Abandonment: A relinquishing of ownership of lost or damaged property by the insured to the insurer so that a total loss may be claimed. Abandonment is prohibited in most types of Property Insurance.
Actual Cash Value: An amount equivalent to the replacement cost of lost or damaged property at the time of the loss, less depreciation. With regard to buildings, there is a tendency for the actual cash value to closely parallel the market value of the property.
Additional Insured: A person other than the named insured who is protected under the terms of the contract. Usually, additional insureds are added by endorsement or referred to in wording of the definition of “insured” in the policy itself.
Adhesion: This is a characteristic of a unilateral contract which is offered on a “take it or leave it” basis. Most insurance policies are contracts of “adhesion,” because the insurer draws up the terms and the insured simply “adheres.” For this reason, ambiguous provisions are often interpreted by courts in favor of the insured.
Adverse Selection: The tendency of poorer than average risks to buy and maintain insurance. Adverse selection occurs when insured’s select only those coverages that are most likely to have losses.
Advertising Injury: Injury arising out of libel or slander, violation of the right to privacy, misappropriation of advertising ideas, or infringement of copyright, title or slogan committed in the course of advertising goods, products, or services.
Agency Plant: The total force of agents representing an insurer.
Agent: One who solicits, negotiates or effects contracts of insurance on behalf of an insurer. His/Her right to exercise various functions, his/her authority, and his/her obligations and the obligations of the insurer to the agent are subject to the terms of the agency contract with the insurer, to statutory law, and to common law.
Agent’s License: A certificate of authority from the state that permits the agent to conduct business.
Aggregate Limit: Usually refers to Liability Insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents may occur.
Agreed Amount: Under this clause the insured and the insurer agree that the amount of insurance carried will automatically satisfy the coinsurance clause. The effect is to eliminate the necessity of determining whether or not the amount carried is equal to the stated percentage of the actual cash value indicated in the coinsurance clause.
All-Risks Insurance: The term “All-Risks Insurance” is used to mean insurance against loss or damage to property arising from any fortuitous cause except those that are specifically excluded. An insurance contract that provides All-Risks Insurance is an All-Risks policy.
A.R.M.: Title, Associate in Risk Management
Assigned Risk: A risk which is not ordinarily acceptable to insurers and which is, therefore, assigned to an insurer participating in an assigned risk pool or plan. Each participating company agrees to accept its share of these risks.
Assumption of Risk: One of the common law defenses available to an individual. For instance, one person riding with another in an automobile has generally “assumed the risk” and, therefore, has no action against the driver of the vehicle should an accident occur. This is a common law concept and has been modified by recent case law and by statute in some jurisdictions.
Attractive Nuisance: The law states that an individual owes no duty of care to someone trespassing upon that individual’s property. This is an exception to that rule since it does state that a special duty of care is required of a person with respect to conditions that attract children.
Bail Bond: A form of bond given to guarantee that a person released from legal confinement will appear as required in court, or the penalty of the bond will be forfeited to the court. In insurance policies, bail bond fees are covered under an Automobile policy.
Bailee: A person or concern having possession of personal property entrusted to him by the owner. An example would be a laundry that has custody to customers’ clothing for washing or dry cleaning. Bailees are required to exercise the same care with the property of others as they would with their own property.
Bailees Insurance: Insurance purchased by a bailee to protect the personal property of his customers against loss caused by specific perils. An example would be a carpet cleaner who buys coverage to protect his customers against loss or damage to their carpets while in his care.
Bailment: The personal property of others being held by another with the intent of its being returned to the original owner. Cars in a garage for repairs would be an example of a bailment.
Bailor: A person who owns property which has been entrusted to another. The owner of a fur coat who has entrusted it to a furrier for storage would be a bailor.
Balance Sheet: An accounting term that refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.
Basic Limits: Minimum amounts of insurance. The term is usually used in reference to Bodily Injury and Property Damage limits that are either the lowest amounts that can be written at the published or manual rates, the minimum amount of insurance an insurer is willing to underwrite, or the minimum amount of insurance required by law, e.g., Automobile Insurance financial responsibility laws.
Basic Premium: A fixed cost charged in a retrospective rating plan. It is a percentage of the standard premium and is designed to give the insurer the money needed for administrative expenses and the agent’s commission plus an insurance charge.
Bid Bond: A bond filed with a bid for a construction or other project, which guarantees that if the contractor has the low bid and is awarded the job, he will furnish the required performance bond.
Binder: An agreement executed by an agent or insurer (usually the latter) outing insurance into force before the contract has been written or the premium paid.
Blanket Crime: A policy that provides coverage for employee dishonesty, loss of money and securities inside and outside the premises, depositor’s forgery, loss of money orders, and counterfeit paper currency. A single limit of insurance applies to all coverages.
Bodily Injury: A legal liability that may arise as a result of the injuryor death of another person.
Boiler & Machinery Insurance: Insurance against the sudden and accidental breakdown of boilers, machinery, and electrical equipment. Coverage is provided on (1) damage to the equipment, (2) expediting expenses, (3) property damage to the property of others, and (4) supplementary payments, and (5) automatic coverage is provided on additional objects. Coverage can be extended to cover consequential losses and loss from interruption of business.
Bond: A three-party contract guaranteeing that if one person, the principal, fails to perform as specified or proves to be dishonest, the person to whom the duty is owed, the obligee, will be financially protected by the insurer of the bond, the surety.
