Property And Casualty Insurance Glossary
(Terms & Definitions)

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Use this informative property and casualty insurance glossary to better understand basic insurance terms and definitions. Learn insurance industry vocabulary that will help you better understand your insurance policies.

Property And Casualty Insurance Glossary

Property And Casualty Insurance Glossary

Every industry has its own jargon, and the property and casualty insurance business is no exception.

We've curated a list of P&C insurance terms and definitions - to help you better understand the often confusing legal language of insurance. Also see the Health And Life Insurance Glossary, Small Business Insurance Glossary and Terminologies Used In Insurance And Their Meanings.

Following is the property and casualty insurance glossary of basic insurance terms and definitions that are commonly used in the insurance industry:

Index

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

A posteriori data - Also known as "empirical" data, A Posteriori data makes predictions about future events based on the past.

A priori data - Data depends on deductive reasoning to make predictions about the future. It does not depend on trials and tests or even history to develop a probability. A priori is essentially an exercise in mathematical calculation based on known data (and all the factors must be known). A priori begins with objective thought, eases into reasoning and finally falls to conjecture. A priori calculations cannot guarantee the outcome, only that the outcome can be predicted with a reasonable amount of certainty.

Abandonment condition - A condition often contained in property insurance policies that states that the insured cannot abandon damaged property to the insurer and demand to be reimbursed for its full value.

Abandonment of Employment - Engaging in an activity clearly not intended for the advancement of the employer nor directed by or anticipated by the employer. Includes any activity in direct contradiction to the rules, requests or expectations of the employer.

Absolute liability - Type of liability imposed by law on those participating in certain activities that are considered especially hazardous; a person involved in such operations may be held liable for the damages of another even though the individual was not negligent.

Accident - A unintended loss that occurs at a specific time and place.

Accounts receivable insurance - Filed commercial inland marine form that insures against loss the insured suffers because of an inability to collect from customers when accounts receivable records are damaged or destroyed.

Actual cash value (ACV) - The cost to replace an item of property at the time of loss, less an allowance for depreciation; often used to determine the amount of reimbursement for a loss.

Additional coverages - Supplemental insurance coverages that apply only in certain circumstances, have reduced or separate limits of liability, or require the insured to meet certain requirements before they are applicable; also called coverage extensions, other coverages, and extended coverages.

Additional insured - An individual or company, in addition to the insured, who is listed in the declarations; an example is a mortgage company that has an insurable interest in the property insured.

Additional insured-Lessor endorsement - commercial auto endorsement used to make leased vehicles considered owned vehicles for coverage purposes.

Adhesion contract - A contract where one party has more power than the other party in drafting the contract; an insurance policy is an adhesion contract-the insurer is the one with more power.

Admitted insurer - A fully licensed carrier approved to provide specific lines of insurance coverage in the state.

Adverse selection - The tendency of insureds with a greater-than-average chance of loss to purchase insurance.

Agency - Principles governing the authority of any agent that represents a principal.

Agent - An individual or organization that legally represents another; a state-licensed professional who represents the insurance company in the sale and servicing of insurance; the direct link between the insurance company and the policyholder.

Aggregate limit - Type of policy limit found in liability policies that limits coverage to a specified total amount for all losses occurring within the policy period.

Agreed amount policy - See Valued policy.

Agreed Value condition - Condition found in some property insurance policies that stipulates a certain value that will meet the coinsurance requirement; if the policy limit equals or exceeds this amount, the insured will not be assessed a coinsurance penalty; also called stated amount condition.

Agreed value method - A method of valuing property in which the insurer and the insured agree, at the time the policy is being written, on the maximum amount that will be paid in the event of a total loss.

Agreed Value condition - Condition found in some property insurance policies that stipulates a certain value that will meet the coinsurance requirement; if the policy limit equals or exceeds this amount, the insured will not be assessed a coinsurance penalty; also called stated amount condition.

Agreement - See Offer and acceptance.

Aleatory contract - A contract that is contingent on an uncertain event (a loss); an insurance policy is an aleatory contract.

Alien company - An insurance company incorporated in a country other than the United States that is doing business in the United States.

All Normal Operating Expenses (ANOE) - Operating expenses that would have been incurred had no business-closing loss occurred.

All risk policy - See Open peril policy.

Allocated Loss Adjustment Expense (ALAE) - Loss adjustment costs assignable to a particular loss and not attributable to the overall cost of providing loss adjusting services. The cost of outside investigation, appraisal and defense counsel are examples of ALAE.

A.M. Best Company - Organization that rates the financial stability of insurance companies doing business in the United States.

Amount subject to loss - Maximum coinsurance percentage x 12 months business income calculation

Annual transit policy - Nonfiled commercial inland marine transportation form that insures a property owner's incoming or outgoing shipments of goods during a year.

Apparent authority - Legal doctrine that states that an agent has whatever authority a reasonable person would assume she has.

Application - Questionnaire filled out by an agent and the prospect who is seeking insurance; the form contains information used to underwrite and rate the policy.

Appraisal condition - Policy condition that outlines a procedure for when the insured and insurer disagree on the amount of a loss-the insured and the insurer each select an appraiser; the two appraisers select an umpire; if the appraisers cannot agree on the amount of loss, the umpire is consulted; the amount agreed to by any two of the three parties is the amount paid for the loss.

Appurtenant structures - Buildings of lesser value that are on the same premises as the main building insured under a property policy; they are usually covered by the policy.

Arbitration condition - Policy condition that is similar to the appraisal condition; may be used to resolve other areas of disagreement besides those regarding the value of a loss.

Arising out of - A causal connection between the furtherance of the employer's business and the injury. If the employer benefits in some way from the activity, then the injury or illness suffered in the pursuit of that activity is considered to "arise out of" the employment.

Assault - No actual bodily contact, only the threat of bodily injury by force. Such threat is intentional and unlawfully directed towards another person such that the other party as a reasonable fear that injury is likely to occur. The apparent ability to carry out such a threat must also exist.

Assessment mutual company - Mutual insurance company that charges members a pro-rata share of losses at the end of each policy period. See Mutual company.

Assigned risk plan - See Automobile insurance plan.

Assignment condition - Condition in insurance policies that specifies that the policy cannot be transferred to another unless the company consents to the transfer in writing.

Assumption of risk - Defense against liability based on the common law principle that a person who knowingly exposes himself to danger or injury assumes the risk of loss and cannot hold another person responsible for the loss.

Avoidance - A risk control technique that involves ceasing or never undertaking an activity so that the possibility of a future loss occurring from that activity is eliminated.

Audit - See Premium audit.

Authorized insurer - Company that meets a state insurance department's standards and is authorized to do business in that state; also called an admitted insurer.

Automatic increase - In Insurance Endorsement Dwelling policy endorsement that provides an annual increase in the Coverage A amount of 4%, 6%, or 8%.

Automobile insurance plan - A state-sponsored plan that provides automobile insurance to those who are uninsurable under standard auto insurance policies.

Aviation hull insurance - Insurance that provides coverage for physical damage to aircraft.

Aviation liability insurance - Insurance provided for owners of aircraft that covers liability for bodily injury, injury to passengers, and property damage; also provides medical payments coverage.

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B

Bailee - A person or organization that has temporary possession of someone else's personal property.

Bailee's customer policy - Nonfiled commercial inland marine form obtained by a bailee to cover loss or damage to customers' property in the bailee's custody without regard to liability.

Bailment - Delivery of property by the owner to someone else to be held for some special purpose and then returned to the owner.

Bailor - The individual or entity granting possession of their personal property to another party for care, service, or keeping.

Bare walls - Used in relation to condominium associations and their insurance coverage. Associational insurance requirements are limited to common elements and limited common elements.

Barratry - Illegal acts committed willfully by a ship's master or crew for the purpose of damaging the ship or cargo-includes hijacking, abandonment and embezzlement; this peril is covered in ocean marine insurance.

Basement - Any area of the building, including any sunken room or sunken portion of a room, having its floor below ground level (sub-grade) on all sides.

Basic named Peril - Relates specifically to property coverage and named causes of loss. Basic named peril policies cover 11 specific perils: fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism or malicious mischief, sprinkler leakage, sinkhole collapse, and volcanic action.

Batch clause - A batch clause limits the amount of coverage to the per occurrence limits for all defective products that come from a single run or batch. If a manufacturer with a $1 million per occurrence products liability policy produces 10,000 defective products in one batch, all the claims from that arise out of that defective run are considered one occurrence. These "batch" clauses are generally found only in proprietary or manuscript forms.

Battery - Actual physical contact with another individual resulting in physical injury. This is not limited to physical beating, can also refer to physical restraint of a person. Battery can exist without assault (i.e. grabbing another person and beating them without provocation or warning).

Best's - Organization that rates the financial stability of insurance companies doing business in the United States.

Bid bond - Type of surety bond that guarantees that if a contractor's bid is accepted, the contractor will enter into a contract and provide the required performance bond.

Bill of lading - Standardized contract of carriage issued by common carriers to the business for which it is shipping goods.

Binder - Oral or written statement that provides immediate insurance protection for a specified period; designed to provide temporary coverage until a policy is issued or denied.

Blanket insurance - Type of insurance policy that covers more than one item of property at a single location or one or more items of property at multiple locations.

Blanket position bond - Fidelity bond that covers losses arising from the dishonesty of one or more employees acting separately or in collusion; provides a single limit of liability applicable to each employee involved in a loss.

Boat owners policy - See Watercraft package policy.

Bodily injury (BI) - Defined in most policies to include injury, sickness, disease, and death resulting from any of these at any time.

Boiler and machinery insurance - Insurance that covers the insured for losses arising out of the use of steam boilers or other machinery or equipment; may be included in the commercial package policy.

Breakaway walls - Non-structural walls perpendicular to the flow of water (takes the direct hit) designed to fail under certain wave force conditions. The failure of these walls should cause NO damage to the structural supports, the foundation or any part of the building above the walls.

Broad evidence rule - A court ruling explicitly requiring that all relevant factors be considered in determining actual cash value.

Broad named perils - Relates specifically to property coverage. Broad named peril forms add three named perils to the causes of loss found under basic named perils: falling objects; weight of snow, ice or sleet; and water damage (limited).

Broad theft coverage endorsement - Dwelling policy endorsement that covers theft, attempted theft and vandalism, and malicious mischief resulting from theft; property is covered while it is on or off the premises.

Broad transfer - Provides the greatest scope of contractual risk transfer and requires the transferee to indemnify and hold harmless the transferor from all liability arising out of an incident, even if the act is committed solely by the transferor. This may qualify as an exculpatory contract and is illegal in some jurisdictions because the wording is considered "unconscionable."

Broker - Individual who represents the prospect, instead of the insurance company, in the insurance transaction.

Buffer layer - A level of excess insurance coverage between a primary layer and an umbrella policy.

Builders risk coverage form - One of the commercial property coverage forms; covers commercial, residential, or farm buildings that are under construction.

Builders risk reporting form - Optional form used with the commercial property builders risk coverage form; allows insured to purchase a smaller amount of insurance that gradually increases as the value of the building under construction increases.

Building and personal property coverage form - Commercial property coverage form that covers buildings, the insured's business personal property, and the personal property of others located at the business premises.

Burglary - As defined in crime insurance forms, the taking of property by a person unlawfully entering or leaving the premises as evidenced by visible signs of forced entry or exit.

Business auto coverage form - One of the commercial auto coverage forms; covers a business's owned, nonowned, and hired autos against liability and physical damage losses.

Business auto physical damage coverage form - One of the commercial auto coverage forms; covers a business's owned or hired business autos for physical damage only.

