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Glossary Of Terms
  This information is not to be considered policy language or legal advice and is not a substitute for competent insurance and legal assistance from a licensed insurance agent or attorney, respectively. The information contained is general in nature, and is designed to provide guidance in the understanding of terms used, both in this web site, and by the insurance industry as a whole. Each company may interpret definitions slightly different, and these do not reflect the opinions of any one company.


A clause in property insurance policies prohibiting the insured from abandoning damaged property to the insurer for repair or disposal. Arranging for repair or disposal is the insured's responsibility, unless the insurer elects otherwise.


The act or process of diminishing the presence of a pollutant (e.g., asbestos or lead) in either degree or intensity.

Absolute Pollution Exclusion
The standard pollution exclusion in post-1986 ISO commercial general liability (CGL) policies, so named due to its removal of the "sudden and accidental" exception to the 1973 CGL's standard pollution exclusion.

Although it does remove coverage for most pollution events that would occur in the course of an insured's business operations, coverage is preserved for certain incidental pollution (including hostile fire) damages, products and completed operations liability, and certain off-premises work by contractors.

Accelerated Benefits Rider
A life insaurance rider that allows for the early payment of some portion of the policy's face amount should the insured suffer from a terminal illness or injury.

To agree to insure. An insurer accepts a risk when an underwriter or agent agrees to insure it, and the essential elements of the insurance contract are known and agreed to by the parties to it. Even though a policy has not been issued, once the risk is "accepted", the insurer is obligated to pay a loss that occurs subject to the terms and conditions of the coverage agreed upon.

Accidental Death and Dismemberment
Insurance providing payment if the insured's death results from an accident or if the insured accidentally severs a limb above the wrist or ankle joints or totally and irreversibly loses his or her eyesight.

Accidental Death Benefit Rider

A life insurance policy rider providing for payment of an additional benefit related to the face amount of the base policy when death occurs by accidental means.

Accidental Death
Death resulting directly and solely from:

1. An accidental injury visible on the surface of the body or disclosed by an autopsy
2. A disease or infection resulting directly from an accidental injury as described, beginning within 30 days after the date of the injury or
3. An accidental drowning

Accidental Means
A condition precedent to recovery under some insurance policies requiring that the covered loss be the result of an accident rather than merely the accidental result of a non-accidental event.

An unforeseen, unintended event.

More specifically:
(1) In boiler and machinery insurance, a sudden and accidental equipment breakdown that causes damage to the equipment. Boiler and machinery coverage applies to loss or damage resulting from an accident to a covered object.

(2) In older liability insurance forms, an event that must cause bodily injury or property damage trigger coverage. Newer liability policies, including the commercial general liability policy, use the broader term "occurrence" instead of "accident."

Accident Medical Coverage - Coverage for medical expenses (doctor bills, ambulance, hospital, and medication bills) incurred as a result of an injury while participating in an insured activity. This is typically written on an excess basis over any other collectible medical insurance the injured person might have available to them. The coverage responds only to injuries sustained while that person is participating in your activities.

Accountants Professional Liability Insurance
Provides coverage for financial loss from the delivery of professional accounting services.

Polices typically exclude coverage for fraud, intentional acts, criminal acts, bodily injury, and property damage. Coverage for higher risk activities such as Securities and Exchange Commission (SEC) work is often available by endorsement.

Accounts Receivable Insurance
Covers the cost of reconstructing accounts receivable records that have been damaged or destroyed by a covered peril and any payments that cannot be collected because records cannot be reconstructed.

Actual Cash Value
The value of property as figured by determining what it would cost to replace the property and then adjusting this replacement cost by subtracting an amount that reflects depreciation.

Actuarial Science
The practice of computing statistics relating to insurance, typically consisting of estimating loss reserves, projecting losses, developing premium rates, and similar processes.

An individual, often holding a professional designation, who computes statistics relating to insurance, typically estimating loss reserves and developing premium rates.

Acute Care
Skilled, medically necessary care provided by medical and nursing professionals to restore the person to health or to the ability to function.

Additional Insured
Those individuals or entities who generally are not automatically included as Insured under the liability policy of others, but for whom the Named Insured provides a certain degree of protection under its liability policies. An endorsement is typically required to effect additional insured status for these parties.

The Named Insured's impetus for providing additional insured status to others may be a desire to protect the other party because of a close relationship with that party (e.g., employees) or to comply with a contractual agreement requiring it to do so (e.g., customers or owners of property leased by the named Insured).

Additional Named Insured
(1) A person or organization, other than the first named insured, identified as an insured in the policy declarations or an addendum to the policy declarations.

(2) A person or organization added to a policy after the policy is written with the status of named insured. This entity would have the same rights and responsibilities as an entity named as an insured in the policy declarations (other than those rights and responsibilities reserved to the first named insured).

The term can be contrasted with additional insured, a person or organization added to a policy as an insured, but not as a named insured. The additional named insured term, however, has not acquired a uniformly agreed upon meaning within the insurance industry, and use of the term in the two different senses defined above often produces confusion in requests for additional insured status between contracting parties.

One who settles insurance claims. This typically involves investigation of the loss and a determination of the extent of coverage.

In first party (e.g., property) insurance, the adjuster negotiates a settlement with the insured. In liability insurance, the adjuster coordinates the insured's defense and participates in settlement negotiations.

Adjusters may be employees of the insurer (staff adjusters) or of independent adjusting bureaus (independent adjusters) that represent insurers and self-insureds on a contract basis. Public adjusters are consultants who specialize in assisting in presenting claims to insurance companies in a manner that will maximize the insured's recovery.

Administrative Services Only
A group health self-insurance program for large employers wherein the employer assumes responsibility for all the risk, purchasing only administrative services from the insurer.

Such administrative services include such activities as the preparation of an administration manual, communication with employees, determination and payment of benefits, preparation of government reports, preparation of summary plan descriptions, and accounting. Most employers would also purchase stop loss insurance to protect against catastrophic losses.

A person or organization appointed as fiduciary in the settlement of an estate.

Admiralty Law
All areas of law relating to maritime activity, including personal injury liability, property damage liability, and maritime contracts

Admitted Assets
Assets whose value is included in the annual statement of an insurer to the state commissioner of insurance.

Admitted Insurer
An insurer licensed to do business in a given state.

Adverse Publicity Coverage
Coverage that protects the insured from the loss of income resulting from adverse publicity. The coverage is usually available on a named peril basis.

Adverse Selection
An imbalance in an exposure group created when persons who perceive a high probability of loss for themselves seek to buy insurance to a much greater degree than those who perceive a low probability of loss.

Advertising Injury
Unintentional slander, libel, infringement of copyright, trademark or slogan arising from a company's advertising. Companies in the advertising business need more specialized coverage

Agency Agreement
A written contract stipulating the arrangement between an insurance agency and the insurer it represents. Important details such as ownership of renewals, commission percentages, and duties and responsibilities of each party are usually spelled out in this agreement.

Agency System
The independent contractor approach to sales and service in insurance marketing. This is in contrast to direct marketing which utilizes salaried sales representatives or direct mail.

Agent's Errors and Omissions
Liability coverage for any act or omission of the insured (or of any other person for whose acts or omissions the insured is legally responsible), arising out of the performance of professional services for others in the insured's capacity as an insurance agent or insurance broker.

A person or organization who solicits, negotiates, or instigates insurance contracts on behalf of an insurer. Agents can be independent, or employees of an insurer.

Aggregate Excess Insurance
Provides coverage once the total claims for an annual period exceed a predetermined retention amount. The retention can be stated as a flat dollar amount (often calculated as a percentage of expected losses), as a percentage of standard premium, or in terms of a specific loss ratio.

Aggregate Limit
A limit in an insurance policy stipulating the most it will pay for all covered losses sustained during a specified period of time, usually a year.

Aggregate limits are commonly included in liability polices. They are sometimes included in property policies with respect to certain catastrophic exposures such as earthquake and flood.

Agreed Amount/Agreed Value
A property insurance provision that effectively suspends the coinsurance clause until a specified expiration date.

This is accomplished by a statement that the insurance amount shown in the endorsement or in the declaration is agreed to be equal to the specified amount or specified percentage of value required by the coinsurance provision.

Aircraft Liability
Coverage for liability arising out of the use of aircraft owned by your company or held under long term lease. Damage to your airplane is normally covered as well. Liability resulting from an airplane accident can be great. Consequently these policies are complicated and require specialized expertise.

Alien Insurer
An insurer domiciled outside the United States.

Alienated Premises
Premises that have been sold or given away to another or abandoned.

An exclusion in the standard commercial general liability (CGL) policy states that coverage does not apply to property damage to such premises arising out of those premises. An exception to the exclusion leaves coverage intact for contractors' completed operations, as long as the premises were never occupied, rented, or held out for rental by the named insured.

All Risks
"All Risks" property policies, also called "special" or "open-perils" policies, cover any loss unless it is caused by an excluded peril described in the policy. In an "all-risks" policy, the burden of proof is on the insurer, since all losses are covered unless the insurer can prove that the loss was caused by an excluded peril.

Allocated Loss Adjustment Expenses (ALAE)
Loss adjustment expenses that are assignable or allocable to specific claims. Fees paid to outside attorneys, experts, and investigators used to defend claims are examples of ALAE.

A term describing the process specified within the provisions of a directors and officers (D&O) liability policy that apportions liability for a given claim between the individual directors/officers and the organization itself.

Allocation of such liability is critical, because D&O policies written for corporations cover only the directors and officers, not the organization. Allocation disputes between insurers and insureds are frequent, given the large dollar amounts frequently at stake in high-profile D&O claims.

Alternate Employer Endorsement
An endorsement to a workers compensation policy that provides an entity scheduled as an alternate employer with primary workers compensation and employers liability coverage as if it were an insured in the policy.

This endorsement is commonly used when a temporary help supplier (the insured) is required by its customer (the alternate employer) to protect the alternate employer from claims brought by the insured's employees.

Alternative Dispute Resolution (ADR)
Methods for resolving legal disputes other than full litigation through formal trial. Arbitration proceedings are the most commonly used ADR technique.

Alternative Market
A term commonly used in risk financing to refer to one of a number of risk funding techniques, such as self-insurance and captive insurance companies, or facilities that provide coverages or services that are beyond those provided by most traditional property and casualty insurers.

The alternative market may be utilized by large corporations, for example, to provide high limits of coverage over a large self-insured retention. It might also be used by groups of smaller entities participating in a risk retention group or an association captive.

The distinction between traditional and alternative markets is gradually blurring as many traditional insurers expand their offerings to encompass alternative funding techniques.

Americans With Disabilities Act (ADA)
A federal statute passed in 1992, aimed at preventing discrimination in hiring persons having a "disability" as defined by the Act.

Under ADA, employers must afford job applicants "equal opportunity" (evaluating an applicant solely on his/her ability to perform the essential functions of a job, regardless of disability) and make "reasonable accommodations" to allow disabled employees to perform job functions. Employers, however, are relieved form the reasonable accommodation requirement if it creates an "undue hardship," such as excessive costs or considerable work disruption.

Alleged violations of the ADA are one of the leading perils covered by employment practices liability insurance (EPLI) policies.

Amount of Insurance
The best reason for carrying an adequate amount of insurance is your own protection. Adequate coverage should be available to restore your property in the event of a loss. Insurance companies, however, will not select the necessary amount of coverage for you.

There are several ways to establish the value of your property. Professional appraisal services are available to help you. Their appraisal should determine the Replacement Cost, and not the "Market Value" of your property. Market Value means the price your property would bring if sold, which can be very different from the cost to rebuild your property. Some businesses update the original construction cost to allow for the effects of inflation. Trending factors are available to help you measure inflation. Another method is to check construction costs with a local contractor. Normally, they can provide a cost per square foot for your type of construction. You would then multiply this cost times your actual square footage to determine the cost to rebuild at today's prices.

Amount Subject
The value that may reasonably be expected to be lost in a single fire or other casualty, depending on the protection and construction of the risk and the distribution or concentration of values. Estimating the amount subject is a major responsibility of inspectors and underwriters.

Annual Aggregate Deductible
A deductible type program under which the insured agrees to reimburse its insurer for its own losses during the policy year up to the agreed upon annual aggregate amount. Once the insured has paid losses up to that amount, the remainder of losses for the annual period are paid by the insurer without seeking reimbursement from the insured.

Annual Statement
A yearly report required by the state insurance commissioner detailing an insurer's income, expenses, and assets and liabilities, along with other pertinent data.

Annually Renewable Term
A form of renewable term insurance that provides coverage for one year and allows the policy owner to renew his or her coverage each year, without evidence of insurability. Also called Yearly Renewable Term (YRT).

The recipient of periodic payments made over a specified period of time.

To convert the accumulated value of the annuity into a guaranteed stream of income.

Annuity Certain
Funds received from an annuity in the form of a guaranteed minimum number or amount of payments.

A stream of periodic payments made over a specified period of time.

Anti-Stacking Provisions
Provisions intended to avoid the application of multiple sets of deductibles or multiple sets of limits to a single loss event.

These provisions are sometimes included in insurance policies covering exposures that may occur over long periods of time, triggering coverage under multiple policies. They stipulate that, in such an event, only one policy limit or one deductible (rather than the limit or deductible under each policy) applies to the occurrence. They may also be included in liability policies to specify that all claims resulting from a single occurrence will be subject to one "each occurrence" limit.

Antitrust Liability
Violations of the Sherman and Clayton Acts that prohibit restraints of trade by monopolies.

Form supplied by the insurance company, usually filled in by the agent and medical examiner (if applicable) on the basis of information received from the applicant. It is signed by the applicant and is part of the insurance policy if it is issued. It gives information to the home office underwriting department so it may consider whether an insurance policy will be issued and at what premium rate.

Involves the question of "how much" each of two or more policies covering a risk, which sustained a loss, will contribute to that loss.

Appraisal Clause
Property insurance provision
(1) Allowing either the insurer or the insured to demand a binding appraisal of damaged property in the event of a dispute as to its value and
(2) Establishing the required appraisal procedure

Referral of a dispute to an impartial third party chosen by the parties in the dispute who agree in advance to abide by the arbitrator's award issued after a hearing at which both parties have a change to be heard.

Architects and Engineers (A&E) Liability Coverage
A form of liability insurance that insures design professionals against errors and omissions in their work. Coverage for faulty construction work associated with projects is normally excluded from these policies.

A mineral fiber that can pollute air or water and cause cancer or asbestosis when inhaled. The Environmental Protection Agency (EPA) has banned or severely restricted its use in manufacturing and construction. The use of asbestos in buildings was banned during the 1970s. The EPA estimates that 20% of the nation's 3.6 million public and commercial buildings contain forms of asbestos.

Liability arising out of asbestos-related injuries is commonly excluded from coverage in umbrella policies and in some general liability policies.

Assigned Risk Plan
A method of providing insurance requested by state insurance codes for those risks that are unacceptable in the normal insurance market. Every state, except the monopolistic states, has a workers compensation assigned risk plan which is either a stand alone entity or a part of the competitive state fund.

All insurers writing workers compensation coverage in the voluntary insurance market must also participate in the plan.

The receiver of policy rights through an assignment.

A transfer of legal rights under, or interest in, an insurance policy to another party. In most instances, the assignment of such rights can only be effected with the written consent of the insurer.

Associate in Risk Management (ARM)
A professional designation conferred on individuals who successfully complete three comprehensive examinations covering all aspects of risk management. The exams are administered by the Insurance Institute of America.

Association Captive
A captive insurance company formed and owned by a trade or professional association.

Association Group
Group insurance issued covering the members of an association or health insurance issued to those members on a franchise basis.

(1) To reinsure all or part of another insurer's risk
(2) A risk management technique involving the retention of risk (e.g., self-insurance).

Assumption of Risk
A common law defense that has been used to pass the responsibility for loss or injury onto the injured party. The defense asserts that the individual had knowledge and understanding of the hazards involved in the undertaking and is, therefore, not entitled to recovery for the loss

Legal decisions have eroded and narrowed the applicability of this defense.

The amount of risk accepted by reinsurer.

Synonymous with insurance

Synonymous with insured

Attachment Point
The point at which excess insurance or reinsurance limits apply.

Attractive Nuisance Doctrine
A notable exception in the law relating to trespassers that imposes a special duty of care on a person maintaining an artificial condition on land, such as a swimming pool, which attracts children.

Under the attractive nuisance doctrine, children enjoy the status and protection of invitees. In some cases, the landowner has been held absolutely liable for injuries to children in connection with an attractive nuisance, even though the children were trespassers.

A survey of the financial records of a person or organization conducted annually (in most cases) to determine exposures, limits, premiums, etc.

Automatic Additional Insured Endorsement
A manuscript endorsement, sometimes attached to liability policies, that provides insured status automatically to any person or organization which the named insured is required by contract to add as an insured.

Automatic Insureds
Persons or organizations that are provided with insured status by the terms of an unendorsed policy. Most automatic insureds are members of groups with close ties to the named insureds, such as the named insured's directors, officers, and employees.

Automatic Treaty
A reinsurance treaty under which the ceding company must cede exposures of a defined class that the reinsurer must accept in accordance with the terms of the treaty.

Automobile Insurance Symbols

2 - OWNED AUTOS ONLY. Only the autos owned (and for liability coverage any trailers not owned while attached to owned power units). This includes those autos whose ownership is acquired after the policy begins.

3 - OWNED PRIVATE PASSENGER AUTOS ONLY. Only the owned private passenger autos. This includes those private passenger autos whose ownership is acquired after the policy begins.

4 - OWNED AUTOS OTHER THAN PRIVATE PASSENGER AUTOS ONLY. Only those owned autos which are not of the private passenger type (and for liability coverage any trailers not owned while attached to owned power units.) This includes those autos, not of the private passenger type, whose ownership is acquired after the policy begins.

5 - OWNED AUTOS SUBJECT TO NO-FAULT. Only those owned autos which are required to have No-Fault* benefits in the state where they are licensed or principally garaged. This includes those autos whose ownership is acquired after the policy begins provided they are required to have No-Fault benefits in the state where they are licensed or principally garaged.

6 - OWNED AUTOS SUBJECT TO COMPULSORY UNINSURED MOTORISTS LAW. Only those owned autos which, because of the law in the state where they are licensed or principally garaged, are required to have and cannot reject uninsured motorists insurance. This includes those autos whose ownership is acquired after the policy begins provided they are subject to the same state uninsured motorists requirements.

7 - SPECIFICALLY DESCRIBED AUTOS. Only those autos described in the policy for which a premium charge is shown (and for liability coverage any non-owned trailers while attached to any power unit specifically described).

8 - HIRED AUTOS ONLY. Only those autos leased, hired, rented or borrowed. This does not include any auto leased, hired, rented or borrowed from any employees or members of households.

9 - NON-OWNED AUTOS ONLY. Only those autos not owned, leased, hired or borrowed which are used in connection with business. This includes autos owned by employees or members of their households, but only while used for the business.

Automobile Insurance
Involves two basic types of coverage
(1) Liability insurance coverage for losses caused by injuries to persons and legal liability imposed on the insured for such injury or for damage to property of others, and (2) Physical damage insurance for losses caused by damage to or loss of the insured vehicle.

A land motor vehicle, trailer, or semi-trailer designed for travel on public roads, not including "mobile equipment."

This definition is important in determining whether liability coverage is afforded under an automobile liability policy or a commercial general liability policy (in the case of mobile equipment).

Average Rate
A single rate applying to property at more than one location that is a weighted average of the individual rates applicable to each location.


Back Dating
The practice of making a policy effective at an earlier date than the present.

Bad Faith
A term describing blatantly unfair conduct that exceeds mere negligence by an insurance company.

A bad faith claim may arise, for example, if an automobile liability insurer arbitrarily refuses to settle a claim within policy limits, where an insured's liability is obvious. Bad faith damages, also known as extracontractual damages, are often substantial. They frequently exceed the limits of the insurance policy that is the subject of the claim.

Bail Bond
A bail bond secures the release of a person involved in a criminal action. The bond is conditioned on the principal's appearance in the court where the charge is pending and submission to trial and orders of the court. Failure to appear means that the entire penalty of the bond becomes due and payable as a forfeiture.

Bailee Coverage
Inland marine coverage on property entrusted to the insured for storage, repair, or servicing. It is typically purchased by businesses such as dry cleaners, jewelers, furriers, and repairers.

A person or organization to whom possession of the property of others has been entrusted, usually for storage, repair, or servicing. Except for policies issued expressly for such purposes, most property policies specifically prohibit coverage for the benefit of a bailee.

Bankers Professional Liability
A type of errors and omissions coverage written for banks and financial institutions. The policy covers economic losses resulting from mistakes committed in the provision of various financial services.

Basic Extended Reporting Period (BERP)
The 60-day and 5-year extended reporting periods automatically provided to the insured by the 1986 ISO claims-made commercial general liability policy when a claims-made policy is cancelled, not renewed, renewed with a laser exclusion, renewed on a basis other than claims-made, or renewed with an advanced retroactive date.

BERPs are also included in some claims-made professional liability policies. In professional liability policies, BERPs extend the reporting period for 30 to 60 days at no additional charge when the insurer cancels or nonrenews the policy. In some instances, they are offered when the insured cancels or nonrenews the policy.

Basic Limits
The minimum limits of liability that can be purchased by an insured.

Basic Premium Factor
Used in the retrospective formula to represent expenses of the insurer, such as acquisition, audit, administration, and profit contingencies.

Basic Premium
In a retrospective rating plan, the policy standard (or subject) premium multiplied by the basic premium factor or basic premium ratio. The basic premium provides for insurer expenses, profit, and contingencies.

Basic Rate
The manual or experience rate from which discounts are taken or to which debits are added to compensate for the individual circumstances of the risk.

Basis Point(s)
A way of expressing, using a base of 100, the increments of measurement between percentage points. 50 basis points, for example, equals 1/2 of 1 percent. 200 basis points equals 2 percent.

Ceding commissions, collateral costs, and other quantifiable data used in insurance and reinsurance agreements may be expressed in basis points.

Basket Retention
Typically used in connection with self-insurance. Excess liability insurance may attach once retained losses for multiple lines of coverage (e.g., workers compensation and general liability) reach a certain specified level (the basket retention).

Person to whom the proceeds of a life policy are payable when the insured dies. The various types of beneficiaries are: primary beneficiaries (those first entitled to proceeds); secondary beneficiaries (those entitled to proceeds if no primary beneficiary is living when the insured dies); and tertiary beneficiaries (those entitled to proceeds if no primary or secondary beneficiaries are alive when the insured dies).

Best's Insurance Report
A guide, published by A.M. Best, Inc., that rates insurers' financial integrity and managerial and operational strengths.

Bid Bond
A guarantee that a contractor will enter into the contract under consideration if it is awarded. The bid bond also guarantees that the contractor will supply the additional bonds required throughout the course of the project.

Typically refers to situations in which the issues of liability and damages are separated and tried independently.

Bill of Lading
A document that serves both as a receipt for goods being shipped and a contract defining the extent of the transporter's liability.

Bind Order - The oral or written acceptance of a quotation of insurance by the insured party.

A legal agreement issued either by an agent or an insurer, to provide temporary insurance until a policy can be written. It should contain a definite time limit, be in writing and clearly designate the insurer in which the risk is bound, as well as the amount, the perils insured against, and the type of insurance.

Black Lung Benefits Act
This Act, Title IV of the Federal Coal Mine Health and Safety Act of 1969 and its various amendments, provides coverage for mine workers whose exposure to coal dust has resulted in total disability or death due to chronic lung disease.

The Act grants coverage to address medical treatment and lost wages of the worker in the case of total disability and death benefits to the survivors and dependents in the event of death.

Blanket Contractual Liability Insurance
Coverage applying to all liability assumed by the insured in contracts, whether reported to the insurer or not.

Blanket Limit
A single limit of insurance that applies over more than one location or more than one type of coverage, or both.

A blanket limit can be a hedge against the possibility of inaccurate property value estimates, since the entire blanker limit can be applied to a loss at a single location. The coinsurance clause, however, usually applies to the total value of all the property covered by the blanket limit.

Blanket Policy
An insurance policy which covers several different properties, shipments or locations under one item, rather than under separate items.

Blended Risk
Refers to the combining of traditional reinsurance products with capital market products such as securities and futures. Blended risk can also mean a finite risk reinsurance program that includes a small amount of risk transfer.

Blowout and Cratering
In the oil and gas production industry, refers to uncontrolled eruption of oil, gas, water, or drilling fluid from a well that is in the process of being drilled (blowout) or to the caving in of a well that has already been drilled.

Control-of-well insurance, a specialty coverage, provides coverage for the expenses of bringing a blowout under control, the cost to clean up any resulting pollution, and damage to the property of the operator.

Blue Plan
A name for either Blue Cross or Blue Shield or an organization usually writing a service, rather than a reimbursement plan.

Boards, Bureaus, and Taxes
In retrospective rating, refers to outside charges that are levied against an insurer's written premium in an individual account. Such costs are ordinarily passed through to the insured in the retrospective plan.

Bobtail Liability
Refers to automobile liability coverage for an owner/operator after a load has been delivered and while the truck is not being used for trucking purposes.

This usually occurs when an owner/operator is operating a vehicle for mobility only (e.g., on the way home), and not in the course of transporting property for the motor carrier under whose authority they haul, and on whose liability policy they depend while they are engaged in trucking.

A truck/tractor operating without a trailer or semitrailer.

Boiler and Machinery Insurance
Boiler and Machinery insurance is an important coverage that is frequently overlooked. Insurers sometimes refer to this coverage as "energy systems" insurance to emphasize that it does not apply solely to boilers. Boiler and Machinery policies add coverages that are normally excluded under the standard property policy. In addition to damage to and from steam boilers and pressure vessels, these policies can cover: Electrical Injury damage from artificially generated electrical current Mechanical Breakdown sudden breakage or rupture of machinery or equipment A few examples of losses: * a hotel's air conditioning equipment breaks down during the summer * a food processing plant loses its refrigeration equipment

* a machine operator errs, expensive equipment is damaged, and production stops * power is lost due to a short circuit in electrical switchgear, and production stops

The consequences of a boiler and machinery loss can be greater than the actual property damage. Business Interruption, Extra Expenses, Utility Service Interruption and Consequential Damage (for spoilage due to lack of heat or refrigeration) can normally be added, along with other important modifications. In assessing the need for Boiler and Machinery coverage, important questions include:

1. What is the value of important equipment (e.g. air conditioning, electrical panels, boilers or machinery)? What are the costs to repair or replace this equipment?

2. What would happen to the business if this equipment were lost?

3. How long are repairs likely to take? Is replacement equipment readily available? Are critical spare parts kept on premises?

A three-party contract in which one party, the surety, guarantees the performance or honesty of a second party, the principal (obligor), to the third party (obligee) to whom the performance or debt is owed.

Book Value
The value of an organization's assets as carried on the balance sheet in accordance with Generally Accepted Accounting Principles (GAAP).

The book value for real and personal property is typically the original cost of the property less depreciation. The amount deducted for depreciation is calculated mathematically and may not relate to the actual market or replacement value of the property.

Boom Coverage
Physical damage coverage for the boom of a crane, generally added as an endorsement to the equipment floater.

The floater normally contains an exclusion for booms over a specified length while in operation, unless the damage is caused by a named peril. The policy may be amended to provide coverage for the boom while not operational, thereby enlarging the scope of coverage.

Borrowed Servant Rule
A common law legal doctrine stipulating that if an insured borrows a worker or employs a person on only a temporary basis, the insured can be held liable for the borrowed employee's actions, despite the fact that a permanent employee-employer relationship does not exist.

Brands and Labels Endorsement
A property insurance endorsement that grants permission for the insured to remove labels from damaged goods or mark the items as "Salvage", provided the goods are not damaged in the process.

This permission alleviates concern about potential injury to the insured's business reputation resulting from the sale of salvaged goods by the insurer.

Failure to live up to the conditions or warranties contained in a contract.

Broad Form Comprehensive General Liability (BFCGL) Endorsement
A comprehensive endorsement attached to pre-1986 editions of the standard general liability policy that provided coverage enhancements including:
- Blanket contractual liability
- Personal injury and advertising liability
- Premises medical payments
- Host liquor liability
- Fire legal liability for real property
- Broad form property damage liability, including completed operations
- Incidental medical malpractice
- Nonowned watercraft liability
- Limited worldwide coverage
- Additional persons insured (employees)
- Extended bodily injury coverage
- Automatic coverage for newly acquired organizations

Broad Form Named Insured Endorsement
An endorsement added to a liability policy to reduce the insurance administrative problems that large corporations encounter in acquiring new entities by covering all entities for which the insured is responsible.

Broad Form Property Damage (BFPD)
The liability exposure represented by the risk of loss to property in a contractor's care, custody, or control (CCC) or on which contracted operations are being performed.

Because of the scope of exclusions applicable to these two risks of loss in the 1973 Comprehensive General Liability (CGL) form, an endorsement was necessary to provide coverage for the BFPD hazard. Coverage for this exposure is provided automatically in the 1986 Commercial General Liability edition and subsequent CGL forms by means of exceptions to the CCC and property damage exclusions.

Broadcasters Liability
Legal liability to which radio and television broadcasters are subject. Defamation, invasion of privacy, and errors and omissions are among the types of claims alleged against broadcasters.

Coverage for this exposure is available under media liability policies.

An independent solicitor of insurance for an insured.

Brokers, unlike independent agents, do not usually have "binding authority" under an agency contract. Therefore, they usually cannot obligate an insurer to provide coverage prior to the insurer's consent.

An abandoned, idle, or underused industrial or commercial facility where expansion or redevelopment is complicated by real or perceived environmental contamination.

Such sites have a lesser degree of contamination than Superfund sites. There is, however, enough possibility of contamination to cause substantial concern to developers, investors, or others who might otherwise use the property.

Buffer Layer
Used to describe any layer of insurance (or risk retention) that resides between the primary (burning) layer and the excess layers. If the primary layer, for example, is $300,000, and the excess layer attachment is $500,000, a buffer layer of $200,000 is required.

Builders Risk Policy

Policies specifically designed to insure buildings and structures, such as bridges, in the course of construction. Most builders risk policies are written on an inland marine, as opposed to a commercial property form.

Coverage is usually written on an "All-risk" basis, and typically apples not only to property at the construction site, but also to property at off-site storage locations and in transit.

Builders risk insurance can be written on either a completed value or a reporting form basis. In both cases, the estimated completed value of the project is used as the limit of insurance.

Building Ordinance Coverage
Coverage available by endorsement to a standard property policy to insure against loss caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings.

Building Rate
The rate charged for property insurance on a building as opposed to the rate charged for property insurance on the contents of a building.

An excess liability coverage for insureds with major ocean marine exposures. The policy covers both nonmarine and maritime liability exposures, such as protection and indemnity, general average, collision, sue and labor, as well as general liability hazards.