Broker: One who represents an insured in the solicitation, negotiation or procurement of contracts of insurance, and who may render services incidental to those functions. By law the broker may also be an agent of the insurer for certain purposes such as delivery of the policy or collection of the premium.
Broker of Record: A broker who has been designated to handle certain insurance contracts for the policyholder.
Builder’s Risk: A commercial property coverage form specifically designed for buildings in the course of construction.
Burglary: Breaking and entering into the premises of another with felonious intent, leaving visible signs of forcible entry or exit.
Business Income: A time element coverage that pays for loss of earnings when operations are curtailed or suspended because of property loss due to an insured peril.
Buy-Back A deductible that may be eliminated for an additional premium in order to provide “first-dollar” coverage.
Cancelable: A contract of insurance that may be terminated by the insurer or insured at any time. Practically every form of insurance is cancelable, except Life Insurance and those Health Insurance policies designated as a “guaranteed renewable” or “noncancelable and guaranteed renewable.” Some states also regulate when or if Automobile policies can be cancelled.
Cancellation Termination: of a contract of insurance in force by voluntary act of the insurer in accordance with the provisions in the contract or by mutual agreement.
Capacity: The largest amount of insurance or reinsurance available form a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.
Captive Insurer: A legally recognized insurance company organized and owned by a corporation or firm whose purpose is to use the captive to write its own insurance at rates lower than those of other insurers. Usually it is a nonadmitted insurer that has the right, under special circumstances, to reinsure with an admitted insurer.
Cash Flow Underwriting: The use of rating and premium collection techniques by insurance companies to maximize interest earnings on premiums.
Casualty Insurance: That type of insurance that is primarily concerned with the legal liability for losses caused by injury or damage to the property of others. Examples would be general liability, automobile liability, workers’ compensation, umbrella and excess liability.
Caveat Emptor: Let the buyer beware.
Certificate of Insurance: A form that verifies that insurance has been written and states the coverage in general. It is often used as proof of insurance in loan transactions and other legal requirements.
Cession: The unit of insurance transferred to a reinsurer by a ceding company. It also refers to the process of ceding insurance to a reinsurer.
Claims Made Coverage: A policy providing liability coverage only if a claim is made during the policy period or any applicable extended reporting period. For example, a claim made in the current year could be charged against the current policy even if the injury or loss occurred prior to that date is not covered.
Coinsurance Clause: A clause under which the insured shares in losses to the extent that he is underinsured at the time of loss. The insurer grants a reduced rate to the insured providing he carries insurance 80, 90 or 100% to value. If, at the time of loss, he carries less than required, he must share in the loss. For example, if an insured has building worth $100,000 and carries an 80% coinsurance clause, it means that he agrees to carry at least $80,000 of insurance. If the insurance carried equaled $60,000, then any loss under the policy would be paid for on the basis of the comparison of $60,000 (amount carried) divided by $80,000 (amount required) times the amount of the loss. Thus, the insured above would only receive 75% of a loss or $7,500 for a $10,000 loss.
Collision Insurance: A form of Automobile Insurance that covers loss to the insured’s own vehicle caused by its collision with another vehicle or object or its upset but not covering bodily injury or property damage liability arising out of the collision.
Combined Ratio: The sum of an expense ration and a loss ratio. An underwriting profit occurs when the combined ratio is under 100% and an underwriting loss occurs when the combined ratio is over 100%.
Combined Single Limit: A single limit of protection for both Bodily Injury and/or Property Damage, contrasted with split limits, where specific limits apply to Bodily Injury and Property Damage separately.
Commission: The portion of the premium paid to the broker/agent by the insurer as compensation for his services.
Commercial Lines: This term is used to refer to insurance for businesses, professionals and commercial establishments.
Common Law: The unwritten law developed primarily from judicial case decisions based on custom and precedent. It developed in England and constitutes the basis for the legal systems of the United States.
Common Law Liability: Responsibility based on common law for injury or damage to another’s person or property that rests on an individual because of his actions or negligence. This is opposed to liability based on statutory law.
Comparative Negligence: In some states the negligence of both parties to an accident is established in proportion to the degree of their contribution to the accident. Several states have comparative negligence laws, and each one varies somewhat from the others. This is in contrast to contributory negligence, which is a general common law rule.
Compensatory Damages: Damages recoverable or awarded for injury or loss sustained. In addition to actual loss or injury, this term includes amounts for expenses, loss of time, bodily suffering and mental suffering, but does not include punitive damages.
Completion Bond: This is a bond issued to a mortgagee. It guarantees that the construction for which the mortgagor has borrowed money will be completed and will be able to serve as collateral for the mortgage upon completion.
Composite Rate: A single rate with a single basis of premium, e.g., payroll or sales. For this single rate the insured is covered for a variety of hazards, such as Premises and Operations, Completed Operations, Products Liability, and Automobile. Its primary value is to make it simpler for the policy’s premium to be computed.
Computer Fraud: Fraudulent theft or transfer of money, securities or other property resulting from the use of any computerized equipment or systems.
Concurrent Causation: A term referring to two or more perils acting concurrently (at the same time or in sequence) to cause a loss.
Construction Bond: This bond protects the owner of a building or other structure under construction in case the contractor cannot complete the job. If he defaults, the insurer is obligated to see that the work is completed.
Contingent Business Interruption: Coverage for the loss of earnings of an insured because of a loss to another business that is one of the insured’s major suppliers or customers.
Contingent Liability: A liability imposed because of accidents caused by persons other than employees, whose acts an individual, partnership or corporation may be responsible. For example, an insured that hires an independent contractor can in some cases be held liable for his negligence.