Business income - Net profit or loss that would have been earned plus continuing normal operating expenses.

Business income coverage forms - Commercial property coverage forms that pay for loss of income that the insured sustains due to a direct physical loss from a covered peril that forces the insured to suspend operations until the property can be repaired, rebuilt, or replaced with reasonable speed; available with or without extra expense coverage.

Business income from dependent properties - Broad form commercial property coverage form designed for insureds whose business income is dependent on the ongoing operations of other businesses they do not own.

Business liability - Liability that arises out of the conduct of a business.

Business pursuits endorsement - Homeowners policy endorsement that provides liability coverage for a business conducted away from the residence premises.

Businessowners policy (BOP) - Package policy designed to provide broad property and liability coverage for small businesses; eligibility requirements are more strict than the CPP's.

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C

Camera and musical instruments dealers coverage form - Filed commercial inland marine form written to cover camera and musical instruments dealers; covers the insured's stock in trade as well as customer property in the insured's care, custody, or control.

Cancellation - Termination of an insurance policy by the insured or the insurance company during the policy period.

Capital - The accumulated, permanent resources a company gets from owners and customers; the value of the portion of assets that a company owns and that are not restricted by obligations to creditors.

Captive agent - Independent contractors contractually restricted to representing one admitted insurance carrier or carrier group. The carrier not the agent owns the rights to the business produced.

Captive insurer - A subsidiary formed to insure the loss exposures of its parent company and the parent's affiliates.

Cargo insurance - Type of ocean marine insurance that covers goods while they are in transit over water.

Casual labor - The people hired are not performing duties that would normally be done by any employee (they are doing work outside the normal operational requirements).

Causal nexus - A legal term that in Latin means "to bind." Legally it means to link a cause and effect. A causal nexus exists if the result is a natural and reasonable outcome or consequence of the activity.

Casualty insurance - Line of insurance that includes a wide variety of unrelated coverages, including liability, auto, workers' compensation, aviation, crime, and surety bonds.

Cause in fact - Without the actions of the supposed at-fault party there would be no injury or damage. If the wrongdoer's act or omission is removed, would the injury or damage have occurred anyway?

Causes of loss form - Separate form used with the commercial property coverage part of the commercial package policy that lists covered perils and exclusions; several different versions provide increasingly broader coverage from basic to broad to special; a causes of loss form takes the place of the policy's perils insured against provisions.

Certificate of insurance - Written form that verifies a policy has been written; provides a summary of the coverage provided under the policy.

Chattel - Movable or immovable personal property. Chattel does not include real estate or structures attached to the real estate.

Claim adjuster - Person employed by or acting on behalf of an insurance company to evaluate and settle insurance claims; the adjuster must determine the cause of loss, whether the loss is covered by the policy, the value of the loss, and the amount of loss payable by the policy.

Claims-made form - Commercial general liability coverage form that pays for BI or PD losses for which a claim was first made against the insured during the policy period.

Class rates - Rates developed and "ready to use" before the individual risk is even presented to the insurance carrier.

Class rating - See Manual rating.

Clawback provisions - Clawback provisions allow boards of directors to demand repayment of performance-based bonuses made to CEO's and CFO's if such bonuses were paid based on fraud or misstatements in financial information.

Coinsurance clause - Policy condition that requires an insured to pay part of a loss if the amount of insurance carried on property is less than a specified percentage of the value of the property at the time of loss.

Coinsurance penalty - The amount not paid by the insurance company because the insured failed to comply with the coinsurance condition.

Collateral estoppel - A judgment of fact found in one case prevents a party from trying to deny that fact in another case.

Collateral source rule - Damages assessed against the tortfeasor are not to be reduced by any other sources of recovery available to the injured party.

Collision coverage - In auto insurance, a type of physical damage coverage that covers loss that occurs when the insured auto strikes another object or vehicle; may also include upset or overturn of the insured auto.

Combined ratio - The sum of the loss ratio and the expense ratio; a ratio of 100% is the breakeven point; a ratio below 100% indicates an underwriting profit; a ratio above 100% indicates a loss; see Loss ratio and expense ratio.

Combined single limit - See Single limit.

Combustible liquids - Liquids having a closed cup flash point equal to or greater than 100 degrees Fahrenheit.

Coming and going rule - Injury suffered traveling to or home from work or even while going to and returning from lunch is generally not compensable.

Commercial articles coverage form - Filed commercial inland marine form that covers photographic equipment or musical instruments used commercially.

Commercial auto coverage - A part of the commercial package policy that provides liability and physical damage coverage for a business's autos, including garage, trucking, and motor carrier businesses.

Commercial blanket bond - Type of fidelity bond that covers loss arising from the dishonesty of one or more employees acting separately or in collusion; the limit of liability applies separately to each loss, regardless of the number of employees involved.

Commercial crime coverage - A part of the commercial package policy that covers various crime exposures of businesses.

Commercial general liability (CGL) coverage - A part of the commercial package policy that provides liability coverage for businesses.

Commercial inland marine insurance - See Inland marine insurance.

Commercial lines - Insurance designed for businesses, institutions, or organizations.

Commercial package policy (CPP) - The insurance services office (ISO) commercial lines policy that contains two or more lines of insurance or two or more coverage parts; it will include some forms and/or endorsements that are common to all lines of insurance or coverage parts, as well as the individual forms and endorsements required for the individual coverages selected; the CPP can include almost any commercial coverage the insured might need, with the exception of ocean marine, aviation, and workers' compensation insurance; most commercial risks are eligible for the CPP.

Commercial property coverage - A part of the commercial package policy that provides insurance for a business's real and business personal property.

Commercial property floater risks - Category of the nationwide definition that includes a number of commercial inland marine forms, such as Bailee's customer forms, equipment forms, business floaters, and dealers policies.

Commercial umbrella policy - See Umbrella policy.

Common policy conditions - Form that must be included in the commercial package policy; it contains conditions that apply to all coverages issued under the CPP.

Common policy declarations - Form that must be included in the commercial package policy; contains information about the insured that applies to all coverages issued under the CPP.

Comparative negligence - Law that allows an injured party to collect from another party for a loss, even when the injured party contributed to her own loss. Damages are reduced to the extent of the injured party's negligence.

Compensable business income - The actual amount of business income paid during the period of restoration - the amount necessary to indemnify the insured.

Compensatory damages - Damages that reimburse an injured party for losses that were actually sustained; see General damages and Special damages.

Competent parties - One of the requirements of a legal contract; states that for a contract to be valid, it must be made between parties who are considered competent under the law.

Competitive state fund - Method of providing workers' compensation coverage in some states; employers may either purchase insurance from a private insurance company or from a state fund.

Completion bond - Type of surety bond that guarantees that when contractors borrow money to fund construction projects, the project will be carried out and the work will be delivered free and clear of liens or encumbrances.

Comprehensive coverage - In auto insurance, a broad physical damage coverage that covers all property losses except collision and those perils or property that are specifically excluded; also called other than collision coverage (OTC).

Concealment - The withholding of a material fact involved in the contract on which the insurer relies.

Concurrent causation - A situation where two or more perils act concurrently (at the same time or in sequence) to cause a loss; some courts ruled that losses from concurrent causation are covered even when one of the perils that contributed to the loss is excluded under the policy; these rulings led property insurers to revise policy language to clarify the intent of the policy.

Conditional contract - A contract that contains a number of conditions that both parties must comply with; an insurance policy is a conditional contract.

Conditions - Portion of an insurance policy that describes the rights and duties of the insured and the insurance company under the policy.

Conditions precedent - Conditions that must be fulfilled to initially activate the insurance contract.

Conditions subsequent - Acts or duties that must be accomplished after the loss in order to receive the benefits promised by the policy.

Condominium association coverage form - Commercial property coverage form that covers the buildings in a condominium complex; does not cover the condominium owner's personal property.

Condominium commercial unit-owners coverage form - Commercial property coverage form that may only be purchased by owners of commercial condominiums; covers the condominium's contents, including business personal property and the personal property of others.

Consequential - Loss See Indirect loss.

Consideration - A characteristic of a legal contract; the thing of value exchanged for the performance promised in the contract; with insurance contracts, the consideration that the insured gives is the premium payment; the consideration that the insurer gives is the promise to pay for certain losses suffered by the insured.

Constructive total loss - The property can be repaired, but the cost to repair the damaged property is greater than the value of the property after it is repaired (it would cost more to repair it than it would be worth when done).

Consultant - Insurance professional who, for a fee, offers advice on the benefits, advantages, and disadvantages of various insurance policies; sells advice, not insurance.

Contingent capital arrangement - An agreement entered into before any losses occur, that enables an organization to raise cash be selling stock or issuing debt at prearranged terms after a loss occurs that exceeds a certain threshold.

Continuing operating expenses - Normal operating expenditures that continue during the time the operations are discontinued due to a direct property loss.

Contract - A legal agreement between two competent parties that promises a certain performance in exchange for a certain consideration.

Contract bonds - Category of surety bonds that guarantee the fulfillment of contractual obligations; includes bid bonds, labor and materials bonds, performance bonds, payment bonds, supply bonds, and completion bonds.

Contract of adhesion - Any contract in which one party must either accept the agreement as written by the other party or reject it.

Contract of hire - States approach the issue of extraterritorial jurisdiction and when to name a state from the employment contract standpoint. The state of hire is essentially the deciding factor.

Contract of indemnity - A contract in which the insurer agreed, in the event of a covered loss, to pay an amount directly related to the amount of the loss.

Contractual risk transfer - A formal agreement between two parties whereby one agrees to indemnify and hold another party harmless for specified acts.

Contractors equipment floater - Nonfiled commercial inland marine form that covers the heavy machinery, equipment, and tools a contractor uses in business.

Contributing location - A dependent property location that supplies the insured with the parts, materials or services necessary to manufacture its product or provide its service.

Contribution by equal shares - Type of other insurance condition found in liability policies; it calls for all insurers to contribute equally up to the limit of the policy having the smallest limit, whereupon that company stops paying; the other companies share in the remainder of the loss until the loss is paid in full or all policy limits are exhausted.

Contribution by limits - See Pro rata other insurance.

Contributory negligence - Common law defense against negligence that states that if an individual contributes to her own loss in any way, then someone else cannot be held liable for the loss.

COPE - Construction, Occupancy, Protection and Exposures - allows the insurer to evaluate the risks of insuring a piece of real estate, which will ultimately determine whether a policy is offered.

Cost of insurance and freight - A shipping term in which the buyer is responsible for insuring the property from its point of origin.

Cost of risk - The total cost of managing an individual's, family's, or organization's risk.

Countersignature - Signature of a licensed agent that, in most states, must appear on the policy to validate the contract.

Court bond - Type of surety bond used to settle legal arguments that do not involve monetary damages.

Coverage extensions - See Additional coverages.

Coverage form - Document that contains insuring agreements, coverages, exclusions, and conditions; must be attached to a policy jacket to make a complete policy; also called a policy form.

Coverage part - Combination of forms and endorsements used to provide a particular commercial coverage; the forms and endorsements available under each coverage part can be used to issue a policy covering a single line of insurance or combined to provide a commercial package policy.

Coverage trigger - Event that activates (triggers) coverage under a commercial general liability coverage form Under the occurrence form, the coverage trigger is bodily injury or property damage that occurs during the policy period; under the claims-made form, the trigger is BI or PD that occurs on or after the retroactive date, if any, for which a claim is first made against an insured during the policy period.

Credit Risk - The risk customers or other creditors will fail to make promised payments as they come due.

Crime - The individual makes a decision to ignore the law.

