With subrogation, take early action, secure evidence: Forget
By Jennifer Brown, AdvocateDaily.com Senior Editor
Insurance companies are increasingly turning to subrogation as a means to collect from third parties found to be at fault after claims have been paid out, says Toronto insurance defence lawyer Martin Forget.
“They are pursuing subrogation more often because it’s an excellent avenue of recovery of the payments they’re making on these claims,” says Forget, managing partner with Forget Smith. “Recovery is available, and the courts are recognizing it, and companies are getting judgments and settlements that are favourable.
“Recovery has always been available but the insurers are increasingly recognizing the significant benefit in pursuing subrogation resulting in very favourable recoveries either by way of settlement or even judgment,” he says.
Subrogation is a legal right held by insurance companies to pursue a third party who caused a loss to an insured, he explains.
Forget has successfully handled dozens of subrogation cases over the years involving house fires and oil spills in residential homes.
“In the oil spill cases, which I happen to handle frequently, subrogation is particularly fruitful as the legislation imposes strict requirements on suppliers and oil burner technicians,” he tells AdvocateDaily.com.
In some instances, insurance companies are setting up independent subrogation units that focus solely on this kind of work, Forget says.
“Some companies now appoint a subrogation adjuster to work in conjunction with the adjuster handling the first-party claim to oversee retaining of experts, the initial investigation and to secure witness statements,” he says.
It’s crucial to take action early and secure the evidence and expertise needed to make a solid subrogation case, Forget says, adding that witness statements with a clear recollection of the events and photographs of the damage and an early expert opinion are essential.
“The first step is for the insurer to realize that there is an avenue of recovery and then get in early on the investigation,” he says. “That entails getting an expert to comment on the origin and cause of whatever casualty you’re dealing with — a fire, flood, or an oil spill. But also collecting witness statements from the insured property owner/occupant and photographs or some other documented evidence of the damage because otherwise the properties get rebuilt, and the damage is eventually gone.”
In a 2015 case, Forget acted for a subrogating insurer that had paid out a claim on a fire loss case, involving a determination of what caused the fire. The company sought damages from a heating contractor for negligent installation of a wood furnace. The heating company denied any negligence. Still, on balance of probabilities, the plaintiff was awarded $810,016, including $611,986 for the reconstruction of the house and $174,750 for contents.
An expert provided a “logical and coherent” explanation for the cause of the fire, supported by photographic evidence that showed the heating installer failed to take the necessary steps to ensure the gas-tightness of a breach pipe, which made it possible for hot gases to escape into the wall cavity, he says.
The heating company’s counsel raised the issue of spoliation, a rule of evidence, relating in this case to the decision by the insurer to demolish the home after the fire, Forget says. The adjuster testified that by the day after inspecting the site, the expert suspected the fire occurred as the result of the heating company’s negligent installation of the furnace. The house was demolished 16 days after the expert undertook an inspection. The court ruled that there was no adverse inference from the fact the house was torn down before the heating company learned of the claim, he says.
The subrogating insurer has a better chance of achieving a recovery if there are an early investigation and involvement of the defendant, says Forget.
“That case went to a nine-day trial, and we were entirely successful, but you try to avoid a trial if you can,” he says. “Ultimately, you want to settle these cases, but sometimes they do have to go to trial.”
Forget says two significant factors dictate success in these kinds of matters. The first is on the merits of the cause of the loss, but the second is whether or not the defendant has insurance coverage or can pay for a potential recovery.
In a more recent case affirmed by the court of appeal this year, Forget represented a client following an oil leak in a home. The furnace oil tank leaked through the basement and into the exterior soil, though a drainage system under the house, into the city’s culvert and then a nearby lake. The incident required a remediation project to deal with the millions of dollars of damage to the environment, he says.
The plaintiff sued for negligence against the fuel company, the company’s supplier and service technician, the Technical Standards and Safety Authority, and the manufacturer of the oil tank, Forget says.
The oil tank manufacturer settled with the homeowner shortly after the trial began, signing a Pierringer agreement that released the manufacturer from the action and removed the risk that co-defendants might have to pay its share of damages if it could not do so, according to court documents.
At the conclusion of a 27-day trial, the trial judge found that the fuel supplier and the service technician were negligent but that the TSSA was not, Forget says. The judge also found that the homeowner had been contributorily negligent and apportioned liability as follows: the homeowner 60 per cent at fault, and the fuel company 40 per cent. The fuel company was ordered to pay the subrogating insurer $864,628 in damages and $465,000 in costs.