Contract: (1) An agreement entered into by two or more persons under which one or more of them agree, for a consideration, to do or refrain from doing acts in accordance with the wishes of the other party(s). (2) In insurance, the agreement by which an insurer agrees, for consideration, to provide benefits, reimburse losses or provide services for an insured. A “policy” is the written statement of the terms of the contract. (3) An agreement under which an agency or agent does business with an insurer.
Contract Bond: A guarantee of the faithful performance of a construction contract and the payment of all material and labor bills incidental thereto. A bond covering faithful performance only is known as a Performance Bond, and the one covering payment of labor and material is a Payment Bond.
Contract of Adhesion: A contract that one party must accept or reject in total, without bargaining over the wording. An insurance contract is an example, since the contract is developed by the insurer, and the insured must accept it as it is.
Contract of Insurance: The contract whereby an insurer agrees to indemnify an insured for losses, provide other benefits, or render services to or on behalf of the insured. The contract of insurance is often called an insurance policy, but the policy is merely the evidence of the agreement.
Contributory Negligence: If an injured party fails to exercise proper care and in some ways contributes to his injury, the doctrine of contributory negligence will probably negate or defeat his claim, even though the other party is also negligent.
Conversion: Wrongful use of property by one in lawful possession of it.
Co-Surety: One of a group of sureties directly participating in a bond with obligations joint and several.
Countersignature: The signature of a licensed agent or representative on a policy.
Court Bond: Any bond required of a litigant to enable him to pursue a remedy in court.
Cover Note: Similar to a binder, but binders are usually issued by companies and delivered to agents. A Cover Note is usually written by an agent, and it informs the insured that coverage is in effect.
Coverage: The scope of the protection provided under a contract of insurance.
Coverage Part: Any one of the individual commercial coverage parts that may be attached to a commercial policy.
Coverage Trigger: A mechanism that determines whether a policy covers a particular claim for loss. For example, the difference between the coverage triggers of liability “occurrence” forms and “claims made” forms is that loss must occur during the policy period in the first case and the claim must be made during the policy period in the second case.
Credit Card Forgery: This protects the insured against losses caused by forgery in the use of credit cards or the alteration of them or of any other written instruments connected with them.
Crime: A public wrings, a violation of criminal law. The state is the entity that brings charges against one who commits a crime, and the matter is adjudicated in a criminal court.
Date of Issue: The date stated in a policy as the date on which the contract was issued by the insurer. This is not necessarily the effective date of the policy.
Debris Removal: A provision that may be included in a Property Policy contract to provide the insured with indemnification for expenditures incurred in the removal of debris produced by the occurrence of an insured peril. Ordinarily a Property policy covers only the direct damage caused by an insured peril.
Decedent: Same as a deceased person.
Deductible: The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.
Defalcation: Stealing of money.
Defamation: Any derogatory statement which is designed to injure a person’s business or reputation. Defamation can be accomplished as libel or slander.
Depreciation: A decrease in the value of any type of tangible property over a period of time resulting from use, wear and tear, or obsolescence.
Difference-In-Conditions: A separate contract that expands or supplements insurance on property written on a named perils basis so as to cover on an all-risk basis, subject to certain exclusions.
Direct Writer: An insurer whose distribution mechanism is either the direct selling system or the exclusive agency system.
Direct Written Premium: The premiums collected, without any allowance for premiums ceded to reinsurers.
Directors & Officers Liability Insurance: Insurance that protects directors and officers from liability arising out of alleged errors in judgment, breaches of duty, and wrongful acts related to their organizational activities.
Dram Shop Laws: Liquor liability laws are called dram shop laws. They provide that a person serving someone who is intoxicated or contributing to the intoxication of another person may be liable for injury or damage caused by the intoxicated person.
Dram Shop Liability Insurance: A form of insurance contract that protects the owners of an establishment in which alcoholic beverages are sold against liability arising out of accident caused by intoxicated customers who have been served or sold the alcoholic beverages.
Drive-Other-Car Endorsement: A coverage that may be added to an Automobile policy affording auto coverage to the individuals named in the endorsement while they are driving cars not owned by the individuals and not named in the policy.
Earned Premium: The amount of the premium that has been “used up” during the term of the policy. For example, if a 1-year policy has been in effect 6 months, half of the total premium has been earned.
Easement: An interest in land owned by another that entitles its holder to specific uses.
Elevator Collision: Coverage for damage caused by collision of an elevator without regard to fault. This includes damage to personal property, the building, and the elevator itself. Liability coverage is usually provided automatically by Business Liability policies.
Employee Dishonesty: Any dishonest act of an employee that may contribute to a loss for the employer. Fidelity bonds are usually used to protect against such losses.
Employers Liability Coverage: This is coverage B of the standard Worker’ Compensation policy. It provides coverage against the common law liability of an employer for the injuries to employees as distinguished from the liability imposed by a Workers’ Compensation law. Employers’ Liability applies in situations where a worker does not come under these laws.
Encumbrance: A claim on property, such as a mortgage, a lien for work and materials, or a right of dower. The interest of the property owner is reduced by the amount of the encumbrance.
Endorsement: A written or printed form attached to the policy that alters provisions of the contract.
ERISA Liability: Liability imposed by law upon officers or other employees operating in a fiduciary capacity for the proper handling of pension funds and other employee benefits.
Errors & Omissions Liability: A form of insurance that indemnifies the insured for any loss sustained because of an error or oversight on his part.
