Subrogating Disaster Claims

Reducing Catastrophe Losses

Insurers can save by subrogating disaster claims.
By: | November 1, 2013 • 6 min read

Catastrophes result in insurance losses that reach billions of dollars each year. In 2012, Superstorm Sandy alone accounted for more than $25 billion in claims. While catastrophe claims cannot be avoided, losses can and should be mitigated through effective deployment of a properly designed subrogation program.

Following a catastrophe, the industry’s troops on the ground — Cat adjusters — are inundated with claims and tasked with discharging the insurer’s contractual indemnity duty owed to its insureds quickly and efficiently. The carrier’s business and reputation depend on it.

Because of this, subrogation potential is often overlooked or ignored entirely even though third parties may be responsible. Being prepared by recognizing where recovery potential may exist and knowing the amount and kinds of resources to dedicate to the effort could earn a company millions in recovery dollars.

Recognizing Subrogation Potential

The process of recovering on a catastrophe claim payout should begin long before a hurricane forms or a storm front develops. Cat team managers should communicate regularly with the company’s subrogation department about specific loss scenarios commonly encountered in a catastrophe setting.


Before each storm season, topics such as strict product liability, negligent construction and public utility liability should be reviewed and issue-spotting techniques taught, so that each member of a carrier’s Cat team is adequately prepared to recognize subrogation potential where it exists.

When looking at claims for recovery opportunities, Cat adjusters must be cautioned against mischaracterizing the cause of the damage as an “act of God” and dismissing the notion that third parties may be responsible for a loss.

“Act of God” is a term of art that means all natural phenomena whose effects could not be prevented by the exercise of reasonable care and foresight. Cat adjusters who are not adequately trained will fail to identify subrogation potential because of their preconceived notion that the damage they are inspecting was caused by the storm as opposed to a third party’s failure to exercise reasonable care and foresight.

Cat adjusters who are not adequately trained will fail to identify subrogation potential because of their preconceived notion that the damage they are inspecting was caused by the storm as opposed to a third party’s failure to exercise reasonable care and foresight.

While this may seem elementary, Cat adjusters should recognize that building codes exist in great measure to ensure the durability, performance and safety of completed construction projects in the face of foreseeable stressors such as wind, hail, rain and lightning (traditionally thought of as “acts of God”).

Because these are common characteristics of natural catastrophes, the exercise of reasonable care should be accounted for in the design and construction of buildings and products. In many cases, catastrophic structural damage and/or fires are not “acts of God” because they can be avoided through the exercise of reasonable care and foresight.

The examples below exemplify how a little training can make a big difference in whether subrogation potential is identified or overlooked. Recognizing the recovery potential in these common catastrophe loss scenarios will increase recoveries and benefit a carrier’s bottom line.

Comparing Similar Structures

Cat adjusters expect to see roof damage caused by wind following a hurricane or tropical storm. The properly trained Cat adjuster, however, will take notice when substantially similar buildings perform differently in a storm.

Disproportionate roof damage to the insured’s dwelling or commercial building could be the result of improper construction and/or the use of defective building materials. Such disparity is an indication that reasonable care and foresight in the building’s construction could have prevented the damage. It also calls for an in-depth root cause analysis to be performed by a forensic engineer.


Recovery potential exists in this situation against the general contractor, roofing subcontractor and/or product manager.

Similarly, any fire that results from a catastrophe should be closely scrutinized for subrogation potential.

A Cat adjuster called upon to inspect fire damage that occurred during or after a catastrophic event must retain its origin, location and cause. Fires in this context are often the result of some failure of the building’s electrical power supply. Surges, downed power lines and restoration of power to a building with electrical system damage caused by a flood prior to repair and inspection by a certified electrician are common examples.

Above all, a Cat adjuster must remember to preserve all potentially relevant evidence for future examination and testing where the loss scene itself may be completely compromised and unable to be preserved.

Such fires could have been prevented through proper vegetation management (tree trimming), infrastructure maintenance and/or safe restoration of power by the electric utility company following an outage.

