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Realities of Subrogation Litigation

December 5, 2016

By: Bryan J. Ure

Murchison & Cumming Blog: Post 85

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Subrogation litigation is a very broad topic that encompasses many different practice areas. It is ultimately however a practice specialty unto itself. It includes innate complexities of subrogation law, but also requires the skills of a Plaintiff’s attorney, and the knowledge of a specialist practicing in niche areas. These areas can range from fire litigation to workers’ compensation law. Complete mastery of subrogation requires the attorney to wear many hats, and requires the client seeking recoupment of their money to understand this dynamic.

Subrogation Basics

At its core, subrogation arises when a party who was obligated to a pay another party seeks recovery against a third party who may have committed an act giving rise to liability. A simple example is that of an insurance company who pays upon a homeowner’s policy to a homeowner after a fire. If the insurer determines that the fire may have been caused by a negligent electrician, the insurer may seek to “stand in the shoes” of the homeowner and pursue litigation directly against the electrician. The insurer often maintains this right by contract with the homeowner through the insurance policy, or it may independently seek an assignment of rights from the homeowner. In certain areas, such as workers’ compensation, the right of the insurer to proceed is authorized by statute.

A right to subrogation also exists in a non-insurer-insured situation. For instance, in lieu of suing a subcontractor for contractual breach over construction delays, a construction company may allow the breach, but then seek rights from the subcontractor to pursue one of its vendors who caused the breach by delaying needed materials.

Subrogation Pitfalls and Promises

Subrogation litigation can be a complex area. The attorney pursuing subrogation must be well versed in Plaintiff’s litigation, subrogation law and practice, as well as the area of law upon which they sue. As noted in the illustrations above, this could mean that the attorney must be knowledgeable of the intricacies of law ranging from fire litigation, workers’ compensation law, and construction law, to name a few. But even with knowledge of a specialty field, a key mistake that is often made by attorneys is a failure to understand the practicalities of subrogation as it relates to both liability and damages. While the legal theories of recovery may be the same, the practicality of subrogation differs very much from a typical Plaintiff’s case. This reality of subrogation law can often trump a “good case”.

In typical Plaintiff’s litigation, there is a maxim that a weaker liability case can be helped by a strong damages component. Unfortunately, this does not always hold true for subrogation. In typical litigation, the Plaintiff is asserting their own personal rights which a juror may relate to. In subrogation, the party bringing the case is generally a corporation or insurer who lacks broad appeal to a jury. In this sense, a weaker liability case which may ordinarily be softened by a sympathetic Plaintiff is removed or too distant. Further, in subrogation, there is often a bar to recovery of general damages or pain and suffering that an ordinary Plaintiff might be afforded. This sliding scale of general damages can vary a great deal and brings uncertainty to a defending party which can result in productive settlement negotiations. But with subrogation, you are generally left trying to recover upon what was paid out of pocket. Practically speaking, a personal injury Plaintiff could recover only a nominal sum for out of pocket damages yet a large sum in general damages. This is not true for a subrogating Plaintiff.

Another difficulty arises in whether the attorney retained to pursue subrogation is being compensated hourly or by contingency. Because subrogation litigation can sometimes be long, difficult, and technical, it can sometimes be difficult to find attorneys or firms willing to proceed with this work on a contingency basis. This holds especially true when one considers the reality of expert witnesses needed for difficult cases.

Defense attorneys fighting against subrogation claims also carry a bias. Unfortunately, subrogation claims are viewed as weaker (for reasons explained above). Even if damages are very high, attorneys and defendants often do not feel that they are required to pay near the full amount because the subrogating party should be willing to greatly discount their recovery. This problem stems not from laws supporting subrogation, but rather from history and the psychology of a weakened unsympathetic corporate Plaintiff.

Even with its pitfalls, subrogation’s weakness can also be its strength. The out-of-pocket expenditures made by a subrogating Plaintiff represent hard costs that can be boarded at trial. Depending upon the case, this can mean that if liability is proven, a near 100% recovery of damages can occur if the payments were reasonable and necessary (dependent upon the jurisdiction).

When is Subrogation Appropriate?

This can be a difficult question to answer because it requires a thorough assessment of subrogation practicalities, cost, liability and damages, as well as assessment of the area of law upon which a subrogating party is basing its claim upon. If all the pieces fit together, subrogation can be a powerful tool. Subrogation litigation benefits everyone, as it often results in companies or insurers paying upon claims quickly if they know they can recoup such payments from an at-fault third party. If you are pursuing subrogation, it is vital that you retain experienced and knowledgeable attorneys.

With offices in California and Nevada, Murchison & Cumming, LLP has several attorneys who have experience with subrogation litigation if you need further guidance.