Estimated Premium: A provisional premium that is adjusted at the end of the year. For example, in Workers’ Compensation Insurance an estimated premium is based on estimated payrolls for the coming year. At the end of the year, final payrolls are determined and the final premium is computed.
Estoppel: The legal principle whereby a person losses the right to deny that a certain condition exists by virtue of his having acted in such a way as to persuade others that the condition does exist. Fir example, if an insurer allows an insured to violate one of the conditions of the policy, he cannot at a later date void the policy because the condition was violated. The insurer has acted in such a way as to lead the insured to believe that the violation did not void the coverage.
Excess Insurance: Coverage designed to be in excess over one or more primary coverages and which does not pay a loss until the loss amount exceeds a certain sum.
Expediting Expenses: Expenses incurred in order to speed up repair or replacement so as to reduce the amount of loss by a peril covered in a policy. Most commonly used I connection with Business Interruption and Boiler and Machinery Insurance. Expediting expenses are generally covered if they do reduce the amount of the loss that the insurer would otherwise have to pay.
Expense Ratio: The percentage of the premium dollar devoted to paying expenses of an insurer, other than losses.
Experience Modification: The increase or decrease in premiums resulting from the application of an experience rating plan, usually expressed as a percentage.
Experience Rating: A method of adjusting the premium for a risk based on past loss experience for that risk compared to loss experience for an average risk.
Expiration: The date indicated in an insurance contract as its termination date.
Extended Coverage: A common extension of property insurance beyond coverage for fire and lightning. Extended coverage adds insurance against loss by the perils of windstorm, hail, explosion, riot, aircraft damage, vehicle damage and smoke damage.
Extra Expense Insurance: A form that provides reimbursement to the insured for the extra expenses reasonably incurred to continue the operation of a business when the described property has been damaged by a peril covered by the contract. This insurance is normally used by businesses where continuity of operation, regardless of cost, is a necessity as, for example, any business would permanently lose customers if there were any suspension of operations.
FAIR Plan: Fair access to Insurance Requirements. A pooling plan reinsured by the United States government that makes insurance available to those in inner-city or other high risk areas who cannot obtain insurance through normal channels. Coverages for fire and allied perils are available, with considerably high limits, after inspection of the premises.
Federal Crime Insurance Program: A federally administered program under which pooling companies write Crime Insurance for those unable to secure it in the open market. Available for residential and commercial risks in sixteen states and the District of Columbia.
Federal Crop Insurance: A federal government agency which provides insurance on growing crops.
Fiduciary A person holding the funds or property of another in a position of trust. An example would be the executor of an estate.
Fiduciary Bond: A bond that guarantees the faithful performance of a fiduciary.
Financial Guarantee Bond: A guarantee that others will pay sums of money due. A Sales Tax Bond, for instance guarantees the state that the merchant will pay his sales taxes on time and in full.
Fire Department Service Clause: A provision in a Fire Insurance policy that provides the insured with indemnification for charges he incurs due to action by a fire department to save his property. It is useful for property located outside the jurisdiction of the nearest fire department and where the call will be answered only for a fee.
First Party Insurance: Insurance that applies to coverage for the insured’s own property or person.
Flood Insurance: A form of insurance designed to reimburse property owners from loss due to the defined peril of flood. Usually sold in connection with a government Flood Insurance plan.
Floor Plan Insurance: A form of floor plan insurance covering merchandise held for sale by a retailer that has been used as collateral for a loan. The lending institution, in effect, is insuring its collateral.
Following Form: A term used in reference to excess insurance that follows the terms and conditions, including exclusions, of the underlying primary insurance.
Garage Keepers Legal Liability: An insurance contract that protects a garage keeper against liability for damages to vehicles in his care, custody or control caused by specific perils.
Garage Liability Insurance: Insurance to protect garage owners or automobile dealers for liabilities arising out of their business operations.
Goodwill: An intangible business asset. It refers to the value of a business that has been built up through the reputation of the business concern and its owners.
Gross Negligence: Willful and wanton negligence or misconduct.
Hangarkeepers Legal Liability Insurance: Insurance that the owner of an airplane hangar buys to protect himself from liability for damage or injury to others arising out of the ownership, maintenance, or use of the premises for an aircraft hangar.
Highly Protected Risk (“HPR”): Refers to Property risks that meet the standards required for lower rates. Risks of this type are usually protected by sprinklers and have better0than-average construction and occupancy.
Hold Harmless Agreement: A contractual arrangement whereby one party assumes the liability inherent in a situation, thereby relieving the other party of responsibility. Such agreements are typically found in contracts like leases, sidetrack agreements, and easements. For example, a typical lease may provide that the lessee must “hold harmless” the lessor for any liability from accidents arising out of the premises. The effect of such an agreement is that the lessee must provide a defense for the lessor, and if any judgment is rendered against the lessor, the lessee would have to pay.
Increased Cost of Construction Insurance: Insurance that covers the additional cost of reconstructing a damaged or destroyed building where ordinances require rebuilding with more expensive materials, services, or techniques.
Incurred-But-Not-Reported: This refers to losses that have occurred during a stated period, usually a calendar year, but have not yet been reported to either the insured or the insurer.
Indemnify: To restore the victim of a loss to the same position as before the loss occurred.
Indemnity Restoration: to the victim of a loss by payment, repair or replacement.
Independent Contractor: One who agrees to perform according to a contract and who is not an employee.
Innkeepers Legal Liability: Coverage for motel and hotel operators, protecting them against the legal liability they have for the safekeeping of the property of guests.
