ABANDONMENT AND SALVAGE:
A legal status giving an insurance company all rights to
an insured’s property. The
abandonment clause is usually found in marine insurance and not
in other property insurance policies such as homeowners, and the
special multi-peril insurance policy.
CLAUSE: In marine insurance, the abandonment clause
is an insured the right to abandon lost or damaged property and
still claim full settlement from an insurer subject to certain
restrictions. Two types
of losses are provided for under abandonment clauses; 1) actual
total loss - property so badly damaged it is unrepairable or unrecoverable;
2) constructive total loss --- property so badly damaged that
the cost of its rehabilitation would be more than its restored
LIABILITY: Liability that exists and
is imposed upon a party, even though no negligence or fault was
committed by that party. Absolute liability is most often imposed
when the circumstances of the operation, product, or activity
is considered highly hazardous or dangerous.
unexpected, unforeseen event not under the control of any insured
and resulting in a loss. The
insured cannot purposefully cause the loss to happen; the loss
must be due to pure chance according to the odds of the laws of
DEATH AND DISMEMBERMENT INSURANCE: A form of accident insurance that indemnifies
or pays a stated benefit to insured or his/her beneficiary in
the event of bodily injury or death due to accidental means (other
than natural causes).
AND HEALTH INSURANCE: Coverage for accidental injury, accidental
death, or sickness; also called accident and sickness insurance.
Benefits include paid hospital expenses, medical expenses,
surgical expenses, and income payments.
RECEIVABLE INSURANCE: Coverage which
protects businesses against their inability to collect their accounts
receivable because of the loss of supporting records.
ACT OF GOD: An event beyond human origin or control. Lightning,
windstorms, and earthquakes are examples, the damage from which
would not be the responsibility of an insured, although the insured
might be responsible for many other calamities. Acts of God are
excluded by the usual bill of lading, as well as by some insurance
policies, unless specifically included.
ACTUAL CASH VALUE: The basis of loss settlement in property
insurance policies, which takes into consideration factors such
as replacement value less depreciation, market value, rental value,
the use of the building, the area in which it is located, obsolescence,
assessed valuation, and any other factor which would have an effect
upon the value. A working rule-of-thumb definition, however, is
"replacement cost new at the time of loss, less depreciation"
ACTUARY: A social mathematician who uses mathematical skills
to define, analyze and solve complex business and social problems
involving insurance and employee benefit programs. The work of
actuaries involves the various contingencies which face human
beings: birth, marriage, sickness, accident, loss of property,
legal liability, retirement, and death, and the financial affects
which these and other contingencies have on various insurance
and benefit programs. Many of these programs involve long-range
financial obligations, for which actuarial forecasts are fundamental
in maintaining a sound financial basis; rate-making, premium and
loss reserving, investment valuation, pension benefits, and insurance
statistics, among others.
INSURED: A person, other than the named
insured, who is protected by the terms of the policy. Usually
a specified individual such as a spouse or a member of the insured's
family but sometimes, as in automobile insurance, any person,
provided that person is driving the insured vehicle with the insured's
LIVING EXPENSE INSURANCE: Coverage under a homeowners, condominium,
or renters policy, that reimburses costs of residing in
a temporary location until the insured’s home can be made
whole again. It usually
provides living expenses of from 10 to 20 percent of the structural
coverage on the home.
PREMIUM: When a policy has been issued
subject to rate, subject to audit, subject to inspection, is assessable,
or when the policy is endorsed, the additional premium is the
extra amount due, over and above the initial premium stated in
the Declarations, because of the increased exposures, higher rates,
retrospective rate calculations, additional coverage, or premium
INSURANCE CONTRACT: An agreement prepared by an insurance company
and offered to prospective insured’s on a take-it-or-leave-it
basis. If the contracts
are misinterpreted by insured’s, courts have ruled in their
favor since the insured’s had no input into the contract. This is known as the legal doctrine of contra
ADJUSTER: One who determines the amount of loss suffered. A "company"
adjuster represents the company. A "public" adjuster
represents the policyholder. An "independent" adjuster
represents insurers, self-insured companies or municipalities.
ADMITTED: Company A foreign or alien insurance company
which has been licensed by the insurance department of the state
in question, and which thereby is authorized to conduct business
within that state to the extent licensed. Also called an admitted
market or admitted insurer.
ADVERTISING INJURY: Damages or injury sustained by a claimant
in the course of the advertising activities of the insured which
included such injury as libel, slander, violation of the right
to privacy, misappropriation of advertising ideas, or the infringement
AGENCY: A business office whose function is the sales of insurance
and insurance products. An agency may be owned or run by a general
agent, manager, independent agent, or company manager. The principal
is responsible for the statements and actions of agents performing
within the scope of authorization specified in the agency agreement.
AGENT OF RECORD: The agent of record who has been legally
granted to an agent in the agency contract between the agent and
AGGREGATE LIMIT: In a policy providing such an aggregate
limit, the maximum amount the insurer will pay during the policy
period, irrespective of the policy's limit of liability.
AGREED VALUE CLAUSE: A condition of a policy stating that
the insurer agrees to waive the coinsurance requirement in consideration
of the insured's maintaining insurance for the scheduled item,
equal to the value agreed upon at the inception of the policy.
ALIEN COMPANY: An insurance company that is domiciled or
incorporated in a country outside the United States, but which
conducts either insurance or reinsurance operations in the U.S.
ALL-RISK POLICY: A policy which covers loss caused by any
cause of loss which is not excluded, as contrasted to "named
peril" policies which protect against certain perils named
in the policies. Usual to certain types of property and marine
insurance contracts, the term "all risk" frequently
appears in quotes, since such coverage includes "almost"
all risks (i.e., all but those excluded).
AMOUNT OF INSURANCE: Based on the terms of a specific policy,
the most an insurer will pay for any single loss. The maximum
amount an insured can collect.
ANNIVERSARY DATE: The anniversary date of policy inception
as listed in the policy Declarations, and each subsequent expiration
APPORTIONMENT: The process which determines how much each policy on
a risk must pay when there is more than one policy involved in
a loss. Apportionment refers directly to the proportioning or
splitting of the loss amount.
Coverage for additional buildings on the same property
as the principal insured building.
Most property insurance contracts such as the homeowners
insurance policy, cover appurtenant structures.
ARBITRATION CLAUSE: Language in most policies of insurance
providing that, in the event the company and the claimant are
unable to agree on the amount due after loss, the matter shall
be submitted to disinterested parties for solution. One party
is appointed by the insured, one by the company, and two appointed
arbitrators then picked a third, the "umpire".
ARM: The professional
insurance designation of Associate in Risk Management.
ASSIGNED RISK PLAN: An association of insurers in a given
state in which automobile risks unable to get insurance in the
voluntary market are shared among subscribing insurers in proportion
to the amount of automobile liability insurance each insurer writes
in that state. All companies writing this class of insurance are
required to participate in this activity, currently administered
by the Automobile Insurance Plans Service Office, headquartered
RI. Also know as
automobile insurance plans, these plans sometimes take the form
of joint underwriting associations.
ASSUMED LIABILITY: Contractual liability which arises from
an agreement between people, as opposed to liability which arises
from common or statute law.
PHYSICIAN STATEMENT: A document providing additional medical
information on an applicant. This
statement is requested by an insurance company when medical examination
and/or application points to medical conditions that require greater
Property that is inherently dangerous and particularly
enticing to children. For
example a swimming pool has a strong attraction to children and
could lead to a liability judgment against the pool owner.
An abandoned refrigerator may also be an attractive nuisance.
AUDIT POLICIES: These are the types of policies that the
insurer has the right to audit or examine at the end of each policy
term, to determine if the premium charged was adequate based on
the actual final exposure experienced by that insured.
ASSIGNED RISK INSURANCE PLAN: Coverage in which individuals who cannot
obtain conventional automobile liability insurance, usually because
of adverse driving records, are placed in a residual insurance
market. Insurance companies are assigned to write
insurance for them, at higher prices, in proportion to the premiums
written in a particular state.
These plans protect motorists who suffer injury or property
damage through the negligence of bad drivers who otherwise would
not have insurance.
BOAT AND AIRCRAFT INSURANCE: Coverages for motorized vehicles, each of
which require separate policies for property damage and liability
exposures. Motorized vehicles
are not covered under a homeowners insurance policy for property
damage and/or bodily injury liability circumstances when operated
away from an insured’s premises.
