Civil Procedure - Subrogation - Construction Defect
Hodge v. Kirkpatrick Development, Inc.
Under what circumstances may an insurer pursue subrogation rights against third parties by intervening in a lawsuit? In this case, State Farm Insurance Company issued Plaintiffs Douglas and Kylie Hodge a homeowners insurance policy for their home in Laguna Beach, California. The policy granted State Farm subrogation rights against third parties.
In December 2002, the Hodges submitted a claim to State Farm under the policy for water and mold damage to their house allegedly caused by the negligence of third parties, including Defendant Kirkpatrick Development, Inc. The Hodges made a total demand to State Farm of $1,699,680. State Farm denied the Hodges claim for mold damage and paid the Hodges approximately $150,000 for water damage.
In September 2003, the Hodges filed a construction defect lawsuit against Kirkpatrick and other contractors, who helped construct the home. In November 2003, the Hodges filed a complaint for Bad Faith against State Farm. The trial court in Orange County denied State Farm' s motion to consolidate the construction defect lawsuit and the bad faith lawsuit. State Farm then moved for leave to intervene in the construction defect lawsuit to file a subrogation complaint. Plaintiffs and nearly all Defendants in the construction defect action opposed State Farm's motion. The trial court denied the motion on the grounds that the "complication " of adding State Farm to the action outweighed any prejudice to State Farm by not allowing intervention.
On appeal, State Farm argued that it had a right to intervene, pursuant to Code of Civil Procedure, section 387. Under section 387(b), a nonparty has a right to intervene in a pending action if the person seeking intervention claims an interest relating to the property or transaction which is the subject of the action, and that person is so situated that the disposition of the action may, as a practical matter impair or impede that person's ability to protect that interest, unless that person's interest is adequately represented by existing parties.
The Fourth District Court of Appeal held that State Farm had subrogation rights by operation of law and under the terms of the policy. Contrary to the argument of the Hodges, State Farm was not just a creditor. Rather, State Farm stepped into the Hodges shoes and, to the extent it made payments under the policy, had the same rights as the Hodges against the various Defendants in the construction defect lawsuit. An insurance carrier with a right of partial subrogation has a direct pecuniary interest in an insured's action against responsible third parties.
|
The Court further ruled that disposition of the construction defect lawsuit would "as a practical matter impair or impede" State Farm's ability to protect its subrogation rights within the meaning of section 387(b). Plaintiffs and Defendants in the construction defect action contended that State Farm could pursue a separate lawsuit against the responsible third parties, or could wait for the Hodges to collect on their lawsuit and then recoup payments directly from the insureds. The Court decided that either of these options could impede or impair State Farm's right to pursue subrogation.
In addition, the Fourth District held that State Farm's interests were not adequately represented in the construction defect action by the Hodges. The Hodges had an incentive to prove their losses resulted from mold damage caused by Defendants' negligence and a disincentive to prove their losses resulted from the water damage. Finding that the requirements of sections 387(b) had been met, the Court of Appeal reversed the trial court order denying State Farm's motion to intervene.
COMMENT: This case makes clear that an insurer has a statutory right to intervene in a third party lawsuit to seek reimbursement of insurance payments made to an insured.
Source: Low, Ball & Lynch - http://66.101.195.60/
|
Property/Casualty Claim Officers Cite Competitive
Pressures as Biggest 2008 Challenge
|
Attracting and Retaining Top Talent Also Emerging as a Major Issue
Stamford, CT, March 24, 2008— Nine out of 10 property/casualty claim officers said increased competition, consolidation and convergence are among the leading challenges facing their industry in 2008, according to a recent Towers Perrin survey conducted by the firm's claim management practice.
The claim officer survey also reported on key trends that are reshaping the industry, citing the rapidly growing importance of data analysis and technology, along with recruitment and retention of top talent, as key determinants of meeting business goals. In fact, attracting and retaining top talent is cited as the top priority for 82% of companies surveyed.
"Claim officers are all too familiar with the challenges of competitive pressures," said Kathleen Cullen, Towers Perrin's claim management practice leader. "Our survey looks beyond traditional competition and provides excellent insight into the emerging issues that are transforming the industry. The way the industry traditionally looked at itself has shifted from budgets and operational controls to a need for more sophisticated approaches regarding managing claim performance and results."
In all, 62 claim officers from property/casualty insurance companies of various sizes were surveyed in late 2007: 37% from companies with less than $200 million in written premiums, 31% from companies with written premiums of between $200 million and $750 million, and 32% from firms with more than $750 million in written premiums.
Both commercial and personal lines companies participated:
- About half write a significant amount of business in commercial lines, with approximately half of those describing multi-peril as their primary line of business.
- Within personal lines, about half of those participants write predominantly auto coverage.
Expense and cost management remains a top concern for all carriers, although better technology solutions and sophisticated analytics are getting more emphasis as competition tightens.
Secondary challenges vary by respondent demographic with larger carriers citing distribution and product management while smaller carriers and carriers that write smaller accounts cited regulatory issues.
|
Regarding priorities, 52% of claim officers pointed to the effective use of data and analytics as a main driver to meeting business objectives, ranking it second to attracting talent. This was closely followed by an interest in better ways to use technology in general (50%).
Focusing on the emerging trends and issues bringing change to the claims industry, nearly two-thirds (65%) of respondents chose sophisticated analytics, trumping the more traditional issue of escalating claim severity, which was identified by 50% of respondents. Increasing technology needs and reliance on software ranked as the number three emerging issue.
Interestingly, less than a third of respondents cited increased business acumen needs as an emerging issue — a notable finding given that 68% identified technical skills and training as an approach to meet industry challenges.
"Claim leaders are looking for technical solutions to meet their increasingly complex business needs," explained Ms. Cullen. "It is clear that investment in people and broader-based skill development is critical for sustaining and improving claim-handling fundamentals."