Insurable Interest: Any interest a person has in a possible subject of insurance, such as a car or home, of such a nature that a certain happening might cause him financial loss.
Insurable Risk: A risk that meets most of the following requisite: (1) The loss insured against must be capable of being defined; (2) It must be accidental; (3) It must be large enough to cause a hardship to the insured; (4) It must belong to a homogeneous group of risks large enough to make losses predictable; (5) It must not be subject to the same loss at the same time as a large number of other risks; (6) The insurance company must be able to determine a reasonable cost for the insurance; and (7) The insurance company must be able to calculate the chance of loss.
Insurance Policy: The printed form that serves as the contract between an insurer and insured.
Insured: The party to an insurance arrangement whom the insurer agrees to indemnify for losses, provide benefits for, or render services to. This term is preferred to such terms as policyholder, policy owner, and assured.
Insurer: The party to an insurance arrangement who undertakes to indemnify for losses, provide pecuniary benefits, or render services.
Intestate: A person who has died leaving no will.
Invitee: One who has been either expressly or implicitly invited onto the premises of another. The most common example would be customers invited to a store to purchase goods or services.
Joint and Several Liability: A legal doctrine permitting recovery from any of several co-defendants based on ability to pay, rather than the degree of negligence.
Joint Underwriting Association: An unincorporated association of insurance companies formed to provide a particular form of insurance to the public. Those who insure with a JUA pay assessments in addition to their premiums that provide monies for the operation of the association. JUA’s are usually free to set their own rate levels and use whatever coverage forms are deemed proper, subject to approval by state authorities.
Jones Act: The federal act that provides for the covering of ships’ crews under Workers’ Compensation plans.
Key Person Insurance: Insurance on the life of a key employee, the loss of whose services would cause an employer financial loss.
Larceny: The unlawful taking of the personal property of another without his consent and with the intent to deprive him of ownership or use thereof. It is a broader term than burglary or robbery, largely synonymous with theft.
Latent Defect: A defect that is not immediately apparent.
Law of Large Numbers: This law states that the larger the number of exposures considered, the more closely the losses reported will match the underlying probability of loss. The simplest example of this law is the flipping of a coin. The more the coin is flipped, the closer it will come to actually reaching the underlying probability of 50% heads and 50% tails.
Legal Liability: Liability under the law as opposed to liability arising from contracts or agreements. In insurance, it is most often used to refer to the liability that an individual has if he or she should negligently injure another party. For example, an owner of an automobile may be held legally liable if he or she is negligent in the operation of the automobile and injures another person or damages another person’s property as a result of that negligence.
Lessee: The person to whom a lease is granted.
Lessor: The person granting the lease.
Liability Insurance: That insurance which pays and renders service on behalf of an insured for loss arising out of his or her responsibility to others imposed by law or assumed under contract.
Liability Limits: The maximum amount for which a liability insurance company provides protection in a particular policy.
Libel: A written statement about someone that is personally injurious to that individual.
Libel Insurance: A form of liability insurance that protects insured against legal liability for libelous statements he may write.
Liberalization Clause: A clause in Property Insurance contracts that provides that if a policy or endorsement forms are broadened by legislation or ruling from rating authorities and no additional premium is required, then all existing similar policies will be construed to include the broadened coverage.
License and Permit Bonds: Bonds often required by jurisdictions to be posted by persons performing certain services. It provides indemnification in the event that the licensee fails to conform to pertinent regulations of the jurisdiction.
Longshoremen’s and Harbor Workers’ Act: A federal act that stipulates compensation levels for injured longshoremen and harbor workers.
Loss Conversion Factor: A term used in a retrospective rating plan. It is a factor applied to the losses in the formula to give the insurer the funds needed to handle the investigation of and processing of claims.
Loss Development: The difference between the amount of losses initially estimated by the insurer and the amount reported in an evaluation on a later date.
Loss Development Factor: This is a factor under retrospective rating plans designed to give the insurer additional money to allow for the subsequent development of losses and to reimburse for claims that are late in being reported. This factor was introduced primarily because of the effect of inflation on losses that take a long time to settle.
Loss Frequency: The number of times a loss occurs over a specific period of time.
Loss Payee: The party to whom money or insurance proceeds are to be paid in the event of loss, such as the lienholder on an automobile or the mortgagee on real property.
Loss Ratio: The losses divided by the premiums paid. The numerator (losses) can be incurred or losses paid, and the denominator (premium) can be earned premiums or written premiums, depending on what use is going to be made of the loss ratio.
Lost Instrument Bond: When the owner of a stock certificate loses it, the insurer of the certificate will not issue a duplicate until the owner furnishes an indemnity bond guaranteeing that if he finds the original he will turn it over to the surety company.
Manuscript Policy: A policy written to include specific coverages or conditions not provided in a standard policy. It is often prepared by a broker for a large account, and it must conform to state laws. In the event of a dispute over policy language, the contract of adhesion doctrine is modified.
Misrepresentation: The use of oral or written statements that do not truly reflect the facts either by an insured on an application for insurance or by an insurer concerning the terms or benefits of an insurance policy.
Monopolistic State Fund: The state-operated company in those states having laws that require that all businesses buy Workers’ Compensation Insurance from the state. Private insurers cannot compete in these states.
Motor Vehicle Record: (MVR) The record of an automobile driver’s accidents and/or traffic violations.
