May 7, 2024

How Does Bankruptcy Affect a Subrogation Claim?

Bankruptcy is a scary word… and the implications can be felt far and wide. This article will focus on the impact of bankruptcy on a subrogation claim.

 

Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order. Bankruptcy can have serious long-term financial and legal consequences.

 

There are several types of bankruptcy, classified into “chapters,” in reference to each chapter of the United States Bankruptcy Code:

  • Chapter 7: Also known as “liquidation” or “straight” bankruptcy, it is the most common type. In Chapter 7, a debtor’s non-exempt assets (if any exist) are sold off to pay as much of the debt as possible. Remaining eligible debts are then discharged, freeing the debtor from them.
  • Chapter 13: This type of bankruptcy is more of a reorganization for individuals. Instead of selling off assets, the debtor is put on a payment plan of 3 to 5 years to pay off all or part of their debts. Only individuals with a regular income are eligible for Chapter 13 bankruptcy.
  • Chapter 11: This is most commonly used by businesses. Similar to Chapter 13, it allows for a reorganization of debt so the debtor can keep their business operational while repaying creditors over time.
  • Chapter 12: This is specifically for family farmers and fishermen, allowing them to continue their operations while repaying their debts.

In cases where a defendant goes bankrupt during litigation, but insurance exists covering the plaintiff’s claims, there is a basis to obtain relief from the bankruptcy stay and continue to pursue litigation and obtain funds from the insurance proceeds.

 

For purposes of litigation, if the insured is an undischarged bankrupt, bring the subrogated action in the name of the insured’s trustee in bankruptcy (with notice as required by the Bankruptcy Code). Courts will look at insurers as sophisticated and capable parties and hold them to a higher standard for litigation.

 

The following steps briefly outline the effect bankruptcy can have on a subrogation claim, specifically. Keep in mind that there are several additional parties and subrogation claims tend to fall lower on the priority list in Bankruptcy litigation.

 

1. Automatic Stay: Once a debtor files for bankruptcy, an automatic stay is initiated, which stops all collection efforts against the debtor. This includes subrogation claims. Collection efforts cannot resume until the stay is lifted or the bankruptcy case is closed, dismissed, or discharged.

 

United States Bankruptcy Code Section 362 automatically imposes a stay on all actions against a debtor who files for bankruptcy. This means that any and all lawsuits against the person or entity filing, even those that are unrelated to the bankruptcy, are put on hold. The stay is immediately effective whether or not a creditor, such as a plaintiff in a personal injury case, receives notice of the stay and regardless of whether the court makes an order entering it.

 

However, Bankruptcy Code Section 362 also provides an outlet to overcome the automatic stay. Section 362(d)(1) provides that on the request of a party and after notice and a hearing, the court shall grant relief from the stay for “cause, including the lack of adequate protection of an interest in property of such party in interest.” Although the grounds for relief from a bankruptcy stay for cause includes lack of adequate protection of an interest in property, relief from a stay is not limited to that reason.

 

2. Priority of Claims: In bankruptcy, claims are paid in a hierarchy or order set by the bankruptcy code. Secured creditors are typically paid first, followed by unsecured creditors. Subrogation claims are categorized as general unsecured claims, which are paid after priority unsecured claims. In terms of the hierarchy or order, this leaves subrogation claims towards the end of the payout and may leave little to no money to satisfy a subrogation claim.

 

However, in a Chapter 7 bankruptcy, unsecured debts are normally discharged, meaning the debtor is no longer legally required to pay them. Conversely, in a Chapter 13 bankruptcy, the debtor will pay a portion or all of the unsecured debts through the repayment plan, depending on their income, expenses, and types of debt owed. See below.

 

3. Discharge of Debts: If the debtor receives a discharge in bankruptcy, most debts are wiped out, including subrogation claims. This means the subrogated party cannot collect on the debt, even after the bankruptcy case is closed.

 

4. Proof of Claim: To participate as a creditor in a bankruptcy case, the subrogated party must file a proof of claim in the bankruptcy court. If a proof of claim is not filed, the subrogated party may not receive any distribution from the bankruptcy estate. This is a firm rule of the Bankruptcy Court.

 

5. Reaffirmation: In some cases, although rare, a debtor may decide to reaffirm a specific debt, meaning they agree to repay a debt even though it could be discharged in the bankruptcy decision.

 

6. Chapter 13 Bankruptcy: If the debtor files for Chapter 13 bankruptcy, they will propose a repayment plan to pay off their debts over a period of three to five years. This plan may include paying off a subrogation claim, although not guaranteed if there are little to no funds allotted for the repayment plan.