Theft of property from within a premises by a person who unlawfully enters or exits from the premises.

Burning Cost
Most frequently used in spread loss property reinsurance to express pure loss cost.

More specifically, the ratio of incurred losses within a specified amount in excess of the ceding company's retention to its gross premiums over a stipulated number of years.

Business Auto Policy
A commercial automobile policy that includes both automobile liability and automobile physical damage coverages. Other coverages can be added by endorsement.

Except for auto-related business and motor carrier/trucking firms, the business auto policy addresses the needs of most commercial entities for auto insurance.

Business Continuation Plans
Arrangements between business owners that provide that the shares owned by any one of them who dies shall be sold to and purchased by the other co-owners or by the business.

Business Income Insurance
Coverage designed to help a business survive an interruption in its earnings. Indemnifies a business for its loss in profits caused by the interruption (business interruption) and also pays the business expenses that continue during the interruption (extra expenses).

The coverage makes up for what would have been earned during the period when a business is temporarily inactive because business property has been damaged by a covered peril.

Business Interruption
Covers lost profits and ongoing expenses during a business shutdown caused by a covered property loss. This coverage is critical because many businesses could lose their income for several months if their premises were seriously damaged. It can be written to include loss of rental income from damaged rental property.

Business Interruption also has a Coinsurance requirement (see "Coinsurance" under property). Salaries of "key" employees are normally covered, because these people are needed to get the business back in operation. Coverage is available for "ordinary" payroll (such as factory workers) as well. Workers may seek other jobs if they are not kept on the payroll during an extensive plant shutdown, so this can be an important coverage decision.

Buy-Sell Agreements
Agreement that a deceased business owner's interest will be sold and purchased at a predetermined price or at a price according to a predetermined formula.

Buyback Deductible
A deductible that may be removed by paying additional premium when full coverage is required.


The termination of an insurance policy or bond before its expiration, by either the insured or the insurer. The policy states the amount of notice required of the insurer before such cancellation becomes effective.

The largest amount of insurance or reinsurance available from a company or from the market in general.

An insurer's capacity to write business is often measured and/or limited by its premium-to-surplus ratio.

Capital Sum
The maximum amount payable in one sum in the event of accidental death or dismemberment.

Capitation (CAP) is the fixed amount of money paid on a monthly basis to an HMO medical group or to an individual health provider for the full medical care of an individual.

Captive, Captive Insurance Company
An insurance company subsidiary designed to cover the risks of its parent organization(s). Single owner captives are owned by one organization. Association captives (also known as "group" or "industry" captives) are owned by and cover the risks of multiple organizations.

Captives usually retain substantial portions of each loss, and purchase reinsurance above these levels. captives provide an alternative funding mechanism when coverage breadth or capacity in traditional insurance is lacking. Captives can also provide cost savings, cash flow benefits, and specialized loss prevention and claims services not otherwise available. Bermuda is the world's leading captive domicile.

Care, Custody, or Control (CCC)
An exclusion common to several forms of liability insurance eliminating coverage with respect to damage to property in the insured's care, custody, or control.

In some cases, CCC has been determined to entail physical possession of the property. In others, any party with a legal obligation to exercise care with respect to property has been deemed to have that property in its CCC.

Cargo Insurance
Inland or ocean marine insurance covering property in transit.

An insurance or reinsurance company that insures or "carries" the insurance or reinsurance.

Case Manager
A health professional (e.g. nurse, doctor, social worker) affiliated with a health plan who is responsible for coordinating and approving the medical care of an individual enrolled in a managed care plan.

Cash Flow Program
Any insurance rating plan that allows the insured to hold and benefit from loss reserves until paid as claims. These plans include deferred premium plans, self-insurance, and paid loss retrospective programs.

Cash Flow Underwriting
A practice employed by underwriters to justify writing coverage for reduced premiums and for granting coverage to marginal risks that may not normally qualify under the insurer's normal standards. The practice is done to provide cash to the insurer so that investment income can be earned.

Cash Value
The equity amount or "savings" accumulation in a whole life policy.

Casualty Insurance
Insurance which is primarily concerned with the losses caused by injuries to persons, and legal liability imposed upon the insured for such injury or for damage to the property of others.

Catastrophe Bond
A derivative debt investment vehicle issued by insurers and reinsurers designed to raise investor capital to cover catastrophic loss events.

"Cat" bonds are issued to cover either a specifically identified event (e.g., a Japanese earthquake) or the possibility of a certain magnitude of loss associated with hurricane activity in a particular geographic location (e.g., the Texas Gulf coast).

Catastrophe Plan
A prepared strategy detailing how a particular organization will respond to a disaster.

Catastrophe Policy
A name previously used for major medical insurance.

Catastrophe Reinsurance
A form of reinsurance that indemnifies the ceding company for the accumulation of losses in excess of a stipulated sum arising from a single catastrophic event or series of events.

A ceding insurer or a ceding reinsurer.

A ceding insurer is an insurer that underwrites and issues an original, primary policy to an insured and contractually transfers (cedes) a portion of the risk to a reinsurer. A ceding reinsurer is a reinsurer that transfers (cedes) a portion of the underlying reinsurance to a retrocessionaire.

When a company reinsures its policy liabilities with a reinsurer.

The original or primary insurer that purchases reinsurance is the "ceding company" that "cedes" business to the reinsurer.

Ceding Commission
A percentage of the reinsurance premium retained by a ceding company to cover its acquisition costs and, sometimes, to make a profit.

See Comprehensive Environmental Response Compensation and Liability Act

Certificate of Insurance
A document providing evidence that certain general types of insurance coverages and limits have been purchased by the party required to furnish the certificates.

The portion of insurance transferred to a reinsurer by the ceding company.

A program in which a hospital and its affiliated physicians (physicians employed by the hospital and independent contractor physicians who have admitting privileges) are insured under a master medical malpractice policy issued by one insurer.

Depending on the type of channeling program, the hospital and the physicians may or may not share limits of liability.

Chartered Life Underwriter (CLU)
Professional designation obtained by passing a series of tests covering all phases of life insurance.

Chartered Property Casualty Underwriter (CPCU)
A professional designation identifying an individual who has satisfactorily completed national examinations covering all phases of property and casualty insurance and who has met ethical and experience requirements.

A term used in some claims-made policies as an alternative to "occurrence." A "notice of circumstance" provision is included in some claims-made policies as a way of extending coverage for events that may produce a claim, as long as notice of the "circumstance" is given to the insurer during the policy period.

Claim Expenses
Expenses of adjusting claims.

Allocated claim expenses include court costs, fees, expenses of independent adjusters, lawyers, witnesses, and other expenses that can be charged to specific claims.

Unallocated claim expenses represent salaries and other overhead expenses that are incurred but which cannot be charged against specific claims.

Claim Reporting
Workers Compensation claims must be reported to the applicable state's Industrial Accident Commission as well as to the insurance company.

The person making a claim.

Use of the word "claimant" usually denotes that the person has not yet filed a lawsuit. Upon filing a lawsuit, claimant becomes a plaintiff, but the terms are often used interchangeably.

Claims-Made and Reported Provision
A claims-made coverage trigger requiring that a claim be both made against the insured and reported to the insurer during the policy period for coverage to apply. These provisions are found most frequently in professional and D&O liability policies.

Such triggers can cause significant problems if a claim is made against an insured late in a policy period and the insured is unable to report the claim to the insurer prior to expiration of the policy.

The liability coverage trigger under which a policy responds to losses for which a claim is first made against the insured during the policy period.

Claims-made policies cover claims first made (reported or filed) during the year the policy is in force for any incidents that occur that year or during any previous period during which the insured was covered under a "claims-made" contract, subject to specific policy restrictions.

This form of coverage is in contrast to the occurrence policy, which covers an incident occurring while the policy is in force regardless of when the claims arising out of that incident is filed - 1 or more years later.

Claims Audit
A systematic and detailed review of claims files and related records to evaluate the adjuster's performance.

Claims Reserve
An amount of money set aside to meet claims incurred but not paid as of the time of the statement.

In reference to insurance, a claim may be a demand by an individual or a corporation to recover, under a policy of insurance, for a loss which may come within that policy. It may also be a demand by an individual or an entity against an insured for damages covered by a policy held by the insured. In the latter case, claims are referred to the insurer for handling on behalf of the insured, in accordance with the contract terms. See Loss.

Clash Cover
A form of reinsurance that covers the cedant's exposure to multiple retentions that may occur when two or more if its insureds suffer a loss from the same occurrence. This reinsurance covers the additional retentions.

Class Action
A type of lawsuit brought by a single, affected individual, on behalf of a large group of similarly affected individuals.

Class Rating
An insurance rating system that places similar insureds into categories or classes and applies the same rate to all insureds in the same class.

The underwriting or rating group into which a particular risk is placed. Pertains to type of business. location, and other factors.

The category in which employees are classified in the schedule of group insurance, thereby denoting the amounts of coverage for which they are eligible.

Closed Panel
A system in which insured individuals must select one primary care physician who refers patients to other health care providers within the plan. Also called a closed access or gatekeeper system.

The fee paid by a plan member at the time that medical services are provided. A co-payment is the member's out-of-pocket expense, such as $15 for an office visit or $10 for a prescription.

Most property policies have "Coinsurance" requirements, and most business people find them difficult to understand. Briefly stated, coinsurance requires the client to maintain an amount of insurance equal to a specified percentage, usually 80% or 90% of the Replacement Cost (or Actual Cash Value if coverage is written on that basis) of the covered property.

A client cannot just "pick" an amount of insurance, but must comply with the minimum requirement in the Coinsurance Clause. Failure to carry the required amount of insurance will make the client a "coinsurer" in the event of a loss. The policy says, in effect, that if a client insures only part of the required amount, the insurance will only pay part of the loss. The penalty can be significant if the actual amount of insurance is well under the amount required.

The Coinsurance Clause apportions claims payments according to the following formula:

(Amount Carried/Amount Required) X Loss = Payment

Collision Insurance
A form of automobile insurance that provides for reimbursement for loss to a covered automobile due to its colliding with another vehicle or object, or the overturn of the automobile.

Combined Ratio, Combined Loss and Expense Ratio
The sum of the loss ratio and the expense ratio. When the combined ratio is less than 100%, an underwriting profit is earned.

Commercial General Liability
A standard insurance policy issued to business organizations to protect them against liability claims for bodily injury and property damage arising out of premises, operations, products, and completed operations; and advertising and personal injury liability.

The commercial general liability policy was introduced in 1986 and replaced the comprehensive general liability policy.

Commercial Multi-Line Policy - Package type of policy that includes a wide range of essential property and liability coverages for servicing businesses.

A specified percentage of premium produced that is retained as compensation by insurance agents and brokers.

Common Carrier
A commercial individual or organization carrying persons or property from one place to another for payment. As contrasted with contract carriers, a common carrier is one that transports or handles the goods of the general public.

Common Law
Unwritten law derived from court case decisions based on custom and precedent. Common law is contrasted with statutory law.

An agreement to swap future insurer claim liabilities into a cash payment to the buyer.

Compensatory Damages
A sum of money to which a plaintiff is entitled that, so far as is possible, compensates the plaintiff for the actual loss sustained.

See also Punitive Damages.

Completed Operations
A form of liability insurance which covers accidents arising out of operations which have been completed or abandoned, provided the accident occurs away from premises owned, rented, or controlled by the insured.

Composite Rate
A special rate based on a measure of exposure which will reasonably reflect the variations in the insurable hazards covered for a particular insured. Bases of exposure to which the composite rate is applied include payroll, sales receipts, and contract cost. Also called an "average rate" in property insurance.

Comprehensive Auto Coverage
A term used in automobile insurance which covers physical damage losses by nonexcluded perils other than collision.

Comprehensive Environmental Response Compensation and Liability Act (CERCLA)
A federal act establishing a system for reporting facilities where hazardous wastes are or have been disposed of, treated, or stored. It also encompasses trust funds financed by certain taxes to be used for cleanup costs.

CERCLA establishes very broad liability standards for hazardous waste incidents that require liable parties to reimburse trust funds which finance cleanup operations.

Compulsory Insurance
Any form of insurance which is required by law. In many states, for example, automobile liability insurance is compulsory for all owners of automobiles.

Computer Fraud
Computer fraud insurance covers the loss of money or property resulting from unauthorized access to your computer system by an outside party.

Failure of the insured to disclose to the company a fact material to the acceptance of the risk at the time application is made.

Concurrent Causation
A theory adopted by some courts which holds that if a given loss has more than one cause, and at least one of the causes is covered by the policy, the loss is covered even if the policy specifically excludes another cause of loss.

For example, a court might determine that a property policy that specifically excludes flood damage does cover a flood loss when the municipality's negligence in improperly installing a sewage system is a concurrent cause of the loss.

Concurrent Insurance
Two or more policies covering the same exposure and having the same policy period and type of coverage trigger.

It is important for primary and excess liability policies to be concurrent to avoid potential coverage gaps.

Conditional Receipt
Given to policy owners when they pay a premium at time of application. Such receipts bind the insurance company if the risk is approved as applied for, subject to any other conditions stated on the receipt.

In an insurance policy, provisions that explain the duties, rights, and options of the insured and the insurer.

Consent to Settlement Clauses
A provision (also known as the "hammer clause" and "blackmail settlement clause") found in professional liability insurance policies, that requires an insurer to seek an insured's approval prior to settling a claim for a specific amount.

If the insured, however, does not approve the recommended figure, the consent to settlement clause states that the insurer will not be liable for any additional monies required to settle the claim or for the defense costs that accrue from the point after the settlement recommendation is made by the insurer.

Consolidated Insurance Program (CIP)
A centralized insurance program for large construction projects under which one party, such as the owner (an OCIP) or the general contractor (a CCIP), procures insurance on behalf of all the other parties (e.g., owner, general contractor, and subcontractors).

This contrasts with the typical approach under which each party is responsible for purchasing its own insurance. Typically, the coverages provided under such a program include builders risk, commercial general liability, workers compensation, and umbrella liability.

Contents Rate
Property insurance rate on personal property, most of which is typically contained within a building.

Contestable Clause
The portion of a life insurance policy setting forth the conditions under which an insurer may contest or void the policy.

Contingent Beneficiary
Person or persons named to receive proceeds in case the original beneficiary is not alive. Also referred to as secondary or tertiary beneficiary.

Contingent Business Interruption Insurance
Coverage for income loss suffered by the insured when its operations are suspended as a result of damage from a covered cause of loss to the property at another location.

Such other locations could include a key supplier, a key customer, or a leader location (A nearby business that attracts customers to the insured's business).

Contingent Liability
The liability imposed on an individual, corporation, or partnership because of accidents caused by person's (other than employees) for whose acts the first party may be held responsible under the law.

Contract Bond
A guarantee of the faithful performance of a construction contract and the payment of all labor and material bills related to it. Two bonds are generally required - one to cover performance and the other to cover the payment of labor and material. The former is known as a performance bond, and the latter as a payment bond.

Contract Carrier
A commercial individual or organization carrying persons or property of certain customers only, rather than the goods of or the public in general.

Unlike a common carrier, a contract carrier has a right to choose or refuse to carry passengers or freight for payment.

Contract Repudiation Indemnity
Provides coverage for economic losses arising out of the unilateral cancellation of a contract as a result of direct or indirect actions of a foreign government or its agents under circumstances in which the insured is not in breech of contract.

The coverage is usually purchased by importers, exporters, and contractors.

Contractor Controlled Insurance Program (CCIP)
A centralized insurance program for large construction projects under which the general contractor procures insurance on behalf of all the other parties (owner and all subcontractors).

This contrasts with the typical approach under which each party is responsible for purchasing its own insurance. Typically, the coverages provided under a CCIP include builders risk, commercial general liability, workers compensation, and umbrella liability.

Contractual Liability
Liability assumed by contract. The commercial general liability policy extends coverage for specifically defined contracts, such as real estate leases.

The chief requirements for the formation of a valid contract are:
1 - Parties having legal capacity to contract
2 - Mutual assent of the parties to a promise, or set of promises
3 - Valuable consideration
4 - Absence of any stature or other rule making the contract void
5 - Absence of fraud or misrepresentation by either party

Contributory Negligence
The negligence attributed to the person making claim against an insured. A defense pleaded by the insured in a lawsuit.

Controlled Master Insurance Program
An insurance program for a multinational business wherein the coverage terms and conditions apply on a blanket basis to all of the insured's international operations. Local underlying policies are issued overseas to support the centralized program.

Unlike global programs, master insurance programs do not typically include the United States in t heir coverage territory. A separate domestic program is usually arranged for U.S. multinationals under this approach.

Conversion Privilege
Allows the life insurance policy-owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue).

Convertible Term
Term life insurance contract that may be converted to a permanent form of insurance without medical examination.

Cooperation Clause
A policy provision compelling the insured to assist an insurer in defending claims under a policy. The rationale for this provision is that the insured, rather than the insurer, is in a much better position to provide certain information about claims that are critical to the defense process.

Coordination of Benefits (COB)
A method of integrating benefits payable under more than one group health insurance plan so that the insured's benefits from all sources do not exceed 100% of allowable expenses.

Corridor Deductible
A health insurance deductible that applies between the basic layer and the major medical layer.

Cost and Freight (C and F)
One of several standard terms of sale for exports and imports. C and F indicates that the buyer must obtain transit insurance on the newly purchased goods, since the price paid by the buyer includes the cost of goods and all freight charges, but not insurance.

Cost of Well Control
A specialized policy available to oil or gas well operators that covers the cost of regaining control of a wild well. Coverage for pollution, stuck drill stem, evacuation expense, and care, custody, or control exposures can be added by endorsement.

Also known as Operators Extra Expense

Cost, Insurance, and Freight (CIF)
One of several standard terms of sale for exports and imports. CIF indicates that the seller must obtain transit insurance on the goods, since the price paid by the buyer includes the cost of goods, insurance while they are in transit, and all freight charges.

One of a number of sureties participating in a bond.

One type of cosurety is unlimited, in which each surety is jointly and severally liable for the full bond amount. A second type of cosurety is limited, in which each surety is responsible for the payment of a stated limit of liability.

Counsel Selection Provision
A provision sometimes found in professional liability insurance policies that gives the insured the right to select or have a voice in selecting defense counsel in the event that a claim is made against the insured during the policy term.

Such provisions are important because a professional's reputation is heavily at stake in every claim.

The signature of a licensed agent or representative on a policy that validates the contract.

Court Bonds
All bonds and undertakings required of individuals involved in a civil lawsuit so that they may pursue certain remedies of the courts.

Cover Note
A document used to provide evidence of insurance if policy documents are not immediately available. A cover note will show, among other things, the name of the insurer and insured, brief details of the property or risk insured, the coverage, and the total amount of insurance.

The term "cover note" is most commonly used outside the United States. It is similar to a "binder" in the United States.

Coverage Trigger
The event that must occur before a particular liability policy becomes applicable to a given loss.

Under an occurrence policy, the occurrence of injury or damage is the trigger. Liability will be covered under that policy if the injury or damage occurred during the policy period. Under a claims-made policy, the making of a claim triggers coverage.

Coverage triggers serve to determine which liability policy in a series of policies covers a particular loss.

The word coverage is used synonymously with insurance or protection.

Covered Autos
Most Automobile policies use numerical "symbols" to tell you which automobiles are covered. The symbols are shown with the coverages on the Declarations (cover) page. (A list of these symbols follows). Symbol 1 ("any auto") is preferable for Liability insurance because it is the broadest. If your policy shows Symbol 7 (specifically described autos) for Liability, you should also have Symbol 8 (Hired autos) and Symbol 9 (Non-Owned autos) shown Symbol 8 and 9 cover the liability of your company resulting from employees using personal or rental vehicles on company business.

Even companies that do not own automobiles should have coverage for Non-Owned and Hired Automobiles Liability (e.g. employees use personal or rental vehicles on company business). This can usually be endorsed to your General Liability policy if you do not have an Automobile policy. The cost is minimal. Hired and Non-Owned Auto Liability does not normally cover the owner of the vehicle, who should have separate insurance.

A professional designation identifying an individual who has satisfactorily completed national examinations covering all phases of property and casualty insurance and who has met ethical and experience requirements.

Credit Card Forgery
Covers losses resulting from unauthorized usage of your company's credit cards. Additional Crime coverages are available.

Crime Coverages
The loss of money is usually excluded under standard property policies. Losses involving employee dishonesty may also be restricted. Crime policies offer a package of coverages that are important to many businesses.

An action brought by the defendant against the plaintiff.

The party named as the defendant in the cross-complaint.

Cross-Purchase Plan
An agreement that provides that upon a business owner's death, surviving owners will purchase the deceased's interest, often with funds from life insurance.

Cross Liability Coverage
Provides coverage when a suit is brought against an insured by another entity that is also an insured under the same policy. Standard ISO general liability polices provide this protection automatically due to the "Separation of Insureds" condition. Some professional and umbrella liability policies, however, contain an insured-versus-insured exclusion, which eliminates cross liability coverage.

Cumis Counsel
The 1984 California Court of Appeals decision in "San Diego Federal Credit Union v. Cumis Insurance Society, Inc." held that where an insurer is defending under a reservation of rights, a conflict of interest exists between the economic and litigation interest of the insurer and the insured.

Under these circumstances, the traditional right of the insurer to select counsel and control the defense effort is lost. As a result, the insured selects counsel and controls the defense, but the insurer must pay the defense costs. Such counsel, selected and controlled by the insured at the expense of the insurer, is known as "Cumis" counsel.

Cumulative Injury
A type of workers injury which arises from the repetition of mentally or physically traumatic job tasks over an extended length of time.

Examples of injuries falling into this category are carpal tunnel syndrome and hearing loss.

Current Service Benefit
The portion of an insured's pension benefit that has accrued due to credited service in a given time period.

Custom Bond
A bond required by the United States Customs Service which guarantees the payment of duties or taxes due by law on all goods directly or indirectly imported or exported to or from the United States, as well as the reporting of statistical data relating to the shipments involved. The bond may be issued on either a single or continuous form.

Cut-Through Endorsement
A reinsurance contract endorsement providing that, in the event of the cedant's insolvency, the reinsurer will pay any loss covered by the reinsurance contract directly to the insured. Also called an "assumption endorsement".

A termination provision in a reinsurance contract under which the reinsurer is not liable for losses taking place after the date of termination.

Cyberspace Liability
Used to describe the liability exposures encountered when communicating or conducting business online. Potential liabilities include, but are not limited to, the internet and internal e-mail systems.


D Ratio
A factor used in the experience rating plan to separate the expected losses into primary and excess losses. A "D" ratio is the normal ratio of primary expected losses to the total expected losses, and varies by state and by classification code.

Money that the law requires one party to pay to another because of loss or injury suffered by the other party. Compare with DAMAGE.

Loss or harm resulting from injury to a person, to property, or to someone's reputation. Compare with DAMAGES

Operating a truck/tractor with its trailer empty.

Death on the High Seas Act (DOHSA)
Provides a federal remedy for the death of seamen or other individuals arising from negligence, strict liability, or the unseaworthiness of a vessel and occurring on the high seas beyond three nautical miles form shore on a worldwide basis.

Legal proceedings must be initiated within three years of the accident by a representative of all survivors of the deceased individual. Damages awarded are based on actual monetary loss and do not extend to encompass such usual compensable expenses as medical and funeral costs. Also, the award may be reduced, but not eliminated, by the contributory negligence of the deceased.

Debris Removal
Coverage for the cost incurred in the removal of debris of property covered resulting from damage caused by an insured peril.

Declarations, Declarations Page
The page of pages of an insurance policy containing information, such as the insured's name and address, that the policyholder "declared" (stated as facts) on the application for insurance.

Decreasing Term Insurance
Term life insurance on which the face value slowly decreases in scheduled steps from the date the policy comes into force to the date the policy expires, while the premium remains level. The intervals between decreases are usually monthly or annually.

Deductibles - Automobile
Liability matters are complicated, and insurers need to be involved from the start. For that reason, the liability coverages are normally written without a deductible. Larger companies, however, often assume a significant liability deductible or retention (uninsured retained level of loss) to control the costs of their insurance.

Comprehensive and Collision coverages (damage to your own vehicles) are normally subject to a deductible. You may wish to obtain quotes for several deductible levels to determine if cost savings are possible. Companies with large fleets of automobiles often self-insure all damage to their own vehicles. Due consideration, however, must be given to the possibility that one loss (such as a fire) could damage multiple vehicles.

Deductibles - Liability
Liability matters are complicated and insurers need to be involved from the start of a claim. For that reason, commercial general liability policies are often written without a deductible. Larger businesses, however, use a deductible or retention (uninsured retained level of loss) to help control the cost of their liability insurance.

Deductibles - Property
Property policies require that you pay a certain amount of all losses. The purpose is to eliminate the numerous small claims that routinely occur, and to encourage loss prevention. Only that portion of the loss in excess of the deductible will be paid by your insurer. You may wish to solicit quotes for various deductible levels to determine what cost savings are possible.

Any written or oral communication about a person or thing that is both untrue and unfavorable. Media liability and general liability policies typically provide coverage for claims alleging defamation, although general liability policies exclude this coverage for insureds engaged in media businesses.

A failure, specifically the omission or failure to perform a legal or contractual duty.

Defense Base Act
Legislation that extends the Longshore and Harbor Workers Compensation Act to apply to certain categories of employees working overseas.

The three general divisions of covered employees are:
1. Those working on military bases acquired from a foreign government after 1940,
2. Employees of contractors and subcontractors engaged in public work projects for the U.S. government outside the continental United States, and
3. Individuals employed outside the continental United States by a U.S. employer whose purpose it is to provide welfare or other such services to the Armed Forces as approved by the Secretary of Defense.

Defense Clause
An insurance provision in which the insurance company agrees to defend, with respect to insurance afforded by the policy, all suits against the insured.

Deferred Premiums
Periodic premium payments, usually monthly or quarterly, at no interest. Used most frequently with casualty coverages.

Defined Benefit Plan
A pension plan providing a specific benefit for each employee. The employer is required to make adequate contributions to the plan to fund the promised benefits. No individual accounts are maintained, as is the case with defined contribution plans.

Defined Contribution Plan
A pension plan calling for definite annual contributions by the employer, but with no specific benefit promised to the employee. The employee's benefits are ultimately determined by the amount contributed plus the investment income.

In an insurance policy, provisions that define the words and phrases that have a special meaning when they are used elsewhere in that policy. Words defined in some policies are printed in boldface or enclosed by quotation marks.

Delay Clause
An ocean marine insurance exclusion that eliminates coverage for loss of market and other consequential loss resulting from delayed voyages, regardless of the cause of the delay even if from an insured peril.

Demolition Clause
Standard property policies exclude coverage for any loss caused by the demolition of an undamaged portion of the building because of the enforcement of any "ordinance or law regulating construction or repair". Insurance against such loss may be provided by endorsement.

Deposit Premium
The premium deposit required by the insurer on forms of insurance subject to periodic premium adjustment. Also called "provisional premium."

Pretrial testimony of a witness under oath, without the presence of a judge or jury, for the purpose of discovering evidence relevant to a lawsuit's issue.

Loss in value of property that develops as items age, wear out or become obsolete. Depreciation reflects value that has already been used up.

Actual physical depreciation (wear and tear from use) is subtracted from the replacement cost of insured property in determining its actual cash value.

Derivative Suits
A type of lawsuit brought by one or more stockholders, on behalf of the corporation, alleging financial loss to the organization.

The alleged harm must be to the corporation as a whole, such as the diminishing of the corporation's assets, for shareholders to pursue an action derivatively. Any recovery in such suits inures to the benefit of the corporation itself as opposed to the shareholders who institute the action.

Design-Build Professional Liability Insurance
Affords professional liability coverage for firms that function as both the designer and general contractor on a construction project.

A rate or policy form differing from that published by a rating bureau.

Difference-in-Limits Clause (DIL)
A provision contained in a master international insurance program that provides excess limits over the limits of local underlying policies.

Difference-in Conditions (DIC) Insurance
An all risk property insurance policy that is purchased in addition to a standard property policy that excludes or does not cover certain important perils, such as flood and earthquake.

Direct Losses
Almost instantaneous reduction in value of property resulting directly from damage to that property. Compare with Indirect Losses.

Direct Writer
An insurance company that sells insurance directly to insurance buyers through employees. Can also refer to a producer who sells insurance as an employee of such a company.

Direct Writer
An insurer that deals with its insureds without the use of agents or brokers.

Directors' & Officers' Liability
This is an "errors and omissions" type coverage for corporate directors and officers. Even companies that are privately held should consider this coverage. Industry surveys have shown that many Directors and Officers liability claims - as much as half - come from sources other than shareholders. Claimants can include competitors, suppliers, customers, employees and government agencies.

The indemnification of corporate officials is governed by state law, and these laws vary considerably. These laws determine which claims can and cannot be reimbursed by the corporation. Because of this, D&O policies normally provide two separate coverages. The first coverage reimburses the corporation for payments that it is permitted or required to make on behalf of its directors and officers. Insurance industry estimates indicate that the majority of claims fall into this category. The second policy coverage provides direct protection to the directors and officers for those claims which their companies cannot reimburse.

These claims are only a small percentage of all D&O claims. They are significant, however, because without insurance, corporate officials could be held personally liable. Certain claims are insurable, although, not legally indefinable by the corporation. Many state laws allow insurance companies to provide greater protection than the corporation can by itself. Liability claims against Directors and Officers have increased in recent years. Law firms that specialize in this field can offer assistance with loss awareness and loss prevention programs.

Disability Income Rider
A type of health insurance coverage. It provides for the payment of regular, periodic income should the insured become disabled from illness or injury.

A condition that incapacitates a person in some way so that he or she cannot carry on his or her normal pursuits. The definition of "disability" in disability income varies substantially and should be carefully examined.

A disability may be total, partial, permanent, or temporary, or a combination of these.

Discovery Period
The period of time after expiration allowed an insured to identify and report losses occurring during the period of a policy or a bond.

The period generally varies from six months to three years, and the insurer can fix the period of time to be allowed. The period may also be determined by statute. In certain bonds, the period is of indefinite duration because of such statutory requirement.

Discovery Provision
Found mainly in professional liability policies written on a claims-made basis. These provisions permit insureds to report incidents or circumstances that may result in claims in the future.

Discovery provisions, which are also known as "awareness" or "notice of potential claim" provisions, allow an insured to lock in coverage for such events so that coverage will apply under the current claims-made policy, regardless of how far in the future a claim is eventually made in conjunction with the incident that has been reported.

Investigation of the facts of a claim or the alleged proximate cause of an injury. Discovery may include such activities as interrogatories, depositions, expert examination of a product, and review of a plaintiff's medical history.