A combination of property insurance on the whole of an
airplane and liability insurance in the following manner; 1) property coverage --- provided on all
risk insurance policies, or on a specified peril basis for the
hull, autopilots, instruments, radios, and other equipment in
the airplane as described in the policy; 2) liability coverage
--- provided in the event that the insured’s negligent acts
and/or omissions result in bodily injury and/or property damage
to passengers and individuals who are not passengers.
BAILEE: One who has custody of the property of another.
Bailees "for hire" have certain
responsibilities to care for the property of others that is in
BID BOND: A bond intended to guarantee that the bidder
on a construction, supply or service contract will enter into
the contract if successful as a bidder. Should the bidder fail
to enter the contract, the surety on the bid bond may be called
upon to pay the difference between the amount of the principal's
bid and the bid of the next lowest qualified bidder.
BLANKET COVERAGE: A single limit of insurance that covers
a number of items, such as one amount of insurance to cover two
buildings or a single building and its contents. A blanket policy
usually contains certain restrictions, which may be absent in
"specific" or "itemized" policies, such as
the use of a 90% coinsurance clause.
LIABILITY INSURANCE: Coverage of a common carrier for liability
on trucks that have delivered their cargo and are on the way back
to the terminal. The company
that hires the truck assumes liability while the truck is loaded,
but after delivery, that firms liability ends.
The carrier can be protected by bobtail liability coverage
for the return trip.
BODILY INJURY (BI): Injury, sickness, or disease sustained
by a person, including death at any time resulting therefrom.
BOILER & MACHINERY INSURANCE: Protection against loss
from disruption of boilers and machinery by an insured peril:
loss to the boiler and machinery itself, damage to other property,
business interruption losses, or all three. Also known as machinery
BOND: There is more than one type of bond. Insurance bonds
are normally three-party contracts in which one party agrees to
guarantee the act, performance, or behavior of a second party,
to a third party. Two common types of bonds are fidelity and surety.
AUTOMOBILE POLICY (BAP): Coverage for automobiles used by a business
when a liability judgment arises out of the use of an automobile,
or the automobile is subject to damage or destruction. The business can select coverage for any
auto in use, whether business, personal, or hired.
OWNERS POLICY (BOP): Similar to the
commercial package policy (CPP), it provides broad property and
liability protection in a single contract and is designed for
small and medium-sized mercantile, service, office, or apartment
BORDEREAU: A form of reinsurance
that shows loss history and premium history with respect to specific
risks. The ceding company
provides its reinsurer with that information. This information is used by the reinsurance
company in establishing the reinsurance premium rates.
Coverage for damage or destruction to an insured bridge. Insurers on an all risk basis subject to
exclusions of war, wear and tear, inherent defect, and nuclear
FORM PROPERTY DAMAGE ENDORSEMENT: In
endorsement to a commercial general liability policy which amends
or modifies the care, custody, or control exclusion that normally
eliminates this coverage. A standard endorsement is not currently
available to delete the exclusion; thus each insurer endorsing
this exclusion must develop its own company-specific version.
Endorsements vary greatly as to the extent of coverage.
BROKER OF RECORD: A licensed broker who has been designated
by the policyholder to represent that policy holder.
building or a ship in the course of construction.
2. A special form dealing with the unique loss exposure of property
BUSINESS INCOME INSURANCE: A time element coverage which
pays for loss of earnings or income when business operations are
interrupted, curtailed or suspended due to property loss as a
result of an insured cause of loss. Also covered are loss of rents
and rental value. Extra expenses incurred to continue operations
at another location are included as long as they reduce the total
amount of loss.
BUSINESS INTERRUPTION INSURANCE: A time element coverage
which pays for loss of earnings when business operations are curtailed
or suspended due to property loss as a result of an insured cause
of loss. This coverage is now obsolete and has been replaced by
a more comprehensive and generic business income insurance.
A representative of a single insurer or fleet of insurers
who is obliged to submit business only to that company, or at
the very minimum, give that company first refusal rights on a
INSURANCE COMPANIES ASSOCIATION (CICA): A trade association located in New York City, consisting
of approximately 200 captive insurance companies. The objective of the association is to further
the common interests of its members.
A company formed to insure the risks of its parent corporation. Reasons for forming a captive insurance
company include: 1) Instances
when insurance cannot be purchased from commercial insurance companies
for business risk, 2) Premiums paid to a captive insurance company
are deductible as a business expense for tax purposes, 3) Insurance can be obtained through the international
reinsurance market at a more favorable premium, 4) Investment
returns can be obtained directly on its invested capital.
A shippers policy covering one cargo exposure or all cargo
exposures by sea on an all risk basis.
Typical exclusions include war, nuclear disaster, wear
and tear, dampness, mold, losses due to delay of shipment, and
loss of market for the cargo.
INSURANCE: Insurance concerned with legal
liability for personal injuries or damage to property of others,
including many other types of insurance, such as worker's compensation,
plate glass, burglary, boiler and machinery, aviation, etc. "Casualty"
is generally accepted to cover all classes outside the definition
of "property insurance," so that a property and casualty
company would tend to handle all forms of insurance other than
CAUSE OF LOSS: Previously called "peril" this
is the actual type of event that causes the loss. Examples are:
theft, collision, earthquake, flood, fire, or mischief.
An insurance company that transfers risk to a reinsurance
CERTIFICATE OF INSURANCE: A short-form documentation of
an insurance policy.
CGL-COMMERCIAL GENERAL LIABILITY POLICY: The commercial
general liability policy provides comprehensive general liability
coverage for commercial risks covering all liability exposures
for all locations and causes of loss except those specifically
excluded or limited either within the coverage form or by endorsement.
Protection may be provided on either an occurrence type of policy
or on a claims-made basis.
CLAIM: An amount requested of an insurer, by a policyholder
or a claimant, for an insured loss.
An individual employed by a property and casualty insurance
company to settle on its behalf claims brought by insureds and
CLAIMANT: One who presents a claim, or one who has suffered
a collectible loss.
CLAIMS MADE: A liability insurance method covering losses
from claims asserted against the insured during the policy period,
regardless of whether the liability-imposing causes occurred during
or prior to the policy period. (However, many underwriters may
not cover liability-imposing causes occurring prior to the policy
period.) The coverage trigger is based on the retroactive date
stated in the Declarations.
AND POST-CLOSURE INSURANCE: Insurance
coverage that is purchased to protect owners and operators of
hazardous waste treatment, storage and disposal facilities, in
response to the Resource Conservation and Recovery Act of 1976
COINSURANCE: The provision in insurance coverages in which
the insured and the insurer agree to share in the covered losses
in the proportion specified in policy terms and conditions.
property insurance, a clause requiring the insured to maintain
insurance at least equal to stipulated percentage of value in
order to collect partial losses in full. If the insurance is less
than the minimum required, that proportion of the loss- will be
paid which the amount of insurance carried bears to the amount
which should have been carried.
Symbolically: Insurance Ü Carried x Loss = Payment (subject to
policy limit) Insurance Required
2. In major medical insurance, the clause which specifies the
percentage of a loss which the company will pay and the percentage
which the insured will bear (e.g., 80-20, 75-25)
COLLISION DAMAGE WAIVER: When renting an automobile or
other vehicle from a rental agency, the rental agreement between
renter and rental agency may contain an option allowing the renter
to pay an additional fee in exchange for the agreement by the
rental agency to waive their rights to collect any collision losses
to the vehicle from the renter.
In automobile insurance, coverage providing protection
in the event of physical damage to the insured’s owned automobile
(other than that covered under comprehensive insurance coverage).
COMMERCIAL PACKAGE POLICY (CCP): A package policy designed
for commercial insureds that can provide in one policy, several
lines of insurance business as needed by that commercial venture.
Lines of business which may be included in the CPP are property/glass,
general liability, inland marine, crime, boiler and machinery
insurance, and commercial automobile.
COMPARATIVE NEGLIGENCE: A more modern system of allocating
damages between two or more persons than the method of contributory
negligence, which remains effective in many states (under which
one cannot collect damages for bodily injury or property damage
caused by another party's negligence if one were oneself in any
way negligent). Under comparative negligence, the damages collectible
in relation to another person are diminished in proportion to
one's degree of negligence. In most instances, damages cannot
be collected at all if the claimant's negligence was greater than
that of the other party. Currently, in a few instances, the courts
have awarded both parties damages as a percent of the total damages,
depending on respective degrees of fault.
DAMAGES: Not to be confused with punitive
damages, which are additional damages requested by an injured
party to punish the party responsible for the loss, compensatory
damages are normally monetary damages alleged by the claimant
to compensate for actual injuries or expenses sustained. These
may include all types of medical expenses, as well as other expenses
such as lost wages, legal fees, pain and suffering mental anguish.
Loss of consortium, etc.
