Insurance claims handling requires a knowledge of insurance terms and references, and an insurance glossary provides a general understanding of the complexities of insurance.
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.
ABANDONMENT 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 value.
ABSOLUTE 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.
ACCEPTANCE: An agreement occurrence when an applicant for insurance receives his policy from the company and pays the premium required by the policy.
ACCIDENT: An 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 probability.
ACCIDENTAL 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).
ACCIDENT 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.
ACCOUNTS 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.
ADDITIONAL 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 permission.
ADDITIONAL 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.
ADDITIONAL 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 audit.
ADHESION 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 proferentum.
ADJUSTER: One who determines the amount of loss suffered. A “company” or “staff” adjuster represents the company that secured the risk usually as a salaried employee. A “public” adjuster represents the policyholder. An “independent” adjuster represents insurers and self-insured organizations.
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 of copyright.
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 insurer.
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 and renewal.
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.
APPURTENANT STRUCTURES: 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 at Johnston, RI. Also know as automobile insurance plans, these plans sometimes take the form of joint underwriting associations.
ASSIGNEE: A person to whom policy rights are assigned in whole or in part by the original policy owner.
ASSIGNMENT: The legal act of transfer by the policy owner of rights or interest in the policy contract to a third party.
ASSUMED LIABILITY: Contractual liability which arises from an agreement between people, as opposed to liability which arises from common or statute law.
ATTENDING 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 explanations.
ATTRACTIVE NUISANCE: 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.
AUTOMOBILE 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.
AUTOMOBILE, 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.
AVIATION INSURANCE: 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 their custody.
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.
BOBTAIL 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 breakdown insurance.
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.
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.
BRIDGE INSURANCE: 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 damages.
BROAD 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.
- A building or a ship in the course of construction.
2. A special form dealing with the unique loss exposure of property under construction.
BUSINESS 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.
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.
BUSINESS 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 risks.
CAPTIVE AGENT: 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 sale.
CAPTIVE 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.
CAPTIVE INSURANCE COMPANY: 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.
CARGO INSURANCE: 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.
CASUALTY 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 life.
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.
CEDING COMPANY: An insurance company that transfers risk to a reinsurance company.
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.
CLAIM ADJUSTER: An individual employed by a property and casualty insurance company to settle on its behalf claims brought by insureds and claimants.
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.
CLOSURE 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 (RCRA).
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.
- In 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 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.
COLLISION INSURANCE: 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.
COMPENSATORY 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 coverages.
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.
CONSTRUCTIVE TOTAL LOSS: 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.
CONTINGENT 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 or servant.
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.
CONTRIBUTORY 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, fraud.
CUMULATIVE INJURIES: 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.
- With 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.
DEMOLITION 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.
DIFFERENCE 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.
DIRECT LOSS: 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 loss.
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, California, Hawaii, Puerto Rico, and Rhode Island.
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 requirements.
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.
DROP DOWN REINSURANCE: 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.
DWELLING INSURANCE: 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 law.
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 covered.
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 losses.
- That 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.
EXECUTIVE GENERAL ADJUSTER (EGA): A vocational title given to an insurance claim executive possessing substantial business acumen, knowledge and expertise to affect settlement or defense on a variety of large, complex and significant claims, primarily in mutiple commercial disciplines or specialty risk areas.
EXPENSE 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 endorsement.
FACULTATIVE REINSURANCE: A term under which the reinsurer exercises its faculty or prerogative to insure a risk or reject a risk from a ceding company.
FAULTY 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.
FINITE RISK INSURANCE: 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 to it.
- Covers 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.
FIRST DOLLAR COVERAGE: Insurance coverages or benefits that pay the entire covered amount without subtraction of or use of a deductible.
- In 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.
FLOOD 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 ADJUSTER (GA): A vocational title given to insurance claims professionals possessing tenured knowledge, experience and technical skills necessary to handle and report on a variety of large, complex and significant claims in multiple residential and commercial disciplines.
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.
GENERAL DAMAGES: A combination of compensatory (pain and suffering) damages and special damages (out of pocket expenses) awarded in a civil court.
GENERAL 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.
GROSS NEGLIGENCE: Reckless action without regard to life, limb, and/or property; for example, driving 100 miles per hour on a road or highway.
GUEST STATUTE (LAW): 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 or injury.
HEALTH 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).
HOLD 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.
HOMEOWNERS 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 beverages.
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.
INDEMNITY 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 the loss.
INDEPENDENT ADJUSTER (IA): 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.
INSTALLATION 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.
INSURABLE INTEREST: An expectation of a monetary loss that can be covered by an insurance policy. Insurable interest varies according to the type of policy.
INSURANCE 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.
INTENTIONAL TORT: 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 intentional torts.
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 decision.
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 party (several).
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.
KNOCK-FOR-KNOCK AGREEMENT: 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 insured endorsements.