In accident and health insurance policies, dismemberment encompasses the loss of limbs or sight. A fixed benefit is paid to insureds who suffer certain types of dismemberment under these policies.

The policy will typically pay the principal sum for the loss of both hands, both feet, or the sight of both eyes, one hand and one foot, or the sight of one eye and one hand or foot. For the loss of any one limb or the loss of sight in one eye, the policy will usually pay a specified percentage (e.g., 50%) or the principal sum.

Profits shared with stockholders (of a stock insurance company) or policyholders (of a mutual insurance company).
Insurers cannot legally guarantee the payment of dividends.

Domestic Insurer
An insurer admitted by and formed under the laws under the state in which insurance is written.

Describes the location or venue in which a captive insurer is licensed to do business.

A number of factors should be considered in selecting the best domicile for a given captive, including:

- Capitalization and surplus requirements
- Investment restrictions
- Income and local taxes
- Formation costs
- Acceptance by fronting insurers and reinsurers
- Availability of banking and other services, and
- Proximity considerations

Double Indemnity
A provision in a life insurance policy, subject to specified conditions and exclusions, under the terms of which double the face amount of the policy is payable if the death of the insured is the result of an accident. In general, the conditions are that the insured's death occurs prior to a specified age and results from bodily injury effected solely through external, violent and accidental means independently and exclusively of all other cause, within 60 or 90 days after such injury.

Double Protection
A form of life insurance combining whole life with an equal amount of term, with the term expiring at a future date, usually at age 65.

Downsizing Exclusion
An exclusion found in the majority of employment practices liability insurance (EPLI) policies. Such exclusions preclude coverage for claims resulting form large-scale layoffs within the insured organization. The scope of the exclusion varies considerably among insurers.

The two main rationales for the exclusion are:
1. The decision to terminate a significant portion of the company's workforce is largely within the company's control
2. Insurers could be faced with catastrophic losses without such an exclusion.

Draft Authority
An agent with draft authority has permission to handle small claims and issue drafts (similar to checks) to pay certain types of covered claims that are within the dollar limit of the draft authority.

This is most commonly done with personal lines coverages not involving liability.

Essentially the same as a check written on the insurance company's checking account. Drafts are used to pay claims and may be written by a claims representative or by a producer with draft authority.

Dramshop Liability
Liability imposed on those in the business of serving alcoholic beverages for losses arising out of the intoxication of patrons.

Drive Away Collision
Standard collision coverage in a garage policy is applicable only within a 50-mile radius of the dealership. Drive away collision coverage deletes this distance exclusion and provides coverage for the pick-up or delivery of vehicles to or from a point greater than 50 miles from the dealership.

Drive Other Car Endorsement
A form that can be added to an automobile policy giving protection while the insured or class of insureds designated in the endorsement is driving a car other than the one(s) named in the policy.

Drop Down Provision
A clause in umbrella policies providing that the umbrella will "drop down" over reduced or exhausted underlying policy aggregate limits. Some umbrellas maintain their own coverage terms when they drop down, while others assume the terms in the primary policy.

Dual Agency
A situation in which an individual may serve as an agent for two parties in the same transaction. Some court cases, for example, have held that insurance brokers can function as agents of (and therefore owe legal duties to ) both insureds and insurers in the same transaction.

Dual Capacity
The principle, defined in a number of court cases, that a business may stand in relation to its employee not only as an employer, but also as supplier of a product, provider of a service, owner of a premises, etc.

When a work-related injury arises out of one of these secondary relationships, the exclusivity of workers compensation as a source of recovery to the injured worker may be challenged, and the employee may be allowed to bring suit against the employer. Such actions are covered by the employer's liability coverage within the standard workers compensation policy.


Earned Premium
The earned premium on a policy for any period is the pro-rata portion of the written premium covering that part of the policy term which is included in the period.

Earned Surplus
Funds earned by an insurance company (including captives and risk retention groups) after all losses and expenses have been paid. Once earned surplus is recognized, it can be allocated to capital and /or dividends.

Economic Damages
An award to an injured person in an amount sufficient to compensate for his or her actual monetary loss. Examples of monetary damages include awards for lost wages and medical expenses.

Educators Legal Liability (ELL)
A form of liability insurance designed to cover a broad range of nonbodily injury/nonproperty damage liability claims made against the administrators, employees, and staff members of both schools and colleges.

ELL, also known as "school board legal liability insurance," is a hybrid of traditional directors and officers liability and errors and omissions coverages. Typical claims covered by ELL include wrongful termination, wrongful dismissal, failure to grant tenure, and negligent counseling.

Efficacy Insurance
Provides coverage in the event that a project does not meet the technical level of performance required by the contract.

The policy provides the funds required to pay the debt service costs and may be modified to reimburse the insured for capital expended so that the project may be brought up to the expected performance level. The coverage is often sought for high tech projects such as cogeneration facilities.

EIL (Environmental Impairment Liability)
These specialized policies cover bodily injury and property damage liability resulting from a pollution incident. These policies are also written on a "Claims-Made" basis. Environmental risks are complicated and require sophisticated legal, environmental and insurance advice. A few common environmental concerns:

1. Operational exposures from the use of hazardous substances

2. Potential of pollution from discontinued operations and practices

3. Existing pollution in land or buildings that you acquire. Environmental concerns are now a major consideration in real estate and financial transactions

Electronic Data Processing Coverage
"All Risk" property insurance for electronic data processing equipment (Computers), computer programs, and data. Typically includes coverage for perils to which such property is especially susceptible. These perils include mechanical breakdown, electrical injury, and changes in temperature and humidity.

Eligibility Period
That period of time during which members of a given group may enroll in a group benefits program (e.g., 401(k) plan, health insurance, disability insurance, or life insurance).

Elimination Period
A waiting period or a probationary period that must run before benefits are payable under a long-term care or disability income plan or policy.

Employed Lawyers Professional Liability Insurance
Professional liability insurance covering lawyers who are employed by corporations rather than law firms, or those operating as sole practitioners. The need for such policies arises from the fact that both the commercial general liability and directors & officers liability policies generally exclude coverage for the acts of professionals, including attorneys who work for corporations.

Employee Assistance Program (EAP)
A variety of services provided by the employer for the employee to address the treatment, as well as prevention, of mental and addictive behavioral problems. Other issues which can create stress in the life of the employee such as interpersonal and familial relationships are also included in the scope of the EAP.

The major purpose of the EAP is to assist the employee to maintain a good mental outlook and, therefore, be a highly productive and well-adjusted worker.

Employee Benefits Liability
Covers errors and omissions in the administration of Employee Benefit Plans. For example, through an oversight, a company fails to enroll an employee in the medical insurance program. As a result, substantial medical bills are not insured. This coverage can sometimes be added to a general liability policy. It can also be obtained under a fiduciary liability policy.

Employee Dishonesty (also known as Commercial Blanket Bond)
Covers the theft of a company's money, securities and inventory by employees acting alone or in collusion with other employees or outsiders. Losses often occur over a long period of time and can be substantial before discovery. The Employee Retirement Income Security Act (ERISA) requires an Employee Dishonesty bond for employee benefit plans. The bond limit must be equal to 10% of the plan's assets. The bond limit must be at least $1,000, but need not exceed $500,000 per fiduciary, per plan. Companies may wish to purchase limits in excess of the ERISA requirements to more adequately protect larger plans.

Employee Leasing
A permanent staffing method under which an employee leasing company (sometimes called a labor contractor) provides all or most of its client's employees.

The benefits associated with this type of arrangement include reduced administrative costs, access to risk management services such as safety and loss control, and higher quality, more cost effective employee benefits.

Employee Retirement Income Security Act (ERISA)
Liability under the Employee Retirement Income Security Act of 1974 for the exposure arising out of the responsibility as an officer or fiduciary of a company for the handling of pension funding and other employee benefit plans.

Should the fiducial responsibility be breached , the individual is personally liable for the loss. This resulting exposure is usually excluded from the general liability policy, even when employee benefits liability coverage is purchased. Coverage may, however, be purchased separately in the form of a fiduciary liability policy.

Employees as Additional Insureds
A general liability endorsement used with pre-1986 general liability forms to provide insured status to employees of the named insured business. Employees are automatically insureds under current editions of the commercial general liability form and no endorsement is now needed to provide coverage.

Employers Excess Indemnity Insurance
Insurance coverage purchased by employers that do not subscribe to the Texas workers compensation law. Coverage is usually purchased in conjunction with occupational accident policies, and reimburse the employer for liability settlements and judgments applying to pain/suffering, permanent disfigurement, and lost future earnings.

Employers Liability Coverage
This coverage is provided by Part 2 of the basic workers compensation policy. The coverage pays on behalf of the insured (employer) all sums that the insured shall become legally obligated to pay as damages because of bodily injury by accident or disease sustained by any employee of the insured arising out of and in the course of employment by the insured.

Employment-At-Will Doctrine
A legal doctrine holding that absent a contract for a specified duration, both employers and employees are free to terminate the employment relationship at any time, with or without cause, and with or without notice.

In recent years, however, both courts and legislatures have developed a number of exceptions to this doctrine, a factor largely responsible for a marked increase in claims alleging wrongful termination.

Employment Practices Liability Insurance (EPLI)
A form of liability insurance covering wrongful acts arising from the employment process. The most frequent types of claims alleged under such policies include: wrongful termination, discrimination, and sexual harassment.

The forms are written on a claims-made basis and generally exclude coverage for large-scale company-wide layoffs. In addition to being written as a stand-alone coverage, EPLI is frequently available as an endorsement to directors & officers liability policies.

The treatment of asbestos-containing material with a liquid, either covering the surface with a protective coating or embedding fibers in an adhesive matrix, to prevent release of the asbestos into the air.

Endemic Disease Coverage
Specifies that workers compensation and employers liability coverage will apply to injury or death of an employee arising out of a disease that is peculiar to a foreign country, even though the disease is not covered under the workers compensation or occupational disease laws of the designated state.

An addendum to an insurance policy that changes the original policy provisions. Endorsements may serve any number of functions, including broadening, restricting, or limiting the scope of coverage, clarifying the application of coverage to some unique exposure, adding other parties as insureds, or adding locations to the policy.

Endowment Insurance
A form of life insurance that pays the face value to the insured either at the end of the contract period or on the insured's death.

This is in contrast with standard life insurance, which pays the face value only in the event of the insured's death. It is also in contrast with the concept of a pure endowment, which pays the face value only if the insured lives to the end of the policy period.

Endowment insurance is basically a savings plan with an element of insurance designed to protect the savings plan in the event of premature death. As such, this type of insurance is very expensive and has applicability in limited situations such as retirement savings, saving for the purpose of making a charitable contribution, and the establishment of an education fund for the insured's children.

Enterprise Risk Management
A risk management approach that integrates both financial (i.e., speculative) and event (i.e., pure) risk. Some firms have implemented broad programs with multiple retentions and high-excess aggregate insurance limits. Such programs, often written on a multiyear basis, are designed to maximize portfolio diversification.

Entity Coverage
Affords direct coverage of the insured organization under a D&O liability policy.

Typically, corporate D&O forms only reimburse the insured organization when it is legally obligated to indemnify corporate officers and directors for their acts on behalf of the organization. If a lawsuit specifically names the insured organization as a defendant, however, the standard D&O policy does not provide coverage.

Until fairly recently, entity coverage was only provided under D&O policies written for nonprofit organizations and healthcare institutions.

Environmental Assessment
An analysis prepared pursuant to the National Environmental Policy Act to determine whether a federal action would significantly affect the environment and thus require a more detailed environmental impact statement.

Environmental Audit
An independent assessment of the current status of a party's compliance with applicable environmental requirements or of a party's environmental compliance policies, practices, and controls.

Environmental Impact Statement
A document required of federal agencies by the National Environmental Policy Act for major projects or legislative proposals significantly affecting the environment. A tool for decision making, it describes the positive and negative effects of the undertaking and cites alternative actions.

Environmental Impairment Liability (EIL)
These specialized policies cover bodily injury and property damage liability resulting from a pollution incident. These policies are also written on a "Claims-Made" basis. Environmental risks are complicated and require sophisticated legal, environmental and insurance advice. A few common environmental concerns:

1. Operational exposures from the use of hazardous substances

2. Potential of pollution from discontinued operations and practices

3. Existing pollution in land or buildings that you acquire. Environmental concerns are now a major consideration in real estate and financial transactions

Equipment Floater
Property insurance covering equipment that is often moved from place to place. A form of inland marine insurance.

ERISA (Employee Retirement Income Security Act) Liability

Liability under the Employee Retirement Income Security Act of 1974 for the exposure arising out of the responsibility as an officer or fiduciary of a company for the handling of pension funding and other employee benefit plans.

Should the fiducial responsibility be breached , the individual is personally liable for the loss. This resulting exposure is usually excluded from the general liability policy, even when employee benefits liability coverage is purchased. Coverage may, however, be purchased separately in the form of a fiduciary liability policy.

A legal doctrine restraining a part from contradicting its own previous actions if those actions have been reasonable relied upon by another party. An insurer, for example, that has repeatedly accepted late premium payments from an insured may be estopped from later canceling the policy on the basis of nonpayment because the insured has been reasonably led to believe that late payments are acceptable.

Evidence of Insurability
Any statement or proof of a person's physical condition, occupation, etc., affecting acceptance of the applicant for insurance.

Excess and Surplus Lines Insurance
Any type of coverage that cannot be placed with an insurer admitted to do business in a certain jurisdiction.

Risks placed in excess/surplus lines markets are often substandard as respects adverse loss experience; unusual; or unable to be placed in conventional markets due to a shortage of capacity.

Excess Insurance
A policy or bond covering the insured against certain hazards, and applying only to loss or damage in excess of a stated amount, or specified primary insurance or self-insurance.

Excess Loss Premium (ELP) Factor
A factor used to calculate the charge to an insured under a retrospective rating plan to limit individuals losses to a specified level. By using the ELP factor, the insured elects to limit the effect of any single loss in return for additional premium.

Excess of Loss Reinsurance
A form of reinsurance that indemnifies the ceding company for the portion of a loss that exceeds its own retention.

A provision of an insurance policy or bond referring to hazards, circumstances, or property not covered by the policy.

Exclusive Agency System
An insurance distribution system through which agents represent only one company or a group of companies under similar management.

Exclusive Remedy
A component of workers compensation statutes that bars employees injured on the job from making a tort liability claim against their employers. The benefits provided under workers compensation are the sole remedy available to injured employees.

Exceptions to the rule do exist from state to state which do provide the employee with a legal venue. The failure to obtain and maintain insurance as well as willful negligence on the part of the employer are two types of such deviations.

Exemplary Damages
Damages in excess of that amount needed to compensate for the plaintiff's injury, awarded in order to punish the defendant for malicious or wanton conduct. Also called punitive damages.

A person living and working in a country other than his own homeland.

Expected Loss
Estimated loss frequency multiplied by estimated loss severity, summed for all exposures..

This measure of loss refers to a best estimate of the total losses of a particular type (such as workers compensation or general liability) of an organization that is expected during a given period, typically one year.

Expected Morbidity
The expected instance of sickness or injury for a given group over a given period of time.

Expected Mortality
The expected instance of death for a given group over a given period of time assumed in setting life insurance rates.

Expediting Expense Coverage
Coverage under a property or boiler and machinery policy for expenses of temporary repairs and costs incurred to speed up the permanent repair or replacement of covered property or equipment.

On most extra expense forms, the recovery of expediting expenses is limited to the extent that the expenses serve to reduce the loss. However, coverage can be arranged to provide full reimbursement.

Expense Constant
A fixed, flat expense charge applied to all workers compensation policies in states using advisory rates.

The charge applies in addition to the premium developed for that policy and recognizes that some of the administrative costs associated with writing a workers compensation policy do not vary with the amount of premium and should, therefore, not be included in the factors that are used to develop rates.

Expense Loading
The amount added to the pure premium to cover expenses.

Experience Modification (MOD)
A workers compensation premium adjustment factor based on the loss experience of the insured employer.

Experience Rating
A type of individual risk rating which, based upon the insured experience of the risk, measures the extent to which a particular risk deviates from the average of its class and reflects this deviation in the rate for the risk.

Exposure-in-Residence Theory
A legal theory, applicable in certain latent injury cases, holding that injury occurs continuously while the injurious substance is within the injured person's body.

Exposure Base
The basis to which rates are applied to determine premium. Exposures may be measured by payroll (as in workers compensation or general liability), receipts, sales, square footage, area, or man-hours (for general liability), or per unit (as in automobile), or per $100 of value (as in property insurance).

Exposure Survey
A process used by risk managers to identify an organization's risks of loss. It may include interviews with management and operating personnel, physical inspections, financial statement reviews, and contract reviews.

Exposures, or loss exposures, are situations that could lead to an accidental loss.

Nationalization or confiscation by a host country government of a multinational's investment (e.g., plant, inventory, equipment). If compensation is offered at all, it is usually far below fair market value.

Extended Discovery Period
A provision of coverage in claims-made policies, for claims brought against the insured following cancellation of the policy if the event(s) that caused the damage or injury occurred prior to the policy's cancellation.

Extended Period of Indemnity
Adds coverage under a business interruption policy for loss of income suffered during a specified period of time (e.g., 30, 60, 90, or 180 days) after the damaged property has been repaired. In the absence of this endorsement or option, business interruption coverage typically ends on the date the damaged property is repaired or replaced.

Extended Reporting Period (ERP)
A designated period of time after a claims-made policy has expired, during which a claim may be made and coverage triggered as if the claim had been made during the policy period. Also known as tail coverage.

Extended Term Insurance
A nonforfeiture provision in a whole life policy that uses cash value to purchase term insurance equal to the existing amount of life insurance.

Extra Expense
Covers extra expenses (over normal operating costs) incurred to remain in operation following a covered property loss. Typical examples include the costs of setting up temporary quarters elsewhere and subcontracting work that would normally be done at the damaged premises.

This coverage is particularly important to businesses that must remain in operation or risk losing customers. Coverage is often subject to a monthly limitation. For example, 40% of the limit is available in the first 30 days after a loss, 80% if the period of restoration exceeds 30 days, and 100% if the period exceeds 60 days.

Extracontractual Damages
Damages that are in addition to or outside of a contract of insurance.

Extracontractual damages are awarded in "bad faith" claims against insurance companies. They are a form of punitive damages, intended to punish extreme insurer conduct. Extracontractual damage awards most frequently arise from unfair claims handling practices (e.g., unjust denial of coverage or failure to settle a claim within policy limits).

Extraterritorial Coverage
The extension of state workers compensation law to provide benefits for workers hired in the state, but injured while working in another state.

There is usually a maximum placed on the amount of time an employee can spend outside the state of hire and still file a claim in that state. This term is also used in international insurance to denote coverage for work-related injuries occurring outside the boundaries of the country of hire.

Extremely Hazardous Substances
Any of 406 chemicals identified by the Environmental Protection Agency as toxic, and listed under Superfund Amendments and Reauthorization Act of 1986 Title III.


Face Amount
Commonly used to refer to the principal sum involved in a life insurance contract. The actual amount payable may be decreased by loans or increased by additional benefits payable under specified conditions or stated in a rider.

Facultative Reinsurance
A form of reinsurance whereby each exposure which the ceding company wishes to reinsure is offered to the reinsurer and is contained in a single transaction. The ceding company negotiates an individual reinsurance agreement for every policy.

A submission, acceptance, and resulting agreement is required on each individual risk the ceding company seeks to reinsure. The reinsurer is not obligated to accept every or any submission.

Failure to Insure Exclusion
An exclusion found primarily in directors and officers liability policies and, to a lesser extent, in public officials liability policies.

This exclusion precludes coverage for claims made against insureds when claimants suffer losses resulting from failure to purchase insurance coverage, provided such coverage was available.

FAIR Plans
Fair Access to Insurance Requirements residual market plans provide property insurance for those that cannot obtain coverage in the voluntary market.

Family and Medical Leave Act (FMLA) of 1995
A federal law allowing employees, in certain circumstances, to take unpaid leave from work to care for themselves or family members.

The Act requires firms with 50 or more employees to provide up to 12 weeks of unpaid, job-protected leave to eligible employees for qualified family and medical emergencies. Despite the seemingly unambiguous provisions of the statute, however, disputes between employers and employees sometimes arise. Employee claims alleging FMLA violations by employers are covered by employment practices liability insurance policies.

FC&S (Free of Capture and Seizure) Warranty
A clause in ocean marine policies which essentially functions to delete war risk coverage from hull insurance. Losses excluded are those due to nuclear weapons, mines, torpedoes, war (including civil war), piracy, and confiscation of nationalization of property.

Feasibility Study
A study undertaken to determine whether a contemplated risk financing program is feasible for an organization or group of organizations. An actuarial analysis is often done in conjunction with a feasibility study.

The term is often used in reference to studies that attempt to ascertain whether or not the formation of a captive insurance company is a viable risk financing alternative under a given set of circumstances.

Federal Employers Liability Act (FELA
A federal stature that provides for a liberalization of the rules applicable to the liability of railroads to their employees for personal injury.

Under normal tort rules, the injured party must prove negligence on the part of the defendant, and the absence of contributory negligence or assumption of risk on his own part. Under FELA, however, the employee need only show that any negligence on the part of the employer contributed to the injury. Contributory negligence on the part of the employee reduces the recovery in proportion to the negligence attributable to the employee.

The practical effect of this law, as interpreted over the years by the courts, has virtually been to impose a strict liability law on railroads with respect to injury to their employees in a manner very similar to workers compensation, but without the limitation on benefits provided under the workers compensation laws.

Federal Insurance Contribution Act (FICA)
Establishes a payroll tax to assist in the funding of social security benefits.

Fee for Service Plans
Health insurance plans that reimburse physicians and hospitals for each individual service they provide. These plans allow insureds to choose any physician or hospital.

Fellow Employee Coverage
By endorsement to the general liability policy, insureds can provide coverage for claims made by an injured employee against a fellow employee who caused or contributed to the injury.

The "employee bodily injury to another employee endorsement" restores insured status for specified employees (or classes of employees) against whom such a claim is made.

Fidelity Bond
A bond that will reimburse an employer (the insured) for loss sustained because of any dishonest act by an employee covered by the bond. Blanket fidelity bonds cover groups of employees.

Fiduciary Liability
Fiduciary liability protection covers the liability of a person who acts as a fiduciary for his or her company's Employee Benefit Plans. The Employee Retirement Income Security Act (ERISA) imposes fiduciary responsibilities upon the employers for the administration of such plans. A fiduciary can be held personally liable for shortages in the benefit plan's assets resulting from a breach of fiduciary duty, such as improper investment of funds.

Fiduciary Liability should not be confused with the ERISA Employee Dishonesty bond requirement. The latter covers loss of funds resulting from employee dishonesty, and not the liability resulting from fiduciary responsibilities.

Professional Liability policies may also provide fiduciary coverage for specialists, such as lawyers. Certain professionals have greater fiduciary responsibilities (e.g. administering estates and trusts) than just Employee Benefit Plans, and require specialized coverage.

A person who occupies a position of special trust and confidence; e.g., in handling or supervising the affairs or funds of another.

Financial Responsibility Law
A law under which a person involved in an automobile accident may be required to furnish security up to certain minimum dollar limits. Each state has some form of such a law.

Fine Arts Coverage
Inland marine property insurance for works of art, typically written on a valued basis.

Fire-Resistive Construction
Exterior walls, floors, and roof of masonry or fire-resistive material with a fire-resistive rating of at least 2 hours. This is one of six basic construction types used in categorizing buildings for Insurance Services Office, Inc. (ISO). The other five construction categories are: frame, joisted masonry, noncombustible, masonry noncombustible, and modified fire-resistive.

Fire Damage Legal Liability
Provides coverage for the insured's liability for fire damage to premises rented by the insured.

Fire Wall
A wall designed to prevent the spread of fire from within one part of a building to another. True fire walls are rated according to the number of hours that the wall is expected to withstand a fire, e.g., a 2-hour fire wall.

A computer that protects a company's private network from outside (Internet) users, yet allows the company's users to access both the protected network and the Internet.

The courts have held that fire must be combustion sufficiently rapid to produce a spark, flame, or glow, but not an explosion. In addition, to be a covered cause of loss under an insurance policy, it must be a "hostile" as opposed to "friendly" , i.e., not in the place where it is intended to be such as a furnace, stove or fireplace. The fire must be accidental and must also be the proximate cause of the damage.

First Dollar Coverage
Insurance that provides for the payment of all losses up to the specified limit without any use of deductibles.

>First Dollar Defense Coverage
A coverage feature of some liability policies in which retentions do not apply to defense costs, even if no indemnity payments are made in conjunction with a claim.

If an insurer, for example, were to expend $10,000 on defense of a claim and nothing for indemnity, the insured would not be required to pay any out-of-pocket costs for defense.

First Named Insured
The person or entity listed first on the policy declarations page as an insured. This primary or first named insured is granted certain rights and responsibilities that do not apply to the policy's other named insureds.

Examples of additional rights of first named insureds are the receipt of cancellation notice and return premiums. Unique responsibilities include the notice of loss requirements and premium payment obligations.

Flat Cancellation
The cancellation of a policy as of its effective date, before the insurer has assumed liability. This requires the return of paid premium in full.

Flat Rate
A fixed rate not subject to adjustment, regardless of loss experience or changes in exposure during the term of coverage.

Fleet Automatic
In automobile insurance, fleet automatic provides physical damage coverage automatically to all newly acquired automobiles owned by the insured. Premium charges for these automobiles are made either through a reporting form or an audit at the end of the policy period.

Fleet Policy
An insurance contract covering a number of automobiles. The automobiles may be specifically designated, or provision may be made for automatic coverage on a reporting basis of all automobiles owned by the insured. To be eligible for such coverage, all automobiles must be owned by a single insured.

Flex Rating, Flex Rating Laws
A type of rate regulation under which insurers may raise and lower rates within a certain range (band) without specific approval from state regulators.

Property policies normally cover property at a specified location. Property that travels or changes locations (e.g. exhibits, construction equipment or employee tools) is covered by a "Floater" endorsement or policy.

Follow Form
Refers to an umbrella policy provision that follows the underlying policy as to how the provision applies.

Follow form also identifies an "excess" liability policy that follows the underlying policies for most policy provisions. The policy may stand alone for certain exclusions, conditions, etc., while relating back to the underlying coverage for most provisions.

This type of policy form is typically used excess of scheduled underlying insurance and usually contains a requirement that the insured maintain scheduled underlying insurance.

Force Majeure Insurance
Provides coverage for financial losses arising out of the inability to bring a project to completion. The coverage encompasses delays as well as total termination of the contract resulting from events totally outside the control of the contractor (i.e. fire, earthquake, war, revolution, flood, and epidemics).

Types of losses covered by the policy include continued debt servicing, loss of income, ongoing fixed costs, spoilage, and related contingencies.

The coverage has a very limited domestic market, but is commonly placed as a political risk coverage for contractors working in foreign countries.

Force Majeure
An unexpected or uncontrollable event that upsets one's plans or releases one from obligation. A superior force.

Foreign Insurer
An insurer domiciled in the United States, but outside the state in which the insurance is to be written. In effect, it is a domestic insurer doing business outside of the state in which it is domiciled.

Foreign Travel
If employees travel out of the country on business, employers should consider Endemic Disease and Repatriation Expense coverages.

Workers Compensation covers job-related injuries. The Endemic Disease endorsement expands this to include local illness (malaria, for example) incurred because of business travel.

Repatriation Expense covers the extra costs (which can be high) of returning a sick or deceased employee to the United States. Examples include special aircraft or medical arrangements.

Employees who work in a foreign country (as opposed to business travel) may require a foreign workers compensation policy. Discuss foreign travel and operations with your broker.

Forgery or Alteration
Covers losses resulting from dishonesty in writing, signing, or altering checks, bank drafts, and other financial instruments.

A health plan's list of approved prescription medications for which it will reimburse members or pay for directly.

A preprinted document, often several pages long, containing standard wording that makes up the bulk of an insurance policy.

Forum Shopping
Describes a search by legal counsel for the best venue or jurisdiction for a particular lawsuit.

Frame Construction
Exterior walls of wood, brick veneer, stone veneer, wood ironclad, or stucco on wood.

This is one of six basic construction types used in categorizing buildings for property insurance.

Franchise Deductible
A minimum amount of loss that must be incurred before insurance coverage applies.

A franchise deductible differs from an ordinary deductible in that, once it is met, the entire amount of the loss is paid, subject to the policy limit. Franchise deductibles can be stated either as a dollar amount or as a percentage of the policy limit.

Free Alongside (FAS)
One of several standard terms of sale for exports and imports. When goods are shipped FAS, the seller's responsibility ends when the merchandise is brought alongside the vessel (e.g., in a barge) or placed on the dock from which it will be loaded onto the vessel.

The buyer is responsible for insuring the goods from that point on.

Free of Capture and Seizure (FC&S) Warranty
A clause in ocean marine policies which essentially functions to delete war risk coverage from hull insurance. Losses excluded are those due to nuclear weapons, mines, torpedoes, war (including civil war), piracy, and confiscation of nationalization of property.

Free of Particular Average - American Conditions (FPAAC)
An ocean marine policy provision that eliminates coverage for partial loss to cargo unless the loss is caused by stranding, sinking, fire, or collision.

Free of Particular Average - English Conditions (FPAEC)
An ocean marine policy provision that eliminates coverage for partial loss to cargo except in the event of stranding, sinking, fire, or collision (regardless of whether those perils were the proximate cause of the loss).

>Free of Particular Average (FPA)
An ocean marine policy provision that eliminates all coverage for any partial loss of cargo.

Free on Board Destination (FOB Destination)
On of several standard terms used in contracts of sale to indicate responsibility for damage to goods during shipment.

When goods are shipped FOB destination, the seller's responsibility for the goods continues until they are delivered to the buyer in accordance with the contract terms.

Free on Board (FOB)
One of several standard terms used in contracts of sale to indicate responsibility for damage to goods during shipment.

When goods are shipped FOB, the seller's responsibility ends when a carrier takes possession of them or, with respect to ocean shipments, when the merchandise is placed safely aboard the vessel or when an on-board bill of lading has been issued. The buyer is responsible for insuring the goods from that point on.

Freight Broker
A person, firm, or corporation which arranges transportation of commodities for a fee.

The broker does no hauling and assumes no responsibility for the property being transported.

Freight Forwarder
An entity that purchases motor service from a licensed motor carrier.

Unlike a freight broker, a freight forwarded assumes responsibility for a shipment from origin to destination and typically issues bills of lading.

The use of an insurer to issue an insurance policy ("paper")
on behalf of a self-insured organization or captive insurer without the intention of bearing any of the risk.

