Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

Waivers of subrogation rights are commonly found in most commercial contracts where one or both of the parties agree to waive all subrogation rights they may have against the other party. Using such boilerplate language can potentially create coverage problems. In addition, the law regarding apportionment of recovery, a critical and often contested issue, is mixed, not well established, and inconsistent among jurisdictions. Complicating issues include partial coverage and double-recovery.

The program will give an understanding of the critical principles of subrogation, the interplay of state law and contractual policy language, and complex issues that arise in apportioning recoveries between the insurer and policyholder. The following will be critically analyzed:

• What are some of the underlying purposes and public policy benefits of subrogation?

• What are the different types of subrogation?

• What are the most common obstacles to successful subrogation from state to state and how can they be avoided or defeated?

• How and when can waiver of subrogation agreements or endorsements get in the way of successful recoveries and what can we do to avoid them?

• Who are the enemies of subrogation and what are the most popular arguments used against subrogation?

I am not a subrogation specialist. Fortunately, my co-panelist, Gary Wickert, is regarded as one of the world's leading experts on insurance subrogation. He is also the author of several subrogation books and legal treatises and is a national and international speaker and lecturer on subrogation. For once, I might not have the last word on an insurance topic.

Here is the interview:

I suspect that many insurance companies and their attorneys will be studying the nuances of the Oil Pollution Act claims process regarding first party claims. Many claims can be brought under various first party policies, depending on policy language. Subrogation claims by those insurers will also be made against BP -- after first party losses are resolved with policyholders.

BP has created this monstrous mess. It will have a very big and long tail before it is over.

In the process of locating your leak, furniture may need to be moved; carpet may need to be cut and rolled back; tiles or linoleum may need to be lifted and/or other non-tech tasks performed including excavations. If requested and attempted, On Target Technicians will use due care to accomplish these chores, HOWEVER On Target Inc and On Target Technicians shall not be responsible for any damage whatsoever, actual or perceived, which may result from any locating procedures. If the first locate is incorrect, the Technician will return for a relocate. Property owner, tenant and/or guardian hereby agrees to hold harmless On Target Inc and On Target Technicians absolutely in this regard and to defend same in any action which may develop pursuant to any of these activities.

(Bolding in original.)

Mr. Podorski signed the Customer Information Card to authorize the work, and left. The On Target technician found the leak, made a hole through a single floor tile (in the foyer) and into the slab, and performed a temporary repair. A plumber repaired the pipe permanently. The Podorskis could not find a matching tile to replace the tile the On Target technician damaged in locating and temporarily fixing the leak, so they filed a claim with their homeowner's insurance carrier, Allstate. Allstate approved the replacement of all the tile in the Podorski’s home, costing $17,290. Allstate then demanded reimbursement from On Target, and On Target denied liability.

Allstate, as subrogee of Mr. and Mrs. Podorski, filed an action against On Target for breach of contract. On Target filed a third-party complaint against Mr. Podorski for indemnification. After the circuit court denied Mr. Podorski's motion to dismiss On Target’s complaint against him, Allstate filed a notice dismissing its action against On Target.

On Target then sought recovery of the attorney fees and costs incurred in defending Allstate's subrogation action from Mr. Podorski, pursuant to the indemnification provision in the Customer Information Card. The trial court refused to award On Target its attorney's fees and costs, finding that “the vague and ambiguous language on the Customer Information Card renders any intended indemnification unenforceable.” The court relied on the Florida Supreme Court’s decision in Cox Cable Corp. v. Gulf Power Co., 591 So. 2d 627 (Fla. 1992).

Florida’s Second District Court of Appeal reversed the lower court’s decision. In Cox, the Florida Supreme Court held, “that indemnity contracts which attempt to indemnify a party against its own wrongful conduct will be enforced ‘only if they express an intent to indemnify against the indemnitee's own wrongful acts in clear and unequivocal terms.” On Target, 2009 WL 3489396 at * 3 citing Cox, 591 So. 2d at 629. The Second District explained that Cox and the other cases Allstate relied upon applied only when a party wants to be indemnified for a loss caused by its own wrongful acts. The Court noted that in this case, there was no finding or clear allegation that On Target acted in a wrongful manner. Allstate’s complaint against On Target alleged breach of contract for breaking the tile without Mr. Podorski’s express authorization, not negligence. Further, Allstate dismissed the complaint, so there was never a determination of whether On Target acted wrongfully.

Even assuming that the On Target Technician acted wrongfully, the indemnification provision at issue in the Customer Service Card was distinguishable from the provision at issue in Cox because it was much more specific. The final sentence included the phrase “in this regard” and identified On Target and its technicians as the indemnitees. “Thus the owner agrees to hold harmless On Target and its technicians only to the extent that “any locating procedures” undertaken by them cause damage to the owner's property.” On Target, 2009 WL 3489396 at * 5. This provision clearly put Mr. Podorski on notice that the locating procedure may cause limited damage to the property for which On Target could not be held liable. The indemnification provision applied only to the scope of the work, not all possible wrongful acts like the provision at issue in Cox.

