A young boy’s mishap with an expensive sculpture is shining a spotlight on insurers’ growing use of subrogation to recover claims paid to insureds.
- Lori Chordas
- October 2018
ON DISPLAY: “Aphrodite di Kansas City,” a glass and mirror sculpture on display at a community center in Overland Park, Kansas, was damaged after being accidentally knocked over by a young boy.
While it's often said hugs are free, a spotlight-grabbing embrace came at a hefty price for one insurer.
On May 19, a five-year-old boy “hugged” an expensive glass and mirror sculpture in an Overland Park, Kansas community center, sending it toppling to the ground and causing $132,000 in damages.
The city of Overland Park filed a claim with its insurer, Travelers, to recover the damages. Travelers paid the loss, minus the city's $25,000 deductible.
As part of the insurance contract, Travelers has the right to recover the loss from a third party, said city spokesman Sean Reilly in an email.
“The city has agreed to waive the recovery of the $25,000 deductible, so if Travelers elects to subrogate the loss, it will only seek recovery for the $107,000 amount it paid to the city per the insurance contract,” he said.
Incidents like that illustrate the growing use of subrogation by insurers and self-insured companies to recover claims paid to insureds.
Subrogation, in which insurers seek reimbursement from a person or entity legally responsible for an accident or loss after the insurer has paid out money on behalf of its insured, was once “a very passive area” for the insurance industry, said Elliott Feldman, co-chair of Cozen O'Connor's litigation section.
However, there's been a “slow but steadily growing” recognition by insurers over the past several decades that subrogation is very important from an economic, loss control and customer relation perspective, he said.
Carriers are becoming smarter and more cost conscious about subrogation.
And they're pursuing it “in circumstances where the law supports their ability to do so, whether the claim is paid by the insurer or not,” said Kim Rathbone, a partner at the national subrogation law firm Rathbone Group LLC.
In July, Travelers sent a letter to the boy's family seeking to recover the monetary damages it paid for “Aphrodite di Kansas City,” the one-of-a-kind mosaic sculpture of a woman's upper body that was on loan to the city.
In the letter, Travelers said the family was responsible for the supervision of a minor child and that their “failure to monitor” could be considered negligent, according to reports.
Surveillance video of the incident shows two children repeatedly touching the statue as adults walk around them or sit in the room.
Sarah Goodman, the boy's mother, posted in a Facebook message that the family was in no way negligent and argued that the city should have done a better job of protecting expensive pieces of art.
“At first blush, the claim against the family might appear as an aggressive subrogation pursuit,” Cozen's Feldman said.
“It's easy to be critical of an insurer for allegedly pursuing a claim against a five-year-old child, but it's important to understand this in context,” he said.
Most states have statutes that say minors below a certain age are incapable of being held liable for negligent conduct.
“That's because they are not yet of the age where they can distinguish right from wrong. A five-year old would certainly fall below that standard,” Feldman said.
Elliott Feldman, Cozen O’Connor
Insurers will continue to look to subrogation recovery as a way to provide value-added services to their company, shareholders, employees and insureds.
That sparks a debate—are parents or supervisory adults responsible for incidents involving young children?
“In Kansas, it's perfectly permissible for anyone to be able to pursue a parent for negligent supervision,” Rathbone said.
That happened in a 1968 Kansas Supreme Court subrogation case in which American Family Mutual Insurance Company sought to recover from a 13-year-old boy a portion of a fire loss paid to a church. Allegedly, the boy and his friends went into the church kitchen and sparked a fire by failing to extinguish torches they lit to illuminate the premises.
Judgment was awarded to the insurer.
“Part of our job as parents is to keep an eye on our children and make sure, due to their enthusiasm and being kids, that they don't inadvertently cause damage or injury,” Feldman said.
“When that occurs, there's a legal standard and basis for holding that type of supervisory person responsible,” he said.
Homeowners policies typically provide liability protection to those individuals for that type of claim, he said.
The Goodman family hasn't publicly disclosed what types of policies they had in place.
Cities or municipalities may have policies such as general premises liability, commercial coverage, a separate rider or an umbrella policy to specifically cover displayed artwork, Rathbone said.
Kim Rathbone, Rathbone Group LLC
[Carriers are pursuing subrogation] “in circumstances where the law supports their ability to do so, whether the claim is paid by the insurer or not.
“In a different hypothetical scenario it could have been the artist's policy insuring his artwork that paid out and the subrogation claim could still proceed after,” she said.
Reilly said Travelers provides $200,000 in coverage for fine arts on loan, subject to a $25,000 deductible.
In August, Goodman said her family's insurer, which she publicly declined to name, denied making any kind of payment for the damaged artwork and said it has no intention of paying for the loss, according to reports.
Insurers will continue to look to subrogation recovery as a way to provide value-added services to their company, shareholders, employees and insureds, Feldman said.
Subrogation is often viewed as a financial transaction.
“However, just as important is that if companies put a lot of time and resources into underwriting losses and pay attention to the type of risk management practices that insureds have in place to prevent a loss, and some third party causes damage to an insured property, it's appropriate and important for insurers to continue to pursue these claims.
“It's not just to get an appropriate reimbursement for their loss for their balance sheet. It's also to make it clear that our industry and society still are based upon people taking responsibility for their actions and being held accountable when their actions fall short of what's required,” Feldman said.