The risk of loss is transferred back to the self-insured or captive insurer with an indemnity or reinsurance agreement. The fronting company (insurer) , however, still assumes a credit risk since it would be required to honor the obligations imposed by the policy if the self-insurer or captive failed to indemnify it.

Fronting arrangements allow captives and self-insurers to comply with financial responsibility laws imposed by many states that require evidence of coverage written by an admitted insurer, such as for automobile liability and workers compensation insurance.

Fully Insured Status
The highest covered status under the Social Security benefits under the Old Age, Survivors, Disability, and Health insurance Act (OASDHI), entitling the worker to all types of benefits, including retirement.

Before a worker can collect Social Security benefits under the OASDHI Act, he or she must have credit for a certain amount of covered work. Fully insured status is typically reached after 10 years of employment in a covered occupation.

Fully Paid Policy
A life insurance policy on which all of the premiums necessary to obtain the benefits have been paid.

Functional Replacement Cost
A property insurance provision changing the valuation basis otherwise applicable (actual cash value or replacement cost) to valuation at the cost to replace the damaged or destroyed property with property that serves the same function.

The functional replacement cost provision is typically used when replacement of damaged property with substantially identical property is either impossible (perhaps due to technological change) or unnecessary.

Funded Pension Plan
An actuarially sound pension plan for which reserves are adequate at the time benefits become payable.

Having sufficient sums of money to meet future liabilities.

Furriers Block Policy
Inland marine insurance covering the inventory of a fur dealer.

Furriers Customers Insurance
Inland marine insurance covering furs that are stored by the insured fur dealer.


Garage Liability Insurance
Insurance covering the legal liability of automobile dealers, garages, repair shops, and service stations for claims of bodily injury and property damage arising out of business operations

Garage Policy
A commercial auto policy designed to address the needs of auto dealers and other auto-related businesses such as repair shops and service stations. Coverages include garage liability, garagekeepers legal liability, and auto physical damage, with other coverages available by endorsement.

Garagekeepers Coverage/Garagekeepers Legal Liability
Provides coverage to owners of storage garages, parking lots, body and repair shops, etc. for liability as bailees with respect to damage to automobiles left in their custody for safekeeping or repair.

Garment Contractors Floater
An inland marine policy that protects the insured garment manufacturer against damage to or loss of garments on the manufacturer's premises, in transit, or in the custody of contractors or subcontractors.

General Aggregate Limit
Under the standard commercial general liability (CGL) policy, the maximum limit of insurance payable during any given annual policy period for all losses other than those arising from the product and completed operations hazards.

General Average
Ocean marine term referring to damage and expenses purposely incurred for the common safety of the vessel, freight, and cargo interests. General averages are paid by the several interests in the proportion of their respective values exposed to the common danger, including the interest of the party whose property or interest is intentionally sacrificed. See also Particular Average

General Counsel
Typically the highest-ranking lawyer within a corporation.

General Damages
A subjective monetary award that is designed to compensate an injured person for his or her pain and suffering.

General Liability
General Liability policies are the most common business liability policies. As the name implies, these policies cover "general" liability. More specific types of liability such as automobile liability, aircraft liability or professional malpractice liability are covered under specialized liability policies.

General Liability policies generally cover the legal liability of a company for bodily injury to others and for damage to the property of others. There are a number of different policy forms. Some are limited to a business's liability as owner (or occupant) of your premises. Others offer broader coverage.

One of the most commonly used policy forms is the Commercial General Liability (CGL) policy. The policy format is similar to an "All Risk" property policy in that the policy covers what it does not exclude. That is, the policy starts with a basic insuring agreement and then refines it with the policy's exclusions, terms and conditions.

General Maritime Law
A common law concept whose origin is rooted in historic sea codes and requires the owner of the vessel to provide the entire crew with transportation, wages, room, and board (maintenance), and medical services (cure) for the duration of the voyage. This condition applies even if the illness or injury is not job-related.

The crew members may also sue the owner of the ship for additional damages by citing the unseaworthiness of the craft.

Glass Insurance - Protection for loss of or damage to glass and its appurtenances.

Global Insurance Program
An insurance program with a coverage territory encompassing the entire world, including the country in which the insured is domiciled, that is arranged for a multinational business.

Good Faith Settlement
A "blessing" by the court that protects a settling defendant from further claims with respect to the incident alleged in the complaint.

Good Samaritan Statutes
Laws in various states that relieve physicians of any liability for providing treatment in an emergency situation such as an automobile accident, as long as the treatment provided was not grossly negligent, wanton, or reckless, and the physician received no compensation.

Governing Classification
In workers compensation insurance, the classification (other than a standard exception) that best describes the workers compensation exposure of an employer's business, as determined by majority of payroll.

>Grace Period
Period of time after the due date of a premium during which the policy remains in force without penalty.

Greenmail Exclusion
Eliminates coverage under a directors and officers liability policy for suits alleging damages arising out of the purchase of (or offers to purchase) company stock at above market prices from stockholders believed to pose a takeover threat.

Gross Combination Weight (GCW)
The value specified by the manufacturer as the maximum loaded weight of a truck/trailer plus the trailer or semitrailer designed for use with the truck tractor.

In the absence of a value specified by the manufacturer, GCW will be determined by adding the GVW of the power unit and the total weight of the towed unit and any load thereon.

Gross Earning Coverage
A type of business interruption insurance covering the insured's reduction in gross earnings suffered as a result of a direct damage loss.
For a nonmanufacturer, gross earnings is essentially total sales less the cost of goods sold. For a manufacturer, gross earnings is the sales value of production, less the cost of raw stock from which the production is derived. Included in this coverage are profits, continuing expenses, management payroll, and ordinary payroll.

Gross Line
In reinsurance, the amount of insurance the primary insurer has written on a risk, including the amount it has reinsured. Gross line is equal to the net line (i.e., the amount of insurance the primary insurer carries on a risk after deducting the amount reinsured) plus reinsurance ceded.

Gross Negligence
Willful and wanton misconduct

Gross Premium
Pure premium adjusted to include insurer expenses

Gross Profits Insurance
A type of business interruption coverage in widespread use in Canada and the United Kingdom. Gross profits insurance differs from gross earnings insurance in two respects: the determination of the loss payment amount and the indemnity

Gross Receipts or Mileage Rating Basis
A method of rating automobile insurance using the exposure base of gross receipts or mileage rather than the number of vehicles. This rating basis may be used for rating taxis, buses, and other public automobiles. It is also sometimes used in the composite rating of truckers.

Gross Vehicle Weight (GVW)
The value specified by the manufacturer as the maximum total loaded weight of a single vehicle.

Ground Coverage
Aviation insurance for the hull when the airplane is not flying.

Ground Up Loss
The entire amount of an insurance loss, including deductibles, before application of any retention or reinsurance. The original loss to the insured, after recognizing known salvage and subrogation.

Group Annuity
An annuity issued to an employer or retirement plan trustee to provide benefits for employees under retirement programs.

Group Booklet
A pamphlet or booklet distributed to employees, describing in layman's language the provisions of an employee group insurance plan.

Group Certificate
A document provided to each member of a group plan showing the benefits provided under the contract.

Group Contract
A contract provided to the employer detailing coverage under a group plan.

Group Credit Insurance
Coverage a creditor may buy on the life or health of debtors to pay the debt in case of disability or death.

Group Insurance
In general, any insurance plan by which a number of employees (and their dependents) are insured under a single policy issued to their employer, with individual certificates given to each insured employee. The coverages most frequently written are life, accidental death and dismemberment, pensions, income replacement, and medical care.

Group Practice HMO
A type of HMO which consists of various group physician practices including specialists who treat participants of the HMO exclusively. Patients are treated in the offices of the group practices and the physicians are compensated on a per patient basis for specific services.

Guaranteed Cost
Guaranteed cost premiums are those charged on a prospective basis without adjustment for loss experience during the policy period. An agreed rate at the beginning of the policy term is charged against the applicable exposure base (payroll, sales, number of vehicles or square feet) to provide the premium.

For auditable coverages such as workers compensation or general liability, only a change in the exposure base during the period will cause the premium to vary. The actual loss experience during the period will not affect the premium for that period.

Guaranteed Insurability (Guaranteed Issue)
Arrangement, usually provided by rider, whereby additional life insurance may be purchased at various times without evidence of insurability.

Guaranteed Investment Contract (GIC)
A funding arrangement most often used with profit sharing and savings and thrift plans in which the insurer guarantees the principal and interest rate, assuming that the contact is held to maturity.

Guaranteed Renewable
A provision in a life or disability policy that requires the insurer to renew the policy on its anniversary. The premium can usually be changed if the change applies to the entire class of insureds covered by the policy.

Guaranty Funds
Established by law in every state, guaranty funds are maintained by state's insurance commissioner to protect policyholders in the event an insurer becomes insolvent or is unable to meet its financial obligations.

The funds are usually financed by assessments against all property and liability insurers regulated by a state.

Guardian Al Litem
An individual appointed by a court to litigate a matter on behalf of a minor.

Guertin Laws
The nonforfeiture laws in life insurance that have been standard in all states since 1948.

These laws require that a paid-up nonforfeiture benefit (e.g., paid-up term life insurance) be provided for every whole life policy that lapses because of nonpayment of premium. These laws also require that a cash surrender value be provided if the policy has been in force three years or more.

Guest Statutes - Auto
Legislation governing the rights of guests to sue a host-driver. Some guest statutes prohibit all nonpaying guests from suing for damages arising out of ordinary negligence. Other statutes preclude only those guests related to the owner or operator.


Hammer Clause
A provision (also known as the "consent to settlement clause" and "blackmail settlement clause") found in professional liability insurance policies, that requires an insurer to seek an insured's approval prior to settling a claim for a specific amount.

If the insured, however, does not approve the recommended figure, the consent to settlement clause states that the insurer will not be liable for any additional monies required to settle the claim or for the defense costs that accrue from the point after the settlement recommendation is made by the insurer.

Hangar Keepers Liability
Provides coverage for damage to or destruction of the aircraft of others while in the insured's custody for storage, repair, or safekeeping and while in or on the scheduled premises.

Hard Market
One side of the market cycle characterized by high rates, low limits, and restricted coverage. Contrast with soft market.

Hazardous Waste
A technical term under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) for chemical or other products considered to be hazardous or sources of hazardous waste.

A source of potential harm or a situation with a potential to cause loss.

Health Insurance Portability and Accountability Act (HIPAA)
Federal act requiring health care organizations to spend up to $3.5 billion on security measures to protect patient information.

Health Insurance
A category of insurance that provides two major types of benefits: payment of medical costs (hospital bills, doctors' fees, etc.) and disability income (monthly income to disabled workers during their disability).

Health Maintenance Organization (HMO)
An organization that offers, provides, or arranges for coverage of designated health services needed by plan members under a prepaid per capita or prepaid aggregate fixed-sum basis.

Services are provided through contracts and other arrangements into which the HMO enters with health care providers. With limited exceptions, persons enrolled in an HMO must receive health care benefits through these contract providers or no insurance benefit is provided.

A noncorrelating investment designed to minimize known, quantified risk. Catastrophe bonds are used as (imperfect) hedges to help protect insurers against the risk inherent in their catastrophe exposures.

Noncorrelating investments are investments exhibiting different risk characteristics from other investments within a portfolio.

High-Risk Community
A community located within the vicinity of numerous sites of facilities or other potential sources of environmental exposure/health hazards which may result in high levels of exposure to contaminants or pollutants.

Highly Protected Risk (HPR)
Premises or other property that meets a particular insurer's loss control standards required to earn low premium rates. These properties usually are protected by sprinklers and have better than average construction and occupancy characteristics.

Hired Automobile
An automobile whose exclusive use and control has been given to another for a consideration. The business auto definition of "Hired Autos", however, also includes borrowed autos, except for those borrowed from employees or partners.

Historical Loss Costs
Data reflecting the dollar losses relating to each exposure unit in the past.

Hold Harmless Agreement
A contract provision under which the possible legal liability of one party to a contract for damages payable is assumed by another party to the contract. Construction contracts, for example, often require the contractor to indemnity the owner with respect to the owner's liability to members of the public who are injured or whose property is damaged during the course of the contractor's operations.

Also known as indemnity clause.

Homeowner's Policy
A multiple lines contract providing protection against property and liability exposures for the personal residence exposure.

Homogeneity, Homogeneous
Similarity among insureds in the same rating class. All insureds in the same class of a sound classification and rating system should be fairly homogeneous.

Hospital Income Insurance
Insurance providing a stated weekly or monthly payment during the hospitalization of the insured. The benefits payable are not based on the actual expenses incurred.

Hospital Professional Liability Insurance (HPL)
Insurance purchased by hospitals covering their liability for professional acts, errors, or omissions. Hospital professional liability (HPL) forms are usually written on a combined basis with commercial general liability (CGL) policies to avoid "gray areas" in which coverage could apply under either policy.

HPL forms cover hospital employees but not independent contractor staff physicians who have been granted admitting privileges.

Host Liquor Liability
Liability arising from serving liquor at a business function. Companies in the business of selling or serving alcohol are not covered and require specialized insurance.

Hostile Fire
A fire that becomes uncontrollable or expands outside its intended boundaries.

Hostile Work Environment
A form of sexual harassment occurring when such conduct has the purpose or effect of unreasonably interfering with an individual's work performance or creating an intimidating, hostile, or offensive working environment.

Coverage for such claims is covered under employment practices liability (EPL) policies.

Hull Coverage
Marine or aviation insurance covering damage sustained to an insured vessel or airplane.


IBNR (Incurred But Not Reported Losses)
An estimate of the amount of an insurer's (or self-insurer's) liability for claim-generating events that have taken place, but have not yet been reported to the insurer or self-insurer. The sum of IBNR losses plus incurred losses provide an estimate of the insurer's eventual liabilities for losses during a given period.

Immediate Annuity
An annuity purchased with a single premium under which payment to the annuitant begins at the end of the first prescribed payment period.

Immediate annuities are most often purchased as a settlement option under a life insurance policy.

Immediately Dangerous to Life and Health (IDLH)
The maximum level to which a healthy individual can be exposed to a chemical for 30 minutes and escape without suffering irreversible health effects or impairing symptoms. Used as a "level of concern".

Impaired Risk
A substandard (less desirable than average) risk.

Impairment Capital
The situation in which the surplus account of a stock insurer is threatened by exhaustion, and the insurer invades its capital account to meet liabilities. Some jurisdictions allow this, but most do not.

To sue; to prosecute. To bring a new party into an action.

Implied Authority
Actions of an agent which may extend beyond the rights and powers explicitly provided in the agency contract. If these actions resulted in no response from the insurer, authority is extended as if these fell within the agency contract.

Implied Warranty
As a point of law, the understanding that a particular product is safe and suitable for a particular use, when the vendor knows at the time of sale the use for which the product is intended.

Improvements and Betterments
Permanent additions or changes made by a lessee at his own expense that may not legally be removed. Property policies vary as to whether tenants' improvements and betterments are covered under the building category or under the contents category.

In-house Counsel
An attorney employed by the organization for which he or she provides legal services.

In Rem Endorsement
A workers compensation coverage endorsement extending coverage for suits filed against the value of a ship by an injured crew member seeking for the recovery of damages. The suit must cite the unseaworthy condition of the vessel as proximate cause of the damages.

In the absence of this endorsement, an in rem suit could result in an injunction preventing the vessel from leaving port until the suit is settled. In rem coverage is now a part of the maritime coverage endorsement, rather than a separate endorsement.

Inchmaree Claus
An ocean marine insurance provision adding coverage for damage directly resulting from the bursting of boilers, breakage of shafts, other mechanical failures, latent defects in the ship's equipment or machinery, and faults or errors in the navigation or management of the ship.

Incidence of Ownershi
The rights that might be exercised by the owner of the policy who may or may not be the insured.

Incident Reporting Provision
A provision in a liability insurance policy that requires the insured to report incidents, accidents, or occurrences that may lead to claims. The provision is also called an "awareness provision" or a "notice of potential claims provision".

Incidental Malpractice
The liability exposure created by the offering of medical services by an entity not engaged primarily in the offering of such services.

A manufacturing business, for example, might have such an exposure by virtue of the fact that it employs an industrial nurse to handle first aid claims.

Incontestable Clause
Provides that, for certain reasons such as misstatements on the application, the company may void a life insurance policy after it has been in force during the insured's lifetime, usually one or two years after issue.

Increased Cost of Construction
Coverage available by endorsement to a standard property policy to insure against loss caused by the enforcement of ordinances or laws regulating construction and repair of damaged buildings.

Many communities have building ordinances that require that a building which has been damaged to a specified extent (often 50%0, must be demolished and rebuilt in accordance with current building codes, rather than simply repaired.

Increased Limit Factors
Multiplicative factors that are applied to rates or premiums for "basic" limits of coverage, to determine premiums for higher limits of coverage.

Increasing Term Insurance
Term life insurance in which the death benefit increases periodically over the policy's term. Usually purchased as a cost of living rider to a whole life policy.

Incurred But Not Reported (IBNR) Losses
An estimate of the amount of an insurer's (or self-insurer's) liability for claim-generating events that have taken place, but have not yet been reported to the insurer or self-insurer. The sum of IBNR losses plus incurred losses provide an estimate of the insurer's eventual liabilities for losses during a given period.

Incurred Expenses
Expenses paid plus reserves for expenses to be paid.

Incurred Loss Ratio
The ratio of incurred losses (i.e., paid and reserved) to premiums earned.

Incurred Loss Retro
An insurance risk financing plan under which the insured pays a premium based on actual loss experience incurred during the policy period.

The premium adjustments made over the life of the plan are based on incurred losses, which takes into consideration the outstanding reserves and expenses of the claims in addition to the actual paid indemnity and medical costs.

Incurred Losses
The total amount of paid claims and loss reserves associated with a particular period of time, usually a policy year.

(1) - For policies written on an indemnification basis, the insurer reimburses the insured for claims and claim costs already paid by the insured. The insured must suffer a loss and also pay the loss before being indemnified by the insurer.

(2) - The agreement of one party to assume financial responsibility for the liability of another party. Hold harmless agreements are typically used to impose this transfer of risk.

To restore the party that has had a loss to the same financial position it occupied before the loss. Many insurance policies and all bonds promise to "indemnify" the insured. Under such a contract, there can be no recovery until the insured has actually suffered a loss.

The person or organization who is held harmless in a contract (by the indemnitor).

The person or organization who holds another (the indemnitee) harmless in a contract.

Indemnity Clause
A contract provision under which the possible legal liability of one party to a contract for damages payable is assumed by another party to the contract. Construction contracts, for example, often require the contractor to indemnity the owner with respect to the owner's liability to members of the public who are injured or whose property is damaged during the course of the contractor's operations.

Also known as hold harmless agreement.

Restoration to the victim of a loss up to the amount of the loss.

Independent Adjuster
Independent contractor that provides claims adjusting services to various insurance companies and charges a fee for each claim handled.

Independent Agency System
A system for marketing, selling and distributing insurance in which independent brokers are not affiliated with any one insurer but represent any number of insurers.

Independent Contractor
An individual or company who has signed an agreement with another party to perform some job or function on behalf of that party without the direction or oversight of the party.

As respects workers compensation, many states have established criteria which determines whether an individual is functioning as an independent contractor or employee. A worker classified as an independent contractor and not an employee is ineligible to receive benefits under the workers compensation policy of the other party. In spite of the rules established, the delineation of an independent contractor remains a legal ambiguity in many jurisdictions.

Indirect Losses
Loss of earnings or extra expense taking place over a period of days, weeks, or months following a direct loss.

Individual Practice Association
A type of HMO in which individual practitioners see patients enrolled in the HMO, but also treat their own patients who are not HMO participants.

Compensation to the physician is based on either a per patient fee or a discounted fee schedule.

Individual Rating
A rating system used when every insured is unique. Each insured is assigned an insurance rate that reflects its own unique characteristics.

Inflation Factor
The loading factor providing for future increases in either the cost of losses or the size of exposure bases (e.g., payroll, sales) resulting from inflation.

It may be applied to historical data of any kind to convert historical data into more current data when making projections.

Inflation Guard Provision
A provision that gradually and continuously increases the limit of insurance by a specified percentage over a period of time.

Informed Consent
A duty owed by a medical professional to obtain a patient's consent before performing a procedure or rendering treatment.

After fully explaining the treatment, the physician should obtain the patient's consent to allow treatment. There is a presumption of negligence if injury results and the physician did not obtain such consent.

Inherent Defects Insurance (IDI)
First-party property insurance that covers physical damage or imminent collapse of newly constructed property caused by faulty design, engineering, workmanship, or materials in load-bearing elements such as foundations, columns, walls, floors, beams, roofs, and land improvements. Available to qualified owners, developers, and contractors for up to a 10-year policy term, IDI provides a mechanism for reducing or avoiding construction defects litigation.

Inherent Vice
An exclusion found in most property insurance policies eliminating coverage for loss caused by a quality in property that causes it to damage or destroy itself.

Initial Premium
The amount paid at the inception of an insurance contract.

Injury or Damage
Injury or damage that is not expected or intended from the standpoint of the insured. Coverage is limited to accidental (and not deliberate) incidents.

Inland Marine Insurance
A group of property insurance coverages designed to insure exposures that cannot be conveniently or reasonably confined to a fixed location or insured at a standard rate under a standard form. Coverage includes property in transit over land, certain moveable property, property under construction, instrumentalities of transportation and communication (such as bridges, roads, piers, and television/radio towers), legal liability coverage for bailees, and computerized equipment.

Many inland marine coverage forms provide coverage without regard to the location of the covered property. As a result, these policies are often called "Floater" policies.

Inland marine coverage forms are generally broader than property coverage forms due to the relative freedom from rate and form regulation of inland marine insurance compared with property insurance.

Inside Adjuster
A claims adjuster who settles claims without conducting any outside investigation. Also known as a telephone adjuster. An inside adjuster is generally used when the claim is clearly covered and there is no question about the circumstances of the accident or the validity of the claim.

Inspection Report
Report of an investigator providing facts required for a proper decision on applications for new insurance and reinstatements.

All conditions pertaining to individuals that affect their health, susceptibility to injury and life expectancy; an individual's risk profile.

Insurable Interest (Property and Casualty)
Any interest in , or relation to, property of such a nature that the occurrence of an event insured against would cause financial loss to the insured. Insurable interest usually results from property rights, contract rights, and potential legal liability.

Insurance Commissioner
The head of the state's insurance department or regulatory agency.

Insurance Companies
Organizations chartered under state or provincial laws to act as an insurer. In the United Sates, insurance companies are usually classified as a particular type of company, and may write only those kinds of insurance which are specifically authorized in their charters. Many charters have now been broadened to include several types of insurance.

The financial condition of an insurance company is a key consideration in developing a sound program of protection. The most commonly used evaluation of insurance companies is A.M. Best's Insurance Reports. Best assigns an alphabetical rating classification to most insurance companies, ranging from "A+" to "C-". They assign a numerical rating ranging from I (one) to XV (fifteen) based upon the financial size of an insurance company. Additional rating categories are utilized for more unique situations.

Some insurance companies are also rated by Standard & Poor. You should inquire about the financial condition of any insurer you are considering.

Insurance companies are also categorized as either"admitted" or "excess and surplus lines" companies. The distinction is based upon how the insurer is licensed to transact business within a particular state. Excess and surplus lines companies may not participate in state insurance guarantee or insolvency funds. This fact makes it even more important to review the financial condition of excess and surplus lines insurers.

Insurance Department
A governmental entity charged with the regulation and administration of insurance laws and other responsibilities associated with insurance.

Insurance Examiner
A state insurance department representative assigned to officially audit and examine insurers.

Insurance Exchange
An entity providing a marketplace for insurance coverage for risks that are often unusual or nonstandard.

Unlike insurance companies, however, insurance exchanges do not underwrite insurance coverage. rather, they are nonprofit organizations that oversee its underwriting members or "syndicates". In this capacity, exchanges receive premiums, issue policies, handle claims, supervise underwriters, and monitor their solvency.

Lloyd's of London is the world's foremost insurance exchange.

Insurance Guaranty Fund
State systems to pay the claims of insolvent property and liability insurers. Generally, the money in guaranty funds is provided by charges assessed against all insurers in the state.

Insurance Information Institute (III)
An educational, fact-finding, and communications organization for the property and casualty insurance industry.
The III is supported by several hundred member insurance companies.

Insurance Policy
In broad terms, the entire written contract of insurance. More specifically, it is the basic written or printed document, as well as the coverage forms and endorsements added to it.

Insurance Regulatory Information System (IRIS)
Numerical tests consisting of 11 ratios developed and used by the National Association of Insurance Commissioners (NAIC) to determine an insurance company's operating condition and solvency.

Insurance Services Office, Inc. (ISO)
A nonprofit association of insurance companies that collects statistical data, promulgates rating information, develops standard policy forms, and files information with state regulators on behalf of its member companies. ISO is the "bureau" in most states for homeowners, personal auto, commercial auto, commercial general liability, commercial property, commercial crime, and some lines of professional liability.

Insurance to Value
An amount of insurance at, or close to , the value of the property insured or which meets coinsurance requirements.

A contractual relationship which exists when one party (the insurer) for a consideration (the premium), agrees to reimburse another party (the insured) for loss to a specified subject (the risk) caused by designated contingencies (hazards or perils), or to pay on behalf of the insured all sums for which the insured may be liable to a third party (the claimant). The term "assurance" commonly used in the UK, is ordinarily considered identical to and synonymous with insurance.

Insured versus Insured Exclusion
An exclusion found primarily in directors and officers liability policies, and to a lesser extent in other types of professional liability coverages.

The exclusion precludes coverage for claims by one director or officer against another.

A person, business, or organization that is covered by an insurance policy.

Party that provides insurance coverage, typically through a contract of insurance. Also known as an insurance company.

Insuring Agreement
A provision in an insurance policy stating, in broad terms, the promises made by the insurer. An insurance policy provides coverage only if the claim is within the scope of the promise expressed in an insuring agreement.

Interchange Agreements
An agreement between trucking companies in which Company A has possession of Company B's trailer or equipment and agrees to be responsible for the trailer and/or equipment while in A's possession.

Transportation of cargo by two or more carriers, e.g., two motor carriers or two airlines.

Transportation of cargo by two or more types of carriers, e.g., motor, rail, air, or ocean.

Written list of questions put to a party - plaintiff or defendant - to a lawsuit. Answers provided are used to prepare questions for depositions or for trial.

Interstate Experience Rating
An experience rating plan for risks operating on a multistate (interstate) basis that utilizes the experience developed within more than one state.

Intrastate Experience Rating
An experience rating plan that utilizes the experience developed within one state only.

Investment Income
The income of a company derived from its investments as opposed to its operations.

A person to whom an express or implied invitation has been given to come onto the premises for the business advantage of the possessor. Under common law, the possessor of the land owes an invitee the highest duty of care.

Irrevocable Beneficiary
A beneficiary to a life insurance policy that cannot be changed without his or her consent.


Kenney Ratio
A rule of thumb developed by Roger Kenney that sets a 2 to 1 target ratio of gross premiums written to policyholder surplus for companies writing strictly property insurance. For companies that also write liability insurance, the ratio is 3 to 1. Such ratios provide a measure of an insurer's financial stability and solvency.

Keogh Act Plan
A part of the Self-Employed Individuals Retirement Act that enables self-employed individuals to take advantage of formal retirement plans and tax advantages similar to those available for corporate pension plans which also qualify under the Act.

Key Employee Insurance
Protection of a business against financial loss caused by the death or disablement of a vital member of the company, usually individuals possessing special managerial or technical skill or expertise. Also called key executive insurance.

Kidnap & Ransom Insurance
Kidnap and Ransom insurance covers ransom payments and related expenses. Some policies also provide a crisis service. Premiums usually are not very large, so this coverage is a worthwhile precaution.


Termination of a policy upon the policy owner's failure to pay the premium within the grace period.

Large Deductible Plan
A cash flow casualty lines insurance program that allows the insured to retain a portion of each loss through a substantial deductible and to transfer to an insurer losses in excess of that deductible. The insurer also handles losses falling below the deductible and bills back these costs to the insured.

Laser Exclusion
An exclusionary endorsement under a claims-made commercial general liability policy that excludes liability arising from the products, locations, accidents, or work specified in the endorsement.

Last Injurious Exposure
A trigger used to establish which employer and workers compensation insurer are responsible for occupational disease that has been manifested in an employee.

For the disease to be covered, the last date of the employee's last exposure to the situation causing the illness must be determined to fall in the applicable employer's policy period under which the claim is filed.

Laundry Listing
The reporting of all possible claims (or incidents that could later produce claims) to an insurer under a claims-made policy that is about to expire, be cancelled, or nonrenewed. Laundry listing is sometimes done because discovery provisions under claims-made policies state that if an "incident" is reported to an insurer (that later gives rise to a claim against an insured), coverage will apply regardless of how far in the future the claim is made.

Law of Large Numbers
Theory of probability that is the basis of insurance. The larger the number of exposures, the closer the actual results will approach the probable results expected from an infinite number of exposures. As the number of exposures increases, the difference between the actual and expected losses becomes a smaller percentage of the expected losses.

Lawyers Professional Liability Coverage
Provides attorneys with liability coverage for financial loss suffered by third parties arising from acts, errors, and omissions in providing professional, legal services.

Fraud, intentional and criminal acts, bodily injury, and property damage are excluded. Most policies, however, provide coverage for personal injury perils (e.g., defamation, invasion of privacy) since allegations of such acts occur frequently in the legal arena. Policies are written on a claims-made basis.

The building of a program of insurance coverage using the excess of loss approach. Layered programs involve a series of insurers writing coverage, each one in excess of lower limits written by other insurers. Insurers of subsequent layers respond in sequence, as necessary, to cover any larger loss. Layers are used in both property and umbrella/excess liability.

Lead Reinsurer
Refers to the reinsurer that negotiates the terms, conditions, and premium rates and first signs on to the line slip.

Reinsurers that subsequently sign on to the same slip are considered following reinsurers and are bound by the same terms and conditions to which the lead reinsurer agreed.

Leasehold Interest
Value of rights given by a favorable lease, determined by finding the difference between the rental value of the property at current rates and the rent payable under the terms of the lease. This amount is multiplied times the remaining term of the lease. The net leasehold interest is the present value of this difference.

Legal Liability to Participants - This coverage typically refers to persons while practicing for, or participating in contests or exhibitions of an athletic or sports nature. The coverage responds to and defends you in a suit being made against you, by a participant in a contest or exhibition (of an athletic or sports nature) which you control, promote, or sponsor.

Lender Liability
Liability caused by the wrongful acts of a lending institution. Lender liability claims most frequently arise when a debtor challenges the validity of a loan agreement in a counterclaim against a financial institution after the institution has filed a collection action.