Towers Perrin is a global professional services firm that helps organizations improve performance through effective people, risk and financial management. The firm provides innovative solutions in the areas of human capital strategy, program design and management, and in the areas of risk and capital management, reinsurance intermediary services and actuarial consulting. Towers Perrin has offices and alliance partners in the United States, Canada, Europe, Asia, Latin America, South Africa, Australia and New Zealand. More information is available at www.towersperrin.com.
|
Falling Claim Frequency and Rising Claim Severity
Create Unsettled Auto Insurance Claim Environment
|
MALVERN, Pa.— Falling auto injury claim frequency and rising claim severity have created an unsettled auto injury claim environment countrywide, according to a new report from the Insurance Research Council (IRC). The report, Trends in Auto Injury Claims, 2008 Edition, documents auto insurance claim frequencies and costs, both countrywide and by state, using private passenger auto claim data from national and state-level statistical reporting agencies.
The report examines recent trends for three major auto insurance coverages: property damage liability (PD), bodily injury liability (BI), and personal injury protection (PIP). From 2000 through 2006, PD claim frequency (the number of PD claims per 100 insured vehicles) decreased 11 percent; BI claim frequency decreased 19 percent; and PIP claim frequency fell 14 percent. These declines in claim frequencies mirror national trends in fatality and injury rates and indicate significant progress in efforts to make vehicles, roads, and highways safer for the driving public.
The report also documents an increase in claim severity, or the average cost of claims. From 2000 to 2006, PD claim severity increased 18 percent; BI claim severity increased 22 percent; and PIP claim severity rose 19 percent. On an annualized basis, increases in claim severity from 2000 to 2006 averaged 2.9 percent (PD), 3.3 percent (BI), and 2.9 percent (PIP). The increases in claim severity are largely attributable to the rising cost of automobile repair and medical care.
In 2006, for all three coverages, claim frequency was at its lowest point and claim severity was at its highest point since 1990. Decreasing claim frequency and rising claim severity have resulted in relatively stable loss costs, the average cost of claims per insured vehicle. Since 1997, the combined injury loss cost for all injury-related coverages has fluctuated just under $200. Loss cost stability built on a foundation of falling claim frequency and rising claim severity raises concerns about the potential consequences should the favorable trend in claim frequency end.
|
“The continued drop in claim frequencies has offset escalating car repair and medical care costs,” observed Elizabeth A. Sprinkel, senior vice president of the IRC. “However, if claim frequencies start to rise or even just stop declining, then rising claim severities will increase loss costs, creating upward pressure on premiums for consumers.”
For more detailed information on the study’s methodology and findings, contact Elizabeth Sprinkel by phone at (610) 644-2212, ext. 7568; by fax at (610) 640-5388; or by e-mail at irc@cpcuiia.org. Or visit IRC’s Web site at www.ircweb.org. Copies of the study are available at $250 each in the U.S. ($265 elsewhere) postpaid from the IRC, 718 Providence Road, Malvern, Pa. 19355-0715. Phone: (610) 644-2212, ext. 7569; Fax: (610) 640-5388.
|
Claimed Medical Expenses for
Auto Injury Claimants Far Outpace Inflation
|
MALVERN, Pa.— A new study by the Insurance Research Council (IRC) has found that medical expenses reported by auto injury claimants continue to rise faster than the rate of inflation. Average claimed economic losses (which include expenses for medical care, lost wages and other out-of-pocket expenditures) for bodily injury (BI) claimants grew 9 percent annualized, from $5,520 in 2002 to $8,522 in 2007. Among personal injury protection (PIP) claimants, claimed losses increased 8 percent annualized, from $6,711 in 2002 to $9,662 in 2007. In comparison, the annualized rate of overall inflation as measured by the Consumer Price Index (CPI) was only 3 percent over the same period; the CPI inflation rate for medical care was 4 percent.
The driving force behind these gains is growth in medical care expenses, which have continued to escalate despite the fact that injuries from auto accidents are becoming less serious on average. The study cites two factors as likely explanations for the faster growth in medical care expenses for auto injury claimants than that of medical care prices generally: more frequent use of more expensive treatment alternatives and increased unit cost for claimed treatment.
"Medical costs for auto injury claimants have clearly grown faster than medical care inflation in general, suggesting that medical providers may be reacting to cost pressures in other areas by increasing their charges to auto injury insurers," said Elizabeth Sprinkel, senior vice president of the IRC. "This type of cost-shifting has important implications for the auto injury industry and for overall healthcare policy."
"The trends shown in this report should be a wake-up call to the auto injury insurance industry, which has benefited in recent years from declines in the frequency of auto injury claims," she continued. "The continued climb of medical expenses could threaten the recent benign rate environment."
|
The study, Auto Injury Insurance Claims: Countrywide Patterns in Treatment, Cost and Compensation, 2008 Edition, collected data on more than 42,000 auto injury claims closed with payment under the five principal private passenger coverages. Twenty-two insurers, representing 58 percent of the private passenger auto insurance market in the United States in 2006, participated in the study. This study is the sixth of its kind conducted by the IRC. The report includes findings on type and seriousness of injury, medical treatment, claimed losses and total payments, and attorney involvement.
For more detailed information on the study's methodology and findings, contact Elizabeth Sprinkel by phone at (610) 644-2212, ext. 7568; by fax at (610) 640-5388; or by e-mail at irc@cpcuiia.org. Or visit IRC's Web site at www.ircweb.org. Copies of the study are available at $250 each in the U.S. ($265 elsewhere) postpaid from the IRC, 718 Providence Road, Malvern, Pa. 19355-0715. Phone: (610) 644-2212, ext. 7569; Fax: (610) 640-5388.
|
|