Named Insured: Any person, firm or corporation, or any member thereof, specifically designated by name as the insured(s) in a policy. Others may be protected as insureds even though their names do not appear on the policy. A common application of this latter principle is in Automobile policies where, under the definition of insured, protection is extended to cover other drivers using the car with the permission of the named insured.
Named Perils: Perils specifically covered on property insured. Contrast Named Perils Insurance with All-Risks Insurance, which covers all losses not specifically excluded.
Net Worth: The amount by which assets exceed liabilities. It is of concern to bond indemnifiers in determining the size of a job a contractor can handle.
NY Standard Fire Policy: The basic Fire Insurance contract which was used in nearly every state with only a handful of exceptions. It provided coverage against loss by fire, lightning, and removal, and established policy provisions that became the foundation for property insurance contracts. EC and VMM coverage could be added by endorsement. With the introduction of modern policy forms, the standard fire policy has become obsolete, except in a few states where its use continues to be required by law.
No-Fault Insurance: Many states have passed laws permitting the individual automobile accident victim to collect directly from his or her own insurance company for medical and hospital expenses regardless of who was at fault in the accident. There are many variations in the laws of those states that have no-fault statutes. Most states do allow the individual to sue the negligent party if the amount of damages exceeds a certain stated limit.
Non-Assessable Policy: A policy for which the owner pays a set premium. No additional premiums or amounts can be assessed. These are issued primarily by stock insurers, but can also be used by mutual insurers who qualify to do so by meeting certain standards under state laws.
Non-Assignable: A policy that the owner cannot assign to a third party. Most policies are non-assignable unless approval is given by the insurer.
Notice of Cancellation: Written notice by an insurer of intent to cancel insurance, or written notice by an insured requesting cancellation.
Notice of Loss: Notice to an insurer that a loss has occurred. Notice of loss is a condition of most policies, and it is frequently required within a given time and in a particular manner.
Obligee: Broadly, anyone in whose favor an obligation runs. This term is used most frequently in surety bonds where it refers to the person, firm, or corporation protected by the bond. The obligee under a bond is similar to the insured under an insurance policy. In the case of a construction bond, the person for whom the building is being built is the obligee.
Obligor: Commonly called the principal. One bound by an obligation. In the case of a construction bond, the contractor is the principal.
Occupational Disease Sickness: or disease arising out of or in the course of employment. State compensation laws provide coverage for this type of loss.
Occurrence: An event that results in an insured loss. In some lines of insurance, such as Liability, it is distinguished from an accident in that the loss does not have to be sudden and fortuitous and can result from continuous or repeated exposure that results in bodily injury or property damage neither expected nor intended by the insured.
Occurrence Coverage: A policy form providing liability coverage only for injury or damage that occurs during the policy period, regardless of when the claim is actually made. For example, a claim made in the current policy year could be charged against a prior policy period, or may not be covered, it if arises from an occurrence prior to the effective date.
Ordinary Payroll: A Business Interruption term meaning the entire payroll expense for all the employees of an insured except officers, executives, department managers, employees under contract, and other important employees.
Overinsured: A term used to describe the condition that exists when an insured has purchased coverage for more than the actual cash value or replacement cost of a subject of insurance. It is also used to describe a situation where so much insurance is in force as to constitute a moral or morale hazard, such as having so much Disability Income Insurance in force that it becomes profitable to be disabled.
Owners and Contractors Protective Liability Policy: A policy that protects an insured against losses caused by the negligence of a contractor or subcontractor that he hires. Also sometimes referred to as Independent Contractors Insurance.
Owners, Landlords and Tenants Liability Insurance: Coverage for an insured against legal liability for bodily injury or property damage caused to others by negligence and arising out of the ownership, maintenance, or use of the premises designated in the policy and all operations necessary or incidental to those premises. A form of Premises and Operations Liability Insurance where the public is invited. The OL&T was largely replaced with the Commercial General Liability Coverage form.
Personal Lines: This term is used to refer to insurance for individuals and families, such as private passenger automobile insurance and homeowners policies.
Physical Damage: A term used in automobile insurance indicating damage from such perils as collision, comprehensive (i.e., fire and theft, or any damage to the vehicle itself). It is also a term used in property insurance indicating actual damage to property.
Plaintiff: The party who brings a legal action against another, called the defendant.
Policy Anniversary: The anniversary of the date of issue of a policy as shown in the policy declarations.
Prima Facie: Literally means “at first view.” It refers to evidence that is, according to law, sufficient to establish or prove a point, unless successfully rebutted by other evidence.
Principal: The individual or corporation whose performance is guaranteed in suretyship.
Probable Maximum Loss: The maximum amount of loss that one would expect under ordinary circumstances, such as fire departments responding, sprinklers working, etc.
Probate Bond: A bond required by a probate court to protect the administration of an estate or the assets of one person being cared for by another, such as assets in the hands of an executor or guardian. Probate bonds fall within the classification of fiduciary bonds.
Products and Completed Operations Insurance: A major general liability sub-limit that provides coverage for an insured against claims arising out of products sold, manufactured, handled, or distributed, or operations that are complete. Claims are covered only after a product has been sold and possession relinquished, or operations have been completed or abandoned by the named insured. Manufacturers and contractors have a need for this coverage.
Promulgate: (1) To develop, publish and put into effect. (2) To make public, by publishing or announcing the fact that a statute or rule of a court is a legal order or direction enforceable by law, and violation of such is punishable as provided by law.
Proof of Loss: A formal statement made by a policy owner to an insurer regarding a loss. It is intended to give information to the insurer to enable it to determine the extent of its liability.