 

It has been well settled that “cause” for relief from a bankruptcy litigation stay is not defined in the Bankruptcy Code and is handled on a case-by-case basis. (In re Fernstrom Storage and Van Co. (7th Cir. 1991) 938 F.2d 731, 735 (C.A 7 1991).) The moving party is only required to make an initial showing that he is entitled to relief from the stay, the burden then moves to the debtor to overcome that showing. (In re Sonnax Industries, Inc. (2nd Cir. 1990) 907 F.2d 1280, 1285.) Overall, a bankruptcy filing is truly handled on the merits of each case individually, there is never a guarantee to a payout as a creditor, whether that is a subrogation claim or not. The above is a very general outline of steps and potential outcomes, it does not reflect the typical outcome of each case.

April 26, 2024

Business Records or Inadmissible Hearsay? The Incident Report

Business records prepared in anticipation of litigation serve a crucial role in helping businesses prepare for potential legal challenges, protect their interests, and comply with legal requirements. These records are essential for evidence preservation, legal strategy development, and risk management in the face of future legal disputes or regulatory investigations. The primary purpose is to prepare the business for potential legal challenges by gathering relevant information, documents, and evidence. Documents that might be traditionally hearsay can be offered into evidence at trial if the proponent can meet the requirements as a Business Record Exception to Florida’s hearsay rule. “Florida’s business-records exception appears in section 90.803(6)(a), Florida Statutes (2004).” Yisrael v. State, 993 So. 2d 952, 956 (Fla. 2008). “To secure admissibility under this exception, the proponent must show that (1) the record was made at or near the time of the event; (2) was made by or from information transmitted by a person with knowledge; (3) was kept in the ordinary course of a regularly conducted business activity; and (4) that it was a regular practice of that business to make such a record.” Id. Additionally: [T]he proponent is required to present this information in one of three formats.

 

First, the proponent may take the traditional route, which requires that a records custodian take the stand and testify under oath to the predicate requirements. See § 90.803(6)(a), Fla. Stat. (2004). Second, the parties may stipulate to the admissibility of a document as a business record. Third and finally, since July 1, 2003, the proponent has been able to establish the business-records predicate through a certification or declaration that complies with sections 90.803(6)(c) and 90.902(11), Florida Statutes (2004).” Id. at 956-57.

 

The Business Record exception to the hearsay rule offers parties an “easy way,” to admit documents such as accounting statements, balance sheets, income statements, transaction logs,copies of contracts, agreements, and other legally binding documents related to business operations, partnerships, or transactions, emails, letters, memos, internal investigations, or incident reports. Via the testimony of a records’ custodian at trial, and so long as the proponent of such evidence lays the proper statutory predicate, a business record may be admitted at trial without the necessity of locating and producing the author of the statement itself.

 

By anticipating litigation, businesses can take steps to protect their interests, ensure compliance with legal requirements, and minimize potential liabilities. Incident reports are often created to gather and document information related to a loss. They help preserve important details, evidence, and witness statements about an occurrence, whether the litigation ensues or not. Incident reports provide detailed accounts of what happened, including dates, times, and – if we are really lucky – admissions by those responsible for the loss.

 

But is it really that simple? Can an attorney admit an incident report into evidence even if it qualifies under the Business Record Exception to the hearsay rule?

 

Incident reports are generally NOT admissible, even if they meet the requirements of Florida’s hearsay rule. See Stambor v. One Hundred Seventy-Second Collins Corp., 465 So.2d 1296, 1297 (Fla. 3d DCA 1985) (“[I]t is plain that the accident report which was prepared solely in anticipation of litigation was not admissible in evidence. It constituted, without dispute, hearsay evidence and was not admissible, as urged, under the business records exception to the hearsay rule”). Accident reports and incident reports “show lack of trustworthiness” because such a report is “made solely for litigation purposes to help defend against a claim which might arise from the accident.” Id. Also see e.g. Butcher v. Miami Elevator Co., Inc., 568 So.2d 61, 62 (Fla. 3d DCA 1990) (“damaging statements attributed to the plaintiff by unidentified sources–contained in three letter-reports prepared by a former employee of the condominium’s management company and sent to the insurer–as to how the accident occurred, were inadmissible hearsay”); King v. Auto Supply of Jupiter, Inc., 917 So.2d 1015, 1019 (Fla. 2006) (citing Stambor, supra, and stating, “[t]he facts there showed that the manager prepared the report solely for the purpose of defending the restaurant from a litigation claim by a patron who was injured while on the restaurant’s premises. Because it was not the regular practice of the restaurant’s business activity to make such a report, the court properly concluded the report was inadmissible hearsay for lack of trustworthiness”).

 

Despite an attorney’s best efforts, a Court can refuse to admit an Incident Report because of a lack of trustworthiness despite distinguishing the relevant case law. Whether or not such a report is prepared as the regular practice of a business activity is strictly scrutinized and interpreted by Courts, and judges are often reluctant to make even a questionable ruling that could result in an issue on appeal.