As Allstate's complaint sought damages caused by the locating procedures, the indemnity clause applied to On Target's defense of the lawsuit, and On Target was entitled to recover reasonable attorney fees and legal costs from the Podorskis. 

Read the complete Court Slip Opinion here.

I am fortunate that Jean Niven works closely with me on my cases because she is extraordinarily thorough and prepared. She makes me look far better than what I am. We have a tremendously successful track record when working on projects together, primarily due to her efforts.

Regarding the subrogation speech, she put together the cases and basic outline of the speech. As I went through it, I remembered various instances where subrogation rights and issues became significant considerations of a first party claim. As I studied the issue and thought about these experiences, I recalled that subrogation provides significant opportunities to a policyholder that may soften the blow from uninsured losses.

The first rule from the policyholder's perspective is that subrogation should become a major consideration when significant uninsured losses occur. It is becoming more frequent that policyholders have such uninsured damage scenarios for a number of reasons. These include, but are not limited to:

1. High Deductibles.
2. Exclusions
3. Being Under insured.
4. Having limited amounts of coverage for certain types of loss.
5. Co-insurance penalties.
6. Gaps in coverage.
7. Non-Covered Property

The greater the uninsured loss, the more important for a claims handler to suggest that policyholder counsel be retained to orchestrate a procedure to recover uninsured losses. Our firm strongly suggests that policyholders retain their own counsel, even if it is solely to work out subrogation and litigation agreements with the insurer.

Ethically, we cannot understand how insurance retained counsel can approach a policyholder for dual representation. Yet, it is commonplace and probably a fertile field for malpractice because no attorney can serve competing masters. Indeed, it has been our experience that independent policyholder counsel can work hand in hand with the insurer's counsel far more productively and ethically than if one law firm is representing entities with competing interests in money and control of how the recovery will be attempted, distributed, and paid for.

A primary coverage issue for policyholders to be concerned about following a loss is to do nothing to waive or impair the insurer's right to subrogation. A typical subrogation clause reads:

In the event of any payment made hereunder, the Company shall be subrogated to the extent of such payment to all Insureds' rights of recovery thereof against any person or organization and the Insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The Insured shall do nothing after loss to prejudice such rights.

The problem with the clause in cases of uninsured loss is that the papers and agreements are not indicative of who gets what, in what order of preference, who pays for the expenses of legal fees and costs, who controls decisions of settlement, trial and arbitration, who pays for the insured's efforts to aid the insurer, etc. All these matters should be addressed in agreements that are subject to negotiation. It is legally complex because state laws vary on these issues. In some states and situations, policyholders may be giving away rights to free first reimbursement of uninsured losses by not retaining their own counsel to research and negotiate these issues.

Policyholders should also be concerned with "spoliation of evidence" needed to prove responsibility of third parties. Proper preservation of evidence is crucial in these situations. Insurer subrogation departments and policyholders should be urged to cooperate so that mitigation efforts do not destroy crucial evidence. Again, quickly obtaining counsel to orchestrate the loss scene recovery and contemplate claims against third parties is crucial.

Some teach about subrogation by trying to demonstrate all the different scenarios third parties cause, contribute to, or fail to prevent losses to the policyholder. I suggest that policyholders and their representatives first ask how significant the uninsured loss may be. The more that portion of the loss is uninsured for whatever reason, the more crucial it is to quickly retain counsel that can help orchestrate a plan for potential recovery. My experience is that such counsel can decide if it is best for the policyholder to work with the insurer and how those arrangements can be made. Often, counsel will work on a contingency fee basis and advance all costs towards the recovery.

So, in the end, I was pleasantly surprised at how much I enjoyed presenting views and teaching on this topic. Given that deductibles seem to be getting larger and larger, while coverages are becoming more limited, it is a fairly common occurrence for significant uninsured loss to take place. Thus, this area and topic of claims handling will become more important to policyholders, who may find themselves working closely with their property insurer to recover for losses.

The seminar topics and speakers are:

Topic: “Appraisal - Appraising Large Losses”
Presenters: W. Wesley Baldwin of The Baldwin Company and Jonathan Wilkofsky, Esq. of Wilkofsky, Friedman, Karel & Cummins

Topic: “Builder's Risk Program and Coverages” (part 1)
Presenters: Samuel Bergman of Rolyn Companies, Inc.; Stephen R. Figlin, SPPA of Stephen R. Figlin & Associates, Inc., and Peter Kahn of Matson, Driscoll & Damico

Topic: “Builder's Risk Program, Coverages and Adjustments” (part 2)
Presenters: Samuel Bergman of Rolyn Companies, Inc.; Stephen R. Figlin, SPPA of Stephen R. Figlin & Associates, Inc., and Peter Kahn of Matson, Driscoll & Damico

Topic: “Introduction to Building Code Coverage” (part 1)
Presenters: Mark Friedman, Esq. of Wilkofsky, Friedman, Karel & Cummins, and Fred Yutkowitz, Esq. of Fairview-Licht Company, LLC

Topic: “Building Code Coverage Requirements for Repairs” (part 2)
Presenters: Mark Friedman, Esq. of Wilkofsky, Friedman, Karel & Cummins, and Fred Yutkowitz of Fairview-Licht Company, LLC

Topic: “Business Income - Primary Analysis and Authentication”
Presenters: Brad White & Max Flynn of Meaden & Moore, and Hayes Walker, III of Rollins Accounting & Inventory Services

Topic: “Business Income & Extra Expense - Measuring Small Losses” (BI part 1)
Presenters: Don Dragony, CPA of Alex N. Sill Company; Paul McGowan, Jr., CPA, CVA of Matson, Driscoll & Damico, and Ronald Papa, SPPA, of National Fire Adjustment Company, Inc.