Protection & Indemnity Insurance: Coverage that provides protection for a ship owner against loss of life, illness, or injury to the passengers, plus property damage to the cargo, piers, docks, etc., caused by the insured’s negligence.
Proximate Cause: The effective cause of loss or damage. It is an unbroken chain of cause and effect between the occurrence of an insured peril and damage to property. For instance, fire is the proximate cause of damage done by the water used to extinguish it.
Public Official Bond: A surety bond under which the company (surety) guarantees that the principal (public official) will faithfully perform his official duties and will account for all funds entrusted to his care.
Punitive Damages: Damages awarded over and above compensatory damages to punish a negligent party because of wanton. reckless, or malicious acts or omissions. This serve to punish and to make an example of the wrongdoer. It is agreed that General Liability policies cover punitive damages when included with compensatory in a limp sum, but it is up to the courts to decide whether or not they are to be awarded. This is difficult for the courts, for if the wrongdoer’s insurance covers punitive damages, the punishment effect is lost.
Quid Pro Quo: Latin for “this for that,” or “one thing for another.” In insurance it could refer to the consideration in an insurance contract that calls for the exchange of values by both parties to the contract in order for it to be a valid contract.
Red-Lining: Discriminating unfairly against a risk solely because of its location. An example would be refusing to insure a risk because the building is located in a depressed area or location. Sometimes these areas are referred to as blackout areas.
Release: (1) To give up, abandon, and discharge a claim or an enforceable right of one person against another. (2) The name of the instrument evidencing such an act. For example, if a claim representative obtains a release from a claimant, this means that the claimant has given up all further rights against the insurance company.
Replacement Cost: The cost of replacing property without a reduction for depreciation. By this method of determining value, damages for a claims would be the amount needed to replace the property using new materials.
Res Ipsa Loquitur: Literally translated, this expression means, “the facts speak for themselves.” Under this doctrine, an individual is presumed to be negligent if the circumstances of injury are under his complete and exclusive control, and it can be shown that the injury or damage could only have occurred if the individual were negligent.
Residual Markets: Various insurance markets outside of the normal agency-company marketing system. Residual markets include government insurance programs, specialty pools (aviation risks and nuclear risks), and shared market mechanisms (assigned risk plans).
Respondent Superior: Originally the law said that, under certain circumstances, a master was liable for the wrongful acts of his servant. In today’s usage this expression refers to the fact that, under certain circumstances, a principal is responsible for the wrongful acts of is agents or an employer for those of its employees. Under this doctrine, if an employee negligently injures a customer while in the course of his employment, the employer could be held liable.
Retroactive Date: Date on a “claims Made” liability policy that triggers the beginning period of insurance coverage. A retroactive date is not required. If one is shown on the policy, any claim made during the policy period will not be covered if the loss occurred before the retroactive date.
Retrocession: The transaction whereby a reinsurer cedes all or part of the reinsurance it has assumed to another reinsurer.
Retrocessionaire: An insurer that provides reinsurance to a reinsurer.
Retrospective Premium: The final premium in a retrospective rating plan.
Retrospective Rating: A plan for which the final premium is not determined until the end of the coverage period and is based on the insured’s own loss experience for that same period. It is subject to a maximum and minimum. A plan of this type can be used in various types of insurance, especially Workers’ Compensation Liability, and is usually elected by only very large insurers.
Risk and Insurance Management Society (RIMS): An association of risk managers and insurance buyers, organized for educational purposes to promote the risk management concept. RIMS attempts to foster closer relationships among buyers, to make the insurance needs of business known, and to promote better relations among all interested parties within the insurance industry.
Risk Management: Management of the pure risks to which a company might be subject. It involves analyzing all exposures to the possibility of loss and determining how to best handle these exposures through such practices as reducing the risk, eliminating the risk, or transferring the risk, usually by insurance.
Robbery: The felonious taking, either by force or fear of force, of the personal property of another.
Safe Deposit Box Insurance: A form of insurance banks obtain to protect against the loss of property of bank customers kept in safe deposit boxes.
Self-Insured Retention: That portion of a risk or potential loss, assumed by an insured. It may be in the form of a deductible, self-insurance or no insurance.
Sidetrack Agreement: Any agreement between a railroad and a customer who is served by a railroad sidetrack built on his premises. Among other things, it provides that the customer hold the railroad harmless for losses resulting from certain types of accidents.
Single Interest Policy: Insurance protecting the interest of only one of the parties having an insurable interest in property, such as insurance protecting a mortgagee but not the mortgagor or protecting a seller but not a buyer.
Single Limit: Any insurance coverage that is expressed as a single amount of insurance, or a single limit of liability.
Sinkhole Collapse: The peril of a sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or similar rock formations. This peril is now covered by the latest commercial property forms. Other forms of earth movement continue to be excluded in most cases.
Slander: A spoken statement about someone that is personally injurious to the individual.
Standard Premium: Most often used in conjunction with retrospective rating for Workers’ Compensation and General Liability Insurance. It is the premium of which the basic premium is a percentage and is developed by applying the regular rates to an insured’s payroll.
Statement of Values: Sometimes property is written using a blanket rate and one single limit of liability applying to all locations. In order to determine the blanket or average rate, a rating bureau or company requires an insured to submit a declaration of the amounts of value at each separate location on a Statement of Values form.
Statute of Limitations: The time limit set by law during which a person must bring legal action on a case.