 

So, what is the bottom line? What is an attorney to do when faced with this unenviable position at trial? Preparation and planning are key to trial practice, and trials aren’t always won in the courtroom. A strong civil attorney must analyze incident reports at the beginning of litigation with the assumption that the report itself will be excluded. Therefore, the best witness to prepare in this regard is not a records’ custodian, but the author of the document. He or she will become the best witness to the incident – not the report about it.

April 1, 2024

No April Fools! Avoiding Surprises While Navigating a Subrogation Claim

April Fools’ Day has us all on the lookout for pranks, however it is never fun to be surprised when managing a subrogation claim. While there are endless pitfalls that could be waiting behind every door, there are some surprises for which you can be on the look-out. Here are a few potential issues to watch out for so that your new subrogation file is no laughing matter.

 

1. Surprise! There is a subrogation waiver.
You may have all the facts you need in your claim to prove negligence, but a great case complicated by a potential subrogation waiver, should not be left to be discovered and tripped over at the last minute. The first document to check is always the policy, which sometimes can contain waiver language. Other applicable contracts, such as bylaws, leases, sales orders, or even a target’s terms of service or warranties included with their products, could contain this wording.

 

2. Gotcha! The insured surprises you.
It is important to attempt to establish communication with the insured soon after you receive your claim so whatever assistance, or lack thereof, they provide, does not leave you blindsided. You may only need to obtain a few additional details, or alternatively you may require the insured’s more in-depth involvement, such as requesting their participation in a property inspection or needing them to sign a statement to support the claim. But, whatever the level of assistance, it is better to know if and how the insured will cooperate as early as possible. For instance, finding out from your insured that they do not wish to participate in future litigation is a revelation that could guide your claim management and that should not catch you unaware.

 

3.Watch Out! Stumbling through changing state laws.
The state law where your loss occurred can have major implications in how you manage your subrogation claim. For negligence claims, in particular, the insured’s level of liability could be the difference in your claim receiving a full, reduced or even zero recovery. You do not want to fall for believing you can recover from a carrier just because they admitted their insured was equally at-fault, only to discover too late that the loss occurred in a state that just adopted a 50% modified comparative negligence rule. For example, Florida recently switched to this from its former pure comparative negligence standard. Therefore, whereas before you could recover on a subrogation claim even if the insured was 99% liable, now your claim would be worthless if the insured is found to be more than 50% responsible. Keeping up to date with the applicable state law will ensure you do not end up feeling foolish.

 

4. Beware! The statute of limitations.
There could be no greater and unwanted surprise to a lawyer managing a subrogation claim than missing the deadline for your statute of limitations. As described above, ever-changing state laws require extra vigilance in monitoring your claim’s statutes. As an example, another aspect of Florida’s sweeping tort reform bill was the statute of limitations for negligence claims being reduced from 4 years to 2 years. Identifying early on what type of claim you have based on your facts can positively affect your strategy. For instance, product defect statutes can differ significantly in length from negligence statutes. So, if the question is whether the insured’s leaky refrigerator was due to faulty installation or a manufacturer’s defect, it is better to have the only possible surprise be that you have more time to file a lawsuit, rather than that time has elapsed.

 

5. A Surprise Party! Places in your claim where “the unexpected” may hide.

Out-of-pocket expenses: One surprise you may not have anticipated is that the insured has out-of-pocket expenses or that the carrier issued payments for which you were unaware. It is important to contact the client before you settle a claim to makes sure you have the complete and final adjusted amount of your claim;

 

Background checks: Performing a background check on your target, particularly before deciding whether to proceed with pursuit of the target, is essential to prevent looking foolish. Your target may have a lot of assets or may be penniless. They may have even passed away. Do not let this news come as a surprise to you after significant litigation expenses have already been incurred;

 

Missing potential adverse parties or carriers: There may be other targets to pursue than the initial adverse parties presented to you by the client. It is important to look behind every door to explore all avenues and exhaust your options in who you can pursue for the damages. Information on additional parties can be obtained from the insured or gathered from documents such as police reports, FOIA requests, underlying lawsuits, or even news reports related to the loss;

 

Releases: A release provided by a carrier might contain indemnity language or list unrelated, incomplete or inaccurate parties and claim information. Or it may include personal injury language when it is a property damage claim. Perhaps a party has already signed a release and you did not know about it. While there may always be an unknown component to your claim, performing your due diligence in evaluating the release language alongside conducting a thorough investigation, will aid in limiting the surprises.

 

Experts: Your expert may give you advice on the merit of your target’s theory of liability and can similarly guide you on how far you can take the claim. However, it is important to make sure that the expert upon which you are relying is qualified to testify in court on the matter. Additionally, if your expert, insured or even client failed to preserve the evidence for your claim, you could be surprised to find that your expert’s opinion may be rendered inadmissible.

 

Ultimately, your role as a subrogation professional will lead you to encounter endless pitfalls in April and throughout the year. However, staying alert to avoid some of these more common issues while navigating a new subrogation claim can help to prevent you from feeling foolish when surprises do pop up.

