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December 18, 2012

Subrogation Settlement Options

Summary:

Above all, focus on your needs. Evaluate them. Be realistic about them. When faced with settlement negotiations, find the process - litigation, mediation, or arbitration - that achieves the best results for you.

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As an experienced subrogation professional, you’re all too familiar with settlement negotiations and the pitfalls you encounter every day that are inherent in the process of securing money from an at-fault party. Be encouraged. Statistically, the vast majority of subrogation opportunities settle through direct negotiations. Although technological improvements dot the landscape, don’t be fooled into thinking that sometimes a simple phone call can’t help arrive at an end-result you, your company, and maybe most importantly your insured, will be happy with.

When direct negotiations do fail however, a subrogation opportunity is likely destined for an alternative form of dispute resolution. Litigation, mediation, and arbitration are the venues most commonly thought of when attempting to ultimately resolve the unresolved.

Your most complex subrogation matters might be best served by litigation. When you need to employ the expertise of a law firm, understand that some distinguish themselves by the type of loss; others have chosen to only work the higher-dollar matters. They have the resources available to absorb the costs and time it takes to reach the right conclusion. Don’t discount those firms. They can prove invaluable.

If less complex, or matters seeking fewer dollars, are at stake, some firms specialize in “fast-tracking” throughput … and they do it without sacrificing quality. This can be a huge benefit for those of you dealing with high volumes of claims, or backlogs.

Don’t discount mediation.

Mediation may prove to be your best available option. Did you know that some law firms at your disposal focus a significant portion of their practice on mediation? The key to being successful in mediation is to know your proverbial “drop-dead” point, and be willing to adhere to it at all costs, especially if the facts regarding negligence are in your favor. Seek the most (of course), but know what you’re willing to accept. Sometimes accepting slightly less is a better outcome than actually receiving more, if receiving more costs you additional time and financial resources to get it. Consider the “net” amount you’ll recover based on the costs and the potential for complete relief.

The third of those above-mentioned forms of alternative dispute resolution (ADR), arbitration, offer unique advantages that other forms of alternative dispute resolution simply cannot match. Arbitration is typically a less formal process. Whether a process is chosen for its convenience or familiarity, or its technological superiority, or its decision quality, one common trait they share is timeliness. If you’ve ever dealt with the reality of Common Fund Doctrine that has cost you a significant portion of your recovery dollars, a quick turnaround time might be paramount in determining which alternative dispute resolution process you utilize. Timeliness might prove to be your important “hot button,” every bit as important as any of the other inherent benefits of such a process. Here, the arbitration candle might shine brightest.

Ultimately, options are key. Be sure to know them all. Embrace them all. All of them exist to serve the industry. All of them benefit the industry. More than likely, all of them can prove beneficial to your company to some degree. More tools in the toolbox can never be a bad option to have … a greater likelihood you’ll arm yourself with what you need to succeed.

Above all, focus on your needs. Evaluate them. Be realistic about them. Find the process that achieves the best results for you. Remember, your resources might not be unlimited, but they are numerous. Don’t make the mistake of having too few. Make the effort to align yourself with vendors and attorneys that best meet your needs. Align yourself with vendors and attorneys that focus on customer service. As “utopic” as we might wish it would be, no one vendor, no one process, no one attorney, can or will meet all of your needs. Don’t hesitate to develop an extensive roster of resources to cover all your potential situations. That will give you the best odds for a successful recovery performance.

When little money is at stake, maybe turnaround time becomes the most critical component of your decision regarding which process will best serve your needs. Because the amount sought is relatively small, expediently closing the file may be the most important criteria. You want to do it right, but you also need to get it done. The relative financial impact only warrants “x” amount of your time and effort. It’s an evaluation corporate-level executives do all the time. So should you. What’s a better use of your time: recovering $1,000 but utilizing 2 hours of your time, or recouping $5,000 while investing an hour’s worth of manpower? Easy question to answer. Be careful though. It’s rarely that cut-and-dry.

When a more substantial, yet still moderate, amount is on the line, maybe it’s a combination of timeliness and quality of end result that’ll drive your decision. This is arguably the toughest of the time management decisions to determine. The amount you’re seeking to recover is significant, but at what “cost?” This is where your resources can really pay huge dividends for you. Do you invest all of your time, or is it more prudent to seek outside counsel, pay them on a contingency an agreed upon percentage while freeing up your time to work other matters? Is 33% too much? Does 25% get you the best person for the job?

The one piece of advice I’ll share is this: don’t hesitate to purchase results. I’d rather pay an attorney a third of a six-figure settlement than collect a lesser amount while saving a few percentage points on their fee. All lawyer jokes aside, trust me … they’ll earn their fee. Remember, their incentive is twofold: 1) the more they collect for you, the more they earn; and 2) the more they collect for you, the more likely you’ll use them again in the future. Note the common denominator: the more they collect for you! It’s the proverbial win-win scenario.

And don’t forget to consider the “true” cost of bringing in outside counsel. A lot of folks look at an attorney receiving a third of recoveries and immediately think, “Wow! That’s a lot!” Is it? Factor in your fully-loaded employee costs, not just their salary; factor in the expenses associated with the collection effort; factor in what other assignments that employee, or those employees, could be working on instead. Weigh that against the amount being sought. In other words, get a true picture of the actual costs of your recovery effort … then decide your best course of action.

Another easy question to answer: there’s a lot of money at stake, so how much time do I invest? Typically … whatever it takes! When a lot of money is riding on the subrogation outcome, maybe the process, its quality and those responsible for determining that outcome become paramount in determining which avenue to pursue. Litigation is costly at first blush (both from a time invested and money expended perspective), but is it, really, when millions are at stake? I’m not an attorney, nor do I play one on TV, but there are times when litigation is absolutely the best alternative to take. Keep in mind too that there are some alternative dispute resolution options that are more legal-like in their process than others. Not just in the decision rendering either … the post-decision appellate process may be just as critical to your success in subrogation as the deciding of the originally submitted matter. Not all arbitration processes are created equally, just as not all courts of law will deliver the same result. Look at the whole picture, not just the frame.

Note the different scenarios referenced. Each is unique. Each presents its own set of challenges. Each has a “best choice” alternative or process to use. That’s why, in the previous paragraphs, you’re encouraged to focus on evaluating your needs.

Let your needs drive your decisions.

The investment of time that you take in properly vetting potential business partners will pay huge dividends once you actually employ them to meet your requirements. If you don’t feel you can trust one for a given scenario, chances are you’ll feel incredibly comfortable with another of your resources.

Most importantly, never sacrifice quality in the end-result. Your company is relying on you. So is the most valuable asset you have … your customer, the policyholder.

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About the Author

David G. Jones, SCLA, is the CEO and Founder of The Dispute Resolution Organization, an insurance industry services provider specializing in the arbitration of higher dollar matters. DRO utilizes only licensed, subrogation-experienced attorneys to settle disputes between insurers for auto, property, Workers’ Compensation, and other disputes over liability apportionment, damages, or both.

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