Best Practices for Successful Subrogation Recoveries

Melissa McCormick | September 14, 2009

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Subrogation has become an important part of the insurance business, with recoveries substantially increasing an insurance company’s bottom line.

In legal proceedings, subrogation involves substituting one person for another, so that the succeeding person will have the same rights in relation to the debt or claim, explains Mark Mason, partner with McCague, Peacock, Borlack, McInnis & Lloyd LLP, and co-chair of the firm’s subrogation practice group.

“The insurer steps into the shoes of the insured after the insurer satisfies its policy obligations, in order to recover losses from third parties,” Mason explains.

The real purpose behind subrogation is to compel the payment of a debt by the defending party. In his experience working with the firm’s subrogation practice group, Mason has witnessed the recovery of millions of dollars on an annual basis for insurance clients.

Missed opportunities for recovery can have a direct and significant impact on an insurance company’s bottom-line. With a 5% to 10% increase in recovered subrogation, an insurance company’s profits can increase substantially.

However, in order to be effective at subrogation, it is critical to have sufficient resources, says Mason, as even the smallest mistake can end up costing millions of dollars.

At a recent subrogation law seminar in Toronto, sponsored by the Canadian Litigation Counsel, Mason provided a list of the best practices for a successful subrogation recovery. These best practices include:

• Putting company protocols in place for dealing with claims that have subrogation potential;
• Preserving evidence;
• Determining the cause and origin of the loss;
• Ensuring all payouts are reasonable, necessary and well documented;
• Making early resolution the ultimate goal and engaging in mediation as a method of a resolving the dispute.

According to Mason, subrogation should always be a key factor when adjusting first party claims; it should never be an afterthought.

“Adjusters and claims personnel should coordinate their efforts to protect the insurer’s subrogated interest and to maximize recovery.”