Topic: “Business Income & Extra Expense - Extended BI Coverages, Application and Calculation” (BI part 2)
Presenters: Don Dragony, CPA of Alex N. Sill Company; Paul McGowan, Jr., CPA, CVA of Matson, Driscoll & Damico, and Ronald Papa, SPPA, of National Fire Adjustment Company, Inc.

Topic: “Business Income & Extra Expense - Manufacturing Losses” (BI part 3)
Presenters: Don Dragony, CPA of Alex N. Sill Company; Paul McGowan, Jr., CPA, CVA of Matson, Driscoll & Damico, and Ronald Papa, SPPA, of National Fire Adjustment Company, Inc.

Topic: “Commercial Property Forms and Endorsements”
Presenters: Dennis Perlberg, Esq. of Perlberg & Speyer, LLP, and David Karel, Esq. of Wilkofsky, Friedman, Karel & Cummins

Topic: “Deposition ABC's - Preparation is Key to Survival”
Presenters: Mary Kestenbaum Fortson, Esq. of Merlin Law Group and William F. Burke, Esq. of Adler, Pollock & Sheehan

Topic: “Ethics”
Presenters: Nicole S. Figlin, SPPA of Stephen R. Figlin & Associates and W. Richard Burr SPPA of Young Adjustment, Inc.

Topic: “Homeowners Coverages”
Presenters: Randy Goodman, SPPA of Goodman-Gable-Gould/AI and Joel Gumbiner, Esq. of Gumbiner & Eskridge, LLP

Topic: “Insured's Cooperation and Duties - How to Prevent a Problem”
Presenter: Robert P. Rutter, Esq. of Rutter & Russin, LLP

Topic: “Science of Roof Damage Claims”
Presenters: William F. Merlin, Esq. of Merlin Law Group and Timothy Marshall of AT Designs, Inc.

Topic: “Subrogation Opportunities Do's and Don'ts”
Presenter: Jean Niven, Esq. of Merlin Law Group

Topic: “The Adjuster as an Expert Witness”
 Presenters: Dave Pettinato, Esq. of Merlin Law Group and Jonathan Wilkofsky, Esq. of Wilkofsky, Friedman, Karel & Cummins

Topic: “Vacancy and Occupancy Defenses - Its Many Faces”
Presenters: Tina Nicholson, Esq. of Merlin Law Group and Ronald Reitz, CPPA of Quality Claims Management, Inc. 

Dr. Therese M. Vaughan, CEO of the National Association of Insurance Commissioners, will give the keynote address. Dr. Vaughan was Iowa State Insurance Commissioner from 1994 through 2004 and also the Robb B. Kelley Distinguished Professor of Insurance and Actuarial Science at Drake University.

This conference is open to the entire insurance community. Insurance company adjusters, brokers, agents, attorneys, accountants, and public adjusters are invited. I expect the First Party Claims Conference will be an excellent resource and provide practical tools and answers to a variety of insurance related matters. If you adjust roof claims, you simply cannot afford to miss that presentation with its all-star speakers.

Information on the education program (topics & speakers), exhibitor/sponsor opportunities, conference registration, and hotel accommodations is available at www.firstpartyclaims.com

At yesterday's educational session at the NAPIA Annual Convention, attorney Jim LaRoe provided a presentation regarding insurance subrogation and how policyholders may benefit from it. In his presentation, "Making Lemonade-Your Client's Insurer Says that Your Client is Uninsured/Underinsured and They are Correct-What Can You Do? A Texas Perspective," LaRoe made an important point:

The policyholder has rights against the third party as well. When amounts are lost but not covered under the policy, the policyholder needs to bargain with the insurer about many issues and the policyholder should have his or her own attorney.

LaRoe noted that often the policy is silent about how the money recovered is apportioned, who gets the money first, who gets to decide if settlement takes place, who pays for the attorneys and costs, who pays the policyholder for his or her time and inconvenience, and a host of other major financial issues.

For example, deductibles on many property policies can run in the millions. Policies limit recovery of some portion of losses. Some types of losses are simply not covered by the policy.

The bottom line is that, in many cases, the policyholder can only be made whole by getting substantial recoveries from a responsible third party.

As LaRoe noted, when the insurance company attorneys come with a litigation agreement for joint representation, there is often an inherent conflict of interest because the agreement is negotiable and those attorneys cannot serve two masters making that agreement. The policyholder needs somebody fighting for his or her rights and benefits rather than a lawyer who is working for the insurer’s best interests.