LAST 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.
- An 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.
LICENSE 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.
LIEN: A claim against property which then serves as security for the payment of that claim.
LIMIT OF LIABILITY: According to the terms of a given policy, the most an insurer will pay for any one loss.
LIQUOR 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.
LONG-TERM 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 to pay.
LOSS ADJUSTMENT EXPENSE: Costs involved in an insurance company’s adjustment of losses under an insurance policy.
LOSS CONTROL: The act of evaluating certain activities to minimize risk exposure in an environment. See risk management.
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 car.
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.
MALICIOUS 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.
MANAGING GENERAL AGENT (MGA): 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.
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 exposures.
MARINE INSURANCE: 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.
MATERIAL FACT: A fact which is so important that the disclosure of it would change the decision of an insurance company, either with respect to writing coverage, settling a loss, or determining premium.
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.
MEDIATION: A voluntary, collaborative process whereby disputing parties control the outcome to resolving disputes utilizing the assistance of an impartial, third party.
MEDICAL 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 the insured.
- The 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.
MISREPRESENTATION: The use of oral or written statements that do not truly substantiate the facts.
MOBILE 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.
MYSTERIOUS 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.
NATIONAL ASSOCIATION OF INDEPENDENT INSURANCE ADJUSTERS: A trade group of property and casualty claims companies with membership in hundreds of communities.
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 would do.
NO-FAULT 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 automobile policies.
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 contain.
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.
- In 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 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.
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 period.
OCEAN CARGO INSURANCE: A type of marine insurance that provides property protection for cargo that is being shipped by sea or over water.
OMNIBUS 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.
OPERATIONS LIABILITY: 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 insurance policy.
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 work performed.
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.
PARTIAL 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.
PERSONAL ARTICLES INSURANCE: 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.
PERSONAL 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.
POWER 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.
PREEXISTING 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.
PRETEXT INVESTIGATION: An investigation inclined to conceal a true purpose or objective in order to receive or verify information that might not otherwise be divulged.
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.
PRODUCT 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.
PROPERTY 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 loss.
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 the wrongdoer.
QUALITY DISCOUNT INSURANCE: 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.
QUICK ASSETS: 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.
QUID PRO QUO: 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.
QUOTA SHARE REINSURANCE: 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, or both.
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.
RECIPROCAL EXCHANGE: 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 contracts.
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.
REINSTATEMENT: Restoration 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).
REINSURANCE CAPTIVE: 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).
RENTERS INSURANCE: 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.
REPRESENTATION: A statement made on an application that the applicant attests is true and correct to the best of his/her knowledge, information and belief.
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.
- The 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.
SELF INSURANCE: 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.
SETTLEMENT: A conclusion of litigation by the mutual agreement of parties involved prior to final verdict.
SHORT RATE CANCELLATION: 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.
SMOKE 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.
STACKING OF LIMITS: The process of applying the limits of liability of more than one policy to an occurrence, loss or claim event.
STARE DECISIS: 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.
STATED AMOUNT (VALUE) POLICY: 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.
STOP LOSS REINSURANCE: 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.
STRAIGHT LINE DEPRECIATION: 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.
STRICT 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.
STRUCTURED SETTLEMENT: 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.
- The guarantee give for the fulfillment of an obligation.
2. The person or organization guaranteeing the fulfillment of an obligation.
3. The underwriter who guarantees something under a bond.
SURETY 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 for defaults.
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 insurers.
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.
THIRD 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.
TORT FEASOR: A person who commits a tort, a type of wrongful act, that causes injury or damage.
TOTAL LOSS: 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 umbrella.
UNDERINSURANCE: Failure to 1) maintain adequate coverage for a specific loss or damage; or 2) failure to meet a coinsurance requirement.
UNDERINSURED MOTORIST INSURANCE: 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.
UNFAIR CLAIMS PRACTICE: 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, LLC is a Utah licensed independent adjusting firm that specializes in Residential and Commercial Property Casualty claims and related services; including specialty risks, corporate risk management, and reinsurance.
VALID CONTRACT: An agreement signed by both parties that meets the requirements of state law and is therefore enforced.
VALUATION OF LOSS: 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 of 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: Responsibility as a matter of law imputed to anyone that had the right, ability or duty to control the activities of a violator.
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 authority.
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 application or 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.
WEAR 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.
WEIGHT 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.
WORKERS 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.
WRAP-UP INSURANCE: 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.
WRONGFUL ACT: 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.
WRONGFUL DEATH: 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.
WRONGFUL 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.ï¿½ 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.
YACHT INSURANCE: 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, and reefs.
YEARLY 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 maturity date.
ZONE SYSTEM: A method for triennial examination of insurance companies as established by the National Association of Insurance Commissioners.
Insurance claims handling requires a knowledge of insurance terms and references, and an insurance glossary provides a general understanding of the complexities of insurance.