Also, damage to corrugated stainless steel tubing (CSST) as a result of a lightning strike is another example of whether the CSST itself was defective or improperly installed. Public utilities, CSST manufacturers and CSST installers are potentially viable subrogation targets and their role in the cause of fire damage in the wake of a catastrophe must be carefully considered or a recovery opportunity may be lost.

Notification Protects Recovery Potential

Once subrogation potential is identified, Cat adjusters should work closely with Cat team members in the carrier’s home office to quickly place subrogation targets on notice of potential liability to protect the carrier’s recovery interests.

In extraordinary circumstances, situations arise that can prohibit the notification of the potentially adverse party through normal channels. A Cat adjuster should be trained to prepare for this by thoroughly documenting a loss scene. This practice will preserve a carrier’s ability to later bring a claim against a potentially liable party.

Above all, a Cat adjuster must remember to preserve all potentially relevant evidence for future examination and testing where the loss scene itself may be completely compromised and unable to be preserved. Avoiding spoliation (the loss of evidence in a party’s control) should be the Cat adjuster’s primary subrogation goal at this stage.

Subrogation counsel and forensic consultants should always be available to consult with and assist Cat adjusters in determining whether a particular loss warrants special attention.

A formal program should be in place to instruct Cat adjusters when contact with subrogation counsel and forensic consultants is required. Generally, such consultation should take place whenever a claim may exceed $250,000 or if one of the common loss scenarios described above (disparate roof/structure and/or fire damage) is encountered.

The cost associated with consulting subrogation counsel is minimal (or nothing at all) as most subrogation attorneys have contingency fee arrangements with their carrier clients.

To further maximize efficiency, Cat adjusters should be familiar with certain barriers to recovery.

Specifically, statutes of repose for improvements to real property and strict products liability may eliminate any recovery potential from the outset. Where such laws exist, a claim is barred from being brought against certain classes of defendants after the period of time set by the legislature has passed. Such laws vary by state.


Cat adjusters should therefore be familiar with the laws of a particular state to which they are dispatched so they do not waste time and resources investigating claims for subrogation potential needlessly.

The roof example is useful to clarify this point. If a particular state’s law bars claims from accruing more than 12 years after the date that an improvement to real property is substantially completed, there is no need to investigate a claim for recovery potential involving a 30-year-old roof that has not been inspected or repaired in the 12 years preceding the date of loss.

A list of the relevant statutory third-party claim barriers should be provided to all Cat adjusters to assist them in making such determinations. Questionable calls, however, should be reviewed by the Cat adjuster with subrogation counsel to ensure proper interpretation.

The development and implementation of a comprehensive Cat subrogation program is thus a wise and valuable investment for any carrier that writes property risks in the United States. Catastrophes cannot be avoided, but their overall effect on the insurance company’s bottom line will be mitigated by the recovery of claim dollars from responsible parties through preparedness, proper training and education of Cat adjusters deployed in the field.

Raymond Mack, a partner in the Blue Bell, Pa., office of Nelson Levine de Luca & Hamilton, represents insurance carriers in large loss property subrogation matters throughout the United States. Kevin McBeth is an associate in the Blue Bell, Pa., office of Nelson Levine de Luca & Hamilton, focuses his practice on insurance recovery litigation. They can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Emerging Risks

Stadium Safety

Soft targets, such as sports stadiums, must increase measures to protect lives and their business.
By: | January 10, 2018 • 8 min read

Acts of violence and terror can break out in even the unlikeliest of places.

Look at the 2013 Boston Marathon, where two bombs went off, killing three and injuring dozens of others in a terrorist attack. Or consider the Orlando Pulse nightclub, where 49 people were killed and 58 wounded. Most recently in Las Vegas, a gunman killed 58 and injured hundreds of others.


The world is not inherently evil, but these evil acts still find a way into places like churches, schools, concerts and stadiums.

