Subrogation Savoir-Faire: What You Don’t Know Can Hurt You

Oh, that it wasn’t so, but today’s world of insurance claims adjusting, subrogation and civil litigation rewards the ability of one party to take advantage of what the other party doesn’t know. A civil trial is known as an “adversary proceeding” because it pits two or more opponents against one another with regard to a legal conflict, contest or dispute. The American system of civil justice becomes a factual search for the truth and the application of law to that truth. If one party is unaware of the law, including each and every legal claim, defense, exception, argument, loophole and opportunity available, they are at a distinct disadvantage. The real tragedy is that the loser in this battle of knowledge often remains ignorantly unaware why they lost.

In the world of claims handling and insurance subrogation, knowledge is power. We often see the aftermath of clients waiving significant subrogation interests or paying on claims that, had the law or issues been fully recognized and understood, would have turned out much differently. Failing to recognize that the subrogation law of a state other than the one in which a matter is being litigated might apply is a very expensive and oft-repeated phenomenon. Taking at face value a third-party liability carrier’s erroneous assertion that you cannot recover personal injury protection (PIP) benefits in a particular state until a threshold is reached is an expensive way of placing your trust in the opinions of an adversary. Not realizing that a waiver of subrogation endorsement is not applicable to a large workers’ compensation lien is an expensive reoccurrence that happens with alarming frequency. Failing to understand when a subrogated carrier can initiate a third-party action on its own; missing notice deadlines involving responsible municipalities and government entities; accepting claims that an insured is not “made whole” and waiving subrogation without challenge; not understanding the interplay between workers’ compensation and automobile no-fault laws. Combined, these and many other similarly-repeated mistakes cost the insurance industry staggering amounts of subrogation dollars. What you don’t know can hurt you.

Information is the most valuable commodity our industry possesses, and it is free for the taking. All that is required is a minor investment of time and a willingness to learn.

Training and education have other unspoken benefits. They are not just the filling of a pail; but the lighting of a fire. They engender passion and a love for what one does for a living. They instill pride and satisfaction that comes with developing a distinguishing expertise within an industry or profession. The well-trained employee becomes more valuable, more efficient, and more profitable. The claims professional experiences an exponential growth in professional and personal dignity, which leads to longer employment tenure and higher job satisfaction. Low employee turnover means a growth in experience, which compliments training and often magnifies its benefits. Just as important as understanding the legal nuances of a claim or defense is the ability to determine if your adversary knows what they are talking about.

In addition to being the name of a food-stealing mouse character in the 1960’s cartoon, “Klondike Kat”, savoir-faire is a French noun that literally means “the knowledge to do” or “the know-how to be able.” It connotes a sophisticated level of understanding in a nuanced and little-understood area. It is the ability to be adaptable, adroit, and able to know what to do in areas that are not well-understood. Subrogation is such an area, and subrogation savoir-faire can translate into millions of subrogation dollars that would remain unrealized without it. The only ways to acquire it are training and experience; but even the latter often involves learning things wrong and repeating expensive mistakes.

In the world of claims, I would submit—at the risk of ruffling the feathers of many experienced claims and subrogation professionals—that education and training are far more important than experience. Having “knowledge” of something is not the same thing as being “correct.” Even the most experienced of claims professionals sometimes “know” things that simply aren’t so. For example, the vast majority of the insurance industry uses the term “claimant” to describe a culpable third-party tortfeasor responsible for causing a loss, while the term literally refers to “a person who makes a claim.” The mistake is repeated so often that even printed forms within the industry perpetuate the misnomer. Even the experienced will repeat a mistake until they analyze their patterns, recognize the mistake, and break free from it. That can only come from education. As Oscar Wilde famously said, “Experience is simply the name we give our mistakes.”

Insurance claims and subrogation training is ubiquitous and free for the taking. You can’t go on the internet without coming across a webinar, YouTube training session, or online PowerPoint discussing both subrogation basics and minutia fundamental to a fully-functional claims or subrogation program. Hundreds of claims and/or subrogation trade associations have sprung up, featuring inexpensive memberships and free insurance/subrogation training. Several associations feature quality subrogation training, including Claims and Litigation Management (CLM), Property Loss Research Bureau (PLRB), Property Casualty Insurers Association of America (PCI), Association of Claims Professionals (ACP), National Association of Independent Insurance Adjusters (NAIIA), American Insurance Association (AIA), American Educational Institute (AEI), International Association of Claims Professionals (IACP), Society of Claim Law Associates (SCLA), and many others. Law firms also offer training to clients and potential clients alike. Matthiesen, Wickert & Lehrer, S.C. features dozens of online webinars on every insurance subrogation subject imaginable—free to the public. Interactive legal/subrogation maps detailing the laws of all 50 states and 50-state subrogation reference charts right at our fingertips. YouTube seminars are only a mouse click away. The lack of available training sources is no longer the excuse it once was.

The repeating of mistakes in the world of insurance claims and subrogation is echoed in a Claims Journal article entitled “Ten Subrogation Mistakes Insurance Companies Keep Making.” Of the ten mistakes discussed in the article, several of them are repeated despite – and in some cases directly as a result of – a wealth of experience. They are repeated as a result of a chronic lack of knowledge on a set of particular esoteric legal issues, nuances, or beliefs.

To err is human, to be sure. Yet many people continue to make the same mistakes over and over. A series of experiments published in 2016 in the Journal of Consumer Psychology reveal how our brains often fail to learn from our past mistakes to the extent we might think they do. In fact, the studies reveal that thinking about past mistakes often causes us to repeat them. When we make a mistake, our brains typically slow down the decision-making process the next time the same situation arises, through a phenomenon known as “post-error slowing.” With each decision, studies show that test subjects consistently used weaker and weaker information to make their decisions. The explanation for this bizarre result is that “the brain gets involved in a quest to understand why the error took place.” It tries to determine why a mistake was made whether there is something wrong with the individual. This negative feedback triggers a cascade of computations which distract from the decision at hand. It is simultaneously a testament to the infinite complexity of the human mind and its frailty. An example is the “tip of the tongue” phenomenon in which a name or word is on the tip of your tongue, but you just can’t quite remember it. Once you recall it, it is such a relief that you can’t imagine ever forgetting it again. But you do.

A lack of subrogation and claims education is a mistake that flows from the top down. Many decision-makers within our industry have never been responsible for recognizing and taking prompt action on subrogation potential. As a result, they have very little empathy or appreciation for what is needed to improve the only area of the industry other than the receipt of insurance premiums where money flows in not out. Being good at the former seems every bit as important as the latter. Good judgment comes from experience, and experience comes from bad judgment. Effective subrogation requires an investment of time and resources and it all starts with education. Anything less and we are deluding ourselves about how well we are performing as an industry.