Crumbling skull - A legal theory sometimes used as a defense to or argument against application of the "Eggshell Skull" rule. The principle behind this defense is that the result would have been the same whether or not the accused wrongdoer was involved.

Cut-through Endorsement - An endorsement regarding payment of reinsurance proceeds attached to either the primary insurance contract or the reinsurance contract activated by the insolvency of the primary insurer.

Custodian - As defined in crime insurance forms, an insured, partner, or employee who has care and custody of insured property within the premises; does not apply to watchpersons or janitors.

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D

Damages - Monetary compensation awarded by a court to an injured party.

De facto employee - Employers may call a de facto employee an independent contractor when they are "in fact" an employee.

De jure employee - An employee is an employee created by an act of law.

Declarations (dec page) - Section of an insurance contract that shows who is insured, what property or risk is covered, when and where the coverage is effective, and how much coverage applies.

Deductible - Dollar amount the insured must pay on each loss to which the deductible applies; the insurance company pays the remainder of each covered loss, up to the policy limits.

Defense costs - Legal expenses incurred by the insurer to defend suits brought against insureds; defense costs are paid in addition to payments for BI or PD claims.

Definitions - Section of an insurance policy that clarifies the meaning of certain terms used in the policy.

Degree of care - Extent of legal duty owed by one person to another; also called standard of care.

Deposit premium - Premium paid at the beginning of the policy period that is based on an estimate of what the final premium will be; this premium is adjusted based on reports submitted by the insured to the insurer; also called an estimated premium.

Derivative suit - A derivative suit is one brought by one or several shareholders on behalf of a publicly held corporation.

Difference in conditions insurance (DIC) - Type of commercial property policy that covers most insurable perils but excludes basic fire and extended coverage perils.

Diminution of value - An actual or perceived loss of an auto's resale or market value that results from a direct, accidental loss.

Direct loss - Financial loss resulting directly from a loss to property.

Direct response system - Insurance company that sells insurance through the mail or over the phone; no agents are involved.

Direct writer - Insurance marketing system where the company's agents are also employees of the company.

Direct writing agents - Employees of the insurance carrier who generally receive a salary, benefits, and some type of commissions or bonuses

Directors and officers liability insurance (D&O) - Type of errors and omissions policy written for directors and officers of corporations who may be sued as individuals by stockholders.

Disability insurance - Line of insurance that protects the insured against loss of income resulting from injury or sickness.

Disaster recovery plan - A plan for backup procedures emergency response and post-disaster recovery to ensure that the critical resources are available to facilitate the continuity of operation in an emergency situation.

Discovery form - Commercial crime form that covers losses that are sustained at any time and discovered either during the policy period or up to 60 days after the policy expires; the discovery period for losses related to employee benefit plans extends for up to one year after policy expiration.

Discretionary payroll - Payroll expenses of specified individuals or classes of employees whose services are not necessary to resume operations

Diversifiable risk - A risk that affects only some individuals, businesses or small groups.

Diversification - A risk control technique that spreads the loss exposures over numerous projects, products, projects, markets or regions.

Doctrine of reasonable expectations - Legal principle that provides that an insurance policy includes coverages that an average person would reasonably expect it to include, regardless of what the policy actually provides.

Dollar trading - An insurance premium and loss exchange in which the insured pays the insurer premiums for low value losses and the insure pays the same dollars back tot he insured, after subtracting expenses.

Domestic company - Insurance company doing business in the state in which it is incorporated.

Domestic shipments - Category of the nationwide definition that includes coverage for cargo in transit over land.

Drive other car (DOC)-Broadened Coverage For Named Individuals Endorsement - Commercial auto endorsement that extends the definition of a covered auto to include autos the named insured does not own, hire, or borrow while being used by the person named in the endorsement.

Dual purpose operation - Operations that receive income from both manufacturing and non-manufacturing operations which are not directly relatable to the manufacturing process.

Duplication - A risk control technique that uses backups, spares or copied of critical property, information or capabilities and keeps them in reserve.

Duties following loss - Condition found in property-casualty policies that explains the insured's responsibilities after a loss occurs.

Dwelling policy - Policy that provides property coverage to individuals and families; covers dwellings, other structures, personal property, and fair rental value; some versions also cover additional living expense; the unendorsed policy does not provide liability coverage.

Dwelling under construction endorsement - Dwelling policy endorsement used to provide provisional limits of liability for dwellings under construction; the limits of liability increase as construction of the building progresses.

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E

Earned premium - Premium an insurance company has actually earned by providing insurance protection for the designated period of time.

Earthquake insurance - Insurance that covers damage to a structure, its contents, or both as the result of an earthquake; available as a separate policy and as an endorsement to the dwelling, homeowners, and commercial property policies.

Economic perils - Consumer preferences, market conditions, etc.

Eggshell skull - A legal term based in tort and criminal law that states that tortfeasors take the injured party as they find them. Also known as the "thin skull" rule.

Electronic data processing equipment floater - Nonfiled commercial inland marine policy that provides open peril coverage for computer hardware, computer software, and data that is owned by the insured or in the insured's care, custody, or control. Breakdown coverage, extra expense, and business interruption coverage may also be included.

Elevated building - A non-basement building with its lowest elevated floor raised above ground level by foundation walls, shear walls, posts, piers, pilings, or columns.

Empirical data - Depends on data gathered from past events; it is trying to predict the future based on what has happened in the past.

Employee - A person hired to perform certain services or tasks for particular wages or salary under the control of another (the employer); or a worker hired to perform a specific job usual and customary to the employer's business operation in exchange for money or other remuneration.

Employee risks - Uncertainty regarding the availability of qualified employees, the injury or death of any employee, the unexpected loss of a key employee, strikes, and suits brought by an employee or group of employees.

Employees as additional insureds endorsement - Endorsement used with the business auto coverage form that covers employees while they are using an auto not owned, hired, or borrowed by the business in the business or personal affairs of the named insured.

Employers liability coverage - Coverage included in the Workers' Compensation and Employers Liability policy that covers the employer's liability at common law arising out of employees' work-related injuries and occupational diseases.

Employment practices liability insurance - Type of policy that covers a business's losses arising out of wrongful termination, discrimination, sexual harassment, and other employment-related practices.

Endorsement - Document attached to an insurance policy that changes the policy in some way.

Enterprise risk management - Focuses on questions like: How does this one decision affect the rest of the organization? Who or what is put at risk because this particular action is taken?

Equipment breakdown protection coverage form - Title of ISO coverage form used to write what is traditionally called boiler and machinery insurance. See Boiler and machinery insurance.

Equipment dealers coverage form - Filed commercial inland marine coverage form that covers mobile equipment and construction equipment dealers; covers the insured's stock in trade as well as customer property in the insured's care, custody, or control.

Equitable estoppel - Prevents a person from adopting a new position that contradicts a previous position created by words, silence, or actions if allowing the adoption of the new position would unfairly harm the person who relied on the previous position to his or her detriment. Also known as estoppel in pais.

Errors and omissions insurance (E&O) - Professional liability coverage that protects the insured against liability for committing an error or omission in the performance of professional duties.

Escheat - A common law doctrine to assure that unclaimed property of an individual that dies intestate is not left without an owner.

Estimated premium - See Deposit premium.

Estoppel - Principle that states that if one intentionally or unintentionally creates the impression that a certain fact exists, and an innocent party relies on that impression and is injured as a result, the guilty party may be legally prohibited from asserting that the fact does not exist.

Excess coverage - Insurance that cover losses above an attachment point, below which usually there is another insurance policy or self-insured retention.

Excess electronic equipment endorsement - Personal auto policy endorsement that allows an insured to add coverage for tapes, records, and disks used with electronic media and to increase the limit of insurance for electronic equipment that is permanently installed in an area of the auto not normally used for installing this equipment.

Excess insurance - When two or more policies or coverages apply to the same loss, the one that applies only after the limits of the primary coverage have been exhausted.

Excess layer - A level of coverage above the primary layer.

Excess lines agent - Agent licensed by the state to handle the placement of business with nonadmitted insurers; also called surplus lines agent.

Excess of loss reinsurance - The reinsurer agrees to indemnify the primary insurer for all losses exceeding a specified retention either on a per loss basis or an aggregate loss basis.

Exclusions - Section of an insurance policy that lists property, perils, persons, or situations that are not covered under the policy.

Exclusive agent - An agent who markets insurance for a single company; also called captive agent.

Exclusive remedy doctrine - One of the precepts upon which the workers' compensation system was founded; stipulates that the only means available to employees to receive compensation from employers for injuries covered by workers' compensation laws is through the benefits mandated by those laws.

Exculpatory - An agreement altering tort and contract law. Commonly used in waivers to protect one party against injury suits from another party while participating in activities that may prove inherently dangerous.

Exemplary damages - See Punitive damages.

Expense loading - The part of the final rate intended to cover the insurance carrier's expenses and allow for some underwriting profit.

Expense ratio - Ratio that indicates the cost of doing business; it is calculated by dividing the amount of underwriting expenses by the amount of written premium.

Experience modification factor - In experience rating, the factor applied to reduce the premium when loss experience is better than expected.

Experience rating - Type of merit rating that determines premium based on previous loss experience.

Exports - Category of the nationwide definition that includes risks eligible for ocean marine insurance.

Exposure - A condition or situation that presents a possibility of loss.

Express authority - Legal doctrine that states that an agent has the authority specifically given to the agent, either orally or in writing, by the principal.

Express contract - An express contract is one that has been reduced to writing; however, some oral contracts may be given the weight of express contracts provided all requirements of a contract are present (offer, acceptance, consideration, etc.).

Extended coverages - See Additional coverages.

Extended nonowned coverage Vehicles furnished or available for regular use endorsement. - Personal auto policy endorsement that eliminates most exclusions applicable to autos that are furnished or available for the regular use of the named insured or family members.

Extended reporting period (ERP) - Period of time provided by the claims-made commercial general liability coverage form during which coverage will be provided for claims made after the expiration date of the policy if certain conditions are met; the basic ERP runs 60 days and can be extended to five years; the supplemental ERP runs for an unlimited duration, but is available only by endorsement for an additional premium.

Extortion-Commercial entities endorsement - Endorsement used with the commercial crime policy that covers loss of money, securities, and other property when surrendered away from the premises as a result of a threat to do bodily harm to the insured, an employee or a relative of either who is being held captive.

Extra expense coverage form - Commercial property coverage form that covers additional expenses incurred by the insured business to continue operations following a direct loss by a peril insured against.

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F

Factual expectancy - A situation in which a party experiences economic advantage if an insured event does not occur or economic harm if the event does occur.

Fair Credit Reporting Act - Federal law that allows consumers who are denied insurance because of information contained in a credit report to be notified and allowed to obtain the information used in the report from the reporting agency.

Fair access to insurance requirements - (FAIR) plan Program established by law that makes property insurance available to insureds who might otherwise be uninsurable in the standard market.

Family risks - The unexpected illness, injury, leaving, or death of a family member.

Farm coverage - Part of the commercial package policy that provides property and liability insurance to farmers for both their personal and business exposures.

Federal Employers Liability Act (FELA) - Federal law that provides benefits to injured railroad workers who are exempt under state workers' compensation laws.

Fellow servant rule - Common law defense against liability that allowed employers to escape liability for injury to an employee if another employee's carelessness had contributed to the loss.

Fidelity bond - Class of bonds that guarantees an employee's honest discharge of duty; written to protect an insured from dishonest acts by employees.

Fiduciary - Person who stands in a special relationship of trust to another person.

Fiduciary bond - Type of surety bond that guarantees that a fiduciary will fulfill its obligations set forth by law.

Fiduciary liability policy - Insurance that protects people who manage private pension and employee benefit plans against liability for violation of the federal ERISA law.

