Subrogation & Recovery Law Blog : Insurance Subrogation Lawyer & Attorney : Cozen O'Connor Law Firm : Property Damage & Insurance Commentary

A call comes in regarding a new large fire loss. Based on the preliminary information from the insured, it sounds like there may be subrogation potential. The adjuster promptly retains a cause and origin investigator to go to the scene. However, the cause and origin investigator shows up only to find that an overzealous restoration or cleaning company has already gutted the scene and ruined any opportunity to determine the cause of the fire.

This is a scenario that many property adjusters may be all too familiar with. I often get calls from clients inquiring whether there is any potential claim against the restoration company under this scenario. Unfortunately, in most instances, there is no recourse against the restoration company. In recent years, a number of jurisdictions have considered the issue of whether there is an independent cause of action against a third party for evidence spoliation. The vast majority of jurisdictions to consider the issue have refused to recognize such a cause of action. Those jurisdictions have taken the position that the only remedy against a spoliating party are the sanctions available against that party in litigation for the underlying claim. This remedy is obviously of no help when the spoliating party is a restoration company who has no potential liability for causing the fire.

Even if the loss occurs in one of the handful of jurisdictions that have recognized an independent cause of action for spoliation, it is still very difficult to maintain such a cause of action. First, you have to establish that the spoliating party was a aware of potential litigation and had a duty to preserve evidence. Most jurisdictions recognizing this cause of action require that the destruction of evidence be intentional and be done for the express purpose of depriving another party of its use and it is not sufficient to show the party negligently disposed of the evidence. In most circumstances, it would be difficult to establish this against a restoration company that cleans up a fire scene.

Even if you can establish that the party has intentionally spoliated evidence, you still need to prove the damage aspect. To prove damages, you need to establish that the spoliation prevented you for proving the underlying claim and that but for the spoliation you would have been able to prevail on the underlying claim. However, if the restoration company cleans up the entire fire scene before you can even investigate, in almost all instances, it would be impossible to prove that but for the clean up, you could have prevailed on a subrogation claim against some other party. As a result, in most cases you will not have any legal recourse against a restoration company who cleans up a fire scene before you can investigate. The situation may be different if there is an express contractual agreement with the restoration company to preserve evidence and they fail to do so.

Given that there is likely no legal recourse against restoration companies for cleaning up a fire scene too soon, carriers need to educate everyone involved in the claims process to try to make sure it does not occur. Carriers should make sure that restoration companies they use frequently are aware that they should not do any cleanup until specifically authorized to do so. More importantly, carriers need to let insureds, agents and public adjusters know as soon as a claim is reported that the scene needs to be preserved for investigation and they are not permitted to let emergency services contactors clean up the scene until the carrier authorizes it.
 

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We are pleased to announce that this “Subrogation & Recovery Law Blog” has been nominated as a candidate for the LexisNexis Top 50 Insurance Blogs of 2011. Each year, LexisNexis honors a select group of blogs that it believes sets the standard for a particular industry. If you have enjoyed this blog, and would like to support this nomination, please feel free to take a moment to comment on the announcement post on the Lexis/Nexis Insurance Law Community Board.

Each comment is counted as a vote toward the nominated blog. To submit a comment, you need to log on to your free Lexis/Nexis Communities account, and, if you have not previously registered for an account, you can do so for free on the Insurance Law Community Board. The comment box is at the bottom of the blog nomination page, and the comment period for nominations ends on September 30, 2011. At that point, Lexis/Nexis will post the Top 50 Insurance Law Blogs of 2011, and the community will vote for the “Top Blog” from that select group. We are extremely appreciative of even a nomination for such recognition.

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After indignantly waving their tariff in your face, electric utilities are quick to claim "lack of notice" when confronted with claims alleging that an electrical malfunction in the utility's wiring and equipment caused a fire at your insured's property. Many times, this defense deters further recovery efforts. But a thorough investigation of the utility's pre-loss knowledge, likely only possible through litigation, may provide you with a viable subrogation claim.

For example, your electrical expert tells you that the fire at your insured's property was caused by an electrical surge into the electric meter located on the exterior of your insured's house. The surge, in turn, resulted from shorting and electrical activity in the underground distribution bus buried beneath a box outside the property. Your expert also determines that the arcing and electrical activity at the bus probably resulted from settlement, which may have been caused by improperly compacted soil.

The utility claims it had no notice of any problems with the electrical service, settlement, or the compaction of the soil and consequently, no reason or duty to inspect its underground equipment before the fire. Moreover, the utility claims, it sub contracted the electrical service installation work and the developer was responsible for compacting the soil.