Such claims typically allege:
- Misrepresentation of repayment terms
- Fraud
- Economic duress and
- Withholding of promised credit by the lender

The person or organization to whom a lease is granted - a "tenant."

The person or organization granting a lease - the "landlord."

Letter of Credit
A legal commitment issued by a bank or other entity stating that, upon receipt of certain documents, the bank will pay against drafts meeting the terms of the letter of credit.

Letters of credit are frequently used for risk financing purposes to collateralize monies owed by an insured under various cash flows program such as:
- Incurred but not paid losses in paid loss retrospective rating programs
- Meeting the capitalization requirements of captives
- Satisfaction of the security requirements of the excess insurer in "fronted" deductible or retention programs

Level Term Insurance
Term coverage on which the face value and premiums remain unchanged from the date the policy comes into force to the date the policy expires.

Any legally enforceable obligation. Within the context of insurance, the obligation to pay a monetary award for injury or damage caused by one's negligent or statutorily prohibited action.

Liberalization Clause
A provision that extends to persons already insured under a particular policy the broadened coverage features that may be introduced in subsequent editions of that policy form.

In umbrella liability insurance, a clause specifying that coverage will be as broad as that provided by the primary liability policies.

License and Permit Bonds
Bonds required by various municipalities or public authorities to indemnify them against loss in the event of violation of the regulations or ordinances under which the permit is required.

A charge or security or encumbrance upon property.

Life Expectancy
The average number of years a person of a certain age is expected to live as shown on an annuity table or mortality table.

Life Insurance Trust
An agreement that provides for the placing of life insurance proceeds into a trust fund which is administered by a trustee within the terms of the trust.

Life Office Management Association (LOMA)
An educational organization that focuses on the life insurance business and develops administrative and technical courses.

Limit of Liability
The maximum amount for which an insurer may be liable for any loss, as set forth in the policy..

Line Sheet
A schedule showing the maximum limit of liability that can be written by an insurer for different classes of risks. Also called a "line guide."

Line Slip
The piece of paper containing all the pertinent information regarding the risk and the insurance terms and conditions that is submitted by the broker to the underwriter at Lloyds of London.

If the underwriter decides to participate on the risk, the percentage and pricing is recorded in addition to the underwriter's signature. The process is then repeated until the slip is completely filled. The slip forms the basis for the insurance coverage contract and in the event of a difference in wording between the slip and the policy issued from it, the slip supersedes the policy as the binding insurance document.

1. A class of insurance, such as property, marine, or liability
2. In reinsurance, an amount of risk retained by a ceding insurer for its own account. The line varies with the insurer's financial strength and with the nature of the exposure.

A measurement of an organization's ability to meet its debt obligations, particularly short-term debt. Cash, accounts receivables, and short-term securities are considered liquid assets since they can be quickly made available to pay debt.

Ratios commonly used to measure liquidity include the current ratio, acid-test ratio, number of days' sales in accounts receivables, accounts receivable turnover, total assets turnover, and inventory turnover.

Liquor Law Liability (Dramshop)
Common law liability imposed on those selling alcoholic beverages, as well as the statutory liability established in some states, which is excluded in general liability policies.

Liquor Liability - This type of liability insurance provides coverage for bodily injury or property damage for which you may be held liable by reason of:
Causing or contributing to the intoxication of any person;
Furnishing alcoholic beverages to a person under legal drinking age or under the influence of alcohol; or
Violating any statute, ordinance, or regulation relating to the sale, gift, distribution, or use of alcoholic beverages.

This coverage only applies if you are involved in the following activities:
Manufacturing, selling, or distributing alcoholic beverages;
Serving or furnishing alcoholic beverages for a charge, whether or not such activity requires a license or is for the purpose of financial gain or livelihood; or
Serving or furnishing alcoholic beverages without a charge, if a license is required for such activity.

Litigation Management
The application of management principles to the litigation process and to an organization's use of outside lawyers. Includes components of planning, controlling, organizing, implementing, and monitoring in the context of legal services and costs.

The process of investigating and adjudicating the facts and law in a particular case. In general usage, the bringing or defense of a lawsuit.

Lloyd's Broker
A client representative sanctioned by the Committee at Lloyd's of London to contact underwriters at Lloyd's and negotiate insurance with the underwriters on behalf of the representative's clients.

The client is the insured except in the case of the U.S. insureds when the client is normally the U.S. broker or agent.

Lloyd's Central Fund
A fund to protect policyholders in case any underwriting member should be unable to meet his or her liabilities out of Syndicate Trust Funds, funds deposited at Lloyd's, reserves, and personal assets outside of Lloyd's.

An annual contribution is made to this fund by every Lloyd's member.

Lloyd's Managing Agent
A firm or company having complied with the requirements of the Council of Lloyd's for managing a syndicate (and who may also be a members' agent).

Lloyd's Members' Agent
A firm or company having complied with the requirements of the Council of Lloyd's for conducting an underwriting agency at Lloyd's and who acts for the members except with respect to managing a syndicate.

Lloyd's of London
An association of independent underwriters operating in London. It is not an insurance company, but operates as a marketplace for large and/or unusual insurance exposures where brokers representing insurance applicants are able to contract with underwriters offering coverage.

Lloyd's Syndicate
A group of individuals at Lloyd's of London who have entrusted their assets to a team of underwriters who underwrite on behalf of the group.

Lloyd's Underwriter
A person that writes business for Lloyd's of London through a Lloyd's association or facility of Lloyd's.

Long-Term Care
Care provided for persons with chronic disease or disabilities.

Long-Term Care (LTC) includes a wide range of health and social services that may involve adult day care, custodial care, home health care, hospice care, intermediate care, respite care, and skilled care. LTC does not include hospital care.

Long-Term Disability (LTD) Income Insurance
LTD insurance replaces earnings lost due to illness or disability occurring on or off the job. Coverage may be purchased on an individual or group basis.

Individual policies typically do not pay until the period of the disability exceeds a specified elimination period, usually 30 days or longer. Recovery under group disability income policies is often structured to begin after short-term disability income insurance benefits or uninsured salary continuance payments cease.

Long Tail Liability
The liability for claims that do not proceed to final settlement until a length of time beyond the policy year. High incurred but not reported (IBNR) claims contribute to the "tail" effect, since these losses are usually not settled until several years after the expiration of the policy in question.

Longshore and Harbor Workers Compensation Act (LHWCA)
A federal law that provides no-fault workers compensation benefits to employees other than masters or crew members of a vessel injured in maritime employment - generally in loading, unloading, repairing, or building a vessel.

Employers can obtain coverage under a standard workers compensation policy by purchasing a Longshore and Harbor Workers Compensation Act coverage endorsement.

Loss Ratio Coverage
A form of stop loss reinsurance under which the reinsurer pays a portion of the claims represented by a loss ratio in excess of a specified loss ratio.

For example, a "20% in excess of 110%" will result in claims between 110% and 130% loss ratios being paid by the reinsurer.

Loss Adjustment Expense
The cost of investigating and adjusting losses. Loss adjustment expenses need not be allocated to a particular claim. If they are allocated to a particular claim, they are called "allocated loss adjustment expenses" (ALAE).
If not, they are unallocated loss adjustment expenses.

Loss Constant
A flat amount included in the premium for some small insurance policies, to offset the greater-than-average loss experience of smaller insureds compared to all other insureds in a given classification.

Loss Control
The technique of minimizing the frequency or severity of losses with training, safety, and security measures. Also known as risk control.

Loss Conversion Factor (LCF)
A factor used in the retrospective rating formula that provides a charge to cover unallocated claims and the cost of the insurer's claim services.

Since the charge is developed as a part of the formula, the amount the insured will pay for unallocated loss expenses is a function of losses.

Loss Costs
The actual or expected cost to an insurer of indemnity payments and allocated loss adjustment expenses. Also known as "pure premium."

Loss costs do not include overhead costs or profit loadings.

Loss Development
The difference between the original loss as initially reserved by an insurer and its subsequent evaluation at a later date or at the time of its final disposal.

Loss development occurs because of:
1. Inflation - both "social inflation" and inflation in the consumer price index - during the time period in which losses are reported and ultimately settled, and
2. Time lags between the occurrence of claims and the time they are actually reported to an insurer

To account for these increases, a "loss development factor" (LDF) or multiplier is usually applied to a claim or group of claims in an effort to more accurately project the ultimate amount for which they will be closed.

Loss Forecasting
Predicting future losses through an analysis of past losses. Past loss data must usually span a sufficient number of years (5 or more) to achieve some degree of credibility.

The time span is important because the most recent years' experience most clearly approximates current exposure, but the earlier years' losses have had more time to develop .

The law of large numbers, exposure data, any anticipated changes in company operations or structure, inflation, workers' compensation benefit changes, and any other relevant factors must be considered when forecasting losses.

Loss Limitation
An optional feature of a retrospective rating plan that limits or "caps" the amount of loss (usually at the $100,000 level, or more) that would otherwise be applied to the calculation of premium.

An additional premium is charged for this feature by means of an "excess loss premium factor (ELPF)."

Loss Loading (Multiplier)
A factor applied to pure loss costs or expected losses to produce a premium rate. The multiplier is applied to account for insurer overhead, profit, and contingencies that are in addition to anticipated loss amounts.

Loss of Consortium Suits
A legal action often brought by the spouse of in injured worker that alleges the loss of spousal services including but not limited to companionship, help with household duties, and sexual relationships. Such suits can also be brought by parents or children of the injured worker claiming the loss of services, typically companionship.

Many jurisdictions have allowed these type of actions to be heard even when the worker is already receiving workers' compensation benefits. Coverage for a lawsuit of this type is provided by the employer's liability section of the workers' compensation policy.

Loss Payable Clause
A clause in a property policy which provides for payment to a party such as a lienholder, in addition to the insured, for any losses to the insured property according to the extent of the lienholder's financial interest in the property at the time of the loss.

Loss Pick
Also known as "expected losses," the loss pick is an underwriter's or actuary's estimation of future losses based on past losses. At least five years of historical loss data will be used to predict an estimate of a future year's losses.

Loss picks are used to quantify an estimate of the loss component of a typical loss-sensitive rating plan such as a retrospective program. The ultimate premium is comprised of expenses and the loss pick.l

Loss Portfolio Transfer
A financial transaction in which loss obligations that are already incurred and will ultimately be paid are transferred to an insurer or reinsurer.

In determining the premium to be paid to the insurer or reinsurer, the time value of money is considered and the premium to be paid is therefore less than the ultimate amount that had been reserved.

Loss Rating
A term applied to a rating technique often used for larger insureds in which the insured's past loss history is used to establish a prospective rate. The past losses are developed and trended, as appropriate, and divided by the amount of a selected exposure base to determine a relationship between the exposure and loss experience.

Loss Ratio
Proportionate relationship of incurred losses to earned premiums expressed as a percentage.

If , for example, a firm pays $200,000 of premium for workers' compensation insurance in a given year, and its insurer pays and reserves $100,000 in claims, the firm's loss ratio is 50%.

Loss Reduction
A loss control activity focusing on reducing the severity of losses. Examples include building firewalls to reduce the spread of fire and installing automatic fire sprinklers.

Loss Report
A listing of reported claims providing such information as the date of occurrence, type of claim, amount paid and amount reserved for each as of the report's valuation date.

Loss Reserve
An estimate of the value of a claim or group of claims not yet paid. A case reserve is an estimate of the amount for which a particular claim will ultimately be settled or adjudicated.

Insurers also set reserves for their entire books of business to estimate their future liabilities.

Loss Trending
Adjusting historical losses to account for inflationary trends, thus putting their value into current dollars. Historical loss amounts are multiplied by "trending factors" to convert historical loss amounts to current dollar amounts.

Losses Incurred
The total amount of losses that are:

1. Paid, and
2. Unpaid but reserved

that are sustained during a given period

Any decrease in quantity, quality, or value of property. With reference to policies of indemnity, this term is often used as an expression of the amount of damages that may or may not be covered in whole or in part depending on the cause of the loss and the coverage afforded. In its application to liability policies, it refers to payments made on behalf of the insured. See Claim.

Lost Policy Release
A statement signed by the named insured releasing the insurer from all liability under a lost or mislaid contract of insurance in cases where the insured wants to cancel the policy.

Historically, many insurance policies required that the original policy be returned to the insurer to effect cancellation, and a lost policy release served in place of the original policy.


Maintenance, Cure and Wages
A concept within general maritime law that spells out the duties owed by the owner of a vessel to the crew.

Major Medical Insurance
Health insurance that provides benefits up to very high limits, subject to a very large deductible. There may also be internal limits and a participation clause, sometimes called a coinsurance clause.

A professional error, omission, or act of negligence in performing a professional act.

Managed Care
Refers to a broad and constantly changing array of health plans that attempt to control the cost and quality of care by coordinating medical and other health-related services.

The majority of Americans with private health insurance are currently enrolled in managed care plans.

Managing General Agent
A wholesale insurance intermediary with the authority to accept placements from (and often to appoint) retail agents on behalf of an insurer. Managing general agents generally provide underwriting and administrative services, such as policy issuance, on behalf of the insurers they represent.

Typically, MGAs market more unusual and hard-to-place coverages, such as professional liability, for which specialized expertise is required to underwrite policies. MGAs benefit insurers because such expertise is not always available within the company and would be more costly to develop on an in-house basis.

Also known as Managing General Underwriter, although Managing General Underwriters may have greater authority and/or responsibility.

Managing General Underwriter
A wholesale insurance intermediary with the authority to accept placements from (and often to appoint) retail agents on behalf of an insurer. Managing general underwriters generally provide underwriting and administrative services, such as policy issuance, on behalf of the insurers they represent.

Typically, MGUs market more unusual and hard-to-place coverages, such as professional liability, for which specialized expertise is required to underwrite policies. MGUs benefit insurers because such expertise is not always available within the company and would be more costly to develop on an in-house basis.

Also known as Managing General Agent, although Managing General Underwriters may have greater authority and/or responsibility.

Manifestation Theory
A legal theory in latent injury cases which holds that the injury occurs when the injury becomes known (manifests itself) to the injured party.

Manual Rates
Usually the cost of units of insurance or bond protection without modification for the insured's individual risk characteristics. It may also refer to rates developed by the application of a recognized rating plan.

Manuscript Policy
A policy form written to cover a specific risk.

Manuscript polices differ from standard policies in that they are one-of-a-kind. They frequently are used to cover either high value or unusual risks for which standard forms are not well-suited.

Marine Insurance - (See Inland Marine or Ocean Marine Insurance).

Market Cycles
Market-wide fluctuations in the prevailing level of insurance and reinsurance premiums.

A soft market is a period of increased competition, depressed premiums, and excess capacity. It is followed by a hard market - a period of rising premiums and decreased capacity.

Market Value Clause
A property insurance endorsement or provision establishing market value (rather than actual cash value or replacement cost value) as the valuation basis for covered property.

Market value clauses are often used in connection with agricultural products and other commodities whose value fluctuates in accordance with a commodities exchange. The clause is also sometimes used for buildings of historic value, which often cannot be replaced easily with like kind or quality.

Market Value
The price at which a particular property item could be sold.

Master Policy
A policy issued to an insured to cover property at more than one location. It is also a policy issued to cover the interest of a lender or lessor of property in the possession of others. These policies may also cover the interest of the purchaser or lessee. Under such policies, certificates of the coverage may be issued to the holders of the property covered.

Under group insurance plans, it is sometimes called the "Master Contract". It is issued to the employer and contains all the insuring clauses that define the employee benefits under the plan.

Master Policy
In property and liability coverage, the combining of several locations or operations under a single policy for the same insured or insureds. The term may also be used in the case of construction wrap-ups.

In either case, underlying policies or certificates of insurance are issued to insureds under the policy as evidence of coverage under the master policy.

Material Safety Data Sheet (MSDS)
Under the Hazard Communications Standard promulgated by OSHA in 1983, chemical manufacturers and importers are required to distribute these forms with the initial shipment of a hazardous chemical to a given employer.

The forms must describe the chemical's properties, identify potential hazards, and provide safe use and handling procedures. Employers must maintain a file, accessible to employees, of MSDSs for all chemicals they use in their business.

Used to describe a life insurance policy whose face amount has become payable.

Maturity Date
The date at which the face amount of a life insurance policy becomes payable either by death or other contract stipulation.

Maximum Foreseeable Loss
The estimate of the damage which would result if the occurrence insured against were not controlled by the protection which might reasonably be expected.

McCarran-Ferguson Act (Public Law 15)
Congressional action exempting insurance from federal regulation as a form of interstate commerce, to the degree effective regulation is undertaken by the individual states.

Media Liability Coverage
A type of errors and omissions liability insurance designed for publishers, broadcasters, and other media-related firms.

Policies are typically written for the following broad areas:
- Defamation
- Invasion of privacy
- Infringement of copyright
- Plagiarism

The act of a third person in assisting two adverse parties in adjusting or settling their dispute.

The federal-state health insurance program administered by the states and subsidized by the federal government for low income Americans. Medicaid also pays for nursing-home care for the indigent elderly and mentally disabled.

Medical Examination
Usually conducted by a licensed physician; the medical report is part of the application, becomes part of the policy contract and is attached to the policy. A "non-medical" is a short-form medical report filled out by the agent. Various company rules, such as amount of insurance applied for or already in force; applicant's age, sex, past physical history; data revealed by inspection report, etc., determine whether the examination will be "medical" or "non-medical".

Medical Fee Schedule
A provision of most state workers compensation laws that establishes the maximum amount a health care provider may collect for injuries treatable under the act.

Medical Payments
An optional coverage available under automobile liability, general liability and homeowners policies which pays the medical bills of non-employees (for example, a guest falls on your premises) without actually establishing your legal liability. This coverage functions as a goodwill gesture and is intended to avoid litigation

A document completed by a physician or another approved examiner and submitted to an insurer to supply medical evidence of insurability (or lack of insurability) or in relation to a claim.

The U.S. government program providing medical expense benefits for persons over the age of 65 or who are disabled if they qualify for benefits under Social Security.

The program was implemented in 1965 as a part of the amendments to the Social Security Act of 1935.

A term used for an extended reporting period longer than 60 days, but not unlimited.

Migrant and Seasonal Agricultural Worker Protection Act (MSAWPA)
Establishes a private right of action for actual or statutory damages (as well as criminal and administrative sanctions) against employers and contractors of migrant or seasonal agricultural workers who violate the Act's housing and motor vehicle safety requirements, motor vehicle liability insurance requirements, and job information disclosure requirements.

An extended reporting period with a very short (e.g., 60 days) duration.

Minimum Premium
The least amount of premium to be charged for providing a particular insurance coverage. The minimum premium may apply in any number of ways, such as per location, per type of coverage, or per policy.

Minor - In most states, a person under the age of 18.

Miscellaneous Liability Coverage
A form of errors and omissions coverage provided for a variety of professionals and quasi-professionals, including stock brokers, process servers, detective agencies, auctioneers, customs house brokers, franchisors and many others, for which there is no standard policy form available.

To tailor such policies to the particular profession involved, insurers generally append manuscript coverage provisions and exclusions.

The act of making, issuing, circulating or causing to be issued or circulated an estimate, an illustration, a circular or a statement of any kind that does not represent the correct policy terms, dividends or share of surplus or the name or title for any policy or class of policies that does not in fact reflect its true nature.

Also refers to a false or misleading statement that, if intentional and material, can allow the insurer to void the insurance contract.

Mobile Equipment
A term that is defined in both the commercial general liability and commercial automobile policies. It refers to equipment such as earthmovers, tractors, diggers, farm machinery, forklifts, ,etc. that, even when self-propelled, are not considered as automobiles for insurance purposes.

Liability arising from mobile equipment is covered in the general liability policy. Physical damage coverage is usually provided by an "equipment floater."

MOD (Experience Modification)
A workers compensation premium adjustment factor based on the loss experience of the insured employer.

A standardized formulaic method of predicting future events using historical information.

Catastrophe models, which are usually computerized, can be used to predict losses based on anticipated future atmospheric weather patterns in various geographical regions.

Modification Factors
Policies in the higher premium ranges are subject to an "experience modification factor". This factor increases or decreases your premium based upon your company's loss experience. Companies with adverse loss experience should seek specialized safety engineering expertise.

Monetary Threshold
In no-fault auto insurance, a threshold based on a person's degree of injury (as measured by dollars of medical cost incurred) that must be reached before a suit can be brought against the negligent party.

Monopolistic States
Five states require that Workers Compensation insurance be purchased from the state. They are North Dakota, Ohio, Washington, West Virginia and Wyoming. Monopolistic states do not include Employer's Liability coverage with their policies.

Moonlighting Coverage
An endorsement available under professional liability policies covering insureds for their liability in conjunction with activities outside the scope of their normal job-related duties.

Moral Hazard
The possibility of loss being caused or aggravated by the dishonesty or character of the insured, his agents or employees. It arises from the character or circumstances of the insured, as distinguished from the inherent nature of the property covered or its location.

Morale Hazard
Describes a subjective hazard that tends to increase the probable frequency or severity of loss due to an insured peril.

Morale hazard, as contrasted with moral hazard, does not imply a propensity to cause a loss intentionally, but implies a certain indifference to loss simply because of the existence of insurance.

The relative incidence of disease.

Mortality Table
A table showing mortality rates for each age. Mortality rates shown in such a table are based on actuarial analysis and depict the probability that a person of the age for which a rate applies will die during the following year.

Mortality tables are used by insurers to determine premium rates and establish loss reserves.

The relative incidence of death within a given group.

Mortgage Insurance
A basic use for life insurance, so-called because many family heads purchase insurance for specifically paying off any mortgage balance outstanding at their death. The insurance generally is made payable to a family beneficiary instead of to the mortgage holder.

Mortgage (Mortgagee) Clause
A provision attached to a fire or other direct damage insurance policy covering mortgaged property stating that (1) the loss shall be payable to the mortgagee according to the amount of its financial interest, and (2) its right of recovery shall not be defeated by any act or neglect of the insured. Additional designated rights and privileges of the mortgagee are also detailed.

Motion to Dismiss
A motion introduced before trial to attack the action on the basis of insufficiency of the pleading, of process, venue, joinder or other reason.

An application made to a court or judge for the purpose of obtaining a rule or order directing some act to be done in favor of the applicant.

Motor Carrier Policy
A commercial automobile policy addressing the needs of the motor carrier industry.

Coverages available include automobile liability, trailer interchange, and auto physical damage. Other coverages are available by endorsement.

Motor Truck Cargo
An inland marine form covering loss of property in the course of transit, either by common carrier or on the insured's own vehicle, depending on the form used.

Motor Vehicle Record/Motor Vehicle Report
Also known as an MVR, lists the moving violations (such as speeding) and serious accidents that a driver has had in the past several years.

Multiple Indemnity
A life insurance policy provision that specifies the payment of some multiple of the face value, for example 100% or 200%, when the insured's death is caused by certain types of accidents.

Multiple-Line Policy - A package policy which combines coverages from both the traditional property and liability lines.

Multi-Peril Policy - A package policy that provides protection against a number of separate perils. Multi-peril policies are not necessarily multiple-line policies, since the combined perils may be all within one insurance line, such as property.

Mutual Fund
An investment company that raises capital by selling its own stock and then buying other securities as an investment with the proceeds generated.

Mutual Insurance Company
A mutual insurance company is owned by its policyholders. Profits earned by a mutual insurance company might be returned to policyholders in the form of dividends.

The process of converting a stock insurer into a mutual insurer.

See Motor Vehicle Record


Named Insured
Any person or organization, or any of its members, specifically designated by name as insured(s) in a policy, as distinguished from others who, although unnamed, are also protected under some circumstances.

Named Perils Coverage
A property insurance term referring to policies that provide coverage only for losses caused by the perils specifically listed as covered. It contrasts with "all risk" coverage, which applies to losses from all causes not specifically listed as excluded.

An underwriting member who participates in any syndicate at Lloyd's of London.

National Association of Insurance Commissioners (NAIC)
An organization of all state insurance commissioners that meets periodically to discuss insurance industry problems and issues that might require legislation or regulation. They also address the need to make the various state laws more uniform for insurance companies and other parties.

National Council on Compensation Insurance (NCCI)
The service organization responsible for developing workers compensation insurance loss cost data in most states.

National Flood Insurance Program (NFIP)
A federally funded program established in 1968 to make flood insurance available at a reasonable cost for properties located in participating communities. NFIP flood insurance is available only for direct damage to buildings and contents. Time element coverage is not offered.

National Safety Council
A nonprofit organization, set up by Congress in 1913, made up of industry members nationwide for the purpose of disseminating safety educational materials.

Conversion of privately held assets to government ownership and control. Nationalization of a business's overseas property by a foreign government is a loss exposure that can be covered through political risk insurance.

Natural Death
Indicates a death not caused by external sources; usually pertains to death from disease or old age.

Negligence Per Se
Conduct that violates standards of care as established by statute or law.

Failure to use that degree of care which is considered to be a reasonable precaution under the given circumstances. Acts of either omission or commission, or both, may constitute negligence.

Net Line
The amount of coverage a company retains on a specific risk after deducting reinsurance.

Net Loss
The amount of loss sustained by an insurer after deducting collectible reinsurance, salvage, and subrogation recovery.

Net Retention
See Net Line.

Newly Acquired Property
Many policies provide a specified amount of coverage for newly acquired buildings and contents. You must report the acquisitions to the insurer within a specified number of days. Check your policy for details.

No-Fault Coverages
Numerous states have enacted "No-Fault" laws. You collect for injuries under your own policy in certain cases, as does everyone else, thus avoiding lengthy and costly lawsuits. In practice, there is still litigation in "No-Fault" states. The protection afforded under "No-Fault" benefits varies considerably from state to state.

Non-Medical Insurance
Life or health insurance coverage written without a medical exam. The insured, however, completes a detailed questionnaire concerning his or her health. This information becomes a warranty so that any misstatements could potentially void the policy.

Nonadmitted Insurance (international)
Insurance written by a company that is neither licensed nor registered to do business in the country where the property or risk is located. Some countries allow nonadmitted insurance, while others do not.

Nonadmitted Insurer
An insurance company not licensed to do business in a certain state. Such insurers can nevertheless write coverage through an excess and surplus lines broker that is licensed in these jurisdictions.

Nonadmitted Reinsurance
Reinsurance purchased from a company not licensed or authorized to transact business in a particular jurisdiction.

Nonadmitted reinsurance may not be treated as an asset against reinsured losses or unearned premium reserves for insurance company accounting and statement purposes.

Nonappropriated Fund Instrumentalities Act
A federal act that extends the benefits of the Longshore and Harbor Workers Act to civilians working for the U.S. military. As a result, the Act essentially provides no-fault workers compensation benefits to this employee segment.

A policy that cannot be assigned by the owner to a third party.

Noncontributory Insurance
A plan of insurance for which the employer pays the entire premium and the employee does not contribute to premium payment.

Noncumulation of Limits Provisions
Provisions within professional liability insurance policies stating that if more than one claim results from a single wrongful act, and if claims are made during more than one policy period, the insured is entitled to the limit applicable when the first claim was made, rather than the sum of the limits that were applicable to the policy periods during which all claims were made.

The condition created by two or more policies covering the same loss exposure that do not have identical inception and expiration dates. Noncurrency of an insured's umbrella policies and the underlying liability is a problem because the noncurrent policy terms make it possible for a loss under an underlying policy's annual aggregate limit to use up part of the limit required by the umbrella and thus violate its underlying limits requirement.

Nonderivative Suits
A lawsuit alleging that the acts of directors and officers of a corporation caused damage to the individual(s) bringing the suit. This is in contrast to derivative suits, which are brought by one or more stockholders on behalf of the organization, alleging financial loss to the organization.

Nonduplication of Benefits
A provision in a health or disability insurance policy designed to eliminate the possibility of an insured receiving benefits greater than the economic loss suffered. Most long-term disability income policies offset the benefits paid in accordance with other benefits to which the disabled claimant is entitled. Similarly, most health insurance policies contain provisions to avoid duplication of benefits when more than one policy applies.

Noneconomic Damages
An award to an injured person that is not based on actual monetary loss, but rather on other forms of injury, e.g., pain and suffering awards.

Nonforfeiture Values
In whole life insurance policies, benefits that accrue to the insured when the policy lapses from nonpayment of premium.

These benefits are usually either an amount of paid-up term life insurance or a cash surrender value. All states have enacted nonforfeiture laws that require that whole life insurance policies specify the nonforfeiture values in a schedule in the policy.

Nonimputation Provision
A clause found in most directors & officers and professional liability policies stating that intentional misstatements or omissions in the application for coverage (e.g., the failure to mention circumstances likely to produce a claim in the future), will not be imputed to and, therefore, will not bar coverage for individuals who did not sign the application.

In the absence of nonimputation provisions, such persons would otherwise be denied protection under the policy given these misstatements or omissions. In some instances, the nonimputation provision appears in the application for coverage, rather than in the actual policy form. nonimputation provisions are also known as severability provisions.

Noninsurable Risk
A risk that cannot be measured actuarially or in which the change of loss is so high that insurance cannot be written on it.

Noninsurance Risk Transfer
The transfer of risk from one party to another party other than an insurance company. This risk management technique usually involves risk transfers by means of hold harmless, indemnity, and insurance provisions in contracts and is also called "contractual risk transfer".

Nonowned Aircraft Liability
Covers suits against a company arising out of the use of nonowned aircraft on company business. For example, an employee might use a personal or chartered aircraft on a business trip. Such policies typically protect the company, but not the aircraft owner. Many companies have a formal policy regulating the usage of nonowned aircraft by employees.

Nonowned Automobile
Described in commercial auto policies as an auto that is used in connection with the named insured's business, but that is neither owned, leased, hired, rented, or borrowed by the named insured. As used in the business auto policy, the term specifically applies to vehicles owned by employees and used for company business. As used in the truckers and motor carriers policies, it applies only if such automobiles are private passenger type autos. (Autos other than private passenger type owned by employees are classified as hired autos in the truckers and motor carrier policies.)

Nonowned Watercraft Liability
Liability for bodily injury or property damage from the use of a nonowned watercraft (usually limited to boats under a specific length, such as 26 feet). For example, this coverage would respond to a suit for injury or damage if your company chartered a boat for business entertainment. Coverage protects your company, but not the owner of the watercraft

Nonowned & Hired Automobile Liability
This coverage is normally provided by an Automobile Insurance Policy. Companies that do not own autos should have this endorsement added to their General Liability policy.

This endorsement adds coverage for suits against a company resulting from the use of hired or nonowned vehicles by employees. An employee, for example, may be involved in an accident while using a personal car or rented car on company business. This coverage normally protects your company, but not the owner of the vehicle. The additional premium charge is usually small.

Nonresident Agent
An agent who is licensed in a state in which he or she does not reside.