“We didn’t see these kinds of attacks 20 years ago,” said Glenn Chavious, managing director, global sports & recreation practice leader, Industria Risk & Insurance Services.

As a society, we have advanced through technology, he said. Technology’s platform has enabled the message of terror to spread further faster.

“But it’s not just with technology. Our cultures, our personal grievances, have brought people out of their comfort zones.”

Chavious said that people still had these grievances 20 years ago but were less likely to act out. Tech has linked people around the globe to other like-minded individuals, allowing for others to join in on messages of terror.

“The progression of terrorist acts over the last 10 years has very much been central to the emergence of ‘lone wolf’ actors. As was the case in both Manchester and Las Vegas, the ‘lone wolf’ dynamic presents an altogether unique set of challenges for law enforcement and event service professionals,” said John

Glenn Chavious, managing director, global sports & recreation practice leader, Industria Risk & Insurance Services

Tomlinson, senior vice president, head of entertainment, Lockton.

As more violent outbreaks take place in public spaces, risk managers learn from and better understand what attackers want. Each new event enables risk managers to see what works and what can be improved upon to better protect people and places.

But the fact remains that the nature and pattern of attacks are changing.

“Many of these actions are devised in complete obscurity and on impulse, and are carried out by individuals with little to no prior visibility, in terms of behavioral patterns or threat recognition, thus making it virtually impossible to maintain any elements of anticipation by security officials,” said Tomlinson.

With vehicles driving into crowds, active shooters and the random nature of attacks, it’s hard to gauge what might come next, said Warren Harper, global sports & events practice leader, Marsh.

Public spaces like sporting arenas are particularly vulnerable because they are considered ‘soft targets.’ They are areas where people gather in large numbers for recreation. They are welcoming to their patrons and visitors, much like a hospital, and the crowds that attend come in droves.

NFL football stadiums, for example, can hold anywhere from 25,000 to 93,000 people at maximum capacity — and that number doesn’t include workers, players or other behind-the-scenes personnel.

“Attacks are a big risk management issue,” said Chavious. “Insurance is the last resort we want to rely upon. We’d rather be preventing it to avoid such events.”

Preparing for Danger

The second half of 2017 proved a trying few months for the insurance industry, facing hurricanes, earthquakes, wildfires and — unfortunately — multiple mass shootings.

The industry was estimated to take a more than $1 billion hit from the Las Vegas massacre in October 2017. A few years back, the Boston Marathon bombings cost businesses around $333 million each day the city was shut down following the attack. Officials were on a manhunt for the suspects in question, and Boston was on lockdown.

“Many of these actions are devised in complete obscurity and on impulse, and are carried out by individuals with little to no prior visibility.” — John Tomlinson, senior vice president, head of entertainment, Lockton

“Fortunately, we have not had a complete stadium go down,” said Harper. But a mass casualty event at a stadium can lead to the death or injury of athletes, spectators and guests; psychological trauma; potential workers’ comp claims from injured employees; lawsuits; significant reputational damage; property damage and prolonged business interruption losses.

The physical damage, said Harper, might be something risk managers can gauge beforehand, but loss of life is immeasurable.


The best practice then, said Chavious, is awareness and education.

“A lot of preparedness comes from education. [Stadiums] need a risk management plan.”

First and foremost, Chavious said, stadiums need to perform a security risk assessment. Find out where vulnerable spots are, decide where education can be improved upon and develop other safety measures over time.

Areas outside the stadium are soft targets, said Harper. The parking lot, the ticketing and access areas and even the metro transit areas where guests mingle before and after a game are targeted more often than inside.

Last year, for example, a stadium in Manchester was the target of a bomb, which detonated outside the venue as concert-goers left. In 2015, the Stade de France in Paris was the target of suicide bombers and active shooters, who struck the outside of the stadium while a soccer match was held inside.

Security, therefore, needs to be ready to react both inside and outside the vicinity. Reviewing past events and seeing what works has helped risk mangers improve safety strategies.

“A lot of places are getting into table-top exercises” to make sure their people are really trained, added Harper.