You can ask the utility for its internal records concerning service calls for any property serviced by the underground equipment, for records regarding the installation work, and for records regarding the utility's knowledge of problems with settlement at this development, and possibly studies in the utility's possession regarding the effects of settlement and their equipment's ability to withstand anticipated ground settlement. Of course, the utility is not going to voluntarily provide you with any information. So the reality is, if you have a good expert and the case is sufficiently large, it may be in your best interest to file suit to obtain the information and the utility's internal documents you need to support your claims, or to confirm that there is no basis for a claim against the utility.
 

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Thirteen fires and more than one million dollars in property damage have been caused by LG Dehumidifiers, prompting a recall. The Goldstar GHD30Y7, Goldstar DH305Y7 and Comfort-Aire BHD-301-C dehumidifiers are all included in the recall. The recalled units are distributed through The Home Depot, Walmart, Ace Hardware, Do It Best, Orgill and other nationwide retailers from January 2007 through June 2008.

The failure mode is identified by the CPSC as a short in the power connector for the dehumidifier's compressor. Consumers are warned to immediately stop using the dehumidifiers and unplug them. Goldstar and Comfort-Aire deny any responsibility.

If you learn of dehumidifiers in the area of origin, it's recommended to hire an electrical engineer to perform a site inspection so as to rule the unit in or out, along with any other electrical sources, including the structural electrical system. The dehumidifier should be preserved if there is any possibility it may have been involved in the fire, along with the receptacle to which it is connected, and any associated cords, including extension cords.
 

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The Consumer Product Safety Commission claims that in 1996 alone, clothes dryers caused 15,500 house fires, resulting in 20 deaths, 320 injuries and $84.4 million in property damages. In light of this information, it is not surprising that dryer manufacturers vigorously defend products liability claims. Just recently, Electrolux obtained a defense verdict in Wisconsin federal court in a dryer fire case filed by a subrogating carrier.

Successfully pursuing a dryer fire claim in this environment requires attorneys and experts who have the technical experience, education and acumen to successfully navigate the many defenses that dryer manufacturers raise. The attorney and expert must realize that there is no such thing as a “typical” dryer fire case. Each case presents its own set of facts and circumstances which prevent you from adopting a one size fits all type of litigation strategy when prosecuting these cases.

In recent years, Cozen O’Connor has developed an expertise and sophistication in prosecuting dryer fire cases.  As a result, numerous insurers have asked us to “take a second look” at dryer fire claims that were previously closed by other law firms. In several of these cases, we have identified viable subrogation opportunities and instituted suit against the potentially responsible parties. Unfortunately, in most of the cases we reviewed, we had to advise the client that although the case had a potentially viable theory of liability, we could not pursue the claim because the investigator had failed to collect and preserve the necessary evidence.

In dryer fire cases, it is not simply enough for the investigator to preserve the dryer. There is other critical evidence that must be documented and/or preserved if you are to successfully overcome the legion of defenses that dryer manufacturers will undoubtedly raise in your case. Some of their favorites are:

1. Spoliation – Ideally, you should place the dryer manufacturer on notice of the claim and give them an opportunity to inspect the fire scene. If the dryer manufacturer is not given this opportunity, they will certainly raise a spoliation defense. However, this defense can be overcome if your expert properly documented the fire scene completely and extensively with photos. It still amazes me to see fire investigators who take a dozen or less photos of the room of origin and believe that they have adequately documented the fire scene, especially in this age of digital cameras. Make sure your investigator takes tons of pictures of the fire scene, both close ups and overall view shots. I love it when I get a CD from my expert and it has 400 or more fire scene photos. I can’t tell you how many times one of those photos has saved a case two or three years down the road in litigation when a defendant has raised an unexpected issue and we are able to rebut the allegation with a photo.
 

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On September 1, 2011 the Consumer Product Safety Commission announced a voluntary recall of all pourable gel fuels made by nine separate companies. The recall covers an estimated two million units of this fuel, which has been sold since 2008. Customers are being asked to contact the individual companies to obtain a refund for return of the product.

The recall is reportedly based on 65 reported incidents of flash fires. The fuel is designed to be used in outdoor fireplaces or firepits.  Specifically, the pourable gel fuel can ignite unexpectedly and splatter onto people and objects when it is poured into a firepot that is still burning.

If you have a claim involving a flash fire occurring when an individual was using pourable gel fuel, your first instinct may be to chalk it up to user error. However, based on this recall, thought should be given to pursuing a products liability theory.
 

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