Subrogation arbitration: Four trends emerging post-pandemic
Four key areas have had the largest bearing on intercompany arbitration as subrogation departments emerge from the last several years.
Arbitration filings leading to subrogation recovery is a process that has been in place for well over three-quarters of a century. However, in all that time perhaps there has never been more of an impact to the process, procedure and (frankly) the ability to prevail at hearing than what the insurance community has experienced over the last few years. What has been the noticeable effect on the insurance industry as a whole, where roughly 13% of all subrogation claims make their way to intercompany arbitration? Every dollar recovered is essential to the bottom line of carriers and self-insureds as they leverage the arbitration process as a means to secure those monies where disagreement exists over liability for the loss; the damages incurred or coverage.
Let’s look at four key areas that have had the biggest bearing on intercompany arbitration as subrogation departments emerge from the last several years, and what they can do to ensure the optimal opportunity for recovery on every claim making its way before an arbitrator.
Parts availability
First and foremost, impacting subrogation claims — and to almost no one’s surprise — is the availability of parts necessary for repairs to damaged vehicles. We know that around 93% of all intercompany arbitration cases are filed in the auto physical damage forum. So what does the lack of available parts mean to the intercompany arbitration filer? It infers that everything from the price of the part to the need for an insured to be in a rental vehicle longer factors into subrogation and, by transference, the arbitration filing. Backlogged body shops combined with a scarcity of parts form the simple equation that has led the dollar value of the subrogation claim filed in arbitration to increase.
This suggests it is more important than ever that the documentation you have in your claim file making its way to an arbitration hearing includes supportive proof around topics like supply chain issues and parts availability. That can be everything from the actual documentary evidence showing the cost of the part, or the expanded timeline to secure same to education to the arbiter about the overall industry’s challenges with parts availability. For example, think about placing articles on parts shortages into evidence with the arbitrator to buttress that issue with your case.
After all, it is one thing to deal with this concern as you handle the claim and interact with your insured. It is quite another to persuade the decision-maker (the arbiter) that the amounts you are seeking are valid and backed by firm evidence. Similarly, claims professionals should keep in touch with body shops and log notes on repair status updates and parts delay obstacles in their files, and submit that information as evidence with their arbitration filing. The advocate highlighting this aspect of their case in their contentions will draw inference for the arbitrator as to how those issues have factored into the claim amount sought, then connect it to the notes included as proof.
Auto rentals
Rental recovery is another area within damages requests for arbitration placements that has increased. For many filing arbitration cases, this is the biggest exposure for clients since the pandemic; to the point we file for more dollars in arbitration toward rental subrogation as part of the case than ever before. The reasons are several: Body shops are bottlenecked and perhaps not able to take in as many vehicles as they had. For those with non-driveable automobiles or trucks, this becomes a bigger concern, as the insured stays in the rental for a longer period of time. Concurrently, the aforementioned ‘parts availability’ impediment also factors into the rental exposure. Vehicles cannot be repaired as quickly, the insured’s time in the rental increases, and the dollars sought with the subrogation claim escalate. Lastly, there is the element that daily rental rates have increased. Some carriers will argue in arbitration that basic rental is all that is owed, but do those rates (in many markets) exist? As an advocate in preparing your case, foreshadow that issue if you know from discussions with the adverse party that it is likely they will challenge the amount you are requesting as outside the norm for rental recovery when you file arbitration.
The aforementioned spotlights your documentary evidence. Pro tip: Often it will be the ‘second page’ of a rental bill that provides the compelling evidence the arbitrator needs to award the amount of damages requested. Frequently, it offers the detail necessary regarding the timeline for the rental. Draw the nexus between your requested damages in the contentions and what is cited on the rental invoice clearly explained on page two. The case presenter wants the arbitrator to take away that the carrier was proactive in monitoring the rental and thus the damages requested are valid, reasonable and supported through evidence.
Evidence acquisition
The quality (or even quantity) of evidence tied to arbitration filings has also been impacted over the last several years. Perhaps due to shifting resources in the claims department; possibly as a result of losing seasoned personnel; or conceivably the effect of having to scale upward to meet the increasing claims volume. Lack of or inattention to evidence to be the corresponding area that has had a direct bearing on the ability to win cases at hearing.
