Blueprint to Protect Your Recovery Rights

The imperatives of loss-site investigations and how to develop the blueprint to protect your company's recovery rights.

By ELLIOTT R. FELDMAN, chair of the Subrogation and Recovery Department at Cozen O'Connor; and MEGAN L. MCFARLAND, a member in the department at the Seattle office

When a casualty loss occurs, there are a number of legal imperatives that have to be followed in order to protect your company's rights and to preserve claims against potentially responsible third parties.

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There inevitably is going to be a certain amount of disruption from the event itself, as well as its aftermath. In fires, for instance, there necessarily will be extinguishment activities, overhaul and cleanup. For water damage losses, there similarly will be relocation of inventory or other contents to prevent their damage and other remediation activities. Public-sector authorities, including police, fire and code officials, may direct artifacts to be bulldozed, torn down or discarded to address public health concerns. A number of these factors are outside your company's control, and for the most part, they will not be held against your company when assessing liability issues.

If your company seeks to recover from responsible third parties, however, then it has the burden of proof to demonstrate the legal and factual basis for its claim.

A recovery opportunity could be blown if critical evidence is lost at the claim site. Similarly, if your company is facing liability exposures, the destruction of critical evidence may impair your defense.

For all of these reasons, it is of paramount importance for your company to have the equivalent of a SWAT team to move expeditiously when a casualty event occurs. Along with the insurance adjusters, investigators and engineers, this team should include outside and in-house counsel to coordinate the activities of forensic investigators, internal investigative activities and communications with public-sector authorities, insurance claims representatives and injured third parties. By moving quickly, your team can liaise with public officials to minimize or postpone activities that otherwise might result in the damage or destruction of critical physical evidence.

At the same time, it is important to be fully cognizant of your company's potential responsibility to notify other prospective parties regarding the casualty event and their opportunity to conduct a loss-site investigation while the scene remains relatively undisturbed. This is particularly true if your company is seeking to preserve a claim to recover for its damages from responsible third parties.

While the law differs in degree from state to state, and even between federal and state courts, the synthesized approach is as follows: When a casualty event occurs for which your company is seeking to recover from potentially responsible third parties, you are required to place those parties on notice as soon as practicable so as to afford them a meaningful opportunity to conduct a loss-site investigation in conjunction with your company's independent investigation.

The physical evidence often will afford a blueprint of sorts to determine legal liability for the event. Recognizing, again, that it is extremely rare to be able to preserve all pertinent physical evidence in a precise "as was" condition, it is important to thoroughly document the scene by taking extensive photographs and video so as to provide more of a three-dimensional illustration.

While all of this is being conducted, legal counsel must consider applicable work product and attorney client privileges, both for communications between your company and counsel, as well as for communication with specially retained expert consultants. That way, your company is in a position to avail itself of these legal privileges and put its best foot forward if litigation ensues. In this regard, consideration should be given to the process for conducting internal investigations, and how the information obtained should be recorded.

A number of granular issues should be considered, such as whether written or recorded witness statements should be taken; whether an outside, independent forensic consultant should be retained to coordinate the technical evaluation; or whether that should be coordinated by an engineering employee. Also decide what type of information should be provided to the public-sector authorities conducting an independent investigation in tandem with the one being carried out by your company.

No simple, formulaic approach exists for these and other related questions. The investigative process inherently is messy. It requires judgment calls based upon experience, legal requirements and practical imperatives.

The one safe rule of thumb is that there must be a single "captain of the ship" acting on behalf of your company, who is in a position to address all of these considerations and provide your company with sound recommendations for how to proceed so as to protect and preserve your company's highest and most important interests.

March 1, 2011

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