In the March 2016 issue of “Finding Fault,” Allianz Global’s Kevin DeGarmo discussed the importance of the claims professional’s role in subrogation and the partnership between the claims professional and subrogation professionals. This column will focus on the importance of the insured’s role in the investigation of a subrogation claim.
Most insurance policies require the insured to cooperate with the investigation of a claim. Typically, this means that the insured must timely notify the insurer of the loss and take all reasonable steps to protect the loss scene while the insurer assembles its team to inspect and investigate the loss. Let’s remember, the goal of the initial investigation is to determine whether the loss is covered under the policy and, if so, to evaluate the extent of the loss. So how can a front-line claims professional or a subrogation professional make the best use of that initial critical time with the insured in order to determine whether a loss has subrogation potential?
Involving a subrogation professional or attorney at the outset is highly recommended. This provides the subrogation team with the opportunity to analyze the aspects of the claim while the front-line claims professional handles the investigation. This option will not always be available, but whether it is the claims representative or subrogation professional responding first, vital information should be obtained from the insured as soon as possible to assist in a thorough inquiry. For example, if the loss occurred due to what appears to be a defective product, the following information should be ascertained:
- Obtain a complete picture of how the loss occurred. When was the problem first noticed? How did it evolve? Did anything unusual happen with the product prior to the loss?
- When and where was the product purchased?
- Who installed the product?
- Was the product repaired prior to the loss?
- Obtain receipts, a credit card bill, or other documentation that can provide the above information.
- Obtain lease, rental, or purchase documents for the insured’s residence or place of business.
- Are there any photos or video footage of the product and the loss scene either before or after the loss?
- Are there witnesses to anything that would assist in the investigation? Obtain their names, addresses, telephone numbers, and email addresses.
- If it’s a fire loss, determine whether there are any detection or suppression issues.
It is important to gather this information early on while the insured is still in the “heat of the moment” and hopefully willing to cooperate. Obtaining documents and receipts a year after the loss is difficult. The insured has gone through months of back and forth on the claim and repairs to the loss site, and the claim typically is fully resolved. Understandably, there is very little incentive to cooperate as more time passes.
Why is obtaining the purchase documents from the insured important? Let’s say the product was a fan that was manufactured in China but sold by a local home product distributor. In many states, the distributor of a defective product is liable for the products it distributes. If your expert identifies the manufacturer as a foreign distributor and the claim is only $50,000, you need pursue only the local product distributor in many instances. Pursuing a claim and collecting against a foreign manufacturer may not be cost-effective. But the ability to pursue a local distributor typically is contingent on having the documentation to support the local purchase.
Why is installation of the product important? An expert obtained down the line may determine that the product was not defective but, rather, that the loss occurred as a result of a faulty installation. Obtaining this information from the insured early on is critical to your ability to include the installer or installing entity in inspections and destructive testing of the product, as well as for pursuing liability if it is determined that the loss occurred as a result of improper installation.
Repairs made to the product prior to the loss are essential in the total investigation of the claim. It may not have been defectively manufactured, but perhaps the repairer was negligent. In those instances, it is important to ask the insured whether any repairs were conducted and why and also to obtain repair invoices so that an expert can determine whether a repair was a factor in the loss. It is important to include such entity in a notice of inspection or destructive testing of the subject product, as well.
Lease, rental, or purchase documents are crucial in determining whether there are any contractual waivers or releases that might affect subrogation rights. This information also is important to gather in the early stages of the claims process.
Video footage can be priceless in any investigation. Since surveillance footage often is on a continual loop and overwritten when it reaches the end of the loop, it is important to obtain existing video as soon as possible. As soon as it is determined that there may be video footage pertaining to the loss, the party that owns the recording should be put on written notice to preserve it as soon as possible. Typically, if it is known or should have been known that video footage could contain relevant evidence and the entity does not preserve such footage after it is requested, the failure to preserve the footage may constitute spoliation. Spoliation rules and laws vary greatly from state to state. However, if a party has a duty to preserve evidence, destruction of it may have negative consequences. Depending on the loss, it is important to obtain video footage covering days prior to the loss and days after, if such video exists, so that a complete investigation of the scene can take place.
The insured may be a great asset in the initial stages of a subrogation investigation when document location and information are fresh in the insured’s mind. Not all claims can be subrogated, but thorough investigation and communication with the insured at the onset of a claim will provide pertinent information in determining subrogation potential.