Subrogation Issues for Your Insureds To Avoid (with your good advice)

The Case:  Sandman v. Quincy Mutual et al.,  81 Mass. App. Ct. 188 (2012) decided January 25th, 2012

Quick Refresher: Subrogation is “…the substitution of one person in the place of another with reference to a lawful claim, demand or right.”

What You Should Know About This Case:

In March, 2004, during a heating oil delivery to Elaine Sandman’s residence, a delivery line burst, causing her basement to flood with over 100 gallons of oil. As an insured of Quincy Mutual, it agreed to cover the remediation cost of cleaning up the oil spill, which came to over $200,000, but denied coverage for damage to Ms. Sandman’s personal property because of a policy exclusion for damage to personal property caused by pollution.

Ms. Sandman did not dispute that the Quincy Mutual policy excludes coverage for personal property. Quincy Mutual paid Ms. Sandman’s loss and then brought a subrogation suit against the heating oil delivery company that spilled the oil and caused the loss. Quincy Mutual referred its subrogation claim to Attorney Frank Fragomeni, whose offices are at 15 court square Boston.

Apparently, after the oil spill Ms. Sandman was looking for an attorney to pursue her own claim for the loss of her personal property. Within two weeks of the loss, Attorney Fragomeni contacted her and introduced himself as the attorney hired by Quincy Mutual to “pursue her claims for negligence in the heating oil delivery.”

For the next five years, Ms. Sandman claimed that she thought that she had an agreement regarding the subrogation claim that included her excluded property loss based upon the attorney’ s oral statements and his written letter to her stating: “[o]nce we receive the final figure suit will be entered in the Superior Court against parties responsible for damages to your property.”

Ms. Sandman’s understanding of her legal arrangement with Attorney Fragomeni continued until 2009 when the case that was filed in the Superior Court settled. After the settlement, Ms. Sandman asked Attorney Fragomeni about her recovery, upon which he informed her, allegedly for the first time, that he was only representing Quincy Mutual.  He then told her that being Quincy Mutua’s attorney it would be impossible for him to assist her in pursuing her claims against the heating oil company because that would constitute a conflict of interest. By the time of this conversation, however, Ms. Sandman’s claims against the heating oil company for the loss of her personal property already were barred by the statute of limitations.

Ms. Sandman filed suit against Attorney Fragomeni and Quincy mutual claiming misrepresentation, malpractice, negligent infliction of emotional distress, violation of the implied covenant of good faith and fair dealing, and violations of G.L. c. 93A. Although Quincy Mutual hired Attorney Fragomeni as an independent subrogation attorney, Ms. Sandman sued Attorney Fragomeni for misrepresentation and malpractice. Ms. Sandman also sued Quincy Mutual alleging that it was responsible for the actions of Attorney Fragomeni.

What the Court said:

  • The majority of the Appeals Court found no evidence that any that any employees, adjusters, or other representatives of Quincy Mutual represented to Ms. Sandman that Quincy Mutual, as opposed to Attorney Fragomeni, would provide for her legal representation in the pursuit of her personal claim for damages.
  • Also, the Court determined that Ms. Sandman had not asserted that Quincy Mutual somehow directed, commanded, or knowingly authorized the acts or omissions of Attorney Fragomeni.
  • The Court denied Ms. Sandman’s claim stating, “In these circumstances, there is no basis upon which Quincy Mutual may be vicariously liable for Fragomeni’s malpractice because it is Fragomeni who controlled the strategy, conduct, and daily details of representation of Sandman, and his ethical obligations to Sandman prevent the insurer from exercising the degree of control necessary to justify the imposition of vicarious liability.”

 Agent Takeaways:

  • Tread carefully when an insured asks you about a subrogation claim particularly if the insured has some damages arising out of the loss that are not covered under the policy.
  • Be sure to note that an insurance company’s subrogation claim will only include the insurance company’s loss and will not include your insured’s independent uninsured claims.
  • It is always best to advise your insureds to obtain their own lawyer in the event that they have any loss that is not covered by the policy.  As in this case, if the insurance company settles the case the insured’s claim can be lost.  It is not even a case of the statute of limitations expiring. Massachusetts does not allow claim splitting, so if the insured does not protect her interests in the insurance company’s subrogation suit she may be barred from bringing their own independent suit for their loss.

By Owen Gallagher