Subrogation Unit's Success Continues
April, 2007
by Robert A. Stern and Virginia M. Markovich
Arbitrators Return Decision in Favor of Clausen Miller’s Client
Recently, CM Partner Robert A. Stern and associate Virginia M. Markovich, obtained a victory at an Arbitration and were awarded the full amount of their client’s damages. The loss involved a sprinkler pipe burst at the Insured’s Premises, which resulted in significant property damage. The expert concluded that the failure of the sprinkler line was caused by a lack of adequate protection of insulating material around the sprinkler piping. Prior to the loss, the Insured retained a construction company to serve as the general contractor for a renovation project at the Premises. As part of the renovation, additions to the structure were added, such as a large sprinkler system. The Insured retained a subcontractor to design the sprinkler system plan, and another subcontractor
to construct and install the sprinkler system.
CM attempted to amicably resolve this matter by placing the general contractor on notice of this subrogation claim (for certain technical reasons, CM’s client could not pursue recovery against the subcontractors). CM argued that the general contractor was under a duty to supervise the work at the Premises, including that of both subcontractors which the Insured retained. However, the general contractor denied full responsibility for this loss and alleged that the subcontractors were solely liable for this loss.
With the client’s permission, CM commenced an arbitration against the general contractor. After submission of written position papers and argument, the Arbitrators recently issued their Decision. The Decision stated that CM provided ample evidence to support its contention that the general contractor had a duty to assure that the subcontractors’ work product was adequate in the prevention of the freezing loss which resulted. Furthermore, the Decision stated that CM provided an independent expert report establishing the failure on the part of the subcontractor to take proper action in preventing the freezing condition which caused this loss. Lastly, the Decision stated that CM, via the evidence, established that the failure on the part of the general contractor to properly supervise the activity of the subcontractors was the proximate cause of this accident and the resulting damage sustained.
If you would like to learn more about subrogation or Alternative Dispute Resolution, please feel free to e-mail Robert A. Stern (rstern@clausen.com) or Virginia Markovich (vmarkovich@clausen.com) or call them at 212/805-3900.
CM Recovers 100% of RCV for its Client, Pre-Suit
CM’s Client issued a commercial insurance policy to a Landlord of a Building located in Bayside, New York. Our Insured leased the Premises to an auto body shop. On December 26, 2005, a fire ensued at the Premises. An origin and cause expert was retained. When the expert arrived at the Premises, it was significantly altered. In fact, there was information provided that the origin of the fire was at one of three space heaters, and all three space heaters were gone (no one knew where they were or what happened to them). In short, the expert could not identify the exact cause of the fire.
Four months later, CM Partner Robert A. Stern was retained to review this six figure case. Although the expert was unable to identify the cause of the fire, Mr. Stern sought a copy of the Lease. The Lease was a standard form Lease, which contained a mutual waiver of subrogation provision.
Notwithstanding, Mr. Stern recommended sending a subrogation notice/demand letter to the Tenant, which CM’s client authorized. There was a Lease provision which stated that the Tenant will indemnify the Landlord for any losses resulting from the occupancy of the Premises. This provision was the focus of Mr. Stern’s notice letter and subsequent settlement negotiations.
Mr. Stern then identified the Tenant’s liability carrier (there was some confusion on the Tenant’s part and no Certificate of Insurance was ever provided to the Landlord). After a few more months of exchanging damage supports and negotiations, Mr. Stern settled the case with the Tenant’s Liability carrier for 100% of the RCV amount. This settlement occurred pre-suit and in less than one (1) year from its assignment to CM.
If you would like to learn more about subrogation or negotiation, please feel free to e-mail Robert A. Stern (rstern@clausen.com) or call him at 212/805-3900.
Jury Verdicts and Significant Settlement Should be Learning Point for Anyone Involved in Litigation, Either as Plaintiff or Defendant
On February 8, 2000, a fire ensued in a commercial building in Chestnut Hill, Massachusetts. The fire originated in an upper floor of this multi-story building. The cause of the fire was never determined.
Sometime prior to the fire, the Landlord allowed certain emergency exit doors to remain improperly locked, and failed to maintain the fire detection and notification system. As a result of the fire, emergency exit doors being locked and no active alarm system, five people were trapped in the building and died, and numerous others received significant personal injuries (one passed away shortly thereafter).
The Landlord’s agent was actually in the building at the time of the fire. Upon learning of the fire, he immediately attempted to extinguish the fire. He spent twenty (20) minutes attempting to extinguish the fire; unsuccessful, he called 911.
Our client’s Insured was located in the basement of the building. Our Insured suffered water damage to its products, and a business interruption claim. Further, our Insured had to re-locate as a result of the damage to the building, and its new rent was substantially greater than its rent in the fire building.
As a result of the fire, the wrongful death and personal injury lawsuits were immediately filed. Then, three (3) subrogation actions were filed and two (2) uninsured tenant actions were filed.
The arguments by the wrongful death/personal injury Plaintiffs against Defendants should be obvious. The basic arguments against Defendants by the subrogation actions and two uninsured tenants were: (a) Defendants wasted at least twenty minutes attempting to put out the fire, before contacting 911; (b) had the alarm system functioned, the Fire Department would have arrived at least twenty-five minutes earlier; and (c) had the emergency doors been unlocked, when the Fire Department arrived it could have spent all its efforts on fire extinguishment, as opposed to search and rescue.