Field underwriting - Selection of clients by the agent in accordance with company standards.

File and use - Method of rate and form ratification used by some state insurance departments that allows a company to begin using forms or rates as soon as they are filed by the department; the department eventually reviews the filing and officially accepts or rejects it.

Filed form - Standardized inland marine form that can be written under the commercial inland marine coverage part of the commercial package policy.

Film coverage form - Filed commercial inland marine form that covers exposed motion picture film until production is complete and positive prints are made.

Final rate - The total of the loss cost plus the expense loading. Also know as gross rate.

Financial responsibility laws - State laws that require owners or operators of autos to provide evidence that they have the funds to pay for automobile losses for which they might become liable. Insurance is the usual method for providing this evidence to the state.

Finite risk insurance plan - A risk financing plan that transfers a limited amount of risk to an insurer.

First-named insured - First person listed in the declarations as an insured; the first-named insured may have a higher level of duties or rights under the policy.

First party loss - Property insurance loss.

Flat cancellation - Cancellation of a policy by the insured or the insurance company on its effective date.

Flammable liquids - Defines liquids having a closed cup flashpoint below 100 degrees Fahrenheit and a vapor pressure not exceeding 40 pounds per square inch.

Flex rating - A hybrid between "file and use" and "use and file" regulations. In flex rating states, insurance carriers file a rate "range." Rates can go up or down within that range without prior approval.

Floater - Insurance policy that covers property wherever it is located.

Flood insurance - See National Flood Insurance Program.

Floor plan coverage form - Filed commercial inland marine form that covers stock that is subject to a floor plan arrangement, where a dealer borrows money from a lender with which to pay for merchandise.

Force majeure - A contractual provision that excuses a party from liability for the failure to comply with the provisions of the contract due directly to events beyond the control of that party.

Foreign company - An insurance company doing business in a state other than the one in which it is incorporated.

Fortuitous loss - A loss that is accidental and unexpected.

Fraternal Benefit Society - An incorporated society or order, without capital stock, that is operated on the lodge system and is conducted solely for the benefit of its members and their beneficiaries and not for profit; Fraternal benefit societies offer insurance that is available only to members.

Fraud - A deliberate misrepresentation that causes harm; an all-out effort by one party to deceive and cheat the other.

Free along side - The seller is responsible for insuring the property until it is next to the ship prior to leaving.

Free on board - Two definitions apply. Internationally, FOB indicates that the seller insures the goods until they are loaded on the ship for transport. Domestically, FOB may be followed by other instructions; such as 'FOB Destination," meaning that the seller is responsible until the goods arrive at the final destination; or "FOB Dock," making the seller responsible until they arrive at the dock named.

Freight insurance - Type of ocean marine insurance that protects the insured against the loss of shipping costs.

Frequency - The probability or likelihood than an undesired event will occur or that it will occur more than once.

Functional replacement cost - Method to determine reimbursement for some losses, particularly those to antique, ornate, or custom construction; the damaged property is repaired or replaced with less expensive, but functionally equivalent, materials.

Functional valuation method - A valuation method in which the insured is required to pay no more than the cost to repair or replace the damaged or destroyed property with property that is its functional equivalent.

Funded loss reserves - Cash is set aside specifically to pay for any loss or losses suffered by the entity. The funds are not intended for any other use or purpose.

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G

Gap factor - An increase in limit over the amount of the developed business income exposure to account for any unexpected increase in revenue and/or to provide a cushion against any unexpected extension in the period of restoration.

Garage coverage form - Commercial auto coverage form that provides liability, garagekeepers, and physical damage coverages for vehicle dealers, including dealers that have repair operations on the business premises.

Garagekeepers insurance - Coverage that is part of the garage coverage form; covers a garage risk's legal liability for customers' autos in the care, custody, or control of the garage; at the insured's option and for an additional premium, can also apply without regard to fault.

General average loss - Ocean marine term used to indicate a partial loss resulting from a sacrifice of cargo to save remaining property (jettison); each party shares in the loss in proportion to his total interest in the property being transported.

General conditions form - Separate form that lists the conditions that apply to a policy.

General contractor - An individual or entity with whom the principal/owner directly contracts to perform specified jobs.

General damages - Type of compensatory damages that reimburse the injured party for such things as pain and suffering and disfigurement.

General exclusion classifications - These are the opposite of "standard exception" classes. General exclusion class activities are completely unexpected and are not considered part of the analogy of the governing classification of most operations.

General inclusion classifications - Some activities are considered to be an integral part of the business' operations thus the payroll of the individuals engaged in these activities is included in the governing classification.

Ghost policy - A a workers compensation policy written for an unincorporated business with no employees and which does not extend coverage to the business' owner(s), or an incorporated business that excludes the officers.

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H

Hazard - Something that increases the chance of loss or a source of danger. A hazard increases the frequency and/or severity of a loss. There are five types of hazards with which insureds and insurers must concern themselves: Physical Hazard, Moral Hazard, Morale Hazard, Legal Hazard & Information Hazard.

Hazard analysis - A method of analysis the identifies conditions that increase the frequency or severity of loss.

Health insurance - Line of insurance that protects the insured against financial loss due to medical bills.

Hedging - A financial maneuver intended to avoid wide fluctuations in value or "insure" against total financial ruin should an investment prove poor.

Hired and nonowned auto liability endorsement - Businessowners policy endorsement used to cover hired or nonowned autos used by the business.

Hold harmless agreement - Contractual arrangement where one party assumes the liability of a situation and relieves the other party of responsibility.

Home day care coverage endorsement - Homeowners policy endorsement used to provide coverage for home day care businesses.

Homeowners policy - Personal multiline policy for homeowners that includes both property and liability coverages; there are different forms that provide varying degrees of property coverage; liability coverage is the same in all forms.

Hull insurance - Ocean marine insurance that provides coverage for physical damage to the ship.

Human Perils - Theft, vandalism, negligence, regulation, poor design or production, etc. An increase in the probability of loss because of a person or persons.

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I

Implied authority - Authority given by the principal to the agent that is not formally expressed or communicated.

Implied warranties - In ocean marine insurance, warranties that are not written into the policy, but have become a part of the policy by custom.

Imports - Category of the nationwide definition that includes risks eligible for ocean marine insurance.

Imputed liability - See Vicarious liability.

In the course - A function of the timing and location of the injury or illness.

Incidental contract - See Insured contract.

Incidental occupancy - A business conducted in a dwelling used primarily as a residence with no other businesses operating on the same premises; individual insurers have specific guidelines about the types of incidental businesses permitted, but examples include business or professional offices and private schools or instructional studios.

Implied contract - Implied contracts are oral or "understood" agreements or promises between parties generally created by actions or the assumed intentions of the parties or the surrounding circumstances.

Income risks - Differs based on who is subject to the risk. Individuals require a certain amount of cash to live at a specified level. Organizations require cash to operate effectively and efficiently.

Incompetent party - Someone who lacks sufficient mental capacity to enter a contract. This includes someone who has not reached a specific age (or marital status) as defined by specific state or federal statute.

Incurred losses - One of the components used to calculate the loss ratio; it includes paid losses and certain expenses associated with claim handling.

Indemnify - To return the insured, as closely as possible, to the same financial condition that existed prior to the loss or would have existed had no loss occurred without enrichment or improved position.

Indemnitor - The party called on to respond financially. This can include the "Transferee" or an insurance company.

Indemnity - Principle of insurance that provides that when a loss occurs, the insured should be restored to the approximate financial condition he occupied before the loss occurred, no better or no worse.

Indemnity agreement - An agreement that transfers the financial risk of a particular activity from one party to another party.

Independent adjuster - Claim handler who works independently instead of for a particular insurer.

Independent agent - Agent who represents many insurance companies, rather than a single company; also called a nonexclusive agent.

Independent contractor - Are generally engaged to perform operations not within the usual trade or business of the principal and such tasks are contract-specific.

Indirect loss - Loss that is the result or consequence of a direct loss; also called a consequential loss.

Individual named insured endorsement - Commercial auto endorsement that provides coverage similar to that provided under the personal auto policy to family members of the named insured while using any auto.

Inflation guard protection - A method of protecting against inflation by increasing the limit for covered property by a specified percentage over the policy period.

Information hazard - Relates to the individual's use of money and/or time, and the possible loss of both.

Inland marine insurance - Form of insurance originally designed as an extension of ocean marine coverage to insure transportation of goods over land; today it covers a variety of portable property, in addition to goods in transit; available as personal or commercial insurance; commercial inland marine insurance can be included in the commercial package policy.

Installation policy - Nonfiled commercial inland marine policy that covers loss to machinery, equipment, building materials, and supplies in transit to or being used with or during the course of installation, testing, building, renovating, or repair.

Instrumentalities of transportation and communication - Category of the nationwide definition that includes a variety of forms closely related to transportation or communication, such as bridges, pipelines, and television towers.

Insurable business income - The amount of business income used to calculate the business income premium.

Insurable interest - Any actual, lawful, and substantial economic interest in the safety or preservation of the subject of the insurance from loss or destruction or financial damage or impairment.

Insurable risks - Four "primary" elements and three "necessary" elements are required for a particular risk to be considered insurable. The four primary elements are: 1) a financial loss; 2) static risk; 3) particular/individual risk; and 4) pure risk. The three necessary elements are: 1) a large number of homogeneous exposures; 2) the loss is definite in time and place; and 3) the loss is unforeseen or accidental.

Insurance - Contract or device for transferring the risk of loss from a person, business, or organization to an insurance company that agrees, in exchange for a premium, to pay for losses through an accumulation of premiums.

Insurance commissioner - Head official of a state insurance department; may also be called an Insurance Director or Insurance Superintendent.

Insurance department - State department charged with controlling insurance matters within the state.

Insurance guaranty association - State funds created by law that pay claims of insurers domiciled in that state that become insolvent; funds are generated by making assessments against other insurers operating in the state.

Insurance securitization - The process of creating a marketable insurance-linked security based on the cash flows that arise from the transfer of insurable risks.

Insurance Services Office (ISO) - Organization established for the benefit of its member insurance companies and other subscriber companies; ISO gathers statistics, provides loss costs, drafts policy forms and coverage provisions, and conducts inspections for rate-making purposes.

Insurance to value - Insurance written for an amount approximating the full value of the asset(s) insured.

Insured contract - Term used in the CGL and businessowners liability forms to describe contracts for which contractual liability coverage is available under the policy, such as leases, sidetrack agreements, and elevator maintenance agreements; also called incidental contract.

Insuring agreement - Section of an insurance policy that describes what is covered and the perils the policy insures against.

Intangible property - Property that has no physical form.

Intellectual property - Creations of the mind including inventions, writings, designs, and trade secrets.

Interline endorsement - An endorsement that modifies two or more lines of insurance.

Interchange of labor rule - Applicability of this rule varies by state; some states only allow its use in the construction, erection or stevedoring classes of business while other states permit the interchange of labor rule to apply to any type of business operation.

Intermediate transfer - The transferee agrees to accept the financial consequences of occurrences caused in whole or in part by its negligence. This includes if the transferor or another entity contributes to the loss in some way.

Intervening act - An act that is or should be reasonably foreseeable and thus does not relieve the original wrongdoer of his liability for the injury because the intervening act may be part of the chain of events leading to injury or damage.

Intervening cause - An independent action that breaks the chain of causation and sets in motion a new chain of events; when this occurs, the intervening cause becomes the proximate cause; can serve as a common law defense against liability.

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Intestacy - An individual, owning property in excess of debts and expenses (a positive net worth), who dies without a legally binding will or declaration.