COMPLETED OPERATIONS COVERAGE: Protection for a business
which sells service instead of products against liability claims
arising out of work completed away from the business premises.
Differs from products liability coverage, which protects against
products liability claims.
COMPREHENSIVE CRIME COVERAGE ENDORSEMENT: Endorsement (now
obsolete) that at one time could be attached to a special multi-peril
policy providing optional employee dishonesty, money and securities,
money orders, counterfeit paper currency, and depositors' forgery
COMPUTER FRAUD COVERAGE FORM: A crime coverage form designed
to protect against loss of money, securities and property when
conversion occurs via computer fraud.
CONCURRENT CAUSATION: Two or more proximate causes of an
insured loss any one of which, according to some courts, will
trigger the insurance, provided such cause is an insured peril.
CONSEQUENTIAL LOSS: A reduction in value of property (not
physically damaged) caused by damage to other property. Examples
are food spoilage from a change in temperature due to the damage
of a refrigerator by fire, while the food itself is not damaged
by the fire, or the reduction in the value of suit jackets whose
trousers have been damaged.
A partial loss of such significance that the cost of restoring
damaged property would exceeds its value after restoration. For example, a automobile so badly damaged
by fire that fixing it would cost more than the restored vehicle
would be worth.
LIABILITY: A liability which may be incurred
by an insured as a result of negligence on the part of independent
persons engaged to perform work. The most common example is the
contingent liability of a principal contractor, which may result
from construction operations undertaken by subcontractors. Also
applies to the liability of a principal for the acts of an agent
CONTINUING EXPENSES: A term used in commercial time element
coverage to indicate those expenses that will continue during
the restoration period after a business is closed because of a
loss. These expenses may include such items as taxes, certain
executive and key person payroll, loan payments, utilities, and
other expenses the insured may be contractually obligated to continue.
CONTRACTORS' EQUIPMENT: Equipment used by contractors in
their business operations. Examples may be anything from concrete
forms, asphalt plants, bulldozers, cherry pickers, and scaffolding,
to small hand tools. This equipment is most often protected by
inland marine insurance coverages due to its mobile nature.
CONTRACTORS EQUIPMENT FLOATER: An inland marine form which
insures the equipment, tools, and materials of a contractor.
CONTRACTORS PROTECTIVE LIABILITY: A policy which provides
liability coverage for the insured for the negligent acts of contractors
and subcontractors hire by the insured. May also cover for their
own negligent supervision of work performed.
CONTRACTUAL LIABILITY: A legal obligation voluntarily assumed
under the terms of a contract, as distinguished from liability
imposed by the law (legal liability)
CONTRIBUTION CLAUSE: The clause in a policy which describes
how much its issuer must pay if there is insurance in more than
one company on a given loss.
NEGLIGENCE: A common law defense in which
the plaintiff must be entirely free from fault in order to recover
from a negligent defendant. If the plaintiff has in any way been
guilty of neglect, the plaintiff cannot recover from the defendant.
This principle has been modified in some states by legislation
and interpretation by the courts.
CORRECTIVE ACTION COSTS: Expenses that a party incurs to
clean or correct the damage done by pollutants to the ground,
water or air after the occurrence of a pollution incident. These
costs are usually mandated or assessed in response to a confirmed
incident by the Environmental Protection Agency (EPA).
COVERAGE TRIGGER: The event which determines when coverage
of a liability policy applies. In an "occurrence" policy,
the event is the occurrence of the injury or damage. In a "claims-made"
policy, the event is the notification to the insurer or the insured,
whichever comes first, of the happening of the injury or damage.
CPP-COMMERCIAL PACKAGE POLICY: A package policy designed
for commercial insureds that can provide in one policy, several
lines of insurance business as needed by that commercial venture.
Lines of business which may be included in the CPP are property/glass,
general liability, inland marine, crime boiler and machinery insurance,
and commercial automobile.
CRIME COVERAGES: A generic term used to encompass the variety
of crime coverage forms available to protect against losses of
money, securities and property by such causes of loss as: employee
dishonesty, forgery, theft, burglary, robbery, kidnap, extortion,
The sum total of an employees job-related injuries resulting
in disabilities over the working career, for example, exposure
to radiation over many years on the job would have a compounding
injury effect resulting in ultimate disability.
CUT-THROUGH ENDORSEMENT: An addition to an insurance policy
between an insurance company and a policyholder which requires
that, in the event of the company's insolvency, any part of a
loss covered by reinsurance be paid directly to the policyholder
by the reinsurer. The cut-through endorsement is so named because
it provides that the reinsurance claim payment "cuts through"
the usual route of payment from reinsured company-to-policyholder
and then reinsurer-to-reinsured company, substituting instead
the payment route of reinsurer-to-policyholder. The effect is
to revise the route of payment only, and there is no intended
increased risk to the reinsurer. Similar to the guarantee endorsement,
the cut-through endorsement is also known as an assumption endorsement.
DEBRIS REMOVAL CLAUSE: A property insurance provision which
provides coverage for the cost of cleanup and debris removal after
a covered cause of loss has occurred, such as clean up after a
fire or windstorm.
respect to property and liability insurance, the portion of the
insurance policy itself, used to detail the name and address of
the insured, the locations covered, the policy period, limits
of insurance, endorsements attached and premiums for coverage.
Commercial policies also contain such items as the type of entity
and type of operation of the insured.
2. A statement made to the company or to its agents by a policyholder
upon which the company may rely in undertaking the insurance.
DEDUCTIBLE: In a policy providing a deductible clause, the amount
which must first be subtracted from the total damage incurred
before determining the insurance company's liability. Of several
types used, the straight deductible establishes the insurer's
liability above the deductible but not below it; the franchise
deductible establishes the insurer's liability for the entire
amount of damage once the deductible amount is exceeded in a loss;
and the disappearing deductible establishes the insurer's' liability
for the entire amount of damage once the deductible amount is
exceeded in a loss; and the disappearing deductible establishes
the insurer's liability for an increasing proportion of the loss,
as the total damage rises above the deductible, until the deductible
finally "disappears." Then the insurer is liable for
the entire amount. The deductible may be in the form of an amount
of dollars, a percent of the loss, a percent of the value of the
insured property, or a period of time, as in health insurance.
Coverage that will indemnify the insured for the expenses,
up to the limits of the policy, if a building is damaged by a
peril such as fire, and zoning requirements and/or building codes
mandate that the building be demolished.
IN CONDITIONS INSURANCE (DIC): Coverage for a physical structure, machinery,
inventory, and merchandise within the structure in the event of
earthquakes, flood collapses, and subsidence strikes.
A property loss in which the insured peril is the proximate
cause (an unbroken chain of events) of the damage or destruction. Most basic property insurance policies insure
against only direct loss and not indirect loss or consequential
DIRECTORS AND OFFICERS LIABILITY INSURANCE: Protects officers
and directors of a corporation against damages from claims resulting
from negligent or wrongful acts in the course of their duties.
Also covers the corporation (and even the officers and directors
in some cases) for expenses incurred in defending lawsuits arising
from alleged wrongful acts of officers or directors. These policies
always require the insured to retain part of the risk uninsured.
DISABILITY INCOME INSURANCE: A form of coverage which provides
benefits to employees disabled by sickness or accident not related
to employment. An extension of workers compensation acts in New
York, New Jersey,
Puerto Rico, and Rhode
DISCOVERY PERIOD: A period of time, after cancellation
of an insurance contract or bond, during which the insured can
discover whether there would have been a recoverable loss if the
contract had remained in force. The period varies considerably
and, in the case of certain bonds, could be indefinite by statutory
DIVIDEND: An amount of money paid to the policyholders
of a mutual insurer because of their ownership interest. A stock
corporation may also pay a dividend to its policyholders if it
writes participating insurance. In either event, the amount is
payable on the basis of certain savings in losses or expenses
realized by the insurer on that participating class of business.
A clause in reinsurance contracts that requires the reinsurer
to provide coverage if an underlying carrier is unable to fulfill
its obligations under the policy ceded to the reinsurer.
DUTY TO DEFEND: A provision in commercial and personal
liability insurance policies where the insurer has the right and
duty to defend lawsuits against the insured, even when those suits
are considered false, groundless, or fraudulent.
Coverage for a dwellings structure; appurtenant structures
on the premises; personal contents and household items within
the dwelling; and ten percent of the coverage applicable to such
personal contents and household items away from the premises.
EARNED PREMIUM: The portion of the policy premium allocable
to the expired portion of the policy term.
EARTHQUAKE INSURANCE: Insurance against damage by earthquakes
and earth movement. Written most frequently on the Pacific coast.
