Subrogation is the transferal of the right of legal restitution from one party to another. In most first-party property coverages, insurance contracts give insurers the right to pursue recovery on insureds' behalf against any wrongdoers or tortfeasors. In a sense, the insurer stands in the shoes of the policyholder. Subrogation reflects the equitable principle that the person causing the loss should bear the cost of such loss.

Risk managers may not think a whole lot about subrogation, but they should. Why? There are plenty of reasons.

First, the risk manager may stand to get money back from the insurer. Most property policies have deductibles. Many liability policies have self-insured retentions. Either way, these mean that the burning layer of loss is funded by the risk manager's company. If an insurer successfully pursues subrogation (on first-party claims) or recoveries (on third-party claims), it may recoup funds it paid within its own deductible or SIR. That financial payback is enough to make sure that insurers aggressively pursue subrogation.

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