Inverse condemnation - A governmental action that diminishes or practicality removes all value of an individual's property without just compensation

Invitee - A person invited onto a premises for some purpose involving potential benefit to the property owner.

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J

Jettison - A voluntary action to rid a ship of cargo to prevent further damage or peril. Jettison is a covered peril in ocean marine policies.

Jewelers block coverage form - Filed commercial inland marine form for jewelers that covers the insured's stock in trade and the property of others while it is on or off the premises.

Joint ownership coverage endorsement - Personal auto policy endorsement that allows the policy to be issued to two or more persons who live in the same household or two or more individuals who are related in another way besides husband and wife.

Jones Act - Federal law that allows members of ships' crews to sue their employer/ship owner at common law for injuries caused by the employer's/ship owner's negligence.

Judgment rating - Method of rating that establishes premiums based on a careful evaluation of each individual risk without the use of manuals or tables.

Judicial bond - Category of surety bond that guarantees that the principal will fulfill certain obligations set forth by law-includes fiduciary bonds and court bonds.

Jurisdictional authority rule - States using this as the measure of major damage allow the authority having jurisdiction (the local government) to decide when a damaged building must be brought into compliance with the current building code.

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L

Labor and materials bond - See Payment bond.

Large deductible plan - An insurance policy with a per occurrence or per accident deductible of $100,000 or more.

Law of large numbers - Principle that states that the more examples used to develop any statistic, the more reliable the statistic will be.

Last clear chance - A doctrine in tort law applicable in jurisdictions that subscribe to the contributory negligence doctrine. Last clear chance allows a plaintiff that is contributory negligent to recover if he is able to prove that the defendant (most at-fault party) had the last opportunity to avoid the accident.

Leader location - These can include anchor stores, sports and entertainment venues and other such operations or entities that draw customers to the area or drive them to the insured location.

Legal hazard - Increased likelihood that a loss will occur because of court actions. Characterized by a jury awarding larger-than-normal amounts because they think the at-fault party has "deep pockets."

Legal liability - Liability imposed by the courts (common law) or by statute on any person or entity responsible for the financial injury or damage suffered by another person, group, or entity.

Legal liability coverage form - Commercial property coverage form that covers the insured for liability arising out of negligent damage to the property of others while it is in the insured's care, custody, or control.

Legal person - A legal fiction, a "person" created by statute and "born" with the filing of articles of incorporation (or organization).

Legal purpose - One of the characteristics of a legal contract; means that contracts are only enforceable if they are not obviously illegal, immoral, or against the public good.

Liability insurance - Type of insurance that protects an insured from financial loss arising out of liability claims by transferring the burden of financial loss from the insured to the insurance company.

Legal risks - Uncertainty surrounding courts, contracts, torts, and negligence.

Liability loss exposure - Any condition or situation that presents the possibility of a claim alleging legal responsibility of a person or business for an injury or damage suffered by another part.

Libel/Slander - False statements broadcast about a person as fact not opinion. These statements do not have to be made with the intent to harm or shame to allow for a tort claim; but if done with malice, the injured party can sue for general damages in addition to special damages. Libelous statements are generally written or broadcast through the media (television, radio and the Internet) while slander deals with the spoken word (it doesn't linger and is generally directed to a known audience). Both terms can be classified as "defamation."

Liberalization condition - Condition found in property insurance contracts that provides that if the insurer broadens coverage under a policy form or endorsement without requiring an additional premium, then all existing similar policies or endorsements will be construed to contain the broadened coverage.

License and permit bond - Type of surety bond that is sometimes required in connection with the issuance of licenses by government agencies. They guarantee that the person who posts the bond will comply with all applicable laws pertaining to their activities.

Licensee - Person on the premises with the property owner's consent but for the sole benefit of the visitor.

Life safety - The portion of fire safety that focuses on the minimum building design, construction, operation and maintenance requirements necessary to assure occupant of a safe exit from the burning portion of the building.

Life insurance - Insurance that pays a stipulated sum to a designated beneficiary upon the death of the insured; protects the insured's beneficiary against the financial consequences of the insured's premature death.

Limit of coverage, limit of insurance, limit of liability - See Policy limit.

Limitations - Policy language that eliminates or reduces coverage under certain circumstances or when specified conditions apply.

Limited Liability Company (LLC) - A hybrid legal entity combining the advantages (mostly tax-based) of a partnership and the liability protection offered by a corporation.

Limited transfer - The narrowest level of contractual risk transfer. The transferee only accepts the financial consequences of loss resulting from his/its sole negligence

Liquidated damages - A contractual agreement requiring one party to pay another a specified amount if certain contractual provisions are violated or are not completed.

Liquidity risk - The risk that an asset cannot be sold on short notice without incurring a loss.

Liquor liability coverage form - CGL coverage form that provides coverage for liquor liability excluded by standard CGL policies for those who are in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.

Livestock coverage form - Farm coverage form used to provide separate coverage for livestock.

Lloyd's Association - A voluntary association of individuals or groups of individuals who agree to share in insurance contracts; each individual or syndicate is individually responsible for the amounts of insurance they write.

Longshore and Harbor Workers' Compensation Act coverage endorsement - Endorsement used with the Workers' Compensation and Employers Liability policy that covers the additional benefits required by federal law for maritime workers injured while working on navigable waters or shore-site areas.

Loss - Disadvantage or deprivation resulting from an unfavorable incident.

Loss cost - Factor used in figuring insurance rates that represents how much an insurance company needs to collect to cover expected losses.

Loss exposure - A term used to describe the loss potential of a particular insured. Includes property, liability, and employee risk.

Loss frequency - The number of losses that occur within a specified period.

Loss limit - The level at which a loss occurrence is limited for the purpose of calculating a retrospectively rated premium.

Loss payable condition - See Mortgage condition.

Loss prevention - Taking measures to prevent the loss from happening in the first place.

Loss provisions - General term used to describe policy conditions that specify what the insured and insurer must do after a loss.

Loss ratio - Method used to determine an insurance company's success in covering current losses out of current premium income; determined by dividing incurred losses by earned premium.

Loss reduction - Taking steps to reduce the amount of damage a loss may cause.

Loss severity - The amount of loss, typically measured in dollars, for a loss that occurred.

Loss sustained during prior insurance condition - Condition found in loss sustained version of the commercial crime forms that allows losses that occurred during a prior policy period to be covered under the current policy if certain conditions are met.

Loss sustained form - Commercial crime form that covers losses that are sustained during the policy period and discovered either during the policy period or up to one year after the policy expires.

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M

Mail coverage form - Filed commercial inland marine form that covers property in transport by registered mail, first class mail, certified mail, or express mail.

Major damage - The amount of damage required for the jurisdictional authority to require the structure be brought into compliance with the current building code.

Majority interest - Created when the same person or group of person(s) combine to own more than 50 percent of an entity

Malpractice insurance - Term used to describe professional liability insurance issued to medical professionals or institutions.

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Manual rating - Method of premium determination that uses rates based on collected statistics. The rates, which apply per unit of insurance, are published in manuals; also called class rating.

Manuscript form - An insurance form that is drafted according to the terms negotiated between a specific insured (or group of insureds) and and insurer.

Market value - The amount property could be sold for at the time of loss. May be used to determine the amount of reimbursement for a loss.

Material fact - A fact that would cause an insurer to decline a risk, charge a different premium, or change the provisions of the policy that was issued.

Management - Planning, organizing, leading, and controlling people or activities towards a specific goal.

Manufacturing location - A dependent property location that manufactures products for delivery to your customers under contract of sale.

Market risk - Uncertainty about an investment's future value because of potential changes in the market for that type of investment.

Maximum coinsurance percentage - Number of months required to accomplish the four period of restoration objectives / 12 (the number of months in a year).

Maximum possible loss - Maximum possible loss is the "worst case scenario" and the most pessimistic view - the entire building and everything inside could be destroyed.

Maximum probable loss - Maximum probable loss is inversely proportional to the size of a structure and the effectiveness of any protective safeguards.

MCS-90 endorsement - Endorsement attached to the truckers coverage form to provide public liability coverage.

Merit rating - Method of determining premiums where a manual rate is modified to reflect the risk's unique characteristics; see Experience rating, Retrospective rating and Schedule rating.

Messenger - As defined in crime insurance forms, an insured, partner, or employee who has care and custody of insured property outside the premises.

Miscellaneous type vehicle endorsement - Personal auto policy endorsement that provides coverage for vehicles that are usually excluded by the policy, such as motorcycles, motor homes, golf carts, mopeds, and other recreational vehicles.

Misrepresentation - Written or verbal misstatement of a material fact involved in the contract on which the insurer relies.

Mobile agricultural machinery and equipment coverage form - Farm coverage form that provides separate coverage for a farmer's mobile agricultural machinery and equipment.

Mobile equipment endorsement - Commercial auto endorsement that makes mobile equipment considered a covered auto for coverage purposes.

Mobile home insurance - Coverage that protects both a mobile home structure and its contents; some companies have mobile home package policies that provide property and liability insurance for owners of mobile homes. In addition, there is a mobile homeowners endorsement that can be attached to an HO-2 or HO-3 to modify coverage for mobile homeowners.

Modular policy - An insurance policy that consists of several different documents, non of which by itself forms a complete policy.

Monoline company - Insurance company that writes a single line of insurance.

Monoline policy - Insurance policy that provides one type of insurance coverage.

Monopolistic state fund - Method of providing workers' compensation coverage used in some states; employers must purchase workers' compensation insurance from a state fund; private insurance companies are not allowed to compete.

Monopolistic states - Employers can purchase a workers' compensation policy only from the state. Only four monopolistic states are still in operation: North Dakota, Ohio, Washington and Wyoming.

Moral hazard - Hazard created by an individual who would be willing to create a loss situation on purpose just to collect from the insurance company.

Morale hazard - Hazard created by an individual's tendency to contribute to a loss through his own irresponsible actions or carelessness.

Mortgage condition - Condition found in property insurance policies that specifies the rights and duties of the mortgagee under the policy; also called the loss payable condition.

Mortgagee rights - Rights granted to a mortgagee under a property contract issued to a mortgagor by virtue of the mortgagee's financial interest in the property.

Motor Carrier Act of 1980 - Federal regulation that requires truckers and other commercial carriers to certify they are able to meet financial obligations if they become liable for injury or damage arising from their trucking operations.

Motor carrier coverage form - Commercial auto coverage form that is an alternate to the truckers coverage form; it can be used to cover anyone who transports property by auto in a commercial enterprise.

Motor truck cargo policy - Nonfiled commercial inland marine policy that protects a carrier against its liability for damage to domestic shipments in its custody.

Multiline company - Insurance company that writes more than one line of insurance.

Multiline policy - See Package policy.

Mutual company - Insurance company owned by its policyholders; the policyholders share in profits made by the company through dividends or reductions in future premiums.

Mysterious disappearance - Vanishing of property with no explanation.

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N

Name schedule bond - Type of fidelity bond that covers loss only from named employees.

Named insured - Person, business, or other entity named in the declarations to whom the policy is issued.

Named nonowner coverage endorsement - Personal auto policy endorsement that provides coverage for the use of nonowned autos to individuals who do not own a car.

Named peril - Named peril policies specifically list the causes of loss covered by the policy. If the cause is not listed, there is no coverage.

Named peril policy - Insurance policy that insures only against perils specifically listed in the policy; also called specified peril policy.

National Association of Insurance Commissioners (NAIC) - Organization made up of individual state insurance commissioners whose purpose is to promote uniformity in regulation by drafting model laws and regulations.