Nonsubject Premium
A premium that is not a part of a loss sensitive rating formula. In a retrospective rating plan, for example, the nonsubject premium usually purchases the excess insurance (over the loss limits). The term "nonsubject" refers to the fact that the premium is a guaranteed cost and is not adjustable based on losses.

An option available in Texas permitting employers to opt out of the workers compensation system.

Such firms, however, if proven negligent in causing a worker's injury can be held liable in tort, since nonsubscribing employers waive the traditional common law defenses available to employers subject to workers compensation laws.

Two special types of insurance policies can be purchased by these firms: occupational accident insurance and employers excess indemnity insurance.

Nontransferability Provisions
Clauses indicating that an insured cannot transfer coverage to a noninsured without the insurer's approval.

Notice of Cancellation/Nonrenewal Clauses
Provisions in policies mandating that insurers are to provide advance notice of cancellation or nonrenewal of a policy. Most commonly, the required cancellation notice period is 30 days, although state amendatory endorsements frequently extend this period to 60 days.

Notice of Claim Provision
A provision in a liability insurance policy requiring the insured to promptly notify the insurer in the event that a claim is made against the insured. Also called "awareness provision."

Notice of Occurrence
One of the insured's specified duties under a general liability policy. Notice to the insurer of an occurrence must include the time, place, and circumstances of the occurrence, a description of any resulting injury or damage, and the names and addresses of injured persons and witnesses.

Notice to the Company
Written notice to the insurer as to an occurrence upon which a claim is to be based.

Nuclear Exclusion
1. A provision or endorsement found in or attached to virtually all commercial property policies (other than the specialty policies designed to cover loss as a result of nuclear radiation). Eliminates coverage for loss or damage from nuclear reaction, radiation or radioactive contamination, except that ensuing fire is explicitly covered.

2. A provision or endorsement found in or attached to virtually all commercial lines liability policies. The standard broad form nuclear most often attached to liability policies precludes coverage only for liability insured under a nuclear energy liability policy or for which indemnity is available from the U.S. government. The exclusion does not normally apply to liability arising from radioactive isotopes, the most common commercially used nuclear materials.


A boiler and machinery insurance term for equipment or machinery. Boiler and machinery coverage applies to loss or damage resulting from an accident (such as a breakdown or explosion) to a covered object.

A person or organization to whom another party (the "Obligor") owes an obligation. In a bonding situation, this is the party that requires and receives the protection of the bond. Under a performance bond, for example, the obligee is the project owner for whom the bonded contractor is required to perform the specified work.

A person or organization that is bound by an obligation to another. In a bonding situation, this party, commonly called the "principal", purchases a bond to protect the party to whom it owes an obligation (the "obligee"). Under a performance bond, for example, the obligor is the contractor that is required to perform the specified work for the project owner.

In insurance terminology, this refers to the type of business contained in a building. It is an important consideration in computing rates and determining the amount of insurance a company is willing to write on that property.

Occupational Accident Insurance
A type of coverage purchased by firms that have chosen to opt out of the Texas workers compensation system. The policies allow an employer to provide benefits similar to those afforded under workers compensation laws for accidents on the job.

Occupational Accident
An accident occurring in the course of one's employment and caused by inherent or related hazards.

Occupational Disease
Impairment of health caused by continued exposure to conditions inherent in a person's occupation.

Occurrence Basis Versus Claims-Made Basis
Most commercial general liability policies are written on an "Occurrence" basis. Under an Occurrence policy, if a suit is filed today because of an incident that took place two years ago, the policy that was in force at the time of the incident (two years ago) responds to the claim.

Coverage for difficult products or industries may be written on a "Claims-Made" basis. With Claims-Made coverage, the policy in force at the time the claim is made (rather than when the incident took place) is the one that responds. Claims reporting requirements of these policies should be carefully reviewed. Most Professional Liability policies use the Claims-Made format.

Claims-Made policies often include a Retroactive Date. Claims arising from incidents which took place before the retroactive date are not covered, even if the claim itself is made during the policy period. Claims-Made policies may also include an "Extended Discovery Period" or "Extended Reporting Period". This option, if purchased, allow an extra period of time for the reporting of claims, arising from incidents which took place during the policy period.

An accident or a series of incidents happening over a period of time that will collectively result in personal injury or property damage. See Accident

Ocean Marine Insurance
Insurance covering the transportation of goods and/or merchandise by vessels crossing both foreign and domestic waters, including any inland or aviation transit associated with the shipment.

Ocean marine insurance also encompasses coverage for damage to the vessels involved in shipments and any legal liability arising in the course of shipment.

Off-Premises Power Coverage
Coverage for loss due to lack of incoming electricity caused by damage from a covered cause (such as fir or windstorm) to property away from the insured's premises - usually the utility generating station. Also known as Utility Service Interruption Coverage.

The coverage is not provided in a standard property insurance policy, but is available by endorsement. Endorsements vary widely as to what utility services are included, whether both direct damage and time element loss are covered, and whether transmission lines are covered.

Offer and Acceptance
The offer may be made by the applicant by signing the application, paying the first premium and, if necessary, submitting to physical examination. Policy issuance, as applied for, constitutes acceptance by the company. Or the offer may be made by the company when no premium payment is submitted with the application. Premium payment on the offered policy then constitutes acceptance by the applicant.

Omnibus Clause
A provision of a standard automobile policy which, by its definition of the insured, extends the protection of the policy to interests included by the definition without the necessity of naming or otherwise designating them. This agreement is also used in ocean marine insurance.

Open Rating
A pricing regulation approach associated with workers compensation premium costs in which state regulators allow insurers to issue policies using rates other than those established by the managing rating bureau. Types of variances include the use of rate deviations and the promulgation of rates by the insurers.

Operators Extra Expense
A specialized policy available to oil or gas well operators that covers the cost of regaining control of a wild well. Coverage for pollution, stuck drill stem, evacuation expense, and care, custody, or control exposures can be added by endorsement.

Also known as Cost of Well Control.

Ordinance or Law Coverage
Coverage available by endorsement to a standard property policy to insure against loss caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings.

Ordinary Life
A type of whole life insurance contract arranged so that the premiums are payable as long as the insured lives. The contract is not paid up and does not mature until the named insured reaches 100 or dies, whichever event comes first.

Ordinary Payroll Limitation/Exclusion Endorsement
An endorsement to a property/business interruption policy limiting to a specified number of days (such as 90 or 180), or eliminating altogether, coverage for payroll expense of employees other than executives, department managers, employees under contract, and other specified employees.

Other Insurance Clause
A provision found in almost every insurance policy, stating what is to be done at the time of loss in case any other contract of insurance protection applies to the same loss or claim.

Other States Coverage
Workers compensation and employer's liability insurance coverage for an insured's employees traveling through or temporarily working in states other than the insured's home state, as specifically listed on the information page of the policy.

The endorsement expands the policy so that an injured employee can receive compensation benefits as prescribed by the other states listed on the endorsement. Coverage, however, only applies to states so listed, and coverage cannot be extended in this manner to monopolistic fund states.

Other Than Collision Coverage - Protection against loss resulting from damage to the insured auto, commonly called "comprehensive auto coverage". Broad coverage is provided and includes protection from such hazards as fire, theft, glass damage, wind, hail and malicious mischief. This is a first-party coverage.

Outer Continental Shelf Lands Act (OCSLA)
Extends the benefits of the Longshore and Harbor Workers Compensation Act (LHWCA) to workers injured or killed upon fixed structures, such as oil well platforms. that are permanently attached to the outer continental shelf for the purpose of natural resource exploration or development.

Outside Directorship Liability Coverage
An optional endorsement added to directors and officers liability insurance policies that covers insured directors and officers for service on boards other than that of the parent organization.

This typically involves service on boards of outside organizations "at the direction of the corporation" or on boards of charitable/nonprofit companies.

Outstanding Losses
Losses that have been reported to the insurer but are still in the process of settlement. Paid losses plus outstanding losses equal incurred losses.

An amount of insurance or reinsurance that exceeds an insurer's or reinsurer's normal capacity.

Overlapping Insurance
Coverage from two or more policies or insurers that duplicates coverage for certain hazards in whole or in part.

Overriding Commission
An insurance commission paid by an insurer to an agent or managing general agent/underwriter for premium volume produced by other agents in a given geographic territory. In reinsurance, a commission paid to an intermediary in return for placing a retrocession of reinsurance.

Owner Controlled Insurance Program (OCIP)
A centralized insurance program for large construction projects under which the owner procures insurance on behalf of all the other parties (general contractor and all subcontractors).

This contrasts with the typical approach under which each party is responsible for purchasing its own insurance. Typically, the coverages provided under an OCIP include builders risk, commercial general liability, workers compensation, and umbrella liability.

Owners and Contractors Protective Liability (OCP)
OCP policies are written in connection with construction projects. The property owner or general contractor is usually the insured. The policy protects the insured from bodily injury and property damage liability arising out of:

1. Operations performed for the insured by the contractor or subcontractor designated in the policy at the location specified in the policy.

2. The insured's acts or omissions in the general supervision of the designated contractor's operations.

Property owners request OCP policies to establish separate, specific liability coverage for their construction project, rather than relying solely on the contractor's insurance policy.

Ownership Clause
In life insurance, the provision or endorsement that designates the owner of the policy when such owner is someone other than an insured, e.g. a beneficiary. This clause vests ownership rights, such as the right to designate the beneficiary, to the specified person or entity.

An independent motor carrier who leases his or her vehicle, with driver, to another motor carrier, either on a permanent or a short-term basis. The owner/operator, rather than obtaining his or her own operating authority, operates under the authority of the trucking firm to whom the vehicle is leased.


Package Policy
A policy providing multiple coverages in one policy.
Usually refers to a policy providing both general liability and property insurance, although other coverages can be added, as well. Premium discounts are usually allowed to reflect cost efficiencies.

Paid-in Capital
Capital acquired by a corporation from sources other than its business operations.

The most common source of paid-in capital is the sale of the corporation's own common and preferred stock. The amount of paid-in capital becomes part of the stockholders' equity shown in a balance sheet.

Paid Loss Retrospective Rating Plan
An insurance cash flow plan that allows the insured to hold loss reserves until they are paid out in claims. Used most frequently with workers' compensation and general liability lines.

Paid Up Additions
Single premium life insurance coverage bought in addition to the face amount of the policy using policy dividends.

Paid Up Life Insurance
Life insurance for which premiums have been paid, but the policy has not yet matured.

Partial Disability
Disability that is not total.

The exact definition of partial disability varies between policies, but it is often defined as the inability of the insured to perform one or more of the important duties of his or her occupation.

When a disability income policy covers partial disability, the benefit is usually equal to a specified percentage (50%, e.g.) of the total disability for a limited period of time, such as 3 or 6 months.

Partial Loss
A property insurance term referring to a loss that does not completely destroy or render useless the insured property or does not completely exhaust the applicable insurance limit.

Participating Policies
Insurance or reinsurance that contributes proportionately with other insurance on the same risk.

Particular Average
Ocean marine term referring to loss to a ship, freight, or cargo interest which is not shared by contribution among all interests, but is borne by the owner of the interest to which loss occurs. See also General Average.

Patent Infringement
An encroachment on a right granted by a government to an inventor assuring the sole right to make, use, and sell in invention for a certain period of time. Coverage for this exposure is normally not provided by liability policies.

Payout Profile
A schedule illustrating the percentage of loss dollars actually paid in settlement of claims over time.

The majority of loss dollars for workers compensation and general liability claims are not paid in the first year and can be spread over ten years or more. Many insureds, therefore, choose insurance options that allow then to retain control of loss reserves and the income accrued on the reserves while waiting for the claim to be paid.

Payroll Audit
A review of an insured's payroll records by a representative of the insurer to determine the earned premium on a policy such as workers compensation.

Payroll Limitation
Involves a limitation on the amount of payroll for certain classifications that is used for the development of premium.

In workers compensation insurance payroll limitations typically apply only to sole proprietors, executive officers, partners, and certain noted classifications. The limitations vary by state.

Peak Season Coverage
Property insurance providing different limits of insurance during different periods of the year, to reflect expected seasonal changes in property values.

Peer Review Organizations
Groups of doctors paid by the federal government to conduct preadmission and continued stay reviews. Reviews of services provided to Medicare patients by Medicare approved hospitals are also referred to as Peer Review Organizations (PROs).

Perils Excluded
Many insurers exclude Flood and Earthquake damage in their basic property form, but will allow the purchase of coverage by endorsement. Insurers also exclude losses which they consider to be normal business expenses such as wear and tear or settling and expansion of foundations.

Other exclusions can be addressed by adding an endorsement to the basic policy form, or by purchasing different types of property insurance. Boiler and Machinery Insurance and Crime Insurance are two such examples.

Perils are the causes of loss, such as fire or windstorm, that a policy covers. Property insurance can be written on a "Named Perils" basis, which means for specified types of perils. However, it is more common today to use an "All Risk" format (often called Special Form). "All Risk" means that the policy covers all risks of direct physical damage, except those specifically excluded in the policy.

Permanent Disability Benefits
Periodic payments, usually weekly, for a disability that renders any employment impossible. Such compensation may be limited by a maximum time or a maximum amount. If unlimited, it may run for the lifetime of the insured.

Permanent Life Insurance
Life insurance that has no expiration date and which provides for the payment of the face value upon the death of the insured, regardless of when it may occur. This contrasts with term insurance, which pays benefits only if death takes place during the limited term (e.g., 1,3,5, or 10 years) of the policy.

Permanent Partial Disability
A workers compensation disability in which the injured employee is still able to work but not with the skill and efficiency demonstrated prior to the injury. As a result, the earning capacity of the worker is affected.

Most state workers compensation statutes provide for scheduled benefits based on the percentage of disability.

Permanent Total Disability
A class of workers compensation disability in which the injured employee is incapable of ever working again at any employment.

Personal Auto Policy (PAP)
A specific standard auto policy designed to meet the auto insurance needs of a typical person or family.

Personal Injury Protection (PIP)
No-fault coverage that applies to auto-related injuries.

Personal Injury
Unintentional slander, libel, false arrest or wrongful entry

Personal Insurance
Insurance coverages purchased by individuals and families to cover nonbusiness exposures

Personal Property
All property except land, buildings, and other structures attached to the land. Examples of personal property include merchandise, furniture, supplies, stock, and inventory.

Personnel Risk
One of several categories of loss exposures facing organizations that may be treated with the risk management process. This exposure encompasses losses arising from the death, injury, disability, or departure of employees. One example would be the cost to replace a key employee who has died or becomes disabled.

Physical Damage Coverage (Auto)
Coverage for your company's vehicles. Collision coverage insures damage to your vehicles from collision or overturning. Comprehensive coverage covers other types of damage such as fire, theft or vandalism.

Physical Hazard
The material, structural, or operational features of a business that may create or increase the opportunity for injury or damage.

In a civil action, the party bringing suit and seeking damages from the defendant.

PML (Probable Maximum Loss)
The maximum amount of loss that can be expected under normal circumstances. Extraordinary circumstances such as delayed alarm, insufficient water supply, etc., can result in a loss exceeding the PML.

Policy - The name generally used to mean the written contract of insurance.

Policy Fee
A one-time charge or flat per policy charge that does not change with the size of the policy.

Policy Loan
A loan from the insurer to a life insurance policy owner using the cash value of the policy as security for the loan.

Policy Territory
Specifies the geographic area in which the property must be damaged (inland marine policies) or where injury or damage must occur (liability policies) for coverage to apply.

Policy Year Experience
An aggregate record of all transactions on contracts becoming effective during a given 12-month period (the policy year).

Policyholder Surplus
The difference between an insurer's admitted assets and liabilities, that is, its net worth.

This figure is used in determining the insurer's financial strength and capacity to write new business.

A person or organization protected by an insurance contract. Synonymous with "insured".

Political Risk Insurance
Specialized insurance for companies doing business or conducting operations in foreign countries. The insurance addresses the business exposures to loss faced by these companies as a result of governmental action either foreign or domestic.

Types of exposures that can be covered under political risk policies include confiscation, expropriation, deprivation, nationalization, political violence, currency inconvertibility, contract frustration, and export credit.

Pollutant Cleanup
Many property policies limit coverage for the cleanup of pollutants released in a covered property loss (e.g. your chemicals or other substances are spread by water used to put out a fire). The availability of higher limits should be explored if your company has an exposure to this type of loss.

The contamination of an environment by substances regarded as pollutants. Liability from pollution is normally
excluded to some degree by the general, auto, and umbrella liability policies.

Insurers have now inserted strict exclusionary language into these policies, making it necessary for insureds to seek coverage under separate "environmental impairment liability" policies.

1. A group of insurers or reinsurers through which particular types of risks (often of a substandard nature) are underwritten, with premiums, losses, and expenses shared in agreed ratios.

2. A group of organizations that form a shared risk pool. Pooling is an attractive alternative for insureds who are not large enough to legally or feasibly self-insure, but who desire more control over their loss exposures, as well as an opportunity to reduce their cost of risk, compared to a program written by a commercial insurer.

Portfolio Reinsurance
A transaction in which an entire line of insurance, class of business, territory, or book of business of an insurer is reinsured.

Under portfolio reinsurance, the reinsurer assumes all of the primary insurer's liability. It is typically arranged when an insurer wishes to discontinue operations in a specific state or territory.

Potentially Responsible Party (PRP)
Any individual or organization - including owners, operators, transporters, or generators - potentially responsible for, or contributing to, a spill or other contamination at a Superfund site.

Whenever possible, through administrative and legal actions, the Environmental Protection Agency (EPA) requires PRPs to clean up hazardous sites they have contaminated.

Power of Attorney
Authority given one person or organization to act on behalf of and obligate another.

A case that provides guidance or authority

Predecessor Firm Coverage
A provision found in professional liability policies written mainly for lawyers or accountants which affords coverage for the acts of the firm that preceded the current insured organization.

Preexisting Condition
A health or physical condition that existed prior to the effective date of a medical insurance policy. Some health and disability policies contain provisions that preclude coverage for loss arising from preexisting conditions.

Preferred Provider Organization (PPO)
A group of doctors and hospitals who join together to dispense medical services to specified user groups at discounted costs. This type of organization differs from a Health Maintenance Organization (HMO) in that the medical care providers are not economically tied to one another, but rather to fee schedules.

Preferred Risk
A risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity superior to that of the average longevity of unimpaired lives of the same age. (See standard risk.)

Prejudgment Interest
Interest accruing on the amount of a legal award from the time of the injury or damage to the time the judgment is entered by the court. Prejudgment interest, when awarded as part of a judgment against the insured, is covered by the Supplementary Payments provision of standard general liability policies.

Premises and Operations Liability
Liability arising from the insured's premises or operations in progress, on or off the premises

The building(s) insured, the insured personal property, and any insured property immediately adjacent are considered to be the "premises".

Premium Audit
An examination of the insured's records, insofar as they relate to the policies or coverages being audited, by a representative of the insurer, to determine premiums earned on a policy written which is subject to audit.

Premium Discount
A workers compensation insurance discount applied to the policies on larger businesses to recognize the fact that some of the expenses of selling and servicing workers compensation insurance do not vary in proportion to the premium

Premium Financing
A payment plan that allows the insured to pay a part of the premium when coverage takes effect, and pay the remainder during the policy period.

Premium Loan
A loan against the cash value of a life insurance policy to pay the policy premium.

Premium Notice
Notice from the insurer that the premium is or will soon be due.

Premium Reserve
Insurers earn the premium paid for an insurance policy over the life of the policy. One-twelfth of an annual premium, therefore, is earned each month.

An unearned premium reserve is maintained on an insurer's balance sheet to reflect the unearned premiums that would be returned to policyholders if all policies were canceled on the date the balance sheet was prepared.

The periodic payment required to keep and insurance policy in force.

Prepaid Legal Plans
An employee benefit plan that provides free or low cost legal services to employees.

Preponderance of Evidence
An amount of evidence in support of a cause that, on the whole, is more convincing than the evidence offered in opposition to it. A preponderance of the evidence is the burden of proof that must be met to prevail in a civil case.

Present Value
The value today of a future payment, or payments, discounted at an appropriate interest rate.

Given the time value of money, the present value of $1 today is greater than the present value of $1 at a future point in time.

PRIMA (Public Risk Management Association)
An association of governmental risk managers that publishes a monthly magazine, sponsors seminars and an annual conference, and provides other services to its members

Primary Beneficiary
In life insurance, the beneficiary designated by the insured as the first to receive policy benefits.

Primary Care Physician
A physician who provides basic health services to patients. General practitioners, pediatricians, family practice physicians, and internists are recognized by health plans as primary care physicians.

HMOs require that members be assigned to a primary care physician who functions as a gatekeeper and provides referrals to specialists.

Primary Insurance
Provides coverage up to a specified amount or against specific perils.

The party in suretyship whose actions, honesty, or responsibility is being guaranteed. Also known as obligor.

Prior Acts Coverage
A feature of claims-made policies that have either no retroactive date or a retroactive date earlier than the inception date of the policy. Such a policy covers claims during the policy period arising out of events that precede the policy period. Without such a feature, the policy's retroactive date would preclude coverage with respect to these "prior acts".

Prior and Pending Litigation Exclusion
An exclusion found in most directors and officers (D&O) liability policies that precludes coverage for claims from litigation that was pending prior to the inception of the policy.

Prior Approval Law
A type of rate regulation under which the state insurance department must approve rate changes before they can be put into effect.

Private Placement
An investment opportunity involving the sale of stock to investors, for which the normal, more involved, registration requirement with the Securities and Exchange Commission (SEC) is waived.

Privileged Communication
Communication during "special" relationships that is protected from disclosure to third parties. The most common protected relationships are those of attorney/client, cleric/penitents, and husband/wife.

Privity of Contract
The relationship that exists between two parties by virtue of their having entered into a contract.

This concept incorporates the legal principle that a contract may not impose duties on a noncontracting party, nor may a noncontracting party claim any right or benefit as being guaranteed by the contract.

Pro Forma (Projected) Financial Statements
Refers to a set of financial statements (usually an income statement, balance sheet, and statement of cash flow) designed to exhibit future financial results.

They are created using known (or sometimes assumed) input data (usually expenses), along with an estimated amount of revenue, to project an estimated amount of earnings. These statements are commonly used for new risk funding programs such as captives and risk retention groups.

Pro Rata Cancellation
The termination of an insurance contract or bond, with the premium charge being adjusted in proportion to the exact time the protection has been in force.

See also Short Rate Cancellation

Pro Rata Reinsurance
A term describing all forms of "proportional" reinsurance. Under pro-rata reinsurance, the reinsurer shares losses in the same proportion as it shares premiums and policy amounts. Quota share and surplus share are the two major types of pro rata reinsurance.

Probable Maximum Loss (PML)
The maximum amount of loss that can be expected under normal circumstances. Extraordinary circumstances such as delayed alarm, insufficient water supply, etc., can result in a loss exceeding the PML.

Probationary Period
A provision in some disability income policies stipulating that benefits will not be payable for sickness commencing during a specified period of time, such as 15 - 30 days, after the inception of the policy.

The purpose of the probationary period is to clarify that the policy is not intended to cover disability resulting from preexisting disease.

Net amount of money payable by the company at the insured's death or at policy maturity.

A term commonly used for an agent, broker, or other insurance representative who has responsibility for selling insurance.

Product Recall
Insurance coverage for the cost of getting a defective product back under the control of the manufacturer or merchandiser who would be responsible for possible bodily injury or property damage from its continued use or existence. Standard product liability insurance does not cover this exposure due to the "sistership liability exclusion".

Products and Completed Operations Liability
Liability arising out of the insured's products or business operations conducted away from the insured's premises once those operations have been completed or abandoned.

Products Tampering
Insurance to indemnify the insured for loss of net profit, chemical analysis, recall, examination, transportation, destruction, and extra expenses incurred to regain market share following a malicious product tampering incident.

The subject of product liability insurance.

Product is defined in the standard Insurance Services Office, Inc. (ISO) commercial general liability policies to include property - other than real property - manufactured, sold, handled, distributed, or disposed of by the named insured or others involved with the named insured in the stream of commerce. The definition of "product" includes containers, parts and equipment, product warranties, and provision of or failure to provide instructions and warnings.

Professional Liability
These policies afford coverage to a wide range of professionals - Architects, Engineers, Lawyers, Accountants and Doctors are examples. Publishers also purchase this type of coverage. Professional Liability insurance covers errors and omissions in the performance of professional duties. This is a very important coverage for anyone acting in a professional capacity.

Most Professional Liability policies are written on a "Claims-Made" basis. This means that the policies respond to claims made while the policy is in force (or during the Extended Reporting Period). Claims reporting requirements should be thoroughly reviewed.

Program Business
Groupings of insurance customers or applicants with common operations that often form associations or risk purchasing groups.

Prohibited Risk
Any class of business excluded by underwriters of an insurance company that will not be insured under any condition.

Prohibition of Voluntary Payments Provision
A clause found in some liability policies barring coverage in the event that an insured makes a payment to a third party and then seeks reimbursement from the insurer.

In the standard commercial general liability coverage form, such a prohibition is included as one of the insured's "Duties in the Event of Occurrence, Claim, or Suit."

Proof of Loss
A formal statement made by the insured to the insurer regarding a claim, so that the insurer may determine the liability under the policy or bond.

Property / Casualty Insurance - One of the three (3) larger classifications of insurance (the other two are Life, Health and Accident, and Surety & Bonds. Property and Casualty refers to the group of coverages including Property, Crime, Liability, Auto, Workers' Compensation and Errors and Omissions. This group of coverages is further broken down in to two subgroups, Personal and Commercial insurance. Personal insurance is typically issued to an individual, and includes coverages like Homeowners, Personal Auto and Personal Umbrellas. Commercial Insurance is typically issued to corporations or organizations, or to the individual who owns a business operation, and includes coverages like Commercial Property, Commercial Auto, and Commercial General Liability.

Property Damage
As defined in the general liability policy, physical injury to tangible property including resulting loss of use and loss of use of tangible property that has not been physically injured.

Property Insurance
First-party insurance that indemnifies the owner or user of property for its loss, or the loss of its income-producing ability, when the loss or damage is caused by a covered peril.

Prospective Loss Costs
Data indicating the dollar losses, relating to each exposure unit, that can be expected in the future. Prospective loss costs are based on historical loss costs, plus some adjustments.

Prospective Payment
A system of Medicare reimbursement that bases most hospital payments on the patient's diagnosis at the time of hospital admission, rather than the costs the hospital actually incurs prior to discharging the patient.

Prospective Rating
A method used in arriving at an insurance or reinsurance rate and premium for a policy period. Schedule credits, experience modification, and individual risk rating modifications are factors used in prospective rating, whereas losses incurred during the policy period have no effect on the final premium. Guaranteed cost plans are examples of prospectively rated insurance plans.

A potential buyer of insurance or risk management services.

Protection and Indemnity (P&I) Insurance
Liability insurance for almost all maritime liability associated with the operation of a vessel, other than that covered under a workers compensation policy and under the collision clause in a hull policy.

Protection Class
Used in pricing property insurance at a particular location, a protection class is the rating of the local fire department's capabilities and the availability of fire hydrants and other water supply sources. Protection classes are usually numbered 1 through 10, with 1 being the best and 10 having essentially no fire protection.

Protective Safeguards Endorsement
A property insurance endorsement that makes it a condition of coverage that the protective safeguards cited in the endorsement (such as an automatic sprinkler system or night watch guard) be in operation at all times except when the insurer has been notified of the impairment in protection.

Failure to maintain the protective safeguards in good working order or failure to notify the insurer of even a temporary impairment in protection suspends coverage until the protection is restored.

Provisional Premium
A premium paid at the beginning of a policy year on a reporting policy, subject to adjustment at the end of the policy year.

Any statement in an insurance policy.

Proximate Cause
A legal concept often applied by courts in determining whether an injury or loss damage has been caused by an insured peril. A number of different definitions have been used, including the primary cause of loss or damage; the cause without which a given result would not have occurred; and the cause that sets other causes in motion.

Public Adjuster
A claims adjuster who represents the interests of an insured in a property loss. Public adjusters negotiate settlements of such claims with the insurer's claims representative.

Public Law 15 (McCarran-Ferguson Act)
Congressional action exempting insurance from federal regulation as a form of interstate commerce, to the degree effective regulation is undertaken by the individual states.

Public Liability Coverage - A generic term meaning insurance to cover risks against liability exposures other than those involving employees, or arising out of the use of autos, aircraft, or watercraft. This is frequently interchanged with the terms General Liability or Commercial General Liability.

Public Officials Bond
A bond under which the surety guarantees that the specified public official will faithfully perform his or her official duties, including accounting for all funds entrusted to his or her care.

Public Officials Liability
The liability exposure faced by a public official from "wrongful acts," usually defined under public officials liability insurance policies as actual or alleged errors, omissions, misstatements, negligence, or breach of duty, in his or her capacity as a public official or employee of the public entity.

Public Risk Management Association (PRIMA)
An association of governmental risk managers that publishes a monthly magazine, sponsors seminars and an annual conference, and provides other services to its members.

Publishers Liability
Liability of a book, periodical, or other type of publisher arising from acts such as plagiarism, libel, or copyright infringement. Publishers of medical, engineering, and technical works may also face an errors and omissions exposure from damage or injury arising from incorrect information that they provide.

Coverage for these exposures is available in specialized policies known as media liability insurance.

Punitive Damages
Damages in excess of those required to compensate the plaintiff for the wrong done, which are imposed in order to punish the defendant because of the particularly wanton or willful nature of his wrongdoing. Also called "exemplary damages."

Although the standard commercial general liability and business auto policies contain no punitive damage exclusion, many umbrella and excess liability policies contain such an exclusion.

Purchasing Group
Authorized by the Liability Risk Retention Act of 1986, a group formed to obtain liability coverage for its members, all of whom must have similar or related exposures. The Act requires a purchasing group to be domiciled in a specific state.

In contrast to risk retention groups, purchasing groups are not risk-bearing entities.

Pure Risk
The risk involved in situations that present the opportunity for loss, but no opportunity for gain. Pure risks are generally insurable, whereas speculative risks (which also present the opportunity for gain) generally are not.

P&I (Protection & Indemnity) Insurance
Liability insurance for almost all maritime liability associated with the operation of a vessel, other than that covered under a workers compensation policy and under the collision clause in a hull policy.


Qualified Plan
An employee benefit plan the Internal Revenue Service has approved as meeting the requirements of Section 401(a) of the Internal Revenue Code. Such plans receive favorable tax advantages.

Quick Assets
Highly liquid assets, consisting of cash, marketable securities, and net receivables.

Quid Pro Quo
Latin for "this for that". Pertains to the exchange of values by both parties to form a valid contract.

In workers compensation, employees trade their right to sue their employers in exchange for no-fault benefits.