March 12, 2024

There was an Easement Around Here Somewhere

Easements, what are they and how does Florida law categorize them? An easement generally provides the right to use another person’s land for a specific purpose. It is a nonpossessory interest, as it is only the “use” of the land, and not the ownership of the land. If the original purpose of the easement has been frustrated, it may not exist except for in name only. When determining if an easement exists, it is critical to review the language of the suspected easement and the purpose of that easement.

 

An easement can be an Express Easement, an Implied Easement, an Easement of Necessity, Easement in Gross, a Solar Easement, or a Prescriptive Easement. “An express easement must be interpreted by looking at what the original parties and their successors in title intended, which is manifested by both the circumstances and the actions and statements of those parties.”1 Florida courts treat easements as they do contracts, meaning the plain language should be applied if it is unambiguous. If the language is unambiguous, then the court looks no further than to the language to ascertain the intent of the parties. Express easements are sold or given to a neighboring estate. It is created by an easement agreement in writing between the two estate holders, typically contained within the warranty deed, or it can be created by a court order. A “Person granting easement may restrict easement in any way he [or she] wishes, and easement holder cannot expand easement beyond that contemplated at the time it was granted.”2

 

There are at least two parties to an easement, the Dominant Estate and the Servient Estate. The Dominant Estate is the beneficiary of the easement, the party that can use the easement and the Servient Estate is the estate that owns the easement or the party where the easement is being used. A unity of title between the Dominant and Servient Estates could frustrate the original purpose of the easement, and therefore, even though the language still exists on the face of the warranty deed, the easement is really just fiction.

 

Common-Law and Statutory Easements – Chapter §704.01

Florida Statue §704.01 describes a common-law easement that is created by a common grantor of property who grants a piece of land to another party so that it creates a landlocked parcel of land. The grantor, at one time, must have owned both the servient and the dominant properties. Accordingly, a party seeking to establish a common law way of necessity under subsection (1) must establish the following elements:

  1. That, at one time, both properties were once owned by the same party;
  2. That a common grantor conveyed the landlocked parcel, thereby causing the need for an easement; and
  3. That, at the time the landlocked parcel was conveyed, the grantor’s remaining land had access to a public road.3

“In Cirelli, the court explained that, “[b]ecause a common law way of necessity required a common source of title between the dominant and servient parcels, it became obvious that this requirement could not be met in all instances and many parcels of property would remain landlocked. Therefore, the legislature enacted §704.01(2) to provide relief in those instances in which a common law way of necessity could not be obtained.”

 

“A statutory way of necessity does not require a common source of title and is dependent upon the existence of numerous factors that are not necessary to the creation of a common law way of necessity. Moreover, public policy rather than legal fiction (the presumed intent of the parties) is the basic foundation for statutory ways of necessity.” Id. The court went also took note that “§704.01(2) serves the legitimate public purpose of allowing access to landlocked property so that it may be transformed from useless and unproductive land into valuable and productive property that provides a residence to the owner or produces valuable raw materials such as timber or agricultural products,” as well as the positive effects of development promotion and increased tax revenues. See id.

 

The Cirelli decision enumerated the following elements necessary to establish a statutory way of necessity under §704.01(2):

  1. The claimant’s property is landlocked by property belonging to others;
  2. There is not a practicable route of ingress or egress to the nearest public or private road;
  3. There is no common law way of necessity under §704.01(1) because there is no unity of title between the landlocked and adjoining tracts;
  4. The landlocked property is situated outside a municipality (which is no longer applicable under the current version of the statute);
  5. The landlocked property is being used or the owner desires to use the property as a dwelling or for agricultural, timber raising or cutting or stock raising purposes; and
  6. The statutory way of necessity sought over the adjoining parcel is the “nearest practicable route” of access.4

 

Additionally, §704.02, under statutory easements, requires compensation to the servient property holder, otherwise the taking would violate the State and Federal Constitution: “No private property shall be taken “except (i) for a public purpose and (ii) and with full compensation therefore paid to each owner. This is called eminent domain. The public purpose is to provide a lawful means by which to accomplish full utilization of the state’s natural resources, their development in the ordinary channels of commerce and industry.”5 The existence of the statutory easement would be judicially determined, and the amount of compensation awarded is determined by a jury pursuant to Florida statute.

 

You also can claim an easement if it is a public road. A road becomes dedicated to public use under either common law dedication or statutory dedication. Common law dedication requires proof of the following:

  1. An intention by the landowner to dedicate the property to public use and
  2. An acceptance by the public.6

 

Proof of the intention to dedicate and of the acceptance must be clear and unequivocal, and the burden of proof is on the party claiming the dedication.7 Requirements for a statutory dedication are contained in § 95.361(1), Fla. Stat. This section provides that if a road constructed by a municipality has been maintained or repaired continuously for four years by the municipality, the road shall be deemed dedicated to the public, and title to the road will vest in the municipality, “if it is a municipal street or road.”