National flood insurance program - Program run by the federal government that makes flood insurance available to eligible communities at subsidized rates; includes coverage for both buildings and personal property.

Nationwide definition - Document that categorizes and classifies risks that are eligible for ocean or inland marine insurance.

Natural perils - Fire, lightning, flood, wind, etc.

Natural person - A flesh and blood human being.

Negligence - The lack of reasonable care that is required to protect others from the unreasonable chance of harm.

Negligence per se - A breach of duty because the law says it is.

Negligent conduct - Failure to act or behave in the manner a reasonably prudent person would act in the same situation.

Net income loss exposure - A condition that presents the possibility of loss caused by a reduction in net income.

No benefit to bailee condition - Condition found in some property insurance contracts that states that a bailee is not covered under an insured's policy while the bailee has possession of the insured's property.

No-fault insurance - Form of automobile insurance where each insurance company pays the damages of its own insureds, regardless of who was at fault for the accident; no-fault insurance has been enacted in several states.

Non-admitted insurer - Company that is not authorized to do business in a particular state; also called an unauthorized insurer.

Non-concurrency - Situation that exists when the same property is covered by more than one policy, but the policies are not identical as to the extent of coverage provided.

Non-delegable duty - A requirement placed on one individual or entity by reason of relationship which cannot be passed to a third party.

Non-exclusive agent - See Independent agent.

Non-filed form - Type of commercial inland marine form that is not standardized and cannot be included in the commercial inland marine coverage part of the commercial package policy.

Non-renewal - Decision made by an insured or insurance company to not continue coverage for another policy period after the current policy period expires.

Non-reporting policy - Type of insurance policy for which a flat premium is charged every time the policy is renewed.

Non-special flood hazard Area - Non-special flood hazard areas are historically delineated with "B," "C" or "X." These are considered areas of moderate or minimal flooding hazard, generally only expected to flood in times of severe storms and weather conditions or when drainage problems exist.

Normal bad debt - The amount of bad debt usual and customary to a particular business.

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O

Objective risk - The measurable variation in uncertain outcomes based on facts and data.

Obligee - In bonds, the party to whom the principal makes the promise and for whose protection the bond is written.

Occupational - An injury arising out of and in the course and scope of employment.

Occupational disease - Illness directly attributable to work conditions and exposures; such injury or illness must arise out of and in the course and scope of employment.

Occurrence - A loss that occurs at a specific time and place or over a period of time.

Occurrence form - Commercial general liability coverage form that covers bodily injury or property damage that occurs during the policy period, regardless of when the claim is made.

Ocean marine insurance - Insurance designed to provide broad coverage for cargo and ships in transit over sea; includes cargo insurance, hull insurance, freight insurance, and protection and indemnity insurance.

Offer and acceptance - One of the elements of a legal contract; means that a contract must involve two parties: one who makes an offer and another who accepts the offer; also called agreement.

Open competition - Method of rate and form regulation used by some state insurance departments that allows insurance companies to compete openly with the forms and rates they select, subject only to requirements of adequacy and nondiscrimination.

Open peril policy - Insurance policy that protects the insured from losses caused by any peril that is not specifically excluded by the policy; also called all risk and special coverage.

Operational capability - An entity's ability to operate at or near pre-loss production or sales capacity.

Operational continuity - The ability of the business to continue to operate and produce some amount of goods or services following a loss-induced business suspension.

Operational risks - Uncertainty surrounding the ability to produce or provide the goods or services promised; the ability to satisfy the customer; and the continuation of a good reputation.

Optional limits transportation expenses coverage endorsement - Personal auto policy endorsement that allows the insured to select the daily and maximum limits of coverage provided for transportation and loss of use expenses.

Ordinance or law coverage endorsement - Endorsement used with the commercial property coverage part to provide coverage for demolition costs and increased construction costs required or regulated by law or ordinance.

Ordinary employee - These are employees not classified as officers, executives, department managers, employees under contract or any specifically listed employee or job description./p>

Ordinary payroll - Payroll of ordinary employees.

Other coverages - See Additional coverages.

Other insurance condition - Policy condition that sets out how any other insurance that applies to the same loss will affect reimbursement under the policy; see Contribution by equal shares, Excess insurance, Primary insurance, and Pro rata other insurance.

Other than collision coverage (OTC) - See Comprehensive coverage.

Outboard motor and boat insurance - Insurance against physical damage to boats; usually provided by inland marine forms.

Owners and contractors protective liability coverage form - Commercial general liability coverage form that covers claims caused by the negligence of a contractor or subcontractor hired by the insured.

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P

Package policy - Policy that includes more than one type of insurance coverage; also called a multiline policy.

Pair or set condition - Loss settlement condition found in property insurance contracts that states that when part of a set is damaged or destroyed, the insured will not be reimbursed for the value of the entire set; various methods are used to determine the amount of reimbursement.

Parcel post policy - Nonfiled commercial inland marine policy that covers mail sent by parcel post.

Particular average loss - In ocean marine insurance, any partial loss that does not arise from a general sacrifice of property (jettison).

Payment bond - Type of surety bond that guarantees bills for labor and materials will be paid to the contractor as they are due; also called labor and materials bond.

Peak season endorsement - Endorsement attached to the commercial property coverage part to provide increased coverage during particular seasons of the year when the insured's inventory is at higher levels than usual.

Performance bond - Type of surety bond that guarantees that jobs will be completed by the contractor according to the contract specifications.

Peril - The cause of loss.

Perils of the sea - Perils to which property in transit by water is exposed; includes unusual action of wind or waves, stranding, lightning, collision, and sinking.

Permitted incidental occupancies endorsement - Homeowners policy endorsement that covers the insured's business activities conducted on the residence premises.

Personal articles form - Personal inland marine form that provides scheduled coverage for nine optional classes of personal property: jewelry, furs, cameras, musical instruments, silverware, golf equipment, fine arts, stamp collections, and coin collections.

Personal auto policy - Auto policy that provides property and liability coverage for both owned and nonowned autos used, maintained, or operated by the insured and her family members.

Personal contract - One of the characteristics of an insurance contract; means that an insurance contract insures a person, not property.

Personal effects form - Personal inland marine form that covers an insured's personal belongings, such as baggage, while traveling.

Personal injury - Injury other than bodily injury arising out of such things as libel, slander, false arrest, wrongful entry, violation of privacy, and malicious prosecution.

Personal injury endorsement - Homeowners policy endorsement that modifies the definition of bodily injury to include personal injury.

Personal inland marine insurance - See Inland marine insurance.

Personal liability and medical payments to others endorsement - Endorsement to the dwelling policy that provides liability coverage similar to that provided by Section II of the homeowners policy; may also be purchased as a separate policy.

Personal lines - Insurance coverages that protect individuals and their families.

Personal loss exposure - Any condition or situation that presents the possibility of a financial loss to an individual or a family by such causes as death, sickness, injury or unemployment.

Personal property - All tangible or intangible property that is not real property.

Personal property form - Personal inland marine form that provides open peril coverage for personal property.

Personal property floater risks - Category of the nationwide definition that includes risks eligible for personal inland marine insurance.

Personal property replacement cost endorsement - Homeowners policy endorsement that adds replacement cost coverage for personal property.

Personal umbrella policy - See umbrella policy.

Personal yacht insurance - Type of personal watercraft policy written for large pleasure boats.

Personnel loss exposure - A condition that presents the possibility of loss caused by a person's death, disability, retirement or resignation that deprives and organization of the person's special skill or knowledge that the organization can't readily replace.

Physical hazard - Hazard that arises from the condition, occupancy, or use of the property itself.

Physicians and surgeons equipment form - Filed commercial inland marine form that covers medical instruments on and off the premises and furniture and fixtures at the doctor's office against direct physical loss.

Policy - An insurance contract.

Policy condition - Any provision that qualifies an otherwise enforceable promise made in the policy.

Policy form - See Coverage form.

Policy jacket - Document used to assemble an insurance policy; contains general conditions or the declarations page, but provides no coverage in and of itself; a policy form must be attached to make it a complete policy; also called a skeleton policy.

Policy limit - Maximum amount the insurance company will pay for a particular loss or for losses sustained during a period of time; also called limit of coverage, limit of insurance and limit of liability.

Policy period - The date and time specified in the declarations for when coverage begins and ends.

Policy territory - Place where coverage under a policy applies.

Polling letter - A letter sent to all staff members who would or should have knowledge of any acts or omissions that could give rise to a claim requesting specific information about such acts or omissions.

Pollution liability coverage extension endorsement - Commercial general liability endorsement that provides coverage for BI and PD claims arising out of pollution losses; excludes coverage for pollution clean-up costs.

Pollution liability coverage form - CGL coverage form that provides certain pollution coverages that are excluded under the standard CGL; includes coverage for pollution clean-up costs.

Pollution liability-limited coverage form - CGL coverage form that provides certain pollution coverages that are excluded under the standard CGL; does not include coverage for pollution clean-up costs.

Pool - A group of organizations that band together to insure each other's loss exposures.

Position schedule bond - Fidelity bond that covers specifically named positions in the company, rather than the individuals who hold these positions.

Post-judgment interest - Interest accruing on a judgment after an award has been made, but before payment is made by the insurance company; usually covered as a supplementary payment in liability policies.

Post-loss goals - Risk management program goals that should be in place in the event of a significant loss.

Pre-construction duties - Development and approval of the new building plans; advertising for, interviewing and selecting a general contractor; applying for and waiting on building permits; and scheduling and completing site clearance work.

Prejudgment interest - Interest awarded to compensate a third party for interest he might have earned if compensation had been received at the time of injury or damage, rather than at the time of judgment.

Pre-loss goals - Goals to be accomplished before a loss, involving social responsibility, externally imposed goals, reduction of anxiety and economy.

Pre-loss operational income - The ability to generate revenues at the same level enjoyed prior to the suspension of operations.

Premature death - Death prior to or during the individual's income producing or household contribution years.

Premises and operations - Business liability exposure arising out of the business location or the activities of the business; covered under the CGL.

Premium audit - Survey of the insured's financial records to gather information used to calculate the premium, such as exposures and limits.

Primary insurance - When two or more coverages or policies apply to the same loss, the one that pays first, up to its limit of liability or the amount of the loss, whichever is less.

Primary layer - The first level of insurance coverage above any deductible.

Principal - In bonds, the party who promises to do or not do a specific thing; in agency law, the person or company being represented.

Principal of indemnity - The principle that insurance policies should provide a benefit no greater than the loss suffered by an insured.

Prior approval - Method of rate and form ratification used by some state insurance departments that requires a company to obtain official approval before using new forms or rates.

Pro rata other insurance - Method of handling insurance when more than one coverage applies to a loss; each coverage pays a portion of the loss in proportion to the relationship its limit of liability bears to the total limit of liability under all applicable insurance; also called contribution by limits.

Probability - The likelihood that an outcome or event will occur.

Probability analysis - A technique for forecasting events on the assumption that they are governed by an unchanging probability distribution.

Probability distribution - A presentation of probability estimates of a particular set of circumstances and of the probability of each possible outcome.

Products liability - Defective product design or manufacture which results in an injury makes the manufacturer strictly liable.

Producer - General term used to describe someone who sells insurance, such as an agent, broker, or solicitor.

Production-related expenses - Cost of goods sold (COGS); outside services resold; utility services that do not continue under contract; ordinary payroll; and special deductions for mining operations.

Property risks - Uncertainty surrounding real property, personal property, and intellectual property.

Products and completed operations - Business liability exposure arising out of defects in the company's products or completed operations; covered by the CGL.

Professional liability - Liability arising out of rendering or failing to render services of a professional nature.