ECONOMIC PERILS: One of the three common categories of
perils used in the insurance industry to classify causes of loss.
Economic perils are those caused by loss of market, loss of income,
local, national, or worldwide economic conditions, inflation,
or obsolescence of an industry. The other two common categories
of perils are human perils and natural perils.
EDP INSURANCE: An "all-risk" policy that provides
protection on equipment, software and extra expenses incurred
as a result of failure of such equipment caused by an insured
loss and loss of earnings. Also known as an EDP policy. Coverage
may be extended to include liability claims alleging errors and
omissions by date processing companies.
EFFECTIVE DATE: The day upon which a policy first becomes
eligible to pay covered losses.
EMPLOYEE BENEFIT PLAN: The benefit package offered by employers
to their employees which may include such items as health, dental,
accident, disability, and life insurance, as well as other non-insurance
items such as vacation and retirement plans. The cost of the package
or plan may be paid in its entirety by the employer, but is most
often subsidized by the employer so that the employee pays only
a portion of the cost.
EMPLOYERS LIABILITY INSURANCE: Coverage against the common
law liability of an employer for injuries sustained by employees,
as distinguished from liability imposed by a workers compensation
ENDORSEMENT: A document with language attached to and becoming
part of a basic policy for the purpose of amplifying or modifying
it, either at its inception or during its term. Any such modification
can become effective only with the agreement of the insured, unless
clearly made solely for the benefit of the insured.
ENTERPRISE RISK MANAGEMENT: The integrated management of business risk, financial risk, operational risk and risk transfer to maximize a firm's shareholder value by creating a single view of all risks, internal and external, and an executive-level management strategy to assess those risks.
ERGONOMICS: The applied science involving the factors and interaction
of the workplace environment on its workers. Although it is most
often associated with automation in the workplace, this science
covers the cause and effect of any workplace environment.
ERP-EXTENDED REPORTING PERIOD: In "claims-made"
liability policies, only those claims that occur after the retroactive
date and are reported or filed against the insured during the
policy period, are covered by the policy. The ERP, or tail, is
an endorsement available to extend the reporting period for the
filing of a claim to give additional time in order to be considered
ESTOPPEL: A legal doctrine
meaning to stop or bar, such that one party makes a statement
upon which a second party has every right and reason to rely upon,
thereby preventing the first party from denying the validity of
that statement. For example,
the misleading actions of an agent of the insurance company result
in the insured being estopped from having to perform according
to the provisions of the contract.
EXCESS LIABILITY INSURANCE: Liability insurance designed
to provide an extra layer of coverage above the primary layer.
The excess insurance does not respond, however, until the limits
of liability in the primary layer have been exhausted. Because
of the method of response, it is often much less costly than the
primary layer, per $1,000,000 of coverage. The excess layer provides
not only higher limits, but catastrophic protection for very large
which is not covered by the insurance as stated in the policy.
2. A clause in an insurance policy which specifies that which
is excluded from the policy's coverage.
RATIO: Expenses incurred, expressed as
a percentage of net written premiums.
EXPERIENCE RATING: A form of individual risk rating which
takes into consideration the loss experience of the particular
risk as a credit or a debit to the manual rate for the insured's
classification. As the size and number of exposure units increase
(e.g., a multiple location risk), more credibility is given to
the insured's experience.
EXPLOSION INSURANCE: An insurance endorsement or writer which provides an extension of coverage available under the standard fire insurance policy. The standard policy only covers the perils of fire and lightening.
EXTRA EXPENSE INSURANCE: Reimbursement for additional expenses
incurred because of an insured loss. Separate policy or as an
A term under which the reinsurer exercises its faculty
or prerogative to insure a risk or reject a risk from a ceding
WORKMANSHIP EXCLUSION: Most liability
policies contain this property damage exclusion for products-completed
operations losses, although it is now more often referred to as
the work performed exclusion. The intent of this exclusion is
to make sure that insiders are maintaining acceptable standards
of performance and are not using the insurance contract to recover
for poor training or poor business practices by the insured. Coverage
does not exist for property losses to work performed or as a result
of the work performed by the insured.
FIDUCIARY LIABILITY INSURANCE: Protection for those who
administer pension and welfare funds, profit-sharing and other
employee benefit programs against loss for errors and omissions
by the administrator. The need for this coverage was created by
the Employee Retirement Income Security Act (ERISA) of 1974. Also
known as pension trust liability insurance.
FINANCED PREMIUM: Insurance premiums that are financed,
either by an outside financial institution or, in some cases,
through a financing agreement arranged with the insurer, which
involves interest and collateral. This is not the same as an installment
premium whereby the insurer allows the insured to pay the earned
premium as it becomes due on an installment basis.
A type of insurance that provides a single aggregate limit
of coverage within the insurance policy terms, thereby limiting
the insurance company’s liability for a risk transferred
losses caused by fire, lightning and removal of insured property
from the premises to avoid further loss. All resultant damage
such as that done by water and smoke is also covered. Usually
supplemented by extended coverage. Currently, this insurance is
referred to as property insurance.
2. A type or line of insurance, as opposed to marine, casualty
or fidelity bonding. The term fire insurance is now referred to
as property insurance when denoting a line of insurance.
DOLLAR COVERAGE: Insurance coverages or benefits
that pay the entire covered amount without subtraction of or use
of a deductible.
reinsurance, the rate agreed upon between the reinsurer and ceding
company to be charged that insured for the coverage, which is
a final rate and not adjusted for loss experience, size of the
risk, or any other credits or debits.
2. A rate set for a coverage that remains unchanged throughout
the policy period, even if the insured suffers unexpected losses.
FLEET INSURANCE POLICY: Numerous automotive vehicles covered under a common insurance policy.
FRANCHISE INSURANCE: Coverage for small groups that cannot meet the underwriting standards of true group insurance. Even though the franchise insurance covers an entire group, individual policies are written on each insured person, each having the right to different coverage than other members. Usually sold to employer groups.
FRONTING COMPANY: An insurance organization that cedes the risk it has underwritten to its reinsurer with the ceding company retaining none or a very small portion of that risk for its own account.
INSURANCE: Coverage against damage done by
the rising or overflowing of bodies of water.
GARAGE POLICY: Protects garage or service station operators,
vehicle rental agencies, car washes, auto or vehicle dealers,
and trailer or RV dealers for claims alleging bodily injury or
property damage caused by the operator's negligence in business
operations and the sale or use of automobiles.
GENERAL AGGREGATE LIMIT: The sum or total amount that will
be paid in any one policy period, regardless of how many claims,
losses, suits, or insureds may be involved. Some policies allow
the aggregate limit to be reinstated after it has been exhausted,
by endorsement and for additional premium.
A combination of compensatory (pain and suffering) damages
and special damages (out of pocket expenses) awarded in a civil
LIABILITY INSURANCE: Coverage for an insured when negligent acts
and/or omissions result
in bodily injury and/or property damage on the premises of a business,
when someone is injured as the result of using the product manufactured
or distributed by a business, or when someone is injured in the
general operation of a business.
Reckless action without regard to life, limb, and/or property;
for example, driving 100 miles per hour on a road or highway.
A legal right of a passenger in an automobile involved
in an accident to bring a liability lawsuit against the driver. It is deemed that a special standard of
care is owed by an automobile driver towards the passenger.
HEALTH INSURANCE: A
policy that pays benefits to an insured who becomes ill or injured,
provided that documentation is offered to confirm the illness
INSURANCE PLAN: There are three basic plans to
cover the cost of healthcare.
They are: 1) Commercial health insurance, 2) private non-commercial
insurance, 3) and social insurance (social security).
HARMLESS AGREEMENT: A contractual arrangement in which
one party agrees to assume certain liability which otherwise would
be borne by the other party. For example, an insurer may wish
to pay a loss when it is uncertain whether it may be called upon
a second time to some other party. The payee may be asked to execute
an agreement whereby the company will be reimbursed or held harmless
by the payee if such request should happen. Another example is
when the principal in a large construction project frequently
demands hold harmless agreements from all subcontractors in respect
to claims made against the principal arising out of the subcontractors'
negligence. The principal often stipulates the purchase of a liability
policy by the subcontractor to support the hold harmless agreement.
INSURANCE: A packaged policy that combines
1) Coverage against the insured’s property being destroyed
or damaged by various perils, and 2) Coverage for liability exposure
of the insured.