Quota Share Reinsurance
A form of reinsurance in which the ceding insurer cedes an agreed-on-percentage of every risk it insures that falls within a class or classes of business subject to a reinsurance treaty.

Quotation, Quote
A statement regarding the premium that will be charged for a certain coverage.


Racketeer Influenced and Corrupt Organizations (RICO) Act of 1970
A law providing for treble damages against those engaged in "a pattern of racketeering activity." A number of liability policies exclude coverage for suits alleging RICO Act violations against insureds, despite the fact that such claims have been increasing in recent years.

Radius of Operations
The area where a company conducts its business.

Railroad Protective Liability
Insurance coverage protecting a railroad from liability it incurs because of the work of contractors on or near the railroad right-of-way.

Rain Insurance (Cancellation Insurance) - Insurance protection against loss due to rain, hail, snow or sleet, which causes cancellation or reduced earnings of an outdoor event.

Rate-Up in Age
System of rating substandard risks in life insurance that involves assuming the insured to be older than he or she really is and charging a correspondingly higher premium.

Rate Filings
Documents submitted ("filed") with a state insurance department that contain the proposed rates and also, when necessary, the statistics on which the rates are based.

Rate Regulation
The control by state insurance regulators over the rates and classification & rating systems used by insurers.

Rate Suppression
When government regulators hold insurance rates at a level below their true economic cost.

The price of insurance for each unit of exposure. The rate is multiplied by the number of exposure units to arrive at a premium.

Rating - General Liability
General Liability policies are usually rated on area (office space), sales and/or payroll.

At the beginning of the policy year, the insured supplies an estimate of the sales or payroll for the upcoming year. The initial premium is based on that estimate. At the end of the policy year, the insurer audits the actual payroll/sales figures and the premium is adjusted up or down accordingly. Policies are often subject to minimum premium requirements.

Rating - Property
Property insurance premiums are normally based upon the value of your property. Policies require that the values you report must at least be equal to a specified percentage (frequently 90%) of the values of your property. The rate is often expressed as a price per $100 of insured value.

Rating formulas are complicated, but they usually include the following considerations: * Construction - frame, brick, fire resistive, etc. * Occupancy - the nature of the business(es) that occupy the building * Protection - within the building, such as a sprinkler system or watchman, as well as the quality of your community's Fire Department * Exposure - the risks to your property from the surrounding area, such as an adjacent woodworking plant or gas storage facility

Many buildings have a specific property insurance rate assigned by the Insurance Service Office. Subjective considerations, such as loss history, upkeep and attitude towards loss prevention also play a role in the rating process. Larger policies have greater flexibility in rating than smaller ones. Property insurance premiums are normally based upon the value of your property. Policies require that the values you report must at least be equal to a specified percentage (frequently 90%) of the values of your property. The rate is often expressed as a price per $100 of insured value.

Rating formulas are complicated, but they usually include the following considerations:

- Construction - frame, brick, fire resistive, etc.

- Occupancy - the nature of the business(es) that occupy the building

- Protection - within the building, such as a sprinkler system or watchman, as well as the quality of your community's Fire Department

- Exposure - the risks to your property from the surrounding area, such as an adjacent woodworking plant or gas storage facility

Many buildings have a specific property insurance rate assigned by the Insurance Service Office.

Subjective considerations, such as loss history, upkeep and attitude towards loss prevention also play a role in the rating process. Larger policies have greater flexibility in rating than smaller ones.

Rating Bureau
An organization that collects necessary statistical data (e.g., premiums, exposure units, and losses) to compute suggested rates to be used by insurers. Rating bureaus are usually nonprofit associations owned by numerous insurers.

The use of bureaus allows data from many different insurers to be combined, which enhances the credibility of the actuarial analysis. Bureaus also perform other functions, such as the development of standard policy forms, inspection of insured properties, and communication with regulators on behalf of their members.

The best known bureaus are Insurance Services Office, Inc. (ISO), National Council on Compensation Insurance (NCCI), Surety Association of America (SAA), and American Association of Insurance Services (AAIS).

Rating Manual
A book or computer program used in determining premiums.

At the beginning of the policy year, the employer provides an estimate of the payroll for the upcoming year. At the end of the policy year the insurer audits the actual payroll, and adjusts the estimated premium up or down accordingly.

Payroll is reported by state and also by job category. Rates vary considerably among job categories, so the apportionment of payroll should be carefully reviewed.

Higher limits of Employer's Liability coverage are available for a moderate increase in premium.

RCRA (Resource Conservation and Recovery Act)
A federal act regulating the handling of hazardous waste from its generation to disposal. The Act defines "hazardous waste" and establishes standards and permit programs for waste generating, treatment, storage, and disposal. It implements detailed recordkeeping requirements and imposes civil and criminal penalties for noncompliance.

Re-Entry Option
An option in a renewable term life policy under which the policyowner is guaranteed, at the end of the term, to be able to renew his or her coverage without evidence of insurability, at a premium rate specified in the policy.

Real Property
Buildings and other structures attached to the land.

Returning part of the commission or giving anything else of value to the insured as an inducement to buy the policy. It is illegal and cause for license revocation in most states. In some states, it is an offense by both the agent and the person receiving the rebate.

The process by which a ceding company takes back a risk or risks that previously were ceded to a reinsurer.

Reciprocal Company
An unincorporated group of persons or organizations that exchange risks.

Each member of a reciprocal is both an insured and an insurer of the other members. While reciprocals may allow for limited assessments of their members, each member's liability is limited. A member cannot be called on to pay the obligation of another member.

The exchanging of reinsurance between two reinsurers, frequently in equal amounts. The purpose of such transactions is to balance underwriting results for both companies.

Repudiation of a contract for cause or by consent of the contracting parties.

Recurrent Disability
A period of disability resulting from the same or a related cause of a prior disability.

Recurring Clause
A health insurance policy provision setting the time that must elapse between periods of disability for the recurrence to be considered a new benefit period.

An underwriting practice involving the rejection of a risk based solely on geographical location. The practice is prohibited under the laws of most states.

Reduced Paid-Up Insurance
A life insurance nonforfeiture benefit that provides paid-up insurance for a lesser amount than the cash value of a policy that has lapsed because of premium nonpayment.

Regression Analysis
A statistical tool for predicting one variable (known as the dependent variable) based on its relationship with one or more other variables (known as independent variables).

The dependent variable of workers compensation losses, for example, are often predicted on the basis of the independent variable of payroll.

Putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required.

Reinsurance Assumed
That portion of a risk that a reinsurer accepts from an original insurer (also known as a "primary" insurer) in return for a stated premium.

Reinsurance Ceded
That portion of a risk that an original insurer (also known as a "primary" insurer) transfers to a reinsurer in return for a stated premium.

A process by which one party, the "reinsurer," inconsideration of a premium paid to it, agrees to indemnify another party, the "reinsured,", for part or all of the liability assumed by the reinsured under a policy of insurance that it has issued. The reinsured may also be referred to as the "original" or "Primary" insurer, or the "ceding company."

An insurer that contracts with a reinsurer to share all or a portion of its losses under insurance contracts it has issued in return for a stated premium. Also called the "ceding" company.

An insurer that accepts all or part of the liabilities of the ceding company in return for a stated premium.

To give up, abandon, and discharge a claim or an enforceable right against another party.

Relief Well Coverage
Coverage for the cost of drilling a new well for the purpose of releasing underground pressure to assist in bringing a wild oil or gas well under control. It is an optional operators extra expense policy coverage.

1. Cleanup or other methods used to remove or contain a toxic spill or hazardous materials from a Superfund site.

2. For the Asbestos Hazard Emergency Response program, abatement methods including evaluation, repair, enclosure, encapsulation, or removal of greater than 3 linear feet or square feet of asbestos-containing materials from a building.

Renewable Term
Some term life insurance policies provide that they may be renewed on the same plan for one or more years without medical examination but with rates based on the insured's attained age.

Renewal Certificate
A policy is sometimes renewed by issuing a certificate, which extends an existing policy, rather than by issuing a new policy. The certificate refers to the policy, but does not enumerate all of its terms.

An arrangement in which a captive insurer "rents" its facilities to an outside organization, thereby providing the benefits that captives offer without the financial commitments that captives require. In return for a fee (usually a percentage of the premium paid by the renter), certain captives agree to provide underwriting , rating, claims, management, accounting, reinsurance, and financial expertise to unrelated organizations.

Rental Cars
Some auto insurers offer an endorsement which extends the auto liability coverage to include liability assumed under car rental agreements.

Auto insurers may also be willing to add coverage for physical damage to rental vehicles. With this coverage, employees do not need to purchase the expensive Collision Damage Waiver every time they rent a car. In some states, such as Illinois, car rental companies are now required to absorb physical damage losses to their vehicles.

Rental Reimbursement Coverage (Auto)
Pays the cost of renting a substitute for a car disabled in an accident.

Rents or Rental Value Insurance
Time element insurance that reimburses the owner of a building for loss of rents due to damage by an insured peril.
Coverage is also provided for the fair rental value of the premises occupied by the insured.

Bringing back to one's homeland, generally referring to transportation of an injured or ill employee back to his or her home country. This coverage is sometimes added to the workers compensation policy by a manuscript foreign voluntary compensation endorsement.

Replacement Cost, Replacement Cost Value
The current replacement cost of property is the amount it would cost to replace the property today using materials of the same kind and quality, with no deduction for depreciation. The replacement cost of real property does not include the value of the land, since the land itself will rarely be damaged.

Replacement (Life Insurance)
Act of replacing one life insurance policy with another; may be done legally under certain conditions. (See twisting.)

Reporting Coverage, Reporting Policy
Property insurance that requires monthly (or other periodic) reports to the insurer stating the current values of insured property. Premiums are based on the values reported. A provisional premium is collected at the beginning of the year, and the final premium is computed based on the average of the values reported.

Statements made by applicants on their applications for insurance that they represent as being substantially true to the best of their knowledge and belief but that are not warranted as exact in every detail. See Warranty

Request for Proposal
A document used to secure proposals for insurance or risk management services.

Res Ipsa Loquitor
A Latin term meaning "the thing speaks for itself."

This is a legal doctrine used to assess liability (often against professionals) when there is no evidence as to how an injury took place. For instance, if a sponge is inadvertently left in a patient's stomach, the doctrine of res ipsa loquitor is typically invoked to establish liability because such an event is presumed not to occur in the absence of negligence.

Res Judicata
A final judgment between parties that is conclusive as to that issue in later suits between those same parties.

Reservation of Rights
An insurer's notification to an insured that coverage for a claim may not apply.

Such notification allows an insurer to investigate (or even defend) a claim to determine if coverage applies (in whole or in part) without waiving its right to later deny coverage based on information revealed by the investigation. Although a reservation of rights protects an insurer's interests, it also alerts an insured to the fact that some elements of a claim may not be covered, thereby allowing the insured to take necessary steps to protect its potentially uninsured interests.

Refers to funds earmarked for specific purposed. Examples in the insurance industry are reserves for unearned premiums and reserves for losses in the process of adjustment.

Resident Agent
An agent domiciled in the state in which he or she conducts his or her business activities.

Residual Market Load
A factor applied to workers compensation policies by insurers to recover cost assessed to them by states for deficits in the residual markets. It is left to the individual insurer to determine how and if this cost will be passed on to its policyholders. The most common application is as a cost component included in a retrospective rating plan.

Residual Market
Insurance market systems for various lines of coverage (most often workers compensation, personal automobile liability, and property insurance). These systems serve as a coverage source of last resort for firms and individuals that have been rejected by voluntary market insurers.

Residual markets require insurers writing specific coverage lines in a given state to assume the profits or losses accruing from insuring that state's residual risks in proportion to their share of the total voluntary market premiums written in that state.

Residual Risk
The remaining level of risk after risk treatment measures have been taken.

Residual Value Insurance
Guarantees the owner of leased personal property (such as autos or equipment), a particular value at a specified future date, usually the termination of the lease. Covers the difference between the actual liquidated value of property returned to the insured lessor and the expected value of the property specified in the policy.

Resource Conservation and Recovery Act (RCRA)
A federal act regulating the handling of hazardous waste from its generation to disposal. The Act defines "hazardous waste" and establishes standards and permit programs for waste generating, treatment, storage, and disposal. It implements detailed recordkeeping requirements and imposes civil and criminal penalties for noncompliance.

Respondeat Superior
A legal doctrine under which an employer can be held liable for the actions of employees.

Retaliatory Law
A state law providing that another state will be treated in the same terms that the home state is treated by the foreign state in dealings with insurance. If, for example, another state requires that all nonresident agents writing insurance or risks in that state obtain a license from that state, a state with a retaliatory law will impose the same requirement on that other state's agents.

Retention Plan
A type of dividend plan most often used in connection with workers compensation insurance. This plan provides that the net cost to the insured is equal to a retention factor (insurance company expenses) plus actual incurred losses, subject to a maximum equal to standard premium less premium discount.

1. Assumption of risk of loss by means of noninsurance, self-insurance, or deductibles. Retention can be intentional or, when exposures or not identified, unintentional.

2, In reinsurance, the net amount of risk the ceding company keeps for its own account.

Retirement Annuity
A form of deferred annuity that provides for retirement income.

Retroactive Date
A provision found in many claims made policies that eliminates coverage for injuries or damage that occurred prior to a specified date even if the claim is first made during the policy period.

Retroactive Insurance
Insurance purchased to cover a loss after it has occurred. Such insurance, for example, may cover incurred but not reported (IBNR) claims for companies that were once self-insured.

The ceding reinsurer in a retrocession.

A reinsurer of a reinsurer.

A transaction in which a reinsurer transfers risks it has reinsured to another reinsurer.

Retrospective Aggregate Contract
A type of finite risk contract applying to losses that have already occurred at the inception of the contract. Such contracts insure against the possibility that the ultimate magnitude of such losses is higher than expected and/or that they are paid out more quickly than anticipated.

Retrospective Rating
A rating plan that adjusts the premium, subject to a certain minimum and maximum, to reflect the current loss experience of the insured. Retrospective rating combines actual losses with graded expenses to produce a premium which more accurately reflects the current experience of the insured. Adjustments are performed periodically, after the policy has expired.

Return-to-Work Program
A post-injury program that returns injured employees to some type of work as soon as medically possible. Even if the injured workers are impaired, temporary or modified duties can be assigned that take into consideration the impairments. The end result is the reduction of indemnity costs associated with the claims.

Return of Premium (or Cash Value)
A form of life insurance that provides for the return of premium as well as payment of the face amount upon death of the insured. This is usually accomplished with increasing term insurance.

Return Premium
The amount due the insured if the actual cost of a policy is less than what the insured had previously estimated or if the policy is cancelled. If, for example, the policy limits are reduced , the actual exposure is less than what was estimated at the beginning of the policy year, and a return premium would be due.

RICO (Rackateer Influenced anc Corrupt Organizations Act of 1970)
A law providing for treble damages against those engaged in "a pattern of racketeering activity." A number of liability policies exclude coverage for suits alleging RICO Act violations against insureds, despite the fact that such claims have been increasing in recent years.

Strictly speaking, a rider adds something to a policy. However, the term is used loosely to refer to any supplemental agreement attached to and made a part of the policy, whether the policy's conditions are expanded and additional coverages added, or a coverage or condition is waived.

Risk-Based Capital (RBC) Requirements
A method developed by the National Association of Insurance Commissioners (NAIC) to determine the minimum amount of capital required of an insurer to support its operations and write coverage. The insurer's risk profile (i.e., the amount and classes of business it writes) is used to determine its risk-based capital requirement. Four categories of risk are analyzed in arriving at an insurer's minimum capital requirement: asset, credit, underwriting, and off-balance-sheet.

Risk and Insurance Management Society (RIMS)
An industry association of risk managers that publishes several periodicals, lobbies, sponsors seminars, and conducts an annual conference.

Risk Control
The technique of minimizing the frequency or severity of losses with training, safety, and security measures. Also known as loss control.

Risk Financing
Achievement of the least-cost coverage of an organization's loss exposures, while assuring post-loss financial resource availability. The risk financing process consists of five steps:
1. Identifying and analyzing exposures
2. Analyzing alternative risk financing techniques
3. Selecting the best risk financing technique(s)
4. Implementing the selected technique
5. Monitoring the selected technique(s)

Risk financing programs can involve insurance rating plans, such as retrospective rating, self-insurance programs, or captive insurers.

Risk Management Information System (RMIS)
A flexible computerized management information system that allows the manipulation of claims, loss control, and other types of data to assist in risk management decision making.

Risk Management Process
A system for treating risk involving the following steps:

1. Identification and analysis of exposures
2. Selection of appropriate risk management techniques
to handle exposures
3. Implementation of chosen techniques
4. Monitoring of the results

Risk Management Techniques
Methods for treating risk, including retention, contractual or noninsurance transfer, loss control, avoidance, and insurance transfer.

Risk Management
The practice of identifying and analyzing loss exposures and taking steps to minimize the financial impact of those risks.

Risk Manager

The individual responsible for preserving a firm's assets against accidental losses of various kinds. Risk managers buy insurance, promote sound loss control and manage retention (self-insurance) programs for the organization. Large firms may have a risk management department involving many employees, while small organizations usually have a single person who performs both risk management duties, as well as other responsibilities.

Risk Profile
A measure of expected losses for a finite period of time based on various items of historical data, such as total losses, number of losses, average loss size, and payout patterns.

The term usually refers to a book of business, an individual account, or an individual policy with a sufficiently large exposure base to lend credibility to analysis of the data.

Risk Purchasing Group
A group formed in compliance with the Risk Retention Act of 1986 authorizing a group of insureds engaged in similar businesses or activities to purchase insurance coverage from a commercial insurer. This is in contrast with a risk retention group, which actually bears the group's risks, rather than obtaining coverage on behalf of the group members.

Risk Quantification
Forecasting of loss frequency and severity to make risk financing decisions.

Risk Reduction
A risk control activity focusing on reducing the severity of losses. Examples include building firewalls to reduce the spread of fire and installing automatic fire sprinklers.

Risk Retention Act
Federal legislation passed in 1986 that authorized the formation of purchasing groups and group self-insurance programs for certain types of liability exposures. According to the Act, members of risk purchasing and risk retention groups must be engaged in similar or related businesses or activities.

Risk Retention Group
In 1986, Congress passed the Risk Retention Act to assist businesses that could not obtain liability insurance. The Act allows businesses to form Risk Retention Groups. These Groups provide liability insurance to their member/owners. In effect, they become their own insurance company. Participation in a Risk Retention Group requires sound legal financial and insurance advice.

Risk Retention<br /> Planned acceptance of losses by deductibles, deliberate noninsurance, and loss-sensitive plans where some or all of the applicable risk is consciously retained rather than transferred.

Risk Selection
The method a home office underwriter uses to choose applicants that the insurance company will accept. The underwriter must determine whether risks are standard, substandard or preferred and set the premium rates accordingly.

Risk Sharing
Means that the premiums and losses of each member of a group of policyholders are allocated within the group based on a predetermined formula. Risk is considered to be shared if there is no policyholder-specific correlation between premiums paid into a captive, for example, and losses paid from the captive's reserve pool.

Risk Transfer
A risk management technique whereby risk of loss is transferred to another party through a contract, e.g., a hold harmless agreement, or to a professional risk bearer, such as an insurance company.

1. Any chance of loss
2. The insured or the property to which the insurance policy relates.

Theft during which force is used or threatened.

Running Down Clause
An ocean marine hull policy clause adding legal liability coverage for damage done to another ship or its cargo resulting from a collision with, and caused by, the insured vessel.

A provision in a reinsurance contract stating that the reinsurer remains liable for losses under reinsured policies in force on the terminated date that result from occurrences taking place after the termination date.


Salary Continuation Plan
An arrangement whereby an income, usually related to an employee's salary, is continued upon his or her death; often paid to the employee's beneficiary.

1. Property after it has been partially damaged by an insured peril.

2. As a verb, to save endangered property and to protect damaged property from further loss.

Schedule P Reserve
A liability loss reserve relating to the business written by a property-casualty insurer that must be shown on Schedule P of the convention blanks required by the national Association of Insurance Commissioners (NAIC). The purpose of the reserve is to allow for an evaluation of the financial strength of the insurer over a period of time as losses develop relative to earned premium.

Schedule Rating
Modification of manual rates either upward (debits) or downward (credits) to reflect the individual risk characteristics of the subject of insurance.

Scheduled Limits
Separate property insurance limits applicable to each type of covered property interest (building, personal property, business interruption, etc.) at each covered location. Contrasts with blanket limits that apply over more than one covered property interest or more than one location or both. Also called "specific limits".

School Board Liability Coverage
A type of directors and officers liability policy that protects school board members and, if so arranged, employees, against claims alleging errors and omissions in performing their duties. It is also known as school leaders errors and omissions coverage.

Seasonal Risk
A business that operates during only a part of the year (such as a ski resort) or experiences seasonal peaks of production or income (such as a toy manufacturer).

Secondary Beneficiary
The person named to receive benefits if the primary beneficiary is not alive upon the death of the insured or if the primary beneficiary does not collect all benefits before his or her own death.

Section 1035 Exchanges
Certain life insurance policy or annuity exchanges that are considered, according to Internal Revenue Code section 1035, to be tax-free.

Securitization of Risk
Results from the convergence of the capital markets and the reinsurance markets and refers to the practice of converting known potential risk scenarios, such as the potential for a hurricane, into a marketable security. One example is the "cat bond", a bond future/commodity.

Self-Insured Retention
A dollar amount specified in an insurance policy (usually a liability policy) that must be paid by the insured before the insurance policy will respond to a loss. SIRs typically apply to both the amount of the loss and related costs, such as defense costs, but some apply only to amounts payable in damages, e.g., settlements, awards, and judgments.

An SIR differs from a true deductible in at least two important ways. Most importantly, a liability policy's limit stacks on top of an SIR, while the amount of a liability insurance deductible is subtracted from the policy's limit. As contrasted with its responsibility under a deductible, the insurer is not obligated to pay the SIR amount and then seek reimbursement from the insured. The insured pays the SIR directly to the claimant.

Self-Insurer's Bond
A type of surety bond that provides a promise to pay self-insured losses if the promisor (self-insurer) is unable to meet its obligations. To self-insure workers compensation, for example, most states require that the self-insurer post a self-insurer's bond with the state. The state then recognizes that the self-insurer will have adequate resources to pay workers compensation claims.

Self Insurance
A system whereby a firm, by setting aside an amount of monies, provides for any losses that occur - losses that would ordinarily be covered under an insurance program. The monies that would normally be used for premium payments are added to this special fund for payment of losses incurred.

Self Rating
Prospective or retrospective rating whereby the rate depends on the experience of the insured. The term implies that the insured's exposure and loss experience is of a large enough size and time period so as to be statistically credible.

Selling Price Clause or Endorsement
A property insurance provision or endorsement valuing finished goods at their selling price, rather than their actual cash value or replacement costs, so as to cover the profit portion of the price in addition to the replacement cost.

Settlement Lag
Denotes the span of time between the first report of a claim and the date of its ultimate settlement.

Severability of Interests Clause
A policy provision clarifying that, except with respect to the coverage limits, the insurance applies to each insured as though a separate policy were issued to each. A policy containing such a clause, therefore, will cover a claim made by one insured against another insured.

Several Liability
Liability that may be assigned or apportioned separately to each of a number of liable parties. Distinguishable from, but often paired with, joint liability.

The amount of damage that is (or that may be) inflicted by a loss or catastrophe. Sometimes quantified as a severity rate, which is a ratio relating the amount of loss to values exposed to loss during a specified period of time.

Sexual Harassment
Conduct involving unwelcome sexual advances, requests for sexual favors, and verbal, visual, or physical conduct of a sexual nature.

There are two types of sexual harassment:

1. Quid Pro Quo sexual harassment in which sexual contact is made a condition of employment, and

2. Hostile Environment sexual harassment in which such conduct creates an intimidating, hostile, or offensive working environment.

In response to increasing sexual harassment claims, the insurance market began offering around 1990 employment practices liability (EPL) policies, a specialized form of insurance covering claims of sexual harassment and other employment-related torts.

Short Rate Cancellation
Refers to the cancellation of an insurance policy by the insured prior to the expiration date. Short-rate cancellations generally result in a penalty in the form of a less than full pro-rata premium refund.

See also Pro Rata Cancellation

Single Premium Insurance
An insurance policy or annuity bought with one premium with no further premiums due during the term of the contract.

Sistership Liability Exclusion
A general liability exclusion applicable to damages claimed for the withdrawal , inspection, repair, replacement, or loss of use of the named insured's product or work completed by or for the named insured or of any property of which such products or work form a part. It is commonly referred to as a "product recall" exclusion.

Sliding Scale Dividend
A rating plan that pays a dividend to the insured on a loss-sensitive basis. Dividends are not guaranteed and are paid based on the ratio the final audited premium bears to the total incurred losses of the insured for the specific policy period.

Since losses stay open for several years after policy expiration, periodic dividend adjustments are made after the initial reconciliation.

The piece of paper containing all the pertinent information regarding the risk and the insurance terms and conditions that is submitted by the broker to the underwriter at Lloyds of London.

If the underwriter decides to participate on the risk, the percentage and pricing is recorded in addition to the underwriter's signature. The process is then repeated until the slip is completely filled. The slip forms the basis for the insurance coverage contract and in the event of a difference in wording between the slip and the policy issued from it, the slip supersedes the policy as the binding insurance document.

Soft Costs Coverage
Time element coverage for property under construction, also commonly referred to as delayed opening coverage. Covers income loss or specified additional expenses resulting from delay in project completion when the delay is caused by damage to the project from an insured peril.

Soft Market
One side of the market cycle characterized by low rates, high limits, flexible contracts, and high availability of coverage. Contrast with hard market.

Special Causes of Loss Form (ISO)
One of the four Insurance Services Office, Inc. (ISO) causes of loss form. An ISO commercial property policy must include one or more causes of loss forms.

The Special Causes of Loss form (CP 10 30) provides what is commonly referred to as "all risks" coverage: coverage for loss from all causes not specifically excluded.

Special Damages
Objectively assessed monies awarded to an injured party for tangible losses, such as wage loss, loss of use, nursing care, and medical expenses.

Special Investigative Unit (SIU)
Unit or department within an insurance company involved in detecting and pursuing action against fraudulent activities on the part of insureds or claimants.

Special Purpose Vehicle (SPV)
A company created by (but not owned by) an insurer or reinsurer for the sole purpose of issuing debt (usually in the form of a catastrophe bond). The use of SPVs is restricted to off-shore domiciles to be able to maintain the issuer's (the US-based insurer or reinsurer) US tax and accounting treatments with regard to such transactions.

Specific Excess Loss
Provides coverage once claims arising out of a single occurrence exceed the retention specified in the policy declarations.

Specific Rating
Aon Insurance Services Office, Inc. (ISO) property insurance rating method based on rebates, applicable only to individual properties, determined by physical inspection of the property.

A detailed description of the coverage types, amounts, and policy provisions submitted to an insurer to use in preparing a proposal. Insurance specifications also typically include the underwriting data the insurer will need to price the required coverages.

Specified Perils - (See Named Perils)

Spousal Coverage
A provision in directors and officers liability policies extending coverage to an insured's spouse.

Spousal coverage is needed because when they are named in lawsuits, directors and officers sometimes shield assets by transferring them to spouses. Recognizing this tactic, in recent years plaintiffs' attorneys have begun naming spouses in suit papers. Spousal coverage provisions do not cover an insured director's/officer's spouse for a wrongful act. Rather, they only cover that spouse's interest in property against which a claim is made.

Spread Loss Reinsurance
A form of excess of loss property reinsurance under which there is a periodic adjustment of the reinsurance premium rate given the reinsured's loss experience for the previous years (typically 5), plus a loading for the reinsurer's expenses, catastrophe losses, and profit.

The application of two or more policy's limits to a single occurrence or claim. This is common with product liability, construction defect, and pollution claims in which the occurrence has transpired over numerous years and it is difficult to ascertain which policy provides coverage. It can also occur under uninsured/underinsured motorist coverage in the business auto policy when two or more vehicle limits can be stacked to apply to a single occurrence.

Staff Model HMO
Provides medical care to subscribers on an exclusive basis in a centralized medical operation. Medical services that cannot be provided internally are referred to outside providers with the HMO picking up the costs. Physicians on staff of the HMO are compensated through a salary and bonus plan.

Standard Premium
The workers compensation premium developed by multiplying the appropriate rate by the proper exposure unit. This figure is then modified by experience rating, if applicable. If the risk is not subject to experience rating, the premium at the manual rate is the standard premium.

Standard Risk
Entity or person who, according to a company's underwriting standards, is entitled to insurance protection without extra rating or special restrictions.

State Funds
State-owned and operated organizations that write workers compensation insurance. Some states have monopolistic funds, which are the only market for workers compensation insurance in those states. Other competitive funds that compete with insurers in that state only.

The monopolistic fund states are North Dakota, Ohio, Washington, West Virginia, and Wyoming.

Statute of Limitations
A law prescribing the period within which certain types of causes of action must be brought. This time period usually begins to run when the injury or damage occurs or is discovered. The statute may run from 1 to 6 years. In the case of a minor, the stature begins to run from the date he or she reaches legal age.

Statute of Repose
A law that cuts off a right of action after a specified period of time has elapsed, regardless of when the cause of action accrues. Such a statute, for example, might dictate that a manufacturer cannot be held liable for injury caused by a product that was sold more than 12 years in the past.

Relatively few states have statutes of repose, and those that do typically provide for exceptions in extenuating circumstances. Statutes of repose differ from statutes of limitation in that the time periods specified in statues of limitations usually do not begin to run until the injury actually occurs, irrespective of when the product was sold.

Statutory Accounting
The rules of accounting prescribed by state law for use by insurance companies. These rules focus on the balance sheet and solvency analysis, and differ from the generally accepted accounting principals (GAAP) used for other types of businesses.

Statutory accounting rules:

- Do not allow the inclusion of certain nonadmitted assets on the balance sheet
- Require that certain loss reserves be set by conservative formulas instead of the insurer's estimate
- Require the insurer to immediately recognize the expenses associated with writing new business instead of amortizing them over the policy period, and
- Do not allow premiums for reinsurance placed with unauthorized reinsurers to be recognized as an asset

Statutory Law
That body of law which is enacted by legislative bodies. It is separate and distinct from common law.

Stock Company
An insurance company that has, in addition to surplus and reserve funds, a capital fund paid in by stockholders, as distinguished from mutual or cooperative companies which have no stockholders. Shares of stock companies are usually traded on one of the organized stock exchanges.

Stock Redemption Plan
An agreement under which a closely held corporation purchases a deceased stockholder's interest.

Stop Gap Endorsement
An endorsement that provides employer's liability coverage for work-related injuries arising out of incidental operations or exposures in monopolistic fund states, since policies issued by the state funds do not provide employer's liability coverage.