Professional liability policy - Insurance coverage issued to a professional that covers the rendering or failing to render services of a professional nature; policies are tailored to fit specific occupational needs.

Proof of loss - Form completed by an insured after a loss that provides an official inventory of damages.

Property damage (PD) - Damage to or destruction of property, including loss of use of the property.

Property insurance - Line of insurance that includes many types of coverages designed to handle the risk that a person will suffer financial loss because something she owns is damaged or destroyed.

Property loss exposure - A condition that presents the possibility that a person or an organization will sustain a loss resulting from damage to a property in which the have a financial interest.

Pro rata reinsurance - The primary insurer cedes a predetermined percentage of the risk to the reinsurer. The reinsurer shares in the losses proportional to the premiums and limits reinsured.

Protected cell company (PCC) - A corporate entity separated into cells so that each participating company owns an entire cell but only a portion of the overall company.

Protection and indemnity - Form of ocean marine liability insurance that covers a variety of types of liability, such as damage to cargo through negligence and damage to other property or another boat resulting from collision.

Protective safeguards endorsement - Businessowners policy endorsement that requires the insured to maintain fire or security service on specified property as a condition of the policy.

Proximate cause - An action that, in a natural and continuous sequence, produces a loss.

Public official bonds - Type of surety bond furnished by principals who are elected or appointed to fill positions of trust that guarantee their faithful and honest performance in office.

Punitive damages - Type of damages intended to punish the defendant and make an example out of her to discourage others from behaving the same way; also called exemplary damages.

Pure risk - A risk in which there is no chance of gain, only loss.

Putative employer - The special employer rather than the direct employer. Status as the "employer of record" at such a specific time is "put" upon the individual or entity based on several factors, the most obvious is the amount of control the person/entity has over the worker.

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Q

Qui Tam - Allowed by the Federal Civil False Claims Act (31 U.S.C. Section 3729 et seq), a qui tam is a suit brought by a private citizen in the name of and on behalf of the United States. Such suits are usually based on charges of fraud committed by government contractors or others who use or receive governmental funds.

Quotation - A summary of coverages and premiums proposed by an agent to a prospective client.

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R

Rate - The basic charge an insurance company sets for various types of insurance.

Real property - Land and everything attached to the land including anything permanently attached to the structure attached to the land such that it cannot be removed from the structure without causing major damage.

Reasonable expectations doctrine - A legal doctrine that provides for an ambiguous insurance policy clause to be interpreted in the way that an insured would reasonably expect.

Reasonable person rule - Principle of law that states that each person must behave like a prudent person following those ordinary considerations that guide human affairs.

Rebating - Giving or offering some benefit other than those specified in the policy to induce a customer to buy insurance; rebating is illegal in most states.

Recipient location - A dependent property location that buys/accepts the products, goods or services of the insured.

Reciprocal company - An unincorporated group of members that share insurance responsibilities with other members; it is managed by an attorney-in-fact.

Redlining - Takes the concept of having an adequate spread of risk to an illegal extreme. It is literally drawing redlines around specific areas on a map and refusing to provide coverage to any person or business within the delineated areas.

Regulatory Risks - Uncertainty surrounding how individuals and organizations are governed by local, state, and federal authorities.

Reinsurance - Acceptance by an insurer, called a reinsurer, of all or part of the risk of loss of another insurer.

Rent-a-captive - An arrangement under which an organization rents capital from a captive to which it pays premiums and receives reimbursement for its losses.

Repair cost - The cost to repair a damaged or destroyed item of property. May be the basis of reimbursement for a loss.

Replacement cost - The cost to replace a damaged or destroyed item of property without deduction for depreciation; may be the basis of reimbursement for some losses.

Reporting policy - Type of policy that does not charge a flat premium; the insured pays a deposit premium, then submits periodic reports to the insurer showing the status of the factors on which the premium is based; from these status reports, premiums are calculated and charged against the deposit.

Representation - Statements on an insurance application that the applicant believes are true; a representation is not considered a matter to which the parties contract, so a policy cannot be voided on the basis of a representation.

Res ipsa loquitur - Latin meaning: The thing speaks for itself. A concept applied in strict liability torts. The only thing necessary to prove legal liability is an injury. Only applies to certain causes of injury.

Residual market insurance - Insurance that is not ordinarily available from private insurers and may be provided by the government; examples include flood insurance, which is provided by the federal government, and workers' compensation benefits, which may be provided by state funds.

Retention - A risk financing technique by which losses are retained by generating funds within the organization to pay losses.

Retention limit - In an umbrella policy, the amount the insured must pay for a loss that is not covered by an underlying policy before the umbrella will begin to cover the loss; also called the self-insured retention.

Retroactive date - Under the claims-made CGL form, a date stipulated in the declarations as the first date on which an event may occur and be covered by the policy if a claim is filed.

Retrospective rating - Type of merit rating that bases the insured's premium on losses incurred during the policy period.

Risk - The chance or uncertainty of loss.

Risk control - Risk Control is establishing a plan to reduce the possibility of a loss occurring, or to lessen the effect if one does occur.

Risk financing - Risk Financing is developing and planning for a source of financing necessary to cover the consequences of any loss.

Risk management - Planning for, organizing against, leading others in, and controlling the uncertainty surrounding an outcome arising out of the lack of knowledge regarding future events.

Risk management process - A seven-step process: 1) Determine the objectives of the risk management plan; 2) Identify the risks faced by the organization; 3) Evaluate the risks. 4) Consider/analyze the alternative methods for handling each risk. 5) Select the best risk management methods from among the alternatives. 6) Implement the decision. 7) Continuously monitor the decisions and overall program.

Risk's irony - Without risk there is no reward; and often, the higher the risk, the greater the reward.

Risk retention group - Insurance company formed by several organizations to cover those organizations' liability loss exposures; risk retention groups are exempt from most state laws that govern insurance companies.

Risk source -Element which alone or in combination has the intrinsic potential to give rise to risk.

Robbery -In crime insurance, the taking or attempted taking of property by one who has caused or threatened to cause bodily harm, or committed a witnessed, obviously unlawful act.

Rolling total - Relates to pure extra expense coverage provided in the CP 00 50 (Extra Expense Coverage Form). The insured chooses a rolling total payout percentage, meaning that the insured has access to progressively higher percentages of the total limit during each 30 day period.

Running down clause - Provision found in ocean marine hull policies that provides protection if the ship owner is held liable for the negligent operation of the vessel in damaging another ship.

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S

Salvage - Damaged property that can be retrieved, reconditioned, and sold to reduce an insured loss.

Schedule rating - Type of merit rating that applies a system of debits or credits to reflect characteristics of a particular insured.

Scheduled coverage - Property that is specifically listed in the declarations and covered for a specific amount; also called specific insurance.

Scheduled personal property endorsement - Homeowners policy endorsement that provides open peril, scheduled coverage for nine optional classes of property.

Scope of employment - Analyzes the motivations of the employee, the employer's direction and control over the actions of the employee; and the employer's foresee ability of the activities of the employee. Employee actions which ultimately lead to an accident or injury must be motivated, in whole or in part, by the 'desire' to further the interests of the employer. Motivation or desire can be out of fear that failure to perform will result in the loss of a job, or from a more altruistic desire to do well for the employer.

Segregation - A loss reduction method to control the amount of loss. Two types of segregation: 1) segregation by separation; and 2) segregation by duplication.

Self-contained policy - A single document that contains all the agreements between the insured and the insurer and that forms a complete insurance policy.

Self-insurance - Alternative to purchasing insurance where a company or individual assumes the risk of paying for its losses and sets aside the necessary funds to pay for such losses.

Self-insured retention (SIR) - A dollar amount specified in an insurance policy that the insured must pay before the insurer will make any payment for a claim.

Separation - A risk control technique that isolates loss exposures from one another to minimize the adverse effect of a single loss.

Service bureau - Organization that gathers, pools, and analyzes statistics from its member insurance companies to establish loss costs used to determine insurance rates.

Severity - The financial consequences of the undesired event.

Shear walls - A shear wall is a structural support running parallel (as nearly as possible) to the flow of the water. These walls are not structurally joined at the ends allowing rushing water to flow through unimpeded.

Significant contact test - This test is applied when making jurisdictional decisions - which state benefits can the employee access. Significant contact tests base these jurisdictional decisions around the employee. Three primary tests/questions work to determine which states need to be scheduled as primary, 3.A. states. These questions are: 1) Where does the employee live? 2) Where does the employee primarily work? And 3) In what state was the contract of hire made? If a "preponderance of contact" evidences a state not listed as a 3.A. state, there may be a gap in protection.

Signs coverage form - Filed commercial inland marine form that insures businesses against loss to neon, fluorescent, automatic, or mechanical electric signs and lights.

Single limit - One policy limit that applies to both BI and PD losses; may also be called a combined single limit.

Situs - The first test before an employee can be considered a longshoreman or harbor worker. Situs requires that the employment be on, above or below navigable waters and adjoining areas.

Skeleton policy - See Policy jacket.

SLAPP - A "Strategic Lawsuit Against Public Participation" (SLAPP) is an assault using the legal system as the weapon of choice. Individuals, corporations and governments file SLAPP suits packaged to look like civil suits alleging defamation, invasion of privacy, nuisance, malicious prosecution and other personal injury charges intended solely to embezzle the "offender's" time and finances by means of legal wrangling and continually mounting legal costs.

Solicitor - Insurance professional who sells insurance and collects premiums but cannot issue or countersign policies.

Special coverage - See Open peril policy.

Special damages - Type of compensatory damages that reimburse the injured party for direct and specific expenses involved in the loss, such as medical expenses and lost wages.

Special flood hazard areas (SFHA) - A special flood hazard area is a specifically defined area that has a 1 percent chance of being inundated by flood waters in any given year (thus the creation of the term "100-year flood plain"). Flood waters have an equal chance of submerging these areas every year for five straight years, or not for 200 years; there is simply a 1 percent statistical possibility every year. Homes located in special flood hazard areas have a 26 percent chance of suffering flood damage over the normal 30-year life of a loan according to FEMA. There are two broad classifications of special flood hazard areas: 1) "A" zones, and 2) "V" zones.

Specific insurance - See Scheduled coverage.

Specified Causes of Loss - One of the physical damage coverage options in the commercial auto coverage forms; provides more limited coverage than comprehensive coverage, insuring only against specified perils such as fire, flood, or explosion.

Specified peril policy - See Named peril policy.

Specific rates - Rates that are somewhat individual in nature and are based on the characteristic of the individual risk exposure. Four types of specific rates: 1) Schedule rating; 2) Experience rating; 3) Retrospective rating; and 4) Judgment rating.

Speculative risk - A risk that may result in a loss or gain.

Split limits - Policy limit that provides separate limits for BI and PD.

Spoilage endorsement - Endorsement used with the building and personal property and condominium commercial unit-owners commercial property coverage forms; it adds coverage for the insured's perishable stock-personal property that must be maintained under controlled conditions to protect it from loss or damage.

Spread of risk - Principle of insurance that states that insurers should spread their insured risks over a large geographical area, rather than insuring a large number of people in a small area.

Standard & Poor - Organization that rates the financial stability of insurance companies doing business in the United States.

Standard of care - See Degree of care.

Stated amount condition - See Agreed value condition.

Statute of limitations - Law that provides that certain types of suits must be brought within a specified time of the occurrence to be valid under the law.

Stock company - An insurance company owned by its stockholders; profits are shared by the stockholders; policyholders are not entitled to share in company profits.

Standard exception classifications - Some duties/activities are considered so common to most business and/or such duties may be so far outside the operational activities of the business that employees engaged in these activities are considered exceptions to the governing classification rules. Payroll for these "standard exception" classes of employees is subtracted from the governing classification and assigned to the applicable standard exception code and rated separately from the governing class.