HOST LIQUOR LIABILITY: A form of liquor liability directed
at hosts of business or social functions where liquor or alcohol
is served, with or without a charge. The basis for legal liability
is a dram shop, liquor control or alcoholic beverage law. The
laws vary by state, but most provide that the owner, operator
or host serving or selling alcoholic beverages is liable for injury
or damage caused by or to an intoxicated person if it can be established
that the owner, operator or host caused or contributed to the
intoxication of the person through the sale or serving of alcoholic
IBNR - INCURRED BUT NOT REPORTED: The liability for future
payments on losses which have already occurred but have not yet
been reported to the insurer. This definition may be extended
to include expected future development on claims already reported.
INCENDIARISM: The act of starting
a fire; arson. Arson is
a covered peril under a property insurance policy, provided that
the owner of the property is not responsible for the arson.
INDEMNITY: Compensation for loss. In a property and casualty insurance policy,
the objective is to restore an insured to the same financial position
after the loss that he or she was in prior to the loss.
AGREEMENT: A policy provision designed to
restore an insured to his or her original financial position after
a loss. Insured should
neither profit nor be put in a monetary disadvantage by incurring
ADJUSTER: An independent contractor who
adjusts claims for different insurance companies. Such services are used by insurance companies
who’s financial resources or volume of claims do not warrant
employing their own in-house adjusters.
INLAND MARINE: 1. The insurance of property (generally
on an "all-risk" basis) which is in the course of transportation
or is of such a nature that It may easily be transported. Also
includes some risks at fixed locations considered "instruments
of transportation or communication", such as bridges, tunnels,
neon signs, and street clocks, etc., which were accepted as inland
marine by custom. 2. Originally meant the insurance of goods
in transit "inland", instead of at sea, by underwriters
who specialized in ocean marine insurance.
INSURANCE: Protection for the installer of
equipment against loss by specified perils or on an "all-risk"
basis to property in the course of installation.
INTEREST: An expectation of a monetary loss
that can be covered by an insurance policy. Insurable interest varies according to the
type of policy.
SERVICES OFFICE (ISO): A voluntary, nonprofit
association of property and casualty insurance companies providing
a great variety of services on a national basis. Among its operations
are rating, statistical, actuarial, and policy form services for
all classes of property and casualty businesses. The association
also functions, as provided by law, as an insurance rating organization.
In addition, where applicable, ISO acts as an advisory organization
or as a statistical agent. Established in 1971 by the consolidation
of numerous associations and bureaus performing these services
for separate class of business and in various parts of the country.
Headquarters: New York, N.Y.
A deliberate act or omission, including trespass, assault
and battery, invasion of privacy, libel, and slander. An intentional tort is a branch of civil
liability. Liability insurance
can be purchased to cover libel and slander, but not the other
INTERCOMPANY ARBITRATION: Settlement of a dispute that arises when
two or more insurers cover a single loss, and there is a question
concerning the amount each is responsible to pay. The companies are bound by the arbitration
INTERMEDIARY: A reinsurance broker for a primary company
(the reinsured). This broker
is paid commissions by the reinsurance company, just as an agent
is paid commissions by an insurance company for selling its policies.
INTERPLEADER: A legal procedure through which a court
determines the rightful claimant (of two or more claimants making
the same claim) against a third party.
Insurance companies use interpleader if claims are made
by different parties. For example, upon the death of an insured,
two or more individuals (such as the widow and former wife) may
contest the beneficiaries rights.
The insurance company will deposit the policy proceeds
with the court until it decides on the ownership.
JOINT & SEVERAL LIABILITY: This type of liability occurs
when more than one party is involved in a contract and where both
joint liability (that of all the parties to the contract) and
several liability (that of each individual party to the contract)
promise the action in the contract. If the terms of the contract
are not fulfilled, the injured party has the ability to seek a
legal remedy from all the parties involved (joint) or each individual
KEY EMPLOYEE INSURANCE: Insurance an employer buys on a
key person within the organization to protect that employer from
the financial impact that could result should that employee become
ill, disabled, or doe. This insurance may be life, health, or
disability. Normally, the employee covered has special skills,
training, management, or significant attributes that would cause
the organization loss of income should that employee become unavailable
and a replacement need to be hired or trained.
An arrangement between two or more insurance companies
under which the parties to the agreement waive their subrogation
rights against the other. All
such agreements are no longer in use.
LANDLORDS PROTECTIVE LIABILITY: If an owner of a property
leases the entire premises to others who assume full control,
the chance of being held liable for accidents occurring on the
premises is diminished. The owner can insure the liability as
"landlords protective liability", at lesser rates than
for the normal owners, landlords, and tenants form of policy.
This type of policy is rarely requested or used since the advent
of the commercial general liability and the use of additional
CLEAR CHANCE: A common law doctrine and rule
of negligence that imposes liability on an individual who had
one last opportunity to avoid an accident but did not take it. An example is a driver who could have avoided
hitting another automobile by applying his brakes but did do so.
LEGAL EXPENSE INSURANCE: Insurance covering legal costs,
written generally on a group basis. Includes the indemnification
through providing agreed legal services, as well as the payment
of money to compensate the insured for costs. Also referred to
as prepaid legal insurance.
LEGAL LIABILITY: Liability imposed by law, as opposed to
liability arising from an agreement or contract.
obligation imposed by law or equity.
2. Money owed or expected to be owed. In an insurance company
financial statement, the two columns it contains are its "assets"
(or the amounts It owns) and the "liabilities" (or the
amount it owes or expects to owe). Liabilities generally are defined
by state statute or insurance department regulation for use in
the annual statement of an insurer. The term is also defined for
special purposes by other regulatory officials, such as the Securities
and Exchange Commission.
LIABILITY INSURANCE: Coverage for all
sums that the insured becomes legally obligated to pay because
of bodily injury or property damage, and sometimes other wrongs
to which an insurance policy applies.
AND PERMIT BOND: A surety bond often required by
municipalities and other public authorities to indemnify them
against loss from breach of any regulation or ordinance under
which the license or permit is issued.
LIMIT OF LIABILITY: According to the terms of a given policy,
the most an insurer will pay for any one loss.
LIABILITY: Legislation that makes an establishment
and/or individual selling liquor responsible for injuries caused
by its customers to third parties.
The best known law governing dispensation of liquor on
premises is the dram shop law.
LLOYD'S OF LONDON: A collection of individuals who assume
policy obligations as the individual obligations of each. The
formal name id Underwriters at Lloyd's, London.
Also, Lloyd's of London is a service organization which provides
a central marketplace and ancillary services (such as policy writing
accounting, inspections, and adjusting) for its underwriting members
and its brokers.
DISABILITY INSURANCE: Disability insurance designed to offer income
payments for long-term injuries, illnesses or disabilities. Long-
term if often considered over 90 days.
LOSS: Damage through
an insured negligent acts and/or omissions resulting in bodily
injury and/or property damage to a third party; damage to an insured’s
property; or an amount an insurance company has a legal obligation
ADJUSTMENT EXPENSE: Costs involved in an insurance
company’s adjustment of losses under an insurance policy.
The act of evaluating certain activities to minimize risk
exposure in an environment. See
LOSS EXPERIENCE: The loss history for an account, a line
of business, a book of business, or some other defining category.
Loss experience may include the date of loss, type of loss, amount
of loss, whether the loss is open or closed, and a summary of
the details of the loss.
LOSS OF USE INSURANCE: Insurance which compensated the
policyholder for the inability to use property destroyed or damaged
by an insured peril. For example, if a car is stolen, loss of
use insurance will pay or contribute to the cost of hiring a substitute
LOSS PAYABLE CLAUSE: A condition in a policy whereby the
company may be directed by the policyholder to pay any loss due
the policyholder so some other party designated in the policy.
Usually the payment is made by check or draft payable to both
the insured and the designated payee.
LOST POLICY RELEASE: An agreement signed by the policyholder
relieving the insurer from liability under an insurance contract
which has been lost, misplace, or is otherwise unavailable.
MACHINERY BREAKDOWN INSURANCE: Protection against loss
from disruption of boilers and machinery by an insured cause of
loss, consisting of loss to the boiler and machinery itself, damage
to other property, business interruption losses, or all three.
Also known as breakdown insurance.
MISCHIEF: Intentional damage or destruction
of another person or businesses property. Insurance can be purchased by the owner
of the property to protect against this exposure.
MANUSCRIPT POLICY: A nonstandard policy specifically designed
to meet the needs of the individual insured. Normally, this type
of policy contains nonstandard forms or a combination of standard
and nonstandard forms and nonstandard wording which have been
developed and tailored to the coverage needs of the client. Unusually
this type of approach is used for large insureds or: specialty
Coverage for goods in transit and the vehicles of transportation
on waterways, land, and air.
