June 22, 2021 | Industry Insights
Subrogation: A Powerful Tool for Logistics Providers
What Is Subrogation?
Subrogation is the term for an insurance company’s efforts to recoup moneys paid in defense of a claim. This means that if a claim is filed against you, and the insurance company pays it, the insurance company will then look to get that money back if the loss wasn’t really your fault. Subrogation is a huge benefit to the policy holder, because it can potentially reimburse the cost of the deductible and keeps the holder’s loss history clean. This gives you the leverage to maintain the broadest possible coverages at the best rates.
How Does Subrogation Work?
When a covered loss is paid by your existing policy, our subrogation team goes into action, locating and contacting the actual at-fault party (this could be anyone from a trucking company, ocean liner, airline, warehouse operator, etc.). Roanoke works to obtain recoveries either directly from the at-fault party or from their insurers. This process can be difficult and time consuming as most at-fault parties will deny their culpability. It takes a strong, persistent team with all the facts laid out to prove liability and collect. Roanoke’s subrogation team is the largest in the transportation insurance industry and has an outstanding success rate in collecting on paid losses and getting that money back to our clients and our clients’ insurance companies.
Let’s look at an example.
A consignment containing 4 pieces of stainless steel food processing equipment sustained damages on the way from the shipper’s facility in Waukesha, WI, to the consignee’s premises in Louisville, CO. It was alleged that during transit, the trucker’s tarp blew off and the shipment was exposed to various damaging elements of the road including water, road salt, dirt, etc. The result of this exposure was $77,112.93 worth of damage to the food processing equipment.
Cost of Damage to Cargo: $77,112.93
Cost of Survey: $2,305.00
Gross Claim amount: $79,417.93
The carrier was provided with instructions for tarping the load by the shipping manger via the logistics service provider who arranged the transport, and the terms of service indicated the service type as “full” and even specified “tarps – full”. All the evidence made it clear that the LSP instructed the contracted carrier to tarp the load.
The weight of the machine was 14,000 LBS. At the customary $0.50 per pound, liability could have been limited to $7,000.00. Roanoke’s subrogation team was able to break limitations of liability and successfully argued gross negligence against the carrier because they could prove that, at the time of delivery, the tarp from the load was missing, and the subject shipment had been exposed to freshwater wetting, snow, road salt, dirt, grime, etc.
The end result was a full recovery of the paid claim.
$11,289.00 Deductible – unrecoverable without subrogation
$68,128.93 in loss against your policy could lead to rate increase or potentially a need to move the policy.
The Impact of Subrogation
Full Recovery : $79,417.93
Subrogation recoveries are of enormous benefit for a policyholder. Deductibles and other out of pocket expenses not covered by your existing insurance policy may be returned. Successful subrogation lowers or even eliminates your loss ratio, and loss ratio is a key driver underwriters use to determine risk level, impacting policy rates, terms and conditions. All of this amounts to spent money, time, and worry that subrogation saves for the logistics service provider.