Strict Liability: Usually used when referring to products coverage. The liability that manufacturers and merchandisers may be subject to for defective products sold by them, regardless of fault or negligence. A claimant must prove that the product is defective and therefore unreasonably dangerous.
Subrogation: The right of one who has taken over another’s loss to also takes over his right to pursue remedies against a responsible third party.
Subrogation Waiver: A waiver by the named insured giving up any right of recovery against another party. Normally an insurance policy requires that subrogation (recovery) rights be preserved. In commercial property insurance, a written waiver of subrogation rights is permitted it is executed before the loss occurs.
Subsidence: Movement of the land on which property is situated. A structure built on a hillside may slide down the hill due to earth movement caused by heavy rains. This is different from earthquake damage.
Surety: One who guarantees the performance or faithfulness of another. A surety can be either a corporation or an individual, but it is usually an insurance company.
Surety Bond: A bond guaranteeing that a principal will carry out the obligation for which he is bonded. A surety bond is most often issued to a contractor, a person seeking a license or permit, or someone involved in a court case.
Surplus Lines: A risk or a part of a risk for which there is no market available through the original broker or agent in its jurisdiction. Therefore, it is placed with non-admitted insurers on an unregulated basis, in accordance with the surplus or excess lines provisions of the state law.
Tort: A private wrong, independent of contract and committed against an individual, that gives rise to a legal liability and is adjudicated in a civil court. A tort can be either intentional or unintentional, and it is mainly against liability for unintentional torts that one buys Liability Insurance.
Tort Feasor: A person who has committed a tort.
Transit Policy: A policy that provides coverage for loss to property while it is being transported.
Trespasser: An individual who goes onto another person’s property without any legal right to do so. The only duty that the owner of the property owes to the trespasser is not to intentionally harm or set a trap for him.
Umbrella Liability Policy: A coverage basically affording high limit coverage inn excess of the limits of the primary policies as well as additional liability coverages. These additional coverages are usually subject to a self-insured retention. The term “umbrella” is derived from the fact that it is a separate policy over and above any other basic Liability policies the insured may have and is declared as a primary policy for which the Umbrella will provide excess protection.
Underinsured Motorists Coverage: Coverage in an Automobile Insurance policy under which the insurer will pay damages up to specified limits for bodily injury damages, if the limits of liability under the liable motorist’s policy are exhausted and he cannot pay the full amount he is liable for.
Underwriting Profit (or Loss): (1) The profit or loss realized from insurance operations, as contrasted worth that realized from investments. (2) The excess of premiums over losses and expenses (profit) or the excesses of losses over premiums (loss).
Unearned Premium: That portion of the written premium applicable to the unexpired or unused part of the period for which the premium has been paid. Thus, in the case of an annual premium, at the end of the first month of the premium period eleven-twelfths of the premium is unearned.
Unilateral Contract: A contract such as an insurance policy in which only one part to the contract, the insurer, makes any enforceable promise. The insured does not make a promise but pays a premium, which constitutes his part of the consideration.
Uninsured Motorist Coverage: A coverage in an Automobile Insurance policy under which the insurer will pay damages to the insured for which another motorist is liable if that motorist is unable to pay because he is uninsured. This coverage usually applies to Bodily Injury damages only. Injuries to the insured caused by a hit-and-run driver are also covered.
Unoccupied: Refers to property which may be furnished or have furnishings in it but is not occupied or being lived in. The Standard Fire policy prohibits unoccupancy beyond a specified period of time. This term is contrasted with vacant, which means that there is nothing within the building.
V&MM or VMM: Vandalism and Malicious Mischief. Damage or destruction to property that is willful. Traditionally VM&M coverage was optional on many forms or added by endorsement, but today it is automatically covered by basic commercial and homeowner forms.
Vacant: A term used in Property Insurance to describe a building that has nothing in it. This goes one step beyond the description of unoccupied. The Standard Fire policy prohibits vacancy beyond a specified period of time.
Valuable Papers and Records: An all-risk coverage for physical loss or damage to valuable papers and records of the insured. It includes practically all types of printed documents or records except money.
Vicarious Liability: The law says that under certain circumstances a person is liable for the acts of someone else. For example, in matters related to an automobile a parent might be held responsible for the negligent acts of a child. In such a case the parent would be vicariously liable.
Waiver of Coinsurance: A provision in a Property policy that the coinsurance clause will not apply if the total loss does not exceed a stated amount, such as 3% of the sum insured or the amount of $3,000, whichever is greater. The reason for such a provision is to eliminate having to do a large inventory in order to determine whether or not the insured has complied with the coinsurance clause, especially where very small losses are involved.
Warsaw Convention: An international agreement setting limits of liability on international flights with respect to payments for bodily injury and death.
Workers’ Compensation: (1) A schedule of benefits payable to an employee by his employer without regard to liability, required by state law in the case of injury, disability, or death as the result of occupational hazards. (2) Insurance agreeing to pay Workers’ Compensation law benefits on behalf of the insured employer.
Wrap-Up: A package plan of a broad type, usually found only in large situations, which is coordinated in such a way as to be applicable top all Liability risks. An example would be a wrap-up policy covering all contractors working on a specific job.
Wrongful Death: Action A civil court suit brought by survivors against someone believed responsible, by negligence or intention, for another’s death. In a few states actions for wrongful death have statutory minimums or maximums, but in most states they do not.
XCU: Explosion, Collapse, and Underground Damage. This term is used in Business Liability Insurance to indicate that certain types of construction work involve these hazards. Many Liability policies exclude them. They can be added by endorsement for an additional premium charge.