What was clear to CM and its client, regardless of any arguments against Defendants, since our Insured’s property damages were solely the result of the water used by the Fire Department to extinguish the fire, our Insured’s property damages would have occurred regardless of the allegations against Defendants. However, because of the size of the loss, the size of all the other claims, pending litigations and the wrongful death/personal injury Plaintiffs incurring almost all of the costs of discovery (all litigations were consolidated for the purposes of discovery), CM’s client authorized CM to file suit.
CM Partner Robert A. Stern filed suit in MA and then immediately attempted to get all the litigations into mediation. The overture was rejected by both the wrongful death/personal injury Plaintiffs and Defendants.
At the conclusion of discovery, one of the subrogating carriers voluntarily discontinued its litigation. That carrier, apparently, believed it would not get over the lease provisions regarding subrogation (discussed below).
On the eve of the liability trial, the wrongful death/personal injury Plaintiffs settled with Defendants. Thus, the subrogation actions and uninsured tenant actions had to proceed to trial, without the benefit gained of having the wrongful death/personal injuries placed before the same jury.
After a liability trial, the Jury returned a Verdict in all Plaintiffs’ favor. Basically, in short, the Jury concluded that Defendants’ conduct proximately caused the damages alleged by Plaintiffs.
However, Defendants filed pre (which were denied) and post-trial Motions (under consideration until after Damage Trial) which could significantly affect recovery. They also advised Plaintiffs’ counsel that they were going to file pre-Damage Trial Motions. Specifically, Defendants asserted: (1) that even if their conduct proximately caused the spread of the fire and delay in the Fire Department’s response, our Insured’s property damages were solely caused by the Fire Department’s water used to extinguish the fire (which would have occurred if the Fire Department was at the loss scene within a second of the fire); (2) Defendants were not responsible for the increased rent charge to our Insured, because it chose to move to a more expensive neighborhood and better building; (3) subrogation was specifically prohibited by the Leases; all tenants, except one, had waiver of subrogation provisions within their Leases; (4) the Leases required each Tenant to acquire liability insurance coverage for Defendants, thus, any Tenant that failed to acquire that coverage breached a condition of the Policy and must itself indemnify Defendants for any recovery; (5) the Leases required Tenants to name Defendants as “additional insureds” within their property and liability policies, thus, Defendants asserted the anti-subrogation doctrine; and (6) as to our Insured and one other subrogation action, Defendants were, in fact, listed as “additional insureds” on the applicable insurance policies and provided full coverage to the “additional insureds”; therefore, again, raising the anti-subrogation doctrine.
Because CM’s client’s insurance policy was not disclosed prior to the liability trial, but was the subject of a post-trial Motion and was going to be the subject of a pre-Damage Trial Motion, there was a chance it would be disclosed. CM’s client’s insurance policy actually provided liability coverage to Defendants. Thus, CM and its client knew this fact could result in the Damage Trial Judge granting Defendants’ Motion(s) or if there is a Verdict against Defendants, CM’s client may end up paying that amount.
Therefore, once again, Mr. Stern pushed for mediation. Probably because of the liability verdict in favor of Plaintiffs, now Defendants were willing to mediate.
At the conclusion of the mediation, all Plaintiffs rejected the last settlement offers. However, Mr. Stern continued to negotiate with defense counsel.
Two weeks prior to the Damage trial, Mr. Stern settled his client’s claim for approximately 66% of the RCV amount (if Defendants were not going to raise ACV/RCV issue, Mr. Stern was not going to raise that issue). None of the other Plaintiffs received increased offers; in fact, an offer was reduced to one of the other Plaintiffs.
On the eve of the Damage Trial, one of the other subrogating carriers settled its claim against Defendants for 64%. What makes this settle so telling to CM’s settlement is that this other subrogating carrier’s insured did not have a lease with Defendants. Thus, the waiver and anti-subrogation issues did not apply to this other subrogating carrier. CM cannot explain why this other subrogating carrier settled for less than CM’s client’s settlement amount.
After the first day of the Damage Trial, the last subrogating carrier settled. This carrier was in the same position as CM’s client, specifically, it had a lease with waiver language and insurance policy requirements implicating the anti-subrogation rule. The settlement was for 36% of its damages.
These settlements reflect that CM continues to outperform its competitors.
The two remaining Plaintiffs, both uninsured tenants, proceeded through the Damage Trial. During discovery, one of the uninsured tenants claimed damages in excess of $2.5 million. The Jury awarded that tenant $7,500.00. The other uninsured tenant during discovery claimed damages in excess of $1 million. The Jury awarded that tenant $0.00.
The Learning Points are several. First, just because the facts and law may not support your subrogation case, if appropriate and handled by the right counsel, a great recovery may still be accomplished. Second, mediation and negotiation require a skill different from trying a case. Third, even if a mediation fails to result in a settlement, continue to negotiate. Fourth, if a co-plaintiff settles, be aware of that settlement amount and percentage, and use that in your negotiations. Fifth, if not specifically asked for your insurance policy, do not produce it. Sixth, CM continues to outperform its competitors. Seventh, always negotiate off of RCV. Finally, even if you have a liability Judgment against a defendant, that does not mean you are going to get a damage Judgment against the same defendant.
If you would like to learn more about subrogation or Alternative Dispute Resolution, please feel free to e-mail Robert A. Stern (rstern@clausen.com) or call him at 212/805-3900.
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