation context, this kind of language doesn’t make sense, because the insurer would potentially be taking on costs that it wouldn’t have to pay under the policy in the first place.
- Ideally, have this language removed.
- If removal is not possible, suggested modification language follows: add “that are properly payable under policy [insert policy number]” or “limited to the amount paid in this release.”
Subrogation Release Review Checklist:
- Are the terms of the release specific?
- Are “any and all parties” being released?
- Is the release a general release even though only property or meds is paid?
- Is the tortfeasor making future payments on excess?
- Is the insured required to sign the release?
- Is confidentially language present?
- Is hold harmless or indemnification language present?
- Is modified language possible if removal of the language is not?
- Confidentiality – “other than insured, employees, agents”
- Hold Harmless – “properly payable under the policy”
When pursuing recovery via subrogation claims against liable or tortious parties, proper case management by subrogation specialists and attorneys is key to ensuring that all your bases are covered throughout the entire subrogation process. Counsel managing an insurance dispute must understand these concerns with regard to release language specifically as it applies to subrogation law.
While signing a release might seem like closing the book on a given subrogation case, it should still be treated as a careful step of the subrogation recovery process. Perhaps just as important as how the subrogation claim is initially pursued is how it is eventually completed.
Interested in learning more about the niche field of insurance and subrogation law? Rathbone Group offers educational material on countless important topics in subrogation via our podcast and video series, On Subrogation. And if you have a subject pertaining to insurance disputes that you would like to know more about, email us at [email protected] to have it answered on an episode of On Subrogation.