 

Temporary Construction Easements

Sometimes an easement is needed on a temporary basis simply to allow contractors access to a piece of private property for a specific purpose. These are known as Temporary Construction Easements (“TCE”). An example of this is when a government entity requires access across private property due to a public road expanding. The private property owner is entitled to just compensation even though the taking is only temporary. If the government and the private property owner are not able to resolve the terms of the TCE, the governmental agency can file an eminent domain lawsuit in compliance with the State and Federal Constitution. The TCE only remains as long as is necessary for the project to be completed. It is critical to specifically identify the terms of the TCE so that all parties are aware of the following: 1. The amount and type of compensation, 2. The duration and scope of the TCE, and 3. The party’s obligations for restoration, damages, or violations of the original terms of the TCE.

 

When dealing with an easement issue, the most important thing to remember is that each easement is handled differently depending on the property and obtaining an opinion from an attorney who deals with easements on a daily basis should give you the peace of mind moving forward.

 


 

1 Condron v. Arey, 165 So.3d 51 (5th DCA, 2015).
2 Star Island Associates v. City of St. Petersburg Beach, 433 So.2d 998 (2nd DCA, 1983).
3 Matthews v. Quarles, 504 So. 2d 1246 (Fla. 1st DCA 1986).
4 Cirelli v. Ent, 885 So. 2d 423 (Fla. 5th DCA 2004), citing Boyd v. Walker, 776 So. 2d 370 (Fla. 5th DCA 2001), and Ganey v. Byrd, 393 So. 2d 652 (Fla 1st DCA 1980).
5 Stein v. Darby, 126 So.2d 313 (Fla. 1st DCA 1961).
6 Bishop v. Nussbaum, 175 So.2d 231 (Fla. 2d DCA 1965).
7 Roe v. Kendrick, 146 Fla. 119, 200 So. 394 (1941).

February 5, 2024

Implications of Senate Bill 154 on Milestone Inspections

On June 24, 2021, at about 1:20 a.m., a 12-story beachfront condominium in Surfside, FL, Champlain Tower South, partially collapsed. 98 souls perished. In response, lawmakers have since passed laws to try and stop it from happening again. Senate Bill 154 is an amendment to Florida Statute §553.899, which was enacted in response to the Champlain Tower South collapse. Senate Bill 154 – Condominium and Cooperative Associations became effective on June 9, 2023. It outlines specific dates as to when milestone inspections should be completed. A milestone inspection is a type of structural safety building inspection that focuses on the structural integrity of the building’s occupants and determines whether the structure is safe for continued use. Licensed architects and engineers are the only professionals that are qualified to conduct milestone inspections. It is the need to evaluate the structural condition, identify repair needs, assess any deferred maintenance, and search for substantial structural deterioration. The bill revises the milestone inspection requirements for condominiums and cooperative buildings that are three or more stories in height to the following:

 

  • Limit the milestone inspection requirements to buildings that include a residential condominium or cooperative;
  • Provide that the milestone inspection requirements apply to buildings that in whole or in part are subject to the condominium or cooperative forms of ownership, such as mixed-ownership buildings;
  • Clarify that all owners of a mixed ownership building in which portions of the building are subject to the condominium or cooperative form of ownership are responsible for ensuring compliance and must share the costs of the inspection;
  • Require a building that reaches 30 years of age before December 31, 2024, to have a milestone inspection before December 31, 2024;
  • Delete the 25-year milestone inspection requirements for buildings that are within three miles of the coastline;
  • Authorize the local enforcement agencies that are responsible with enforcing the milestone inspection requirements the option to set a 25-year inspection requirement if justified by local environmental conditions, including proximity to seawater;
  • Authorize the local enforcement agency to extend the inspection deadline for a building upon a petition showing good cause that the owner or owners of the building have entered into a contract with an architect or engineer to perform the milestone inspection and it cannot reasonably be completed before the deadline;
  • Permit local enforcement agencies to accept an inspection and report that was completed before July 1, 2022, if the inspection and report substantially comply with the milestone requirements; however, associations must still comply with the unit owner notice requirements, and if a local enforcement agency accepts a previous inspection as a milestone inspection, the deadline for a subsequent 10-year re-inspection is based on the date of a previous inspection;
  • Provide that the inspection services may be provided by a team of design professionals with an architect or engineer acting as a registered design professional in responsible charge;
  • Provide that the condominium or cooperative association is responsible for all costs associated with the inspection attributable to the portions of the building for which it is responsible under the governing documents of the association;
  • Require associations to give unit owners notice about the inspection deadlines, electronically or by posting on the association’s website, within 14 days after they receive the initial milestone inspection notice from local enforcement agency;
  • Require the milestone inspector to submit a phase two progress report to the local enforcement agency within 180 days of submitting the phase one inspection report; and
  • Clarify that an association must distribute a copy of the summary of the inspection reports to unit owners within 45 days of its receipt.