Status - To be considered a longshoreman or harbor worker requires that the employment involve the loading and unloading of ships; or the maintenance, repair or dismantling of ships.

Strategic risks - Uncertainty about the entity's ability to compete and stay viable in the market place.

Strict liability - Also know as "absolute liability" it is imposed on the party who causes harm, regardless of intent or the need to prove negligence; simply the fact that injury or damage occurred makes the party liable. Strict liability's reach is essentially limited to: Products liability; Ultra hazardous operations; Care and keeping of animals (especially those with a propensity towards viciousness, make the owner strictly liable for any injury the animal causes); and strict liability by statute.

Strict liability by statute - Some jurisdictions modify laws such that specific actions resulting in injury automatically make the offending party liable just because of the action.

Subjective risk - The perceived amount of risk based on an individual's or organization's opinion.

Subrogation - Individuals or entities suffering injury and/or damage due to the negligence of another person or entity have the right to recover costs and expenses from the at-fault party. If, however, the injured party chooses to seek reimbursement from its own insurance carrier, the rights of the injured party are transferred to the insurance carrier. Subrogation rights for the insurance carrier flow from the right of its insured to recover payment. If the insured does not have the right to recover payment, neither does its insurance carrier. Contractual risk transfer provisions often limit the rights of one party to recover from another party for injury or damage. When the right of the insured to recover is waived via a contract, lost is the insurer's right to subrogate.

Superseding event - An event that breaks the chain of causation or is not reasonably foreseeable, relieving the original wrongdoer of liability for any injury or damage following such an event. Also know as as supervening event.

Supplemental extended reporting period - See Extended reporting period.

Supplementary Payments - Provide extra coverage over and above the insured's limit of liability; commonly included are defense costs, first aid expenses, bond premiums, and post-judgment interest.

Supply bond - Type of surety bond that guarantees that a supplier will furnish supplies, products, or equipment at an agreed-upon time and price.

Surety - In bonds, the party (often the insurance company) that agrees to be responsible for loss that may result if the principal does not keep his promise.

Surety bond - Bond that guarantees that someone will perform faithfully whatever she agrees to do or that someone will make an agreed-upon payment to another party.

Surplus - The difference between what a company owns (assets) and what it owes (liabilities).

Surplus lines agent - See Excess lines agent.

Survival - The preservation and protection, as fully as possible, of the individual's or entity's operational continuity, current financial resources, future financial opportunities, social contract, and public reputation.

Systemic risk - The potential for a major disruption in the function of an entire market or financial system.

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T

Tangible property - Property that has a physical form.

Temporary partial disability - An injury from which the employee is expected to completely recover in some period of time with little or no long-term effects. A broken arm is a good example if this type of injury. Employees suffering temporary partial injuries can generally return to work under 'light-duty' assignments until the "temporary" condition heals.

Temporary total disability - A full recovery from the injury is expected, but for a period of time the employee is completely unable to work due to the injury. These types of injuries might require bed rest or hospitalization while the employee recovers.

Terrorism Risk Insurance Act of 2002 - Federal law designed to ensure that insurance coverage for terrorism losses under commercial lines policies will be available and affordable; it requires insurers to pay a specified amount for terrorism losses in a given calendar year; once that limit is reached, the federal government will reimburse insurers 85% of insured losses that exceed the limit.

Theatrical property coverage form - Filed commercial inland marine form that covers scenery, props, and costumes used by a theater group in a specific production.

Theft - In crime insurance, a broad term encompassing any unlawful taking of property, including burglary and robbery.

Theoretical probability - Probability that is based on theoretical principals rather than on actual experience.

Third party loss - A liability loss.

Time doctrine - All business income losses are settled based on the coverage limit purchased. An accurate business income coverage limit calculation depends on the legitimate estimation of the worst-case period of restoration. Estimating the worst-case period of restoration necessitates understanding the time required to accomplish each of the 10 steps in the four period of restoration objectives. The key to business income is the correct estimation of time.

Time element coverage - Coverage for the loss of business income over a period of time that results from direct physical loss.

Tort - A civil wrong for which monetary damages may be provided; does not include losses arising out of contracts.

Tortfeasor - The person (natural or legal) who infringes on the rights of another person.

Tortuous act - The infringement of a right.

Towing and labor costs endorsement - Personal auto policy endorsement that covers towing and the costs of labor performed at the site the car was disabled.

Trailer interchange insurance - A coverage provided under the truckers and motor carrier coverage forms; covers damage to a specific trailer under the policy of the trucker who has possession of the trailer at the time of loss, provided that: the trucker is liable for the damage under a written interchange agreement, and the damage is caused by a covered peril.

Transfer - A risk financing technique by which the financial responsibility for losses and variability in cash flows is shifted to another party.

Transferee - The party accepting the risk in a contractual risk transfer agreement. This can include the general contractor and subcontractors. Other common terms include indemnitor and promisor.

Transferor - The party from who risk is being transferred in a contractual risk transfer agreement. This may include the owner, the project management firm, and/or the general contractor. Other common terms for the transferor include indemnitee and promisee.

Trespasser - A person who is on the premises without the property owner's express or implied permission.

Trip transit policy - Nonfiled commercial inland marine policy that covers a single shipment of goods.

Truckers coverage form - Commercial auto coverage form written specifically for the trucking industry.

Trustee - Someone who has the legal title to a property but is responsible that it be used, handled and transferred solely for the benefit of the beneficiary.

Twisting - Illegal activity in which an agent convinces a prospect to cancel existing insurance and buy another policy from the agent to the detriment of the prospect.

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U

Ultra hazardous operations - Also known as an 'inherently dangerous activity.' Within the rule of strict or absolute liability, an ultra hazardous operation is where the owner of land conducts or allows the conduct of an activity or operation which is dangerous to the neighbors in the immediate area by the activity's very nature.

Umbrella policy - Type of policy that provides broad coverage for an insured's liability over and above liability covered by an underlying contract; may also cover losses that are excluded by the underlying policy; available as personal or commercial insurance.

Unauthorized insurer - See Nonadmitted insurer.

Uncertainty - Three requirements within the definition of risk: 1) no one knows what is going to happen, 2) no one knows if what could happen, will happen; and 3) no one knows how catastrophic the outcome might be.

Unconscionable - A contract or contract provision that is unreasonable due to the unequal bargaining strength of the parties, or the result of undue influence or unfair tactics.

Underinsured motorists coverage - Auto coverage that pays the difference between the insured's actual damages for bodily injury and the amount of liability insurance carried by the at-fault driver; may be added to the personal or commercial auto policy by endorsement.

Underwriting - Insurance company function that involves researching and evaluating insurance applicants to decide which ones are acceptable to the company as insureds.

Underwriting expenses - One of the components used to calculate the expense ratio; includes all costs required to acquire and maintain a book of business, such as expenses for commissions, salaries, and other administrative and regulatory costs.

Unfair discrimination - Applying different standards to insureds that have the same risks of loss.

Unfunded loss reserves - Little more than an accounting mechanism to note that a loss has occurred and denote that some specific amount may be required to pay the cost of a loss (or losses).

Unilateral contract - A type of contract that is one sided; an insurance policy is one sided because only the insurance company is legally bound to perform its part of the agreement.

Uninsured motorists coverage - Automobile coverage designed to provide protection for the insured if she is involved in an accident in which an uninsured motorist is at fault; uninsured motorists include those who do not carry insurance, motorists whose insurance does not meet the state's minimum financial responsibility laws, drivers whose insurance companies are insolvent, and hit-and-run drivers who cannot be identified.

Unit improvements and betterments - Like 'unit property' benefit none but the unit owner. A unit improvements and betterments is created by the unit owner's engagement in any activity or improvement that increases the value of the real property within an individual unit - such as updating the flooring from carpet to hardwood or other such improvements.

Unit property - Defined by the association's declarations or statute and is limited to and benefits none but the unit owner. The inside of the exterior walls, interior partition walls, counter tops, cabinetry, plumbing fixtures, appliances and any other real property confined to the unit are examples.

Unoccupancy - The absence of people from a premises; property coverage is often restricted if there are long periods of unoccupancy.

Use and file - Method of rate and form ratification used by some state insurance departments that requires insurance companies to file rates and forms within a certain period of time after they are first used.

Utility services-Direct damage coverage endorsement - Businessowners policy endorsement that covers loss or damage to property caused by an interruption in water, communication, or power service; for coverage to apply, the property must be listed on the endorsement and the utility equipment must be damaged by a covered cause of loss.

Utility services-Time element coverage endorsement - Businessowners policy endorsement that covers loss of business income and extra expense that occurs because of an interruption in water, communication, or power service; for coverage to apply, the property must be listed on the endorsement and the utility equipment must be damaged by a covered cause of loss.

Utmost good faith - A characteristic of insurance contracts meaning that the insurance company must be able to rely on the honesty and cooperation of the insured, and the insured must rely on the company to fulfill its obligations.

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V

Vacancy - The absence of both people and property from a premises; property coverage is often restricted when there are long periods of vacancy.

Valuable papers and records insurance - Filed commercial inland marine form that provides coverage for valuable papers such as manuscripts, blueprints, records, and other printed documents.

Valuation - Method used by the insurance company to determine the appropriate payment for a loss.

Valued policy - Policy written for a specified amount that lists the value of the insured property as agreed to by both the insured and the insurer; this amount is used to value losses; also called an agreed amount policy.

Value reporting endorsement - Endorsement used with the commercial property coverage part to provide coverage based on the actual values of property at certain locations at specific times.

Vandalism and malicious mischief (V&MM) - Coverage provided in many property insurance policies that protects property against damage caused by vandals.

Vicarious liability - Liability that a person or business incurs because of the actions of others, such as family members or employees; also called imputed liability.

Void - As if it never existed. You never had a legal policy - in essence if certain acts are committed or policy provisions ignored, the insurance policy has no legal effect and is unenforceable on the insurance carrier.

Voluntary compensation endorsement - Endorsement used with the workers' compensation and employers liability policy that adds coverage for employees who are excluded from the state's workers' compensation law.

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W

Waiver - The intentional relinquishment of a known right.

Warehouse to warehouse clause - Provision found in ocean marine cargo policies that extends coverage for the cargo from its point of origination to its point of destination.

Warranty - A specific agreement between the insured and the insurer that becomes a part of the insurance policy; a breach of warranty can void the policy.

Watchperson - As defined in crime insurance forms, someone retained specifically by the insured whose sole duty is to have care and custody of property inside the premises.

Watercraft endorsement - Homeowners policy endorsement that provides coverage for BI or PD arising out of the use of watercraft.

Watercraft package policy - Package policy that provides property, liability, and medical payments coverage for losses arising out of the ownership, maintenance, or use of watercraft.

Workers' Compensation and Employers Liability Policy - Insurance that covers an employer's obligations under workers' compensation laws, which make the employer responsible for stated damages in the event of a work-related injury or illness; also covers the insured's liability for work-related injuries under common law.

Written premium - One of the components used to calculate the expense ratio; it is the gross amount of premium income on the company's books, which includes both earned and unearned premium.

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Z

Zone of danger - Could the person have been injured by the negligent actions of another? If so, that person is considered to be within the "zone of danger." Most jurisdictions allow bystanders in this zone of danger to sue for negligent infliction of emotional distress even if they are not physically injured.

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Property And Casualty Insurance Glossary - The Bottom Line

We hope this article on property and casualty insurance glossary was informative. We intend to add more definitions as we find more terms that might useful to our users and insurance consumers.

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