If the employer has operations in nonmonopolistic states, the endorsement is attached to the workers compensation policy providing coverage in those states. For employers operating exclusively in a monopolistic fund state, the endorsement is attached to the employer's general liability policy.

Stop Loss
A form of reinsurance, also known as "aggregate excess of loss reinsurance", under which a reinsurer is liable for all losses, regardless of size, that occur after a specified loss ratio or total dollar of losses has been reached.

Strict Liability
A legal doctrine under which liability is imposed with respect to injury or damage arising from certain types of hazardous activities.

Under strict liability standards, for example, the manufacturer or distributor of a dangerous product is liable to a person who is injured by the product, regardless of the degree of care exercised by the manufacturer or distributor in the production or sale of the product.

Strike Coverage
Specialty business interruption insurance covering loss resulting from interrupted operations caused by a labor strike.

Strike Through Clause
A reinsurance contract provision requiring a reinsurer to pay its share of a loss directly to the insured, in the event the ceding insurer becomes insolvent.

Structured Settlement
A settlement under which the plaintiff agrees to accept a stream of payments in lieu of a lump sum. Structured settlements can be tailored to the individual's need to provide for inflation, anticipated future medical expenses, education costs for children, etc. Annuities are usually used as funding mechanisms.

Subject Premium
1. In conjunction with retrospective rating, the portion of the premium applied to the retro formula

2. In reinsurance, the reinsurance rate is applied to the subject premium to produce the reinsurance premium. Subject premium is also known as the "base premium" or "underlying premium."

The package of materials that is sent to the underwriter as part of a request for a quotation of insurance. An application is usually the most important part of the submission.

A command to appear at a certain time and place to give testimony.

Subrogation Waiver
An agreement between two parties in which one party agrees to waive subrogation rights against another in the event of a loss.

Generally, insurance policies do not bar coverage if an insured waives subrogation against a third party before a loss. However, coverage is excluded from many policies if subrogation is waived after a loss because to do so would violate the principle of indemnity.

The assignment to an insurer by terms of the policy or by law, after payment of a loss, of the rights of the insured to recover the amount of the loss from one legally liable for it.

Less than standard.

Substandard auto insurance, for example, is insurance written for drivers with poor driving records. For obvious reasons, substandard insurance premiums are typically higher and coverage terms more restrictive than insurance written on standard risks.

Sue and Labor Clause
A property and marine insurance provision (originating in ocean marine insurance) requiring the insured to protect damaged property from further loss once a loss has occurred.

Suicide Clause
Most life insurance policies provide that if the insured commits suicide within a specified period, usually two years, after the issue date, the company's liability will be limited to a return of premiums paid.

Summary Judgment
A court judgment based on the judge's conclusion that the litigation involves only a question of law, with no associated questions of fact. Disputes as to the meaning of insurance policy provisions, when they involve only the interpretation of the policy itself and not the determination of the circumstances of the loss, are often the subject of a summary judgment.

Instrument used to commence a civil action or special proceeding and as a means of acquiring jurisdiction over a party. The process is directed to a sheriff or other officer, requiring the sheriff to notify a person named that an action has been commenced against him or her.

A general liability insured is required by the standard commercial general liability policy to provide the insurer immediately with copies of any summons received in connection with a claim or suit.

The program operated under the legislative authority of Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and Superfund Amendments and Reauthorization Act (SARA) of 1986 that funds and carries out Environmental Protection Agency (EPA) solid waste emergency and long-term removal and remedial activities.

These activities include establishing the National Priorities List, investigating sites for inclusion on the list, determining their priority, and conducting and/or supervising the cleanup and other remedial actions.

Surety Bond
A contract under which one part (the surety) guarantees the performance of certain obligations of a second party (the principal) to a third party (the obligee).

Most construction contractors, for example, must provide the party for which they are performing operations with a bond guaranteeing that it will complete the project by the date specified in the construction contract in accordance with all plans and specifications.

A party that guarantees the performance of another. The contract through which the guarantee is executed is called a surety bond.

Surplus Lines Broker
A broker who is licensed to place coverage with nonadmitted insurers (insurers not licensed to do business in a given state). Surplus lines insurers can write coverage through a surplus lines broker if the broker is licensed in the state where coverage is being written.

The types of risks typically written by surplus lines brokers are generally substandard risks (e.g., risks with adverse loss experience), unusual risks, and risks for which there is a shortage of capacity in the admitted market.

Surplus Lines Insurance
Refers to coverage lines that need not be filed with state insurance departments as a condition of being able to offer coverage.

The types of risks typically insured in the surplus lines insurance markets can usually be categorized as risks with adverse loss experience, unusual risks, and those for which there is a shortage of capacity in the standard market.

Surplus Lines
Risks placed with nonadmitted insurers.

Surplus Reinsurance
Reinsurance of amounts that exceed a ceding company's retention. In surplus reinsurance, the reinsurer contributes to the payment of losses in proportion to its share of the total limit of coverage.

Surplus Relief
An insurer's purchase of reinsurance to offset unusual drains against the insurer's surplus. The use of reinsurance for surplus relief purposes is most common when an insurer begins to rapidly expand its volume of written premium.

Surplus Share
A form of pro-rata reinsurance in which the primary insurer cedes only the "surplus" liability above a specified retention.

The difference between an insurer's admitted assets (assets that may be counted when determining financial condition) and its liabilities. It is the equivalent of "owner's equity" in standard accounting terms. The ratio of an insurer's premiums written to its surplus is one of the key measures of its solvency.

Withdrawing full cash value and surrendering a policy to the life insurance company.

A group of companies or underwriters who join together to insure very high valued property or high hazard liability exposures. Insurance exchanges, such as Lloyd's of London, use syndicates to write insurance.

Systems Performance Insurance
Guarantees the owner's debt service if an insured project cannot perform at the anticipated capacity due to deficiencies in the system's design, materials, or construction.

Owners may be able to improve the terms of their debt contract by purchasing the coverage.


Tail Coverage
A designated period of time after a claims-made policy has expired, during which a claim may be made and coverage triggered as if the claim had been made during the policy period. Also known as Extended Reporting Period (ERP).

In international insurance, refers to rates and coverages set and published by the rating bureau having jurisdiction. The rating bureau may be controlled either by an association of insurance companies or by a foreign government.

Tax Multiplier
A component of a retrospective rating plan that represents the costs associated with taxes, assessments, and other fees that the insurer must pay to the states on premiums written and collected.

Temporary Partial Disability
A workers compensation disability level in which the injured worker is temporarily precluded from performing a certain set of job skills, but who can still work at a reduced level. Since the condition is temporary, compensation is based on the difference between the two earning levels.

Temporary Total Disability
One of the four divisions of disability compensable under workers compensation. This level of disability reflects an injury that has rendered the employee completely unable to perform any job functions on a temporary basis.

The employee is expected to make a full recovery and return to work. In the interim, compensation paid is usually a percentage of weekly wages until the worker returns to the job.

Tender of Defense
The act in which one party places its defense, and all costs associated with that defense, with another due to a contract or other agreement. This transfers the obligation of the defense and possible indemnification to the party the tender was made to.

Term Life Insurance
Protection during limited number of years; expiring without value if the insured survives the stated period, which may be one or more years but usually is five to twenty years, because such periods usually cover the needs for temporary protection.

Term of Policy
Period for which the policy runs. In life insurance, this is to the end of the term period for term insurance.

Terrorism Risk Insurance Act (TRIA)
Federal law passed in 2002 encompassing three elements:

1. Availability - Insurers are generally required to "make available" coverage for losses resulting from acts of terrorism on the same terms and limits as coverage for other losses.

2. Disclosure - The Act requires insurers to disclose the premium charged for the terrorism losses in all new and renewal quotes and policies.

3. Federal participation - The federal government will share in certain terrorism losses through 2005. To trigger the federal backstop, the "certified" terrorism events in any one calendar year must result in significant losses

Tertiary Beneficiary
In life insurance, a beneficiary designated as third in line to receive the proceeds or benefits if the primary and secondary beneficiaries do not survive the insured.

Theft Insurance - Protection for loss of property due to stealing, including burglary, robbery and larceny.

Third-Party-Over Action
Lawsuit brought by a third party against the employer of an injured employee after that third party has been held legally responsible for the employee's work-related injury or disease.

A "third-party-over" action arises when am employee sues and recovers from a third party, and the third party then sues the employer for at least partial repayment based on the employer's alleged contributory negligence or other wrongdoing.

Third-Party Administrator
A firm that handles various types of administrative responsibilities, on a fee-for-services basis, for organizations involved in cash flow programs. These responsibilities typically include claims administration, loss control, risk management information systems, and risk management consulting.

Third-Party Owner
A policyowner who is not the prospective insured.

Time Element Insurance
A property insurance term referring to coverage for loss resulting from the inability to put damaged property to its normal use.

Insurance coverages in this group are so called because the amount of loss depends on how long it takes to repair or replace the damaged property.

The best known types of time element insurance are business interruption and extra expense coverage.

Tort Threshold
In auto no-fault insurance, the measure of the minimum injury severity which, once reached, allows the insured to sue for noneconomic damages. The two types of tort thresholds are verbal (expressed in definitions of the seriousness of the injury) and monetary (expressed as dollars of medical costs incurred).

A party accused of committing a tort; customarily, the defendant in a liability lawsuit.

A civil or private wrong giving rise to legal liability.

Total Disability
As defined in a disability income policy, determines whether or not the insurer is responsible for payment.

Definitions vary from policy to policy, with some being very restrictive and some being very broad. The most broad disability income policies define this term as the inability to perform the functions of one's occupation. More restrictive policies define it to be the inability to perform the duties of any gainful occupation.

Towing Coverage - Insures against charges for towing and road service at the place of disablement, with a maximum amount stipulated for each occurrence.

Toxic Tort
An action based on allegations that injuries or death were caused by contact with, use of, or ingestion of an insidious or poisonous substance, such as asbestos, PCBs, or insecticides.

Trade Disruption Insurance
Political risk insurance that covers loss of gross earnings and extra expenses caused by a delay or nonarrival of supplies or stocks arising from foreign government actions or inaction. Such losses can arise from embargoes, expropriation, nationalization, interference with transportation, and similar actions.

Trade Libel
A standard peril covered under a media professional liability policy. Trade libel is also known as "product disparagement," and occurs when a product manufacturer makes untrue remarks about a competitor's product.

Trading Loss Coverage
Coverage that may be added by an endorsement to a banker's blanket bond for employee dishonesty loss involving trading (usually of securities or currency).

Trailer Interchange Insurance
A type of coverage available under either the truckers or motor carrier policy form covering the insured's legal liability for damage to the trailers of others. Truckers frequently haul trailers that are owned by other truckers.

This is often done through a "trade" of trailers that are in different locations to facilitate scheduling. A trailer interchange agreement makes the trucker who has possession of the trailer responsible for any damage to the trailer.

Transit Coverag
Inland marine coverage on the insured's property while in transit over land from one location to another.

Transitional Duties
A job assignment made to an employee returning to work while still recovering from a compensable injury. The employee can eventually return to the predisability position. A transitional job, however, fills the gap by providing work which takes into consideration the temporary physical limitations of the employee.

Treaty Reinsurance
A form of reinsurance in which the ceding company (the primary insurer) makes an agreement to cede certain classes of business to a reinsurer. The reinsurer, in turn, agrees to accept all business qualifying under the agreement, known as the "treaty".

Under a reinsurance treaty, the ceding company is assured that all of its risks falling within the terms of the treaty will be reimbursed in accordance with treaty terms.

An agreement between an insurer and a reinsurer stating the types or classes of businesses that the reinsurer will accept from the insurer.

Trend Factor
A factor used in the loss forecasting process that accounts for increases over time in the dollar amount of losses sustained by an organization. Trend factors are applied to convert historical loss data to current dollars. The Consumer Price index and the U.S. Claims Cost indexes are sometimes applied to past losses for this purpose.

One who, without authorization, goes on the private premises of another without an invitation or inducement, expressed or implied, but purely for his or her own purposes or convenience and where no mutuality of interest exists between him and the owner or occupant.

Certain forms of trespass have been held covered under personal injury liability coverage.

Trial Court
The court that is assigned to preside over the trial, and in some instances, discovery, of a particular case.

Trip Transit Insurance
Insurance written to cover a specific individual shipment, as distinguished from transit insurance written to cover any and all shipments that may occur during the policy term.

Triple Trigger Theory
One approach in determining the trigger for an occurrence. This approach states that all policies in force from the time of initial exposure through manifestation apply. This includes the time when the injurious substance is "in residence" with the injured person.

Truckers Policy
A commercial auto policy designed to address the needs of the "for-hire" motor carrier (trucking) industry. Coverages available include auto liability, trailer interchange, and auto physical damage. Other coverages are available by endorsement.

Trust Department Errors and Omissions Coverage
Coverage for the liability of bank trust department personnel arising out of their acts as trustees.

Examples of acts that may give rise to such liability include:
- Improper investment of trust assets
- Failure of a stock transfer agent to effect the transfer in
the required time limit
- Permitting devaluation of trust assets

A person appointed to manage the property of another.

Practice of inducing a policyowner in one company to lapse, forfeit or surrender a life insurance policy for the purpose of taking out a policy in another company. Generally classified as a misdemeanor, subject to fine, revocation of license and sometimes imprisonment.Theft Insurance - Protection for loss of property due to stealing, including burglary, robbery and larceny.


Ultimate Net Loss
A term used to specify insured damages in an umbrella liability policy. Most umbrella policies include a specific definition of the covered damages encompassed by the term. This will typically include amounts actually payable to claimants in settlement or judgment.

If defense and other supplementary payments are included within the policy's limit of liability, they may also be included in the policy's ultimate net loss definition.

Umbrella and Excess Liability
Umbrella policies provide additional amounts of insurance over other insurance policies. Typically, umbrella policies go over your Automobile Liability, General Liability and Employer's Liability (part of a Workers Compensation policy) coverages. Umbrella insurers may agree to go over additional underlying coverages, such as Non-Owned Aircraft Liability.

True Umbrella policies are broader that the underlying policies. This means they provide some coverages that the underlying policies do not. Umbrella coverage is often subject to a "Retention" when there is no coverage in the underlying policies. In other words, the Umbrella insurer will only pay such claims when they exceed a certain dollar amount.

"Excess" policies do not add additional coverages. They simply provide additional amounts of insurance over the underlying policies.

Since portions of the underlying General Liability and Employer's Liability policies limit the amount they will pay in any one policy year (aggregate limit), these policies should have the same policy term (expiration date) as the Umbrella policy.

Unallocated Loss Expense
Salaries, overhead, and other costs related to the claim adjustment process that are not specifically allocated to the expense incurred for a particular claim

Unauthorized Insurer
An insurer not licensed to write business in a particular state.

Refers to the practice of separating risk handling and risk funding services either from a multiline insurer or from themselves. Captives that require a "front" may also be required to purchase all or some of the services from the same insurer. This is a "bundled" program. Unbundling indicates the ability to purchase services from any vendor, not just those associated with the fronting insurer.

Unconditional Settlement Clause
A provision found in professional liability policies that requires the insured to approve all settlements proposed by an insurer. Under such provisions, an insured can reject an insurer's proposal and, unlike the standard "blackmail settlement clause," incurs no liability if the claim is ultimately settled or adjudicated for a larger amount.

Underground Property Damage
Property damage to wires, conduits, pipes, mains, sewers, tanks, tunnels, any similar property, and any apparatus in connection beneath the surface of the ground or water caused by and occurring during the use of mechanical equipment for the purpose of grading land, paving, excavating, drilling, burrowing, filling, backfilling, or pile driving.

Underinsured Motorists Coverage
Provides coverage for bodily injury, and in some states property damage, incurred by an insured when an accident is caused by a motorist who is not sufficiently insured, e.g., when the limits of liability carried by the other motorist are lower than the uninsured motorists limits carried by the insured.

Underlying Coverage
With respect to any given policy of excess insurance, the coverage in place on the same risk that will respond to loss before the excess policy is called on to pay any portion of the claim.

Underlying Policies
Policies occupying layers of coverage below the particular policy being referred to. For example, a general liability policy and an umbrella policy might be underlyers for an excess liability policy.

The insurance company receiving premiums and accepting responsibility for fulfilling the policy contract. Also, the company employee who decides whether the company should assume a particular risk; or the agent who sells the policy.

Underwriting Guidelines
A set of rules and requirements an insurer provides for its agents and underwriters. The underwriter uses these guidelines to make decisions regarding the acceptance, modification, or rejection of a prospective insured.

Underwriting Profit
The profit that an insurer derives from providing insurance or reinsurance coverage, exclusive of the income it derives from investments.

Unearned Premium Reserve
An insurer's liability for its unearned premium as of any given valuation date. This is typically the largest liability of an insurer.

Unearned Premium
That portion of the original premium that has not yet been "earned" by the insurer because the policy still has a period of time before expiration. A property or casualty insurer must carry all unearned premiums as a liability in its financial statement since, if the policy is canceled, the insurer would have to pay back a part of the original premium.

Uniform Simultaneous Death Act
Model law that states when an insured and beneficiary die at the same time, it is presumed that the insured survived the beneficiary.

Unilateral Contract
A contract in which only one party makes an enforceable promise. Most insurance policies are unilateral contracts in that only the insurer makes a legally enforceable promise to pay covered claims. By contrast, the insured makes few, if any, enforceable promises to the insurer. Instead, the insured most only fulfill certain conditions, such as paying premiums and reporting accidents, to keep the policy in force.

Uninsurable Risk
One not acceptable for insurance due to excessive risk.

Uninsured Motorist Coverage
Provides coverage for bodily injury, and in some states property damage, caused by a motorist that is not insured. Uninsured motorists coverage allows an insured to collect from his or her own insurer, as if it covered the negligent third party.

Unit Statistical Card
Also known as a "stat card", the instrument that provides the National Council on Compensation Insurance with necessary payroll and loss information to establish experience modifications. The payrolls reported on the unit stat cards are final audited payrolls by classification for each policy period. Also included are rates, premium, and experience modification used for that policy period, and premium discount applied.

Universal Life
Flexible premium, two-part contract containing renewable term insurance and a cash value account that generally earns interest at a higher rate than a traditional policy. The interest rate varies. Premiums are deposited in the cash value accounts after the company deducts its fee and a monthly cost for the term coverage.

Unreported Claims
Incurred but not reported (IBNR) claims

A concept based on general maritime law that warrants a vessel is reasonably fit for the intended use at sea. When the warranty is breached and the ship is shown to be unseaworthy, a no-fault liability is imposed on the shipowner or charterer to make restitution for the injury or death of the individual.

Upset Coverage
Coverage for damage to a crane caused by its upset.

The coverage is usually provided by an endorsement to an equipment floater. The endorsement typically specifies that if the weight carried by the crane at the time of upset exceeded the maximum rated load for the equipment, coverage will not apply.

Utility Service Interruption Coverage
Coverage for loss due to the lack of incoming electricity caused by damage from a covered cause (such as a fire or windstorm) to property away from the insured's premises - usually the utility generating station. Also referred to as "off-premises power coverage."

The coverage is not provided in standard property insurance policies, but is available by endorsement. Utility service interruption coverage endorsements vary widely as to what utility services are included, whether both direct damage and time element losses are covered, and whether transmission lines are covered.

Utilization Review
A technique for controlling medical expenses by reviewing utilization patterns reflected in claims information. Types of, quantities of, and charges for medical services are evaluated to identify problem areas responsible for increasing costs. Specific diagnoses, procedures, service providers, and claimant groups responsible for increasing costs are identified.

U.S. Longshore and Harbor Workers Compensation Act (USLHWA)
A federal law that provides no-fault workers compensation benefits to employees other than masters or crew members of a vessel injured in maritime employment - generally in loading, unloading, repairing, or building a vessel.

Employers can obtain coverage under a standard workers compensation policy by purchasing a Longshore and Harbor Workers Compensation Act coverage endorsement.


Vacancy Provision
A provision found in most commercial property policies that severely restricts coverage in connection with buildings that have been vacant for a specified number of days (typically 60 days). Some forms also restrict coverage in connection with buildings that have been unoccupied for a specified number of days.

Valuable Papers
Valuable papers protection provides coverage for the additional costs to research or restore damaged documents, drawings or records. It is an important consideration for businesses such as Architects, Graphic Artists and any others that could lose valuable documents in a property loss.

Property insurance policies can be written to provide Replacement Cost coverage or Actual Cash Value coverage. Replacement Cost means the cost to repair or replace the damaged property with new property of like kind and quality. Actual Cash Value means that any loss settlement will be depreciated to reflect the age of the property.

Most businesses prefer Replacement Cost protection because it achieves a more complete recovery following a loss. However, Actual Cash Value (depreciated) coverage may be appropriate under certain circumstances. For example, the extra cost of Replacement Cost protection may not be justified on an older property that would not be repaired or replaced if seriously damaged.

Valued Coverage
Property coverage that provides for the payment of a stipulated dollar amount (rather than the actual cash value or replacement cost of the property) in the event of a total loss. Fine arts coverage is often written on a valued basis.

Some states have valued policy laws which require that fire insurance on buildings be treated as valued coverage in the event of a total loss.

Variable Annuity
An annuity that provides lifetime income payments which vary in relation to the performance of the underlying investment portfolio managed by the insurer.

Variable Life Insurance
A policy that provides a guaranteed minimum death benefit with the potential for increased benefits, without the necessity of paying additional premium dollars. Under such policies, the insured obtains a right to have the net investment return, in excess of the assumed rate of return, applied to increase the policy benefits.

Vendors Coverage
Additional insured coverage, usually under a manufacturer's general liability policy, for specified vendors with respect to their distribution or sale of the manufacturer's products designated in the schedule on the endorsement. This endorsement gives products liability coverage to the vendors distributing or selling the named insured's product and eliminates the need for the vendor to purchase separate products liability coverage.

Vendors Dual Interest
Insurance purchased by financial institutions covering physical damage to property (collateral) on which loans have been made. The premium is usually assessed against the borrower.

Vendors dual interest coverage contrasts with vendors single interest coverage, in that it protects the interests of both the lender and the borrower in the covered property.

Vendors Endorsement
A standard general liability endorsement (CG 20 15) that provides vendors coverage.

Vendors Single Interest
Insurance purchased by financial institutions protecting against financial loss from physical damage to property (collateral) on which loans have been made. Such coverage applies in the event the borrower does not have physical damage coverage in place.

Vendors single interest insurance covers only the outstanding balance on the loan. Even though the borrower frequently pays the premium, he or she received no insurance protection of his equity under such policies.

The location in which an action is brought for trial.

Vessel in Navigation
A watercraft or any type of machinery which is intended for use in navigable waters as a means of transportation. This is one of the qualifications which must be established by an injured worker to make a claim under the Jones Act.

A process by which employees receive rights to values contributed on their behalf by their employer to a pension, profit sharing, or similar benefit plan.

Vicarious Liability
The liability of a principal for the acts of its agents. Vicarious liability can result from the acts of independent agents, partners, independent contractors, and employees.

A policy that can be made void at the option of one or either of the parties to it.

Without legal effect; unenforceable. A number of actions on the part of the insured can render coverage under an insurance policy void.

Voluntary Compensation
Enables an employer to extend the benefits provided by the workers compensation act to employees who many not be entitled to benefits under the terms of the act, such as executive officers, partners, sole proprietors, farm workers, domestic employees, or employees traveling overseas.

If such an employee is injured in the course of employment, he or she may elect to accept the scale of benefits provided by the designated workers compensation law or pursue common law remedies.

Voluntary Market
A group of insurers who elect to write insurance in a competitive environment, retaining the right to accept and reject business submitted.

More specifically, the term also applies to the two types of mandatory insurance: automobile liability and workers compensation. In these instances, voluntary market refers to the insurers who provide coverage to desirable risks while rejecting the less attractive risks which must then be afforded coverage through assigned risk markets.

Voyage Clause
A marine insurance policy provision specifying the period of time allowed for a voyage or series of trips that may be grouped together as one voyage.


Waiting Period Deductible
(1) A deductible provision sometimes used in business interruption and other time element policies, in lieu of a dollar amount deductible, that establishes that the insurer is not responsible for loss suffered during a specified period of time (such as 72 hours) immediately following a direct damage loss.

(2) A deductible mechanism in disability income policies and under workers compensation statutes that establishes a period of time which must pass following an accident or illness causing disability before salary continuation benefits are payable.

Waiver and Release of Liability - An agreement obtained by an insured from an individual or group whereby they forfeit their rights to take legal action against that insured. An illustration of this would be an individual wishing to participate in a sport might have to sign a "waiver and release" stating they will not sue if they are injured while playing the sport, whether there is negligence or not.

Waiver of Premium
Rider or provision included in most life insurance policies exempting the insured from paying premiums after he or she has been disabled for a specified period of time, usually six months.

War Risk Clause
An exclusionary clause eliminating coverage for losses arising out of war or warlike actions.

War Risk Insurance
Insurance against loss or damage to property due to the acts of war. It is frequently written on marine exposures, but is virtually unobtainable on property exposures.

Warehouse to Warehouse Clause
A marine cargo insurance policy provision that extends the protection from the warehouse at which the shipment originates to the one at which it terminates.

Warehousemen's Liability
Insurance coverage against liability that might be incurred in the business of warehousing property of others.

1. A guarantee of the performance of a product.

2. A statement of fact given to an insurer by the insured concerning the insured risk which, if untrue, will void the policy.

Weekly Indemnity - The insurance will pay, after an established waiting period, an agreed weekly sum for lost wages incurred by person (if at the time of the injury they were gainfully employed), if they are unable to work as a result of injuries incurred during an activity, operation or event of yours.

Weighted Average Loss Forecasting
A method of forecasting losses that assigns greater weight, typically to more recent years, when developing a forecast of future losses. Recent years receive greater weight because they tend to more closely approximate current conditions regarding benefit levels, the nature of company operations, and medical expenses.

Welfare and Pension Plan Bond Coverage
Usually added by rider to a fidelity bond, the coverage protects funds and property in employee (labor-management) welfare and pension plans against loss by reason of acts of fraud or dishonesty on the part of administrators, officers, and employees of such plans.

Bonding is required to safeguard these funds under the terms of the Federal Welfare and Pension Plans Disclosure Act.

Wellness Program
A program initiated by an employer to promote a healthy lifestyle by employees.

Whole Life Insurance
Permanent life insurance that provides for the payment of the face value upon the death of the insured, regardless of when it occurs. This contrasts with term insurance, which pays benefits only if death takes place during the limited term of the policy.

Under whole life policies, the insured pays a level premium rate all of his or her life. This approach results in an overpayment of premiums in the early years of the policy and an underpayment in the latter years - which averages out over the life of the policy. Whole life insurance also accumulates a cash value that may be borrowed or otherwise used by the insured.

Wholesale Broker
An insurance broker who deals with retail agents and not typically with individual insureds. The wholesale broker serves as an intermediary between the retail agent and the insurer.

Window Plan
An early retirement plan in which an employer promises enriched pension benefits or credits workers for additional years of service if they retire early. Typically, early retirement windows are offered to employees for 60 or 90 days, and they give employers an alternative approach to reducing their workforce without laying off employees.

With Average 3 % (WA 3%)
An ocean marine policy provision that eliminates coverage for partial loss of below deck cargo amounting to less than 3% of insured value. Partial losses amounting to 3% or more of insured values are covered in full.

With Average (WA)
An ocean marine policy provision that covers partial loss of below deck cargo on the same basis as a total loss - that is, for loss by the same perils and regardless of what percentage of the total insured value is damaged or lost.

With Prejudice
The opposite of without prejudice, it is meant as a final judgment of dismissal with the result as conclusive as if the action had been prosecuted to final adjudication adverse to the plaintiff.

Without Prejudice
When an offer or a dismissal is made "without prejudice", it is meant as a declaration that no rights of the party concerned are to be considered as waived or lost. A dismissal without prejudice allows a new suit to be brought on the same cause of action.

Workers' Compensation
the system by which no-fault statutory benefits prescribed in state law are provided by an employer to an employee (or the employee's family) due to a job-related injury (including death) resulting from an accident or occupational disease.

Workers Compensation policies include two basic coverages. The first coverage provides benefits for employees injured on the job. These benefits are determined by state law.

The second coverage is Employer's Liability. This section covers suits by employees against their employers for job related accidents. Suits can also come from family members of employees. Workers Compensation laws often limit the liability of employers to employee suits, but suits are still possible.

Working Layer
A dollar range in which an insured or, in the case of an insurer's book of business, a group of insureds, is expected to experience a fairly high level of loss frequency. This is the layer typically subject to deductibles, self-insured retentions, retrospective rating plans, and similar programs.

Sufficient loss frequency in the working layer allows many organizations to provide some degree of statistical credibility to actuarial forecasts of the total expected losses during a specific period of time.

Workmanship Exclusion
(1) A liability insurance exclusion that precludes coverage for damage to the insured's work resulting from that work

(2) A builders risk exclusion that precludes coverage for loss caused by faulty workmanship

Wrap-Up Program
A centralized insurance program for large construction projects under which one party, such as the owner (an OCIP) or the general contractor (a CCIP), procures insurance on behalf of all the other parties (e.g., owner, general contractor, and subcontractors).

This contrasts with the typical approach under which each party is responsible for purchasing its own insurance. Typically, the coverages provided under such a program include builders risk, commercial general liability, workers compensation, and umbrella liability.

Written Premium
The premium registered on the books of an insurer or a reinsurer at the time the policy is issued and paid for.

Wrongful Act
The event triggering coverage under many professional liability policies. Typically, a "wrongful act" is defined as an act, error, or omission that takes place within the course of performing professional services.

Wrongful Death Claim
A claim made on behalf of survivors or beneficiaries when a person has died as a result of wrongful conduct (either negligent or intentional). Such claims are generally made by those who were financially dependent on the deceased.

Damages recoverable as a part of wrongful death claims are measured as the loss incurred by virtue of the deceased's having been deprived of a natural lifespan. Such damages include medical expenses prior to death, loss of earnings during the expected natural life of the deceased, and loss of consortium.

Wrongful Termination
The act of terminating an employee in a manner which is against the law. In recent years, erosion of the employment-at-will doctrine has been the factor most responsible for the increase in claims alleging wrongful termination.

Coverage for this exposure is provided under employment practices liability policies.


Yearly Renewable Term (YRT)
(See Annually Renewable Term)

York Antwerp Rules
A set of complex rules prescribed to by most nations that outlines the method of allocating general average losses between ship owners and cargo owners.


Zone Rating
A commercial auto rating system that divides the country into 50 zones with different rating tables applicable for each zone. Vehicles (Excluding light trucks or trailers used with light trucks) that fall into the long-distance radius class are zone-rated.