 

The following buildings are exempt from the inspection requirements:

  • Buildings less than three stories;
  • Single-family dwelling;
  • Two-family dwelling;
  • Three-family dwelling with three or fewer habitable stories;
  • Any portion component of a building not owned by the association; and
  • Any portion or component of a building that is maintained by another party.

 

Senate Bill 154 makes the following changes to Florida Statute §627.531:

  • It exempts unit owner policies from the requirement that all personal lines residential policies issued by Citizens Property Insurance Corporation must include flood coverage.

The bill brings big changes to Florida’s Condominium market. The new law requires condo associations to regularly assess the structural integrity of the building and fully fund reserves necessary for maintenance and repairs. However, it comes at a price to the condo owner, which not every condo owner is able to pay. Because of the new law, associations are raising monthly association fees so that they are able to comply with the new requirements. This can also lead to extremely high special assessments.

 

Florida Senate Bill 154 establishes a new movement of accountability and safety for condominium unit owners. The Bill implements responsibility and accountability upon condo associations to ensure structural integrity and safe occupancy of its buildings, taking the necessary steps to ensure another tragedy does not occur. SB 154 establishes liability for board members and officers who fail to abide by their responsibilities for milestone inspections. It requires a willful and knowing failure to obtain the required inspection report which would constitute a breach of fiduciary duty.

 

We expect a rise in lawsuits and newly formed case law should the associations fail to comply with SB 154, which has been enacted to prevent tragedies such as the Champlain Tower South from occurring again.

 


 

November 21, 2023

What is the Manfredo formula and when will it impact your claim?

Picture this – You’ve paid out a worker’s compensation claim with ongoing medical and indemnity benefits, provided continued notice to the injured employee’s counsel of the ongoing benefits paid and even had your counsel file a Notice of Lien related to these benefits. You now receive correspondence, or a copy of a Notice of Settlement recently filed in the injured employee’s lawsuit, that the case has settled – now what do you do? Can you receive a lien reimbursement if the worker’s compensation claim is still open? What about a credit towards future medical expenses and will you need court intervention? This is a brief rundown of how to obtain as much of your worker’s compensation lien back as possible by understanding both Fla. Stat. §440.39(3) and the Manfredo formula in the process.

 

Florida’s statute §449.39(3)(a) will set the tone for how a lien reimbursement must go. The statute provides two ways to recover: (1) the worker’s compensation carrier will receive 100% of their lien reimbursed if the injured employee recovered the full case value (what a case is worth without considering liability or other factors); or (2) the worker’s compensation carrier will receive a pro rata portion of their lien back if the injured employee does not receive the full case value.

 

But what about a carrier who is continuing to pay ongoing benefits to the injured employee? In this instance, the carrier will be entitled to receive a future credit, which the carrier can apply to medical benefits paid up to the net settlement that the injured employee received in their third-party settlement with the tortfeasors. However, if the first scenario laid out above is met, the carrier will not be entitled to receive any future credit because the entire lien is being reimbursed.

 

However, if the injured employee did not receive the full value of their case, how does the carrier determine what percentage of the lien is recoverable? Welcome to the Manfredo formula. In 1990, the Florida Supreme Court heard a case entitled Manfredo v. Employer’s Casualty Insurance Company, which determined the appropriate method of calculating a workers’ compensation carrier’s lien percentage from the third-party suit initiated by the injured employee.

 

When evaluating a third-party settlement and utilizing the Manfredo formula, the worker’s compensation carrier will need the following information –

 

(1) Settlement amount the injured employee received from the tortfeasors.
(2) The full value of the case.
(3) Breakdown of attorney’s costs and fees associated with the case.
(4) Documentation to evaluate the reasoning behind the full case value.
(5) The lien amount –
include medical/indemnity/settlement of the worker’s compensation claim.

 

The lien percentage is calculated by taking the net recovery (settlement proceeds and subtract attorney’s fees and costs) from the third-party settlement and dividing this by the full case value (“FCV”) to get the percentage of lien reimbursement. Once you have the percentage, take the full lien amount and multiply that by the percentage.

 

Example –
$300,000.00 (Net Recovery)/$2,000,000.00 (FCV) = 15% (percentage of lien reimbursement)
$150,000.00 (worker’s compensation lien) x 15% (percentage of lien reimbursement) = $22,500.00

 

If, in this example, the worker’s compensation claim was still open and paying benefits, the carrier would be entitled to receive a future credit of 15% for medical expenses up to the net recovery the injured employee received, in this case $300,000.00.

 

The only number that is not tangible in this calculation is the full case value. This number may be obtained by considering several factors, which include reviewing a Life Care Plan and Economist Report that was prepared for the third-party case, as well as the pain and suffering component of the injured employee, and potential future surgical interventions, to name a few.