MARKET VALUE CLAUSE: A clause in which the insurer agrees
that the amount it will pay in the event of loss shall be the
value of the destroyed merchandise "on the market",
which is the amount which could have been realized by selling
the merchandise. Obviously, this includes the seller's profit;
therefore, the clause is used with caution to avoid the creation
of a moral hazard.
MAXIMUM FORESEEABLE LOSS: The anticipated maximum property
fire loss that could result, given unusual or the worst circumstances
with respect to the nonfunctioning of protective features (e.g.;
firewalls, sprinklers, and a responsive fire department, among
others), as opposed to probable maximum loss (PML), which is a
similar valuation, but which is made under the assumption that
such protective features function normally.
MANAGING GENERAL AGENT: An individual or organization given
the authority to act as an insurer or reinsurer in performing
certain functions for that specific insurer or reinsurer, e.g.,
underwriting, inspection or adjusting. Functions may include the
appointment of sales agents or intermediaries. Most MGA's also
operated as wholesale excess and surplus lines brokers.
PAYMENTS: A provision of liability insurance
policies and the liability sections of a package insurance policy,
such as the personal automobile policy, that pays medical expenses
without regard to fault. The
insured does not admit to liability for bodily injury to another
party, nor does the insured the party forfeit the right to sue
minimum or lowest rate that the insurer will charge for the coverage,
policy or endorsement.
2. The lowest rate available for the least hazardous exposures
within a given classification or coverage.
EQUIPMENT: Vehicles not normally designed
for use on public roads and not normally required to be licensed.
MONOPOLISTIC STATE FUND: A state-controlled workers compensation
plan which writes insurance on such risks within the state and
prohibits private insurers from doing so.
MORAL HAZARD: A condition or characteristic by which an
insured intends to profit from an insured loss.
DISAPPEARANCE: An insurance policy clause that
excludes coverage for loss of property if the cause of the loss
cannot be identified. Mysterious
disappearance is an exclusion in a standard inland marine insurance
all risk policy.
NAMED INSURED: The person designated in the policy as the
insured, as opposed to someone who may have an interest in a policy
but who is not shown by name.
NEGLIGENCE: The failure to exercise the care that an ordinary
prudent person would exercise: either doing that which a prudent
person would not do, or failing to do that which a prudent person
AUTOMOBILE INSURANCE: A type of coverage
in which an insured’s own policy provides indemnity for
bodily injury and/or property damage without regard to fault. In many instances it is difficult, if not
impossible, to determine the original cause, such as who is at
fault in a chain car collision.
NONCANCELABLE: A provision in some policies (crop-hail
insurance and ocean marine insurance) that neither policyholder
nor insurer may terminate the contract during its term.
NONOWNED AUTOMOBILE LIABILITY INSURANCE: Coverage for the
policyholder against liability incurred while driving an automobile
not owned or hired by the policyholder or resulting from the use
of someone else's automobile on the insured's behalf, such as
an employee using a personal car for the employer's business purposes.
This coverage is automatically included in personal and most commercial
NOTICE OF LOSS: The notice submitted by an insured to the
insurer regarding the occurrence of a loss. Policy conditions
specify how long the insured has to notify the insurer of the
loss, in what format, and the information the loss notice must
OBLIGEE: The party in whose favor a bond runs, such as
the party protected from loss under the bond.
OBLIGOR: One bound by the obligation covered by a bond.
Also called the principal.
OBSOLESCENCE: A decrease in value of property as the result of technological
advancement and/or changing social mores. This factor is used to measure the amount
of depreciation in determining the actual cash value of damaged
or destroyed property protected by property insurance coverage.
a non-insurance sense, an incident, event or happening. In insurance,
the term may be defined as continual, gradual or repeated exposure
to an adverse condition which is neither intended nor expected
to result in I injury or damage, as contrasted with an accident,
which is a sudden happening. In reinsurance, per occurrence coverage
permits all losses arising out of one event to be aggregated instead
of being handled on a risk-by-risk basis.
2. One basis or determinant for calculating the amount of loss
or liability in insurance or reinsurance when an aggregation of
related losses is to constitute a single subject of recovery.
For example, in property catastrophe reinsurance treaties, occurrence
is usually defined so that all loses within a specified period
of time involving a particular peril are deemed an occurrence.
POLICY: The traditional occurrence liability
insurance method provides coverage for losses from liability-imposing
causes which occurred during the policy period, regardless of
when the claim is asserted. Once the policy period is over a claims-made
form, the approximate extent of the underwriter's liability is
known. With the traditional occurrence liability coverage method,
the underwriter may not discover the extent of liability for years
to come from losses claimed to have occurred within the policy
OCEAN CARGO INSURANCE: A type of marine insurance that
provides property protection for cargo that is being shipped by
sea or over water.
CLAUSE: A provision in a personal automobile
policy providing coverage to persons driving an automobile with
permission of the named insured.
Also known as the permissive use clause.
Business liability for bodily injury or property damage
resulting from operations of the business.
Business firms can buy insurance for this risk with a variety
of liability policies, including the comprehensive general liability
ORDINANCE OR LAW COVERAGE: A property endorsement which
provides the insured the option to purchase coverage for three
types of common building ordinance or law requirements that apply
after an insured has suffered a physical damage loss such as fire.
These ordinance or law damages are normally excluded in standard
property coverage forms. The coverages available in this endorsement
are cost to demolish the undamaged portion of the building, cost
to replace with superior construction as required by law, and
cost to clear the land of debris after demolition.
OWNERS & CONTRACTORS PROTECTIVE LIABILITY INSURANCE:
Insures the legal liability of contractors and others for the
negligent acts of independent contractors engaged by them and
also, in some cases, for their own negligent supervision of the
PAROL EVIDENCE RULE: A rule that prohibits the introduction
in to a court of law of any oral or written agreement that contradicts
the final written agreement. For
example, an insurance contract containing clauses and provisions
is in writing, and as such this contract cannot be contradicted
or modified by any oral statements or agreements that are inadmissible
in a court of law.
DISABILITY INSURANCE: Insurance coverage
for insureds who may suffer a partial disability. Partial disability
is defined as the inability caused by a covered accident, injury,
or illness to perform one or more of the functions of one's regular
job but which does not, however, limit the person's ability to
perform other forms of employment. Often this insurance is called
on to provide rehabilitation benefits and job retraining.
PAYROLL AUDIT: An examination and verification of an insured's
records for the amount of payroll for classes of employees which
is used in determining the premium for certain lines of insurance,
such as workers compensation. The company sends out auditors to
determine the accuracy of the figures provided by the insured.
PERFORMANCE BOND: In general terms, a surety bond guaranteeing
the performance of a contract, usually associated with construction
work, but possible for almost any kind of contract.
Coverage for all kinds of personal property whether inside
or outside an insured’s home to include jewelry, musical
instruments, camera, fine arts, and precious stones.
This term is also referred to as personal articles floater
or personal effects insurance.
PERSONAL INJURY: Injury, other than bodily injury, resulting
from false arrest, false detention, false imprisonment, malicious
prosecution, wrongful eviction, wrongful entry, or the invasion
of privacy of a premises. It also includes injury caused by oral
or written material that slanders a person, goods, products, services,
or which violates the right of privacy.
INJURY PROTECTION (PIP): Coverage to pay
basic expenses for an insured and his or her family in states
with no-fault automobile insurance.
No-fault laws generally require drivers to carry both liability
insurance and personal injury protection (PIP) coverage to pay
for basic needs for the insured, such as medical expenses, lost
wages, and household expenses in the event of an accident.
INTERRUPTION INSURANCE: Property and time
element endorsements designed to cover the insured for losses
that result from the interruption of services by an insured cause
of loss. The current endorsements allow the insured to select
coverage for off-premises services, whether supplied by a private
or public utility. Protection may be purchased for the following
options: water suppliers, communication suppliers, or power supplies.
PRIMA FACIA: Latin expression meaning "at
first sight," used in Common law regions to denote a case
that is strong enough to justify further discovery and possibly
a full trial.
CONDITION: Injuries from accidents which
occur earlier than, and sicknesses which begin earlier than, the
date on which insurance becomes effective. Individual health insurance
policies, and some group policies generally cover only injuries
from accidents which occur after the individual's coverage becomes
effective, and only sicknesses which begin or are first manifested
after the individual's coverage has been in effect for a period
of time, often 15 days.
PREMIUM: The amount of money an insurance company charges
to provide coverage. PRIMARY INSURANCE The insurance policy providing
the first layer of coverage that will respond first to any loss
exceeding the deductible.
