...to make sure that they preserve all of their rights and the evidence, and that they provide proper notice to potential third-party defendants. Failure to do so could bar them from recovery. They should also consider hiring their own cause and origin investigator immediately as it is more difficult to determine the cause of the loss as time passes and the evidence becomes stale. If there is a possible tort claim, then the insurance company will most likely pursue a claim against the tortfeasor under their subrogation rights. The insured, their attorney and the investigator should try to work closely with the insurance company’s team to share resources and strengthen their case.
There are some complicated aspects to pursuing a third-party claim: specifically, the juxtaposition between the insured’s right to recover its underinsured loss; and the carrier’s subrogation rights, since both parties will be vying for money from the same defendant. Fortunately for the insured, most jurisdictions follow the equitable rule known as the “made-whole doctrine.”This doctrine provides that, in the absence of statutory law or valid contractual obligations to the contrary, an insured must be fully compensated for its losses before the subrogation rights of the insurance carrier arise.
Under the made-whole doctrine it would appear that there should not be any issues with regard to the insured’s priority in the recovery. However, recently insurance companies have been attempting to supersede the insured’s priority under this doctrine via contractual language. While the standard subrogation language in most policies does not impact the insured’s rights, some new policy language and some subrogation documents (subrogation receipts) are being drafted to give the carrier the right to recover first.
Furthermore, many courts have upheld such contractual language, allowing the carrier to recover first. Even when there is no issue with regard to the insured having priority in the recovery, there can...