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Bench & Bar of Minnesota is the official publication of the Minnesota State Bar Association.

Anatomy of a subrogation investigation

A successful subrogation action begins long before a complaint is even filed. A well-executed subrogation investigation will increase your chances of success and may even allow your client to recover without resorting to litigation.

Before getting into the anatomy of a subrogation investigation, let’s begin with a definition of subrogation. Subrogation is defined as “[t]he substitution of one party for another whose debt the party pays, entitling the paying party to rights, remedies, or securities that would otherwise belong to the debtor.”1 The “subrogor” is the party for whom or to whom the benefits were paid.2 The “subrogee” is the party who paid the indebtedness.3 In Minnesota, subrogation rights are only transferred to the extent that payment is made.4 

There are three basic forms of subrogation: (1) conventional subrogation, which arises by contract; (2) equitable subrogation, which arises by operation of law or equity; and (3) statutory subrogation. Subrogation cases can expose you to a variety of different practice areas—from property losses involving machinery or fires to workers compensation cases to landlord/tenant issues. This article will focus on the steps necessary to facilitate an effective subrogation investigation after a property loss, and a fire loss in particular. 

Step 1: Preserve the scene

Above all else, ensure that the scene remains intact. Origin and cause investigators and field adjusters may not understand the legal ramifications of releasing the scene or removing artifacts, which is why it is important for a lawyer to take the lead throughout the subrogation investigation process. 

As you begin investigating the origin and cause of the loss, it is important to ensure that all parties will have the ability to conduct their own investigations to avoid potential spoliation-of- evidence issues that will limit your ability to recover. “[T]he fire scene itself is the best evidence of the origin and cause of a fire” and is of “unquestionable relevancy.”5 In Hoffman, for instance, the plaintiffs sued Ford alleging that their Ford Taurus caused a fire destroying their home.6 The plaintiffs conducted their own origin and cause investigation into a fire, then salvaged the Ford Taurus and demolished the home.7 The plaintiffs, however, failed to notify Ford of the loss before destroying relevant evidence regarding the origin and cause of the fire.8 As a result, the plaintiffs’ origin and cause evidence was ruled inadmissible and the case was dismissed.9

Step 2: Assemble your team

Having the right team of experts by your side will allow you to conduct an efficient investigation. Sometimes accidents do happen and subrogation potential doesn’t exist. A good expert should be candid with you so that you can provide your client with a proper evaluation of the likelihood of success and protect them from throwing good money after bad.

 In investigating a fire loss, it is necessary to have an origin and cause investigator evaluate the scene and determine whether there is any potential third-party liability. Your fire investigator should be well-versed in the National Fire Protection Association standard NFPA 921, which sets the bar for scientific-based investigations. Even though a well-executed investigation may lead to recovery pre-suit, it is important to ensure that the evidence gathered and opinions rendered during your investigation will be admissible at trial.10 

Depending upon the cause of the loss, it may also be important to retain additional experts to develop your theory of liability. An electrical or mechanical engineer is often necessary in fire investigations. For instance, if a fire originated with a furnace, you should consider a mechanical engineer to determine what specifically caused the loss. 

Step 3: Notifying potential targets

Once your investigator has identified potential third-party liability, it is necessary to put all interested parties on notice.11 Who is an interested party? Let’s say you have a fire that originated with a washing machine. Interested parties would include the manufacturer, retailer, any parties that may have serviced the washing machine after purchasing, and any component part manufacturers (if known). 

Your notice letter should include a brief description of the loss, as well as the date of a joint inspection. It is also a good idea to ask the parties to notify you of any other parties that may be interested in participating in the joint exam. This will increase the likelihood that all parties are present during the inspection and reduce the likelihood that a potentially liable party is discovered during the inspection. This will require you to suspend the investigation to put the party on notice—which will also delay the insured’s ability to start work repairing their property and getting back on their feet. 

It is also a good idea to send an inspection protocol with your notice letter, or at least in advance of the inspection, to define the nature and scope of the inspection. Providing the protocol in advance will allow parties to object or comment before arriving on scene. Working through these issues before the inspection should lead to a more efficient investigation.

Step 4: Conduct a joint inspection

If you are organizing an inspection, it is important to be on scene for four reasons. First, being present to inspect the scene and evidence yourself will help you understand and develop your theory of liability and damages. Second, should any objections or unforeseen circumstances present themselves, you will be present to consult with your experts and address any issues with the interested parties, which will be helpful in evaluating the strength of your case and communicating the issues to your client. Third, you will be able to observe the other parties’ experts, which may help you anticipate potential defenses. In addition, you will be able to observe just how involved the experts were in the inspection, which may be beneficial for challenging the opinions contained in their reports down the road. Say, for instance, an expert arrives at an inspection but only inspects the scene for 15 minutes. When you receive the expert report denying his or her client’s liability, you will be armed with the knowledge that the expert’s inspection was cursory at best. Finally, being present will allow you to ensure that any evidence being removed is retained appropriately to combat any chain of custody issues as you move toward litigation.

Step 5: Issue demand letter

Once your investigation is complete, you should have formulated a clear theory of the case and identified a responsible party or parties. Once repairs have been made, you should be prepared to issue a demand to those responsible parties, supported by your damages documentation. A well-supported demand letter may increase the likelihood of recovery without litigation. It all starts, however, with a well-executed investigation.

 


MEGHAN RODDA is an associate at Grotefeld Hoffmann LLP who focuses her practice primarily on insurance subrogation and defense litigation. Rodda has significant experience coordinating the investigation and prosecution of property damage claims arising from large fires, explosions, and manufacturing and design defects.

 


Notes

1 Black’s Law Dictionary, 10th Edition (2014).

2 Id. 

3 Id.

4 Hershey v. Physicians Health Plan of Minn., Inc., 498 N.W.2d 519 (Minn. 1993); Westendorf by Westendorf v. Stasson, 330 N.W.2d 699 (Minn. 1983). 

5 Hoffman v. Ford Motor Co., 587 N.W.2d 66, 71 (Minn. Ct. App. 1998).

6 Id. at 68.

7 Id.

8 Id. at 70-71.

9 Id. at 72.

10 See Minn. R. Evid. 702 (2006); Doe v. Archdiocese of St. Paul, 817 N.W.2d 150, 164-65 (Minn. 2012).

11 See Miller v. Lankow, 801 N.W.2d 120, 132 (Minn. 2011) (Minnesota imposes a duty upon a “custodial parties to give noncustodial parties a full and fair opportunity to examine relevant evidence”).

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