PRODUCT-COMPLETED OPERATIONS INSURANCE: Coverage designed
to protect against the liability for injury, loss, or damage which
a merchant or a manufacturer may incur as the result of some defect
in the product sold or manufactured.
LIABILITY INSURANCE: Coverage usually
provided under the commercial general liability insurance (CGL);
it can also be purchased separately.
It insures the risk associated with a product manufactured
or distributed by a business.
AND CASUALTY INSURANCE: An insurance policy
covering most property and casualty risks for an individual or
business subject to exclusions, policy requirements, cancellations
and related matters. These
provisions include 1) perils, 2) notice and other requirements
by the insured, 3) other insurance, 4) subrogation, and 5) cancellation.
PRO RATA CANCELLATION: Termination of a policy by the insurer,
for which the return premium due the policy holder is full proportionate
part for the unexpired term. In other words, the pro rata refund
is not a "short-rate" return.
PROTECTIVE LIABILITY INSURANCE: Insurance against claims
which arise because of some secondary cause, such as the negligent
act of some subcontractor engaged by a principal contractor or
against an employer for the act of an employee.
PROXIMATE CAUSE: That which brings about a result without
the intervention of any other force. Important in insurance since
it establishes which policy(ies) will pay for a loss, i.e.; the
one(s) insuring the peril which was the proximate cause of the
PUNITIVE DAMAGES: Damages awarded separately and in addition
to compensatory damages, usually on account of malicious or wanton
misconduct, to serve as a punishment for the wrongdoer and, possibly,
as a deterrent to others. Sometimes referred to as "exemplary
damages" when intended to "make an example" of
A single policy of Insurance under which individuals in
a natural group (such as employees of a business firm) and their
dependents are covered. Sometimes
referred to as group insurance or mass merchandising risk undertaking.
Liquid property that can be converted easily into cash. For example, a policy owner can borrow readily
against the cash value of a life insurance policy.
For purposes used in insurance, an exchange of an adequate
consideration (premium paid by an insured) with the promise of
an insurance company to pay benefits in the event the insured
incurs a loss.
Automatic reinsurance that requires the insurer to transfer,
and the reinsurer to accept, a given percentage of risk within
a defined category of business written by the insurer.
RAILROAD PROTECTIVE LIABILITY: The standard commercial
general liability policy excludes liability for construction or
demolition operations on or near railroad property, such as tracks,
trestles, sidetracks, etc. In order to provide coverage for this
exposure, the railroad protective liability policy is available
to provide protective liability coverage for railroad owners,
property owners, or contracts from the vicarious acts of contractors
or subcontractors who are working on their behalf. The policy
is purchased by the subcontractor or contractor in the name of
the party needing protection. For example, a contractor demolishing
a building near a railroad track may need to purchase a railroad
protective liability policy for the property owner, the railroad,
RATE: The price for a unit of insurance; all units in a
give policy, multiplied by the rate per unit, produce the premium.
In fire insurance, the price per $100 of insurance for one year.
The basis for pricing other types of insurance varies greatly;
for example, payroll is used in workers compensation. Insurance,
area of retail floor space or sales volume is used in certain
types of general liability insurance, and so forth.
Unincorporated association with each insured insuring the
other insureds with the association.
(Thus, each participant in this pool is both an insurer
and an insured). An attorney-in-fact
administers the exchange to include paying losses experienced
by the exchange, investing premium inflow into the exchange, recruiting
new members, underwriting the inflow of new business, underwriting
renewal business, receiving premiums, and exchanging reinsurance
REDLINING: Refusal by an insurance company to underwrite or to
continue to underwrite questionable risks in a given geographical
area. This practice is
prohibited by most states.
of a insurance policy that has lapsed because of non-payment of
premiums after the grace period has expired.
REINSURANCE: A form of insurance
that insurance companies buy for their own protection, “a
sharing of insurance.” An
insurer reduces its possible maximum loss on either an individual
risk (facultative reinsurance) or a large number of risks (automatic
or treaty reinsurance) by giving (ceding) a portion of its liability
to another insurance company (the insurer).
A fronted program by the insured who acquires a licensed
insurance company to issue insurance policies.
REINSURER: An insurance
company that assumes all or part of an insurance or reinsurance
policy written by a primary insurance company (ceding company).
Coverage for the contents of a renter’s home or apartment
and for liability. Tenant
or renters policies are similar to homeowners insurance except
that they do not cover the structure.
They do, however, cover changes made to the inside structure,
such as carpeting, kitchen appliances, and built-in bookshelves.
REPLACEMENT COST INSURANCE: Protection which pays the cost
to restore or replace damaged or destroyed property without deduction
for depreciation. Automatically included in homeowners forms.
RES IPSA LOQUITOR: Latin phrase for “The facts speak
for themselves.” This
is a rule of evidence under which an individual is deemed, under
certain specific circumstances, to be negligent by the mere occurrence
of an accident. These circumstances
are defined as when the law presumes that an accident could not
have occurred had the individual not been negligent.
RESPONDEAT SUPERIOR: Latin for “Let
the superior reply.” That
is, an employer is liable for the torts of employees that result
from their employment. For
example, an insurance company (the master) acts through its agent
(servant); because of this master-servant relationship, any wrongs
the agent commits are deemed to have been committed by the insurance
company, which must accept responsibility.
amount which an insured or an insurer assumes as its own liability
and which is not insured otherwise.
2. In reinsurance, the amount which a primary insurer assumes
for its own account. In pro rata reinsurance contracts, the retention
may be a percentage of the policy limit. In excess of loss contracts,
the retention is a dollar amount of loss.
RETROACTIVE: The earliest date for which coverage is afforded under
a claims-made form. Usually the effective date of the first year
of such policy form provided tot he insured.
RISK RETENTION GROUP: An insurance company organized by
a group of businesses or institutions in the same line of business
to provide liability insurance for the owners or organizers. As
permitted by federal legislation passed in 1986, such a group
is eligible to provide insurance for its members in any state
after being licensed in any one state.
RUN-OFF: Liability of an insurance company for future claims
that it expects to pay and for which a reserve has been established.
SAFETY STANDARDS: A
important means of preventing accidents or injuries.
Insurers take corporate safety programs into account when
rating workers compensation and other business insurance policies.
SALVAGE: A term sometimes
associated with abandonment giving legal status to an insurance
company all rights to an insured’s property.
SCOPE OF LOSS: A detailed document that describes direct or indirect damaged property to be repaired or replaced after a loss. This may include both insurance covered or non-covered losses. A scope of loss may contain line items of damaged property including generic or specific name, year manufactured, make, model (material, item or serial numbers), measured amounts, pre-loss records, obsolescent replacement considerations, salvage, depreciation as well as listing ownerships and insurable interests (lien holders). The scope of loss assists owners, architects, contractors, adjusters, insurers, etc. in compiling an actual or estimated pecuniary loss adjustment.
Protection against loss by setting aside ones own money. This can be done on a mathematical basis
by establishing a separate fund into which funds are deposited
on a periodic basis. Through
self insurance, it is possible to protect against high frequency,
low severity losses.
Cancellation by the insured of a property or disability
insurance policy for which the returned unearned premium is diminished
by administrative costs incurred when the insurance company placed
the policy on its accounting records.
DAMAGE: Damage caused by smoke other than
smoke which accompanies a hostile fire. One of the extended coverage
endorsement perils, but subject to certain restrictions.
SPECIAL FORM: One of the extended. A property coverage
form protecting insureds from all causes of physical damage loss
unless otherwise limited or excluded.
SPECIFIED PERILS: An insurance contract that covers only
those causes of loss (otherwise known as perils) that are specifically
indicated as being covered.
Latin phrase meaning “to stand by the decisions”. This legal doctrine under common law requires
courts to rely on precedents or previous decisions, when deciding
disputes unless there is a compelling reason to reject those precedents.
STATE AMOUNT: When the value of property, either real or
personal, is agreed upon at the issuance of the contract and,
therefore, coinsurance and any other valuation clauses will not
apply at the time of a loss.
STATUTE OF LIMITATIONS: A statute limiting the time within
which a legal action may be brought.
Protects a cedent against an aggregate amount of claims
over a period, in excess of a specified percentage of the earned
premium income. Stop loss
reinsurance does not cover individual claims.
A method of depreciating an asset in which its useful life
is divided into an appropriate number of years (or other periods),
the final salvage value is deducted, and the asset is written
off in an equal portion for each period.
LIABILITY: Tort liability, which is defined
by law, requiring an insured party to prove only that only he
or she was harmed in a specified way in order to collect damages.
Periodic payments to an injured party or survivor for a
determinable number of years for the life typically in settlement
of a claim under a liability policy.