In these exercises, employees from various departments come together to brainstorm and work through a hypothetical terrorist situation.

A facilitator will propose the scenario — an active shooter has been spotted right before the game begins, someone has called in a bomb threat, a driver has fled on foot after driving into a crowd — and the stadium’s staff is asked how they should respond.

“People tend to act on assumptions, which may be wrong, but this is a great setting for them to brainstorm and learn,” said Harper.

Technology and Safety

In addition to education, stadiums are ahead of the game, implementing high-tech security cameras and closed-circuit TV monitoring, requiring game-day audiences to use clear/see-through bags when entering the arena, upping employee training on safety protocols and utilizing vapor wake dogs.

Drones are also adding a protective layer.

John Tomlinson, senior vice president, head of entertainment, Lockton

“Drones are helpful in surveying an area and can alert security to any potential threat,” said Chavious.

“Many stadiums have an area between a city’s metro and the stadium itself. If there’s a disturbance there, and you don’t have a camera in that area, you could use the drone instead of moving physical assets.”

Chavious added that “the overhead view will pick up potential crowd concentration, see if there are too many people in one crowd, or drones can fly overhead and be used to assess situations like a vehicle that’s in a place it shouldn’t be.”

But like with all new technology, drones too have their downsides. There’s the expense of owning, maintaining and operating the drone. Weather conditions can affect how and when a drone is used, so it isn’t a reliable source. And what if that drone gets hacked?

“The evolution of venue security protocols most certainly includes the increased usage of unmanned aerial systems (UAS), including drones, as the scope and territorial vastness provided by UAS, from a monitoring perspective, is much more expansive than ground-based apparatus,” said Tomlinson.

“That said,” he continued, “there have been many documented instances in which the intrusion of unauthorized drones at live events have posed major security concerns and have actually heightened the risk of injury to participants and attendees.”

Still, many experts, including Tomlinson, see drones playing a significant role in safety at stadiums moving forward.

“I believe the utilization of drones will continue to be on the forefront of risk mitigation innovation in the live event space, albeit with some very tight operating controls,” he said.


In response to the terrorist attacks on Sept. 11, 2001, U.S. Homeland Security enacted the Support Anti-Terrorism by Fostering Effective

Warren Harper, global sports & events practice leader, Marsh

Technologies Act (SAFETY Act).

The primary purpose of the SAFETY Act was to encourage potential manufacturers or sellers of anti-terrorism technologies to continue to develop and commercialize these technologies (like video monitoring or drones).

There was a worry that the threat of liability in such an event would deter and prevent sellers from pursing these technologies, which are aimed at saving lives. Instead, the SAFETY Act provides incentive by adding a system of risk and litigation management.

“[The SAFETY Act] is geared toward claims arising out of acts of terrorism,” said Harper.

Bottom line: It’s added financial protection. Businesses both large and small can apply for the SAFETY designation — in fact, many NFL teams push for the designation. So far, four have reached SAFETY certification: Lambeau Field, MetLife Stadium, University of Phoenix Stadium and Gillette Stadium.


To become certified, reviewers with the SAFETY Act assess stadiums for their compliance with the most up-to-date terrorism products. They look at their built-in emergency response plans, cyber security measures, hiring and training of employees, among other criteria.

The process can take over a year, but once certified, stadiums benefit because liability for an event is lessened. One thing to remember, however, is that the added SAFETY Act protection only holds weight when a catastrophic event is classified as an act of terrorism.

“Generally speaking, I think the SAFETY Act has been instrumental in paving the way for an accelerated development of anti-terrorism products and services,” said Tomlinson.

“The benefit of gaining elements of impunity from third-party liability related matters has served as a catalyst for developers to continue to push the envelope, so to speak, in terms of ideas and innovation.”

So while attackers are changing their methods and trying to stay ahead of safety protocols at stadiums, the SAFETY Act, as well as risk managers and stadium owners, keep stadiums investing in newer, more secure safety measures. &

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]