The recent riots in Ferguson, Miss., have resulted in property damage in excess of $5 million, and the total is climbing. However, these riots don’t even come close to the $1.2 billion in damages during the costliest civil disorder in history, the 1992 Los Angeles riots which resulted from the acquittal of four Los Angeles police officers arising out of the arrest of Rodney King. Vandalism – the deliberate destruction of or damage to public or private property – is another area of significant concern for insurance companies. According to an estimate by the 2008 NoGraf Conference, graffiti – just one form of vandalism – cost U.S. taxpayers $25 billion in private and public damages annually. Arson causes an average 750 deaths, 5,000 fire injuries, and nearly $5 billion in property damage annually. Every year in the U.S., more than 25 million criminal offenses result in over $15 billion in economic losses to the victims. From a financial standpoint, insurance companies rank among the most heavily-impacted of all victims. Their status as victims of crime may give insurance companies new and increased subrogation and reimbursement opportunities which have historically been overlooked.
Subrogating against a criminal isn’t always a profitable venture. Criminals aren’t necessarily the most financially-responsible, fully-insured segment of society. Furthermore, whether or not a criminal act is covered by a liability policy is often a dubious proposition and one which requires detailed coverage review and a great deal of creativity. The interplay of the criminal convictions, guilty pleas, and even the timing of declaratory judgment actions can all impact coverage issues. All too often, however, the only source of funds to reimburse a victim of crime is the amount of court-ordered restitution to be paid by the criminal.
An often-ignored area of recovery for insurance companies with a right of subrogation is the possibility of obtaining court-ordered restitution from a criminal defendant as part of their sentencing. Approximately two-thirds of the states provide for the availability of some sort of court-ordered restitution to be paid to victims of crime. The states that do allow for restitution often have conflicting statutes and criteria with regard to how, when, and to whom restitution may be awarded. Although restitution statutes have been progressively getting stronger, studies show that less than half of crime victims are awarded some sort of restitution – usually because the victim fails to request it.
Insurance companies today are laser-focused on the subrogation, reimbursement, and recovery of claim payments made as a result of the actions of culpable third parties. Their shareholders and insureds insist on it. Subrogation has come into vogue in the 21st Century and its many benefits, the potential it brings for reimbursement of an insured’s deductible, and the positive influence it has on risk modifiers and loss histories render it too important to ignore. Subrogating criminal restitution payments is only now becoming a matter of focus, because it has been only recently that state laws have begun to address this important area of insurer reimbursement. They are beginning to demand criminal restitution when their claim payments were necessitated because of the criminal act of a third party.
Every state handles the subject differently. In Iowa, victims can receive restitution awards. An Iowa statute specifically defines a “victim” as “a person who has suffered pecuniary damages as a result of the offender’s criminal activities” and explicitly states that an insurer cannot be a victim for purposes of criminal restitution. I.C.A. § 910.1. Kansas and California take a similar approach. Many other states, however, including Alabama, Florida, Nebraska, Texas, and dozens of others, have declared that an insurer may qualify for restitution after compensating their insured – the “victim.” However, the insurance company must actively engage, argue, and apply for such restitution. It must advocate for itself and not be shy in doing so.
Subrogation professionals are concerned with whether a subrogated carrier is entitled to restitution. The answer to this usually hinges on whether the particular state involved has defined “victim” to include indirect victims such as insurance companies. The right of an insurance company to recover restitution is sometimes set forth in a state’s statutes, but more frequently it is declared in an appellate decision interpreting that state’s restitution laws.
Restitution to victims is a developing body of law, and the restitution rights of insurance companies are even less developed. In fact, there are many states where the restitution rights of a subrogated insurance carrier have not yet been decided. The adage, “If you don’t ask, the answer is always ‘No’,” is nowhere truer than with the intersection of subrogation and restitution. It doesn’t hurt to ask, and often, restitution is the only form of recovery that will be available to a subrogated carrier. A chart which details the restitution laws in all 50 states can be found by visiting http://www.mwl-law.com/wp-content/uploads/2013/03/00155520.pdf.
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