Subrogation is a critical but often overlooked component of large commercial insurance claims.  I say three things about subrogation: “it’s a grey area, takes a long time, and is always uncertain.” When a third party is responsible for a loss, subrogation allows the insurers, and indirectly the insured, to recover costs from that party. However, the success of subrogation depends heavily on actions taken in the early stages of a claim.

At Cara Solutions DBA VALIONT, we work closely with clients to maximize subrogation potential by focusing on key strategies that improve recovery outcomes. Here are 13 essential steps to help ensure your organization is positioned for success:

1. Preserve All Evidence; Document the Chain of Custody

Critical physical evidence must be preserved to support subrogation. Items like stoves, frying pans, lithium batteries, e-scooters, sprinkler heads, burst pipes, broken toilets, or any damaged component involved in the loss should be secured and protected.

Document the chain of custody meticulously, including who handled what, when, and where. Losing or mishandling evidence can eliminate your chance to identify and hold the responsible party accountable.

2. Preserve the Scene of the Event

The physical scene itself must be preserved to allow experts to perform unbiased, thorough investigations.

Restrict access to the area of origin, delay demolition or cleanup in critical zones until cause and origin investigators complete their work and use physical barriers or signage to secure the site.

3. Maintain Control Over Vendors and First Responders

Mitigation vendors, restoration crews, and emergency responders are vital, but their actions can unintentionally disrupt or discard crucial evidence.

Train your staff on scene control and instruct all vendors and responders not to move or dispose of materials without authorization. Ensure that fire, police, or EMS personnel document any items they remove during emergency response. 

4. Document Everything: Photos, Videos, and Incident Reports

Extensive visual and written documentation is essential.

Capture high-quality photos and videos from multiple angles, include timestamps and location data, and collect immediate incident reports from employees, tenants, involved parties, and witnesses. Proper documentation is pivotal.

5. Engage Experts Immediately

Early expert involvement is crucial.

Notify your primary insurer and adjusters immediately, and engage cause and origin investigators, forensic accountants (like Valiont), and subrogation attorneys early. Coordinated teamwork from the outset improves investigation quality and subrogation chances.

6. Report the Loss and Put Subrogation Targets on Notice

Promptly report losses to your insurer to activate their subrogation resources.

Simultaneously, identify and send (or have sent for you by your experts) formal notices to any potentially liable third parties, manufacturers, contractors, landlords to protect your legal rights and prevent spoliation claims.  Spoliation is the destruction, disruption, or alteration of evidence in subrogation.

7. Obtain All Formal Reports from Experts and Authorities

Secure all relevant formal documentation:

• Cause and Origin reports

• Fire department and police reports

• Governmental inspection or citation records

• Internal incident and security reports

These reports are vital to substantiate liability and damages during recovery efforts.

8. Engage Specialized Subrogation Legal Counsel Early

Subrogation involves complex legal issues best handled by attorneys with specific experience in this area.

Early engagement of a specialty subrogation law firm helps ensure proper evidence handling, notice requirements, liability identification, and effective recovery strategies.

9. Don’t Settle for Lowball Offers; Keep Pressing for Full Recovery

Be prepared for initial low settlement offers from the at-fault party’s insurer.

Back your position with detailed forensic accounting documentation and negotiate firmly. Persistence can lead to a significantly higher recovery.  Having all supporting expense documentation correctly accounted, organized, and presented is crucial to obtaining higher recoveries.

10. Recognize and Coordinate with Other Claimants

Multiple tenants or occupants may pursue recovery from the same responsible party, which may erode insurance limits of the at fault party.

Coordinate with other claimants and your legal team to avoid conflicting claims, leverage shared interests, and maximize total recovery.

11. Ensure Tenants, Vendors, and Subcontractors Have Adequate Insurance Coverage

Verify that all parties connected to your asset or enterprise, including tenants, vendors, and subcontractors, maintain active insurance with appropriate limits.

Request and review certificates of insurance annually to prevent lapses that could jeopardize recovery.  Remember that there are oftentimes at-fault party insurance policy limits that may inhibit your ability to obtain a full recovery of costs.

12. Stay Proactive: Monitor Experts, Claims Handling, and Settlement Distribution

Subrogation can be a lengthy process. Stay engaged by requesting regular updates from your forensic accountants, adjusters, attorneys, and other experts.

Once settled, ensure recovery funds are correctly disbursed and allocated per agreements to close the loop properly.

13. Understand How Subrogation Recoveries Are Typically Split

Recoveries obtained through subrogation are often shared between the insured and the insurer, but the exact split depends on several factors, including the insurance policy terms and the laws of the state where the loss occurred.

Common scenarios include:

• Insured-First States: Some states prioritize reimbursing the insured first for their deductible and uninsured losses before the insurer recovers its outlay.

• Insurer-First States: Other states prioritize the insurer’s recovery, requiring the insured to be reimbursed only after the insurer has been made whole.

• Policy Provisions: Many insurance policies contain specific language that can override default state rules and establish how recoveries are allocated between insured and insurer.

Understanding these nuances upfront helps set proper expectations and ensures funds are distributed accurately once recovery occurs.

Final Thoughts

Subrogation is a complex but valuable tool for recovering costs in large commercial claims. Its success requires early, coordinated, and sustained effort from policyholders, insurers, experts, and legal counsel.

By following these 13 steps you may be able to significantly improve your chances of maximizing recovery.

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This blog is for informational purposes only and does not constitute legal, financial, or insurance advice. Cara Solutions DBA VALIONT makes no representations or warranties as to the completeness or accuracy of the information provided. Always consult your legal, insurance, or financial experts before making decisions.