 

When dealing with trying to understand why the injured employee’s counsel concludes a certain number for the full case value, the worker’s compensation carrier may need to hire a full case value expert, a person who has numerous years of experience in the personal injury field, to assist with establishing a full case value, if the one received by the injured employee seems “far-fetched.”

 

After reviewing the documents surrounding the case, evaluating the full case value, and utilizing the Manfredo formula, if the worker’s compensation carrier is nowhere closer to getting the lien resolved, court intervention may be the next step. Either party (the worker’s compensation carrier or injured employee) may file a Motion for an Equitable Distribution Hearing. At the hearing, both parties will present their evidence as to the full case value (remember this is the only number that is not concrete). The Judge will rule and provide the parties with what he/she determines the full case value to be, which will then provide the worker’s compensation carrier with their lien reimbursement figure.

 

Knowing what to expect early on when the injured employee’s third-party case is still in suit will assist with resolving your lien sooner once a settlement is reached. If you are an insurance company in need of assistance with filing lien notices and evaluating a lien reimbursement resolution, we are here to assist.

 

Cites –
Florida Statue §440.39 – http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0400-0499/0440/Sections/0440.39.html
Manfredo v. Employer’s Casualty Insurance Company, 560 So. 2d 1162 (Fla. 1990).

October 23, 2023

A Guide to Subrogation Pre-Suit Demand Packages

Purpose

A pre-suit demand package puts the tortfeasor and/or their carrier on notice of a subrogation claim. It serves as the first formal step in the process for an insurance carrier to inform the at-fault party of the claim and offers an opportunity to settle the claim without litigation. Moreover, it signifies the carrier’s readiness to proceed with litigation if there is no response to the demand or if the claim does not resolve.

 

Contents

The contents of a pre-suit demand package usually include a pre-suit demand letter and an accompanying damage package. Let’s take a look at each component in more detail.

    1. “Notice of Claim,” “Demand,” or “Pre-Suit” letter should include the following information:
      • Preliminary information: date of loss, loss location, claim number, insured’s name and insurer’s name.
        • If the demand letter is addressed to the tortfeasor’s carrier, include the tortfeasor’s name and
          their claim number and/or policy number so the adverse carrier can review the claim more
          efficiently.
      • Basis to pursue the at-fault party: Important identifying facts surrounding the loss and reasoning for
        pursuing the tortfeasor. Some examples include:

        • Automobile incident: Be sure to include the vehicle year, make, model and VIN so there is no
          confusion that the tortfeasor owned and/or operated the vehicle that caused the damage to your
          insured’s vehicle and/or property.
        • Product liability: Be sure to include identifying information about the product that is
          defective, for example, the model and serial number of the product.
      • Amount of damages that are being sought: this should include the deductible that is being pursued on
        behalf of the client insurance carrier.
      • Prejudgment interest – if you do not ask, you do not get!
        • Look into whether the subrogating insurer is entitled to prejudgment interest in the state where
          the loss occurred. If the insurance carrier is entitled to prejudgment interest in the specific
          jurisdiction where the loss occurred, this, at the very least, provides a higher starting number
          when discussing settlement negotiations. At the most, the insurance carrier may recover more
          than they paid out, which makes for a very happy subrogating insurance carrier!
      • Deadline for a response: Usually a pre-suit demand package provides a thirty-day deadline to respond and
        highlights that if no response is received within that time frame, litigation will be initiated. This
        puts pressure on the tortfeasor and/or their carrier to investigate the claim immediately and to timely
        respond to the demand.
      • Specific requests or notifications of examinations may be included in the demand letter.
        • A demand for preservation of evidence can be included in the initial demand package if the
          tortfeasor is in possession of any crucial evidence that may be the subject of potential
          litigation.
        • A notification of a site examination, joint destructive examination, or removal of the evidence
          may also be presented in the initial demand letter. This allows the claim to move faster without
          the need to wait for the deadline for the initial demand letter to lapse.
      • Delivery of demand letter: Another consideration when sending out a demand letter is proof of delivery,
        such as sending out the letter via certified mail or requesting a delivery/read receipt if the letter is
        sent out via e-mail. This is particularly helpful when the demand letter is a “condition precedent” to
        filing suit and when the case is up against an approaching statute of limitations deadline and to avoid
        any dispute that the demand letter was delivered and received.

 

  1. Damage Package: A damage package should at minimum include proof of payment/copies of check and supporting
    documentation for each payment made.

    • Proof of payments made by the insurance carrier;
    • Supporting documentation for each of the payments made;
    • Photographs of the damage;
    • Police report/fire report (if favorable);
    • Expert report (if favorable);
    • Any other documentation that could help support your subrogation case, for instance, a repair receipt
      showing the negligent work performed by the tortfeasor.