The trend is particularly noticeable with tried-and-true proofs a carrier would use at arbitration, such as transcribed statements from the named insured or a witness. Viewed often as direct evidence with immediate first-hand knowledge by the person for the event, this type of proof can be essential in corroborating the fact pattern as well as other evidence that might be introduced. The seeming decrease in statements being acquired by the industry and submitted as evidence leaves the arbitrator with either adjusters notes (a recollection of the event summarized in the words of the person talking with the insured or witness) or FNOLs (First Notice of Loss) which often lack substantial specific detail. Both of these are considered hearsay proofs and while allowed at hearing, often have to be overcome with pointed direction for the arbitrator to other evidence that can then support the trustworthiness.
Advocates can consider it this way: Let’s assume you were participating in a ‘live’ hearing as opposed to one where written contentions are submitted for the arbitrator as is the case with intercompany arbitration. Who is the one person the arbitrator would most like to hear from in the ‘live’ setting? Your insured! The one at the scene; the one with perspective on how the loss occurred and whose veracity can be evaluated with what they have to say, and reliability corroborated via other proofs.
So, minus a statement in evidence at the intercompany arbitration setting, the decision-maker does not hear from your insured with details that explain the incident scenario and can be confirmed through other supports. The viable point is carriers and self-insureds are well served to secure these statements from their insured and witnesses for submission to the arbitrator to heighten every opportunity to succeed. As we know, an absence of evidence is not an absence of information, but the lack of statements in the intercompany arena heightens the hurdle for the prima facie burden.
Lastly, demonstrative evidence has been viewed over many years by arbitrators themselves as a form of proof helpful to them in arriving at the correct decision. Whether aerial photos, pictures taken at the scene of the loss itself or a constructed scene diagram, arbiter after arbiter will attest to the value of visual aids for them in decision-making. The challenge is it can take time to create this proof. But the value (especially if the adverse party paints the picture for the arbitrator with demonstrative proofs and you do not) should never be underestimated. Bottom line: Claim department resources are stretched and it does take time to prepare demonstrative evidence, but do not discount this form of proof integral to a winning case. Paint the picture; seize the visual in the arbitrator’s mind!
Expertise filing cases
The last noticeable trend with intercompany arbitration that has emerged post-pandemic is the realization that filing arbitration is a specialization. For many, what appears to be a swift assessment of looking at the fact pattern — gauging the evidence and writing a quick narrative (contentions) in less than 30 minutes — should not be exchanged for a clear delineation of a theory, presentation of a theme and incorporation of specific evidence that leads the arbitrator to the conclusion you seek. The reality is that whether it’s the ability to coalesce a theory from the proofs, how to strategically use the rules of arbitration or weigh both the positive and negative traits of the seven kinds of evidence in subrogation cases (direct, demonstrative, documentary, hearsay, opinion, circumstantial and real) filing arbitration cases is a tangible skill set acquired over many years.
When one considers the veteran subrogation/arbitration specialists who are no longer in the industry for a variety of reasons, there is little doubt it takes time to replenish talent. Many of those who left not only had decades of experience in filing cases but also in hearing cases as arbitrators themselves. As those carriers and self-insureds participating in the process strive to meet their threshold of ‘hearing’ as many cases as they file due to the nuances of the intercompany arbitration system, resources may be re-directed from filing to hearing. The perspective being it takes time to become an accomplished arbitration panelist; more than a quick webinar and an online test so the carrier might seize those with the most experience to meet the threshold.
The gap left behind then is that of a fully experienced team of arbitration filers (though claim professionals can do both). Couple this with a tight labor market and the availability of people with this expertise has waned. For some, the desire for remote work only or to ‘call their own hours’ factors into the talent a carrier or self-insured can readily secure to file arbitration cases. The ongoing surge of material damage cases in intercompany arbitration further exacerbates the issue. A considerable amount of arbitration talent has left the industry over the last several years. Plan for its replacement and recognize learning and being successful at arbitration takes time.
2023 and beyond
The focus going forward for the subrogation arbitration department regarding their intercompany arbitration caseload is impacted by all four of the views expressed here. Parts availability for the industry may return, and the impact of rentals to the subrogation claim should eventually be restored to the levels seen before the pandemic.
Evidence? Well, that one never really goes away and should always be the priority for those seeking to maximize their recovery on cases making their way to inter-company arbitration. Arbitration skill set talent will also come back as filers have the opportunity for exposure to more fact patterns within their cases, write increasingly persuasive contentions (as can only be acquired over time), and continually develop and refine their abilities with leveraging evidence presentation. Four views; all for the recovery.
Kevin Pike (KPike@Subroclaims.com) is arbitration manager for the national recovery firm Subroclaims, Inc. His background encompasses 35 years in arbitration and the dispute resolution field. He writes a weekly blog on intercompany arbitration and regularly teaches and speaks at conferences on arbitration.
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