SUBROGATION: In insurance, the substitution of one party
(insurer) for another party (insured) to pursue any rights the
insured may have against a third party liable for a loss paid
by the insurer.
SUBSIDENCE: Damage due to land movement, e.g., a house
on a hill due to heavy rains. Not earthquake damage.
SUNSET CLAUSE: A clause in a casualty excess of loss reinsurance
cover that provides that the reinsurer will respond only to losses
reported before some predetermined future date (sunset). The clause
is used to limit the reinsurer's exposure to the "long-tail"
of liability exposure, particularly in the US.
SUPERFUND: A governmental program under the auspices of
the Environmental Protection Agency (EPA), set up to identify
toxic and hazardous waste dump sites. Once the sites are identified,
an attempt is made to identify the responsible parties, effect
the clean up of the sites, and assess the responsible parties
with the costs incurred.
guarantee give for the fulfillment of an obligation.
2. The person or organization guaranteeing the fulfillment of
3. The underwriter who guarantees something under a bond.
BOND: A written agreement wherein one
party (the surety) obligates itself to a second party (the obligee
or beneficiary) to answer for the default of a third party (the
principal) in failing to perform specified acts within a stated
time. Such obligations include payment of debts and responsibility
SURPLUS LINE: A line of insurance provided by insurers
not licensed in the states where the risks are located and placed
under the surplus line laws of the various states. Before such
placements can be made through specially licensed surplus line
agents and brokers, state laws generally require evidence that
placements could not be readily made in licensed insurers. Broadly
referred to as being all lines of insurance placed with nonadmitted
SURPLUS LINES INSURANCE: Insurance written by insurers
not licensed in the states where the risks are located and placed
with such insurers under the surplus lines laws of the various
states. Before such placements can be made through specially licensed
surplus line agents and brokers, state laws generally require
evidence reported before some predetermined future date ("sunset").
SYNDICATE: A group of insurers or reinsurers involved in a joint
underwriting. Members typically
take predetermined shares of premiums, loss, expenses, and profits.
Syndicates more common in reinsurance than in primary insurance,
are formed to cover major risks that are beyond the capacity of
a single underwriter. Sometimes referred to as risk pooling.
TAIL INSURANCE COVERAGE:
Liability insurance that extends beyond the end of the
policy period of a liability insurance policy written on a claims-made
basis. Liability claims are often made long after
the accident or event that caused the injury.
PARTY: The claimant under a liability
policy, so called because the first two parties are the insured
and insurer, who enter into the insurance contract, which pays
the third party's claim.
TIME ELEMENT INSURANCE: A coverage which pays for loss
of earnings or income when business operations are interrupted,
curtailed or suspended due to property loss as a result of an
insured cause of loss. Also covered are loss of rents and rental
value. The current commercial time element coverage forms are
business income and extra expense. Extra expense covers costs
incurred to continue operations at another location.
TORT: A legal wrong arising from a breach of duty fixed
by law, except under contract, causing injury to persons or property
and redressible by legal action for damages.
A person who commits a tort, a type of wrongful act, that
causes injury or damage.
A condition of real or personal property when it is damaged
or destroyed to such an extent that it cannot be rebuilt or repaired
to equal its condition prior to the loss.
TWISTING: In insurance,
whereby an agent or broker attempts to persuade a life insurance
policy holder through misrepresentation to cancel one policy and
buy a new one. This is
an unfair trade practice and prohibited by most states.
UMBRELLA LIABILITY INSURANCE: A form of liability insurance
protecting policyholders for claims in excess of the limits of
their primary automobile, general liability and workers compensation
policies, and for some (few) claims excluded by their primary
polices which are subject to a deductible, which may range from
$250 for a personal umbrella to a minimum of $10,000 for a commercial
UNDERINSURANCE: Failure to:
1) maintain adequate coverage for a specific loss or damage;
or 2) failure to meet a coinsurance requirement.
An addition to the personal automobile policy that covers
an insured who is involved in a collision with a driver who does
not have sufficient liability insurance to pay for the damages.
UNDERWRITING: A process of
examining, accepting, or rejecting insurance risks, and classifying
those selected in order to charge the proper premium for each. The purpose of underwriting is to spread
the risk among a pool of insured in a manner that is equitable
for the insureds and profitable for the insurer.
A abuse by an insurer in an effort to avoid paying a claim
filed by an insured or claimant, or to reduce the size of the
payment. Most states have adopted unfair claims practices
acts and laws.
UTAH ADJUSTER: Utah Adjuster ™ is a full-service independent adjusting firm that specializes in Residential and Commercial Property Casualty claims and related services; including specialty risks, corporate risk management, and reinsurance.
An agreement signed by both parties that meets the requirements
of state law and is therefore enforced.
A method of setting a dollar value on loss suffered by
an insured or claimant. In
some cases, a loss is straight forward, such as the cost gallbladder
surgery. But with burglary of the home or a traffic
accident that damages a car, the amount of loss is open to interpretation.
VIATICAL SETTLEMENT: An act by a person who is terminally ill
of cashing in a life insurance policy to pay for the necessary
associated illness, medical expenses, and final wishes.
VICARIOUS LIABILITY: Liability incurred by a principle for acts
other than those of its agents.
VOIDABLE CONTRACT: A valid contract
that can be cancelled for cause by one or more parties to the
contract. An insurance
contract can be voided by the insurer if the insured has used
fraudulent means to obtain it or has intentionally concealed information
or misrepresented the risk.
WAIVER: Relinquishment of a legal right to act. For example, an insured relies on statements
of an agent of an insurance company concerning coverages under
an insurance policy. Agents
by their actions may have waived certain provisions the insurance
company has written in the insurance policy, with the company’s
WANTON DISREGARD: A legal phrase used in negligence cases
to describe one person’s overwhelming lack of care for the
rights or well-being of another.
Wanton disregard of another’s rights is evidence
of gross negligence.
WARRANTY: A pledge by an insured in writing, and part
of the actual contract, that a particular condition exists or
does not exist. For example,
an insured warrants that a sprinkler system works.
In exchange, the insurance company charges a reduced premium
for fire coverage.
WATER DAMAGE INSURANCE: Protection in the event of accidental discharge,
leakage, or overflow from plumbing systems, heating, air conditioning,
and refrigerating systems. It
also includes protection for accidental rain or snow through broken
windows, doors, open doors, and skylights resulting in damage
of destruction of property scheduled in the policy.
AND TEAR EXCLUSION: Excluded coverage for damage in a property
insurance policy stemming from routine use of the property. Property can be expected to deteriorate
somewhat over time from normal use.
This is not considered an insurable loss.
OF ICE, SNOW, OR SLEET INSURANCE: Coverage for damage to a building or its
contents due to the weight of these elements. Outdoor properties such as patios, swimming
pools, and sidewalks are usually excluded.
COMPENSATION INSURANCE: Coverage providing benefits for income,
medical, rehabilitation, death, and survivor payments to workers
injured on the job. This
insurance is usually purchased by the employer from an insurance
company, although in a few states there are monopolistic state
funds through which the insurance must be purchased.
A liability policy that covers all liability exposures
for a large group that has something in common.
For example, wrap-up insurance can be written for all the
various businesses working together on a special project, to provide
coverage for losses arising out of that work only.
An error, misstatement, or breech of duty by an officer
or director of a company that results in a lawsuit against the
company. Wrongful acts insurance coverage specifically
excludes, dishonesty, theft, liable, and slander.
Death caused by a person without legal justification. Wrongful death may be the result of negligence,
such as when a drunk driver hits and kills someone; or lit may
be intentional, as when someone kills another person with a weapon.
TERMINATION CLAIM: Under a general liability policy, a claim
by an employer arising when an employee terminated by a supervisor
without authority or just cause brings a lawsuit against the employer. Such a claim is covered under most general
liability policies provided that the following elements are in
evidence: 1) the insurance
policy is in enforced on the date of loss, 2) there has been no
willful misinterpretation of any material facts, and 3) a policy
holder did not have a willful preconceived intent to harm or injure
the employee who was terminated.
Coverage for fire and explosion, against fire and any damage
caused by explosion whether or not fire ensues, and whether or
not an explosion occurs on or off a boarded vessel.
It also covers sinking from floating debris, sunken hulks,
RATE OF RETURN: An actuarial procedure used to determine
the annual rate of return at which annual benefits would have
to be gained by the cash value life insurance policy in order
to equal the annual investment made in the policy.
ZERO COUPON BONDS: Bonds that are sold at a discount from their
maturity value with the interest compounding and paid at the bonds
A method for triennial examination of insurance companies
as established by the National Association of Insurance Commissioners.
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