 

Review State Requirements for Pre-Suit Demand Packages

The specific requirements for a pre-suit demand package can vary depending on the jurisdiction and the specific circumstances of the case, so it is crucial to review state law prior to sending out a demand letter.

Some states allow a request for insurance information from the tortfeasor. For instance, Florida Statutes, Section 627.4137, requires the disclosure of the following information within 30 days of the written request:

  • The name of the insurer.
  • The name of each insured.
  • The limits of the liability coverage.
  • A statement of any policy or coverage defense which such insurer reasonably believes is available to such insurer at the time of filing such statement.
  • A copy of the policy.

This is useful to determine whether the client’s insured is an additional insured under the tortfeasor’s policy and establishing the tortfeasor’s policy limits.

 

Additionally, some states require a demand letter prior to filing suit depending on the type of loss. For instance, Georgia, Florida, and Idaho require a written notice of claim for a construction defect claim prior to commencing an action in litigation against a construction professional. It is therefore crucial that the pertinent state law is reviewed to determine how the notice of claim should be sent to the construction professional, the required contents for the notice of claim, and the deadlines associated with sending out and responding to a notice of claim.

 

It is also important to note that pre-suit requirements may vary depending on the tortfeasor you are pursuing. For instance, if you are pursuing a governmental entity there may be state specific requirements as to who you should send the notice of claim to and as to any notice deadlines.

 

Conclusion

A well-crafted pre-suit demand package can be a powerful tool in subrogation cases. It not only sets the stage for negotiations but can also expedite the settlement process and pave the way for a successful resolution in favor of your client.

October 9, 2023

The Applicability of Florida Statute 627.70152 after the Commencement of Litigation

In a recent hearing held on Defendant’s Motion for Entry Upon Land to allow for a re-inspection for an engineer by the Insurer, Plaintiff’s counsel argued that based on Florida Statute 627.70152(4)(a)(3), the Insurer waived its right to re-inspect the Insured’s property and due to this, said Motion should be denied. The Judge in this case failed to apply Florida Statute 627.70152(4)(a)(3) correctly and agreed with Plaintiff’s counsel’s interpretation of the statute and denied Defendant’s Motion for Entry Upon Land.

 

This article looks at Florida Statute 627.70152(4)(a)(3) and how it does not apply once a case is in the litigation phase. Florida Statute 627.70152(4)(a)(3) states the following:

4) INSURER DUTIES. — An insurer must have a procedure for the prompt investigation, review, and evaluation of the dispute stated in the notice and must investigate each claim contained in the notice in accordance with the Florida Insurance Code. An insurer must respond in writing within 10 business days after receiving the notice specified in subsection (3). The insurer must provide the response to the claimant by e-mail if the insured has designated an e-mail address in the notice.

 

(a) If an insurer is responding to a notice served on the insurer following a denial of coverage by the insurer, the insurer must respond by:

  1. Accepting coverage;
  2. Continuing to deny coverage; or
  3. Asserting the right to reinspect the damaged property. If the insurer responds by asserting the right to reinspect the damaged property, it has 14 business days after the response asserting that right to reinspect the property and accept or continue to deny coverage. The time limits provided in s. 95.11 are tolled during the reinspection period if such time limits expire before the end of the reinspection period. If the insurer continues to deny coverage, the claimant may file suit without providing additional notice to the insurer.

 

Pursuant to the statute, if the Insurer asserts the right to re-inspect the property, it has fourteen (14) days to do so otherwise it can be deemed as waived. At the hearing, Plaintiff’s counsel used this argument, but in the litigation phase, and stated that the Insurer waived its right to re-inspect by not asserting its right in the response to the Plaintiff’s Notice of Intent to Litigate prior to Plaintiff filing suit. Plaintiff’s counsel went further and argued that although the Insurer waived its right to re-inspect the property, the Insurer is not precluded from having an engineer provide its opinion by reviewing Insured’s documents and/or photographs of the alleged damages and property. Under Plaintiff’s argument, the Insurer would have to assert its right for re-inspection in all of its responses to the Notice of Intent to Litigate filed by the Insured, which would be unnecessary and/or reasonable since not all claims require a re-inspection and because issues that necessitate a re-inspection by an engineer may arise after a suit is filed and discovery is propounded and received.

 

Plaintiff’s counsel’s application of the statute is erroneous in that this Statute delineates the requirements and procedures for re-inspection prior to filing suit and not after the suit is filed. More importantly, if Plaintiff’s argument were valid, the Florida statute would be in direct conflict with Florida Rule of Civil Procedure 1.280, which discusses the general provisions governing discovery in Florida. Florida Rule of Civil Procedure 1.280 provides for discovery by various methods, including permission to enter upon land. For these reasons, the Judge failed to properly apply the statute and the basic rules of civil procedure, and this pre-suit statute should not be used to preclude the Insurer’s ability to re-inspect a property once a claim is in litigation.