Employers are most often concerned about the individual's well-being when an employee is injured on the job. They're focused on getting the person back to work as soon as possible.
If the employee's injury was caused by a potentially liable third party--such as in a car accident or the failure of a piece of machinery--employers should perhaps consider something else: costs. They may be able to recover any workers' comp benefits paid out by their insurance carrier and avoid costly premium hikes.
In many cases, insurance companies are automatically flagging serious workers' comp claims for subrogation, a process that allows the insurer to recover their payments from a third party that is legally responsible for the loss. Subrogation is often successful in automobile accidents, product-liability claims (such as a machinery malfunction, slips and falls, contracting, and construction accidents), and even dog-bite claims.
"Subrogation is a critical tool to control costs for workers' comp policyholders," says Bob McNeil, manager of subrogation and recovery at Liberty Mutual in Boston. "Using subrogation, we can make a significant bottom-line contribution to our customers' workers' comp costs, reducing their paid losses, maintaining their experience modification rating, and ultimately mitigating or eliminating future exposures."
Carriers such as Liberty Mutual often have in-house subrogation professionals to review claims with subrogation potential once the insurer receives a first report of injury. The subrogation staff may include claims handlers with expertise in identifying recovery potential or attorneys with experience handling third-party claims.
"Recognition and referral of a claim with subrogation potential is the most important step in the recovery process," says McNeil. "We developed a proprietary software tool to look at all claims for subrogation potential once they're reported to our branch claims offices. Once a claim is identified, our subrogation unit conducts a parallel investigation with claims handlers to determine the strength or weakness of the case."
If a case is determined to have a high potential for recovery, Liberty has a dedicated legal department that handles subrogation, which works to preserve evidence, protect discovery and recover any benefits paid out on behalf of the insured.
"Subrogation provides one of the few opportunities an insured has to actually get money back from their insurer," says McNeil. "For example, if a case is valued at $500,000, and $200,000 has been paid by the insurer in workers' comp benefits, we can go after the responsible third party to recover those payments. In addition, we can negotiate a future credit of $300,000 to the customer into the settlement so the employer is not responsible for those remaining costs."
John Marr, senior vice president of claims at Maine Employer's Mutual Insurance Co., based in Portland, Maine, notes, "Subrogation has been around since the first workers' comp policy was written. Unfortunately, many insurance carriers haven't followed up on subrogation opportunities as closely as they should.
"Claims-handlers are typically focused on the reporting of the injury, determining compensability and the recovery of the injured worker," Marr adds. "Too often, the potential for subrogation becomes an afterthought, and the potential is forgotten after the claim is closed. By not pursuing subrogation, workers' comp carriers could be walking away from significant savings for their company and their policyholders."
MEMIC uses in-house counsel, working closely with claims-handlers, to identify the potential for subrogation. If there is an indication of the likelihood for recovery, an attorney sends notice to the offending, potentially liable third party. If necessary, a claim may be referred to a tort attorney to serve as co-counsel on the recovery process.
"We aim to maximize our potential for recovery and reduce recovery expenses," says Marr. "We make it known to the offending third party that our interest is to recover 100 percent of our lien." He notes that MEMIC has recovered more than $1 million, on average, in the past 10 years.
"When you're dealing with subrogation, you need to build credibility with third-party carriers, and let them know you're serious and will try the claim if necessary," says Norman Beegun, assistant vice president, senior trial attorney and manager of the subrogation department at Zenith National Insurance Corp. in Woodland Hills, Calif.
"Workers' comp carriers," he says, "need to work with civil attorneys who can be aggressive on these cases, while protecting the interests of the insured and the insurer."
Zenith handles all subrogation on its own, using a staff of three full-time attorneys with civil-litigation experience who work closely with the special investigations unit, claims handlers, and safety and health representatives to identify claims with subrogation potential.
"We take a three-pronged approach to identifying these claims," explains Beegun. "The first step is the use of 'dailies,' or short descriptions of an accident claim printed out by the subrogation department. This information generates alerts that are sent to claims managers advising them to send any subrogation referrals on to the legal department. In addition, our SIU sends claims investigations that are deemed to have subrogation potential to our legal department. The third way a claim is referred to us is through the first-call department, which sends us a heads-up regarding any catastrophic or significant injury cases. We also provide ongoing training programs for claims personnel on how to identify claims with subrogation potential.
"If a case has strong recovery potential, we gather all the evidence, including statements, photos, videos, etc., to make sure we have all the information in order to settle or litigate the case. Our goal is to close the case and get back any money we've expended, while protecting the insured's experience modification rating and avoiding an increase in their premiums."
Having the appropriate legal expertise to handle the claim is particularly important.
Linda M. Higgins, vice president of workers' compensation and medical management at Harleysville Insurance, in Harleysville, Pa., notes, "We partner with a national law firm that specializes in workers' comp subrogation. These attorneys serve as a source of expertise for our employees, provide on-site training programs for claims personnel and serve as a sounding board to discuss the recovery potential of each claim."
Robert J. Liberati, vice president, claims finance and data management, at Harleysville, says, "We've also been able to build a level of expertise within our own in-house subrogation unit. We have an individual on staff with a claims background who can deal directly with all of our field offices. While we have always pursued subrogation in workers' comp claims, we have taken it to a more specialized level within the past 10 years, using the combined expertise of external counsel and our in-house subrogation unit," he notes.
"It's important to treat subrogation equally with other aspects of claims-handling," says Zenith's Beegun. "You need to develop a positive working relationship and rapport with your insured, work hard to protect and preserve any evidence, and let the insured know you're trying to get money back for them and that you will support them throughout the subrogation process."
Marr of MEMIC adds, "Policyholders often don't realize the benefits of subrogation until they see the effect on their experience modification ratio and their future premiums--and understand that insurers are willing to pay them back for benefits paid out at the fault of another third party. Subrogation brings down the cost of claims significantly. It's essential that you have the understanding and cooperation of the insured, particularly in product liability-related claims, in order to make the process as painless and fruitful for them as possible. And let them know that your recovery as an insured benefits them as well."
is a freelance writer living in Pennsylvania.
March 1, 2006
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