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ABSOLUTE LIABILITY – Liability that exists and is imposed upon a party, even though no negligence or fault was committed by that party. Absolute liability is most often imposed when the circumstances of the operation, product, or activity is considered highly hazardous or dangerous.

ACCOUNTS RECEIVABLE INSURANCE – Coverage, which protects businesses against their inability to collect their accounts receivable because of the loss of supporting records.

ACT OF GOD – An event beyond human origin or control. Lightning, windstorms, and earthquakes are examples, the damage from which would not be the responsibility of an insured, although the insured might be responsible for many other calamities. Acts of God are excluded by the usual bill of lading, as well as by some insurance policies, unless specifically included.

ACTUAL CASH VALUE – The basis of loss settlement in property insurance policies, which takes into consideration factors such as replacement value less depreciation, market value, rental value, the use of the building, the area in which it is located, obsolescence, assessed valuation, and any other factor which would have an effect upon the value. A working rule-of-thumb definition, however, is ” depreciation?

ADDITIONAL INSURED – A person, other than the named insured, who is protected by the terms of the policy. Usually a specified individual such as a spouse or a member of the insured’s family but sometimes, as in automobile insurance, any person, provided that person is driving the insured vehicle with the insured’s permission.

ADDITIONAL PREMIUM – When a policy has been issued subject to rate, subject to audit, subject to inspection, is assessable, or when the policy is endorsed, the additional premium is the extra amount due, over and above the initial premium stated in the Declarations, because of the increased exposures, higher rates, retrospective rate calculations, additional coverage, or premium audit.

ADJUSTER – One who determines the amount of loss suffered. A “company” adjuster represents the company. A “public” adjuster represents the policyholder. Either may hire an �independent� adjuster.

ADMITTED – Company A foreign or alien insurance company which has been licensed by the insurance department of the state in question, and which thereby is authorized to conduct business within that state to the extent licensed. Also called an admitted market or admitted insurer.

ADVERTISING INJURY – Damages or injury sustained by a claimant in the course of the advertising activities of the insured, which included such injury as libel, slander, violation of the right to privacy, misappropriation of advertising ideas, or the infringement of copyright.

AGENCY – A business office whose function is the sales of insurance and insurance products. An agency may be owned or run by a general agent, manager, independent agent, or company manager. The principal is responsible for the statements and actions of agents performing within the scope of authorization specified in the agency agreement.

AGENT – individual who sells and services insurance policies in either of two classifications:

Independent agent represents at lease two insurance companies and (at least in theory) services clients by searching the market for the most advantageous price for the most coverage. The agent’s commission is a percentage of each premium paid and includes a fee for servicing the insured’s policy.
Direct writer represents only one company and sells only its policies. This agent is paid on a commission basis in much the same manner as the independent agent.

AGENT OF RECORD – The agent of record who has been legally granted to an agent in the agency contract between the agent and insurer.

AGGREGATE LIMIT – In a policy providing such an aggregate limit, the maximum amount the insurer will pay during the policy period, irrespective of the policy’s limit of liability.

AGREED VALUE CLAUSE – A condition of a policy stating that the insurer agrees to waive the coinsurance requirement in consideration of the insured’s maintaining insurance for the scheduled item, equal to the value agreed upon at the inception of the policy.

ALL-RISK POLICY – A policy, which covers loss caused by any cause of loss, which is not excluded, as contrasted to “named peril” policies, which protect against certain perils named in the policies. Usual to certain types of property and marine insurance contracts, the term “all risk” frequently appears in quotes, since such coverage includes “almost” all risks (i.e., all but those excluded).

AMOUNT OF INSURANCE – Based on the terms of a specific policy, the most an insurer will pay for any single loss. The maximum amount an insured can collect.

ANNIVERSARY DATE – The anniversary date of policy inception as listed in the policy Declarations, and each subsequent expiration and renewal.

APPORTIONMENT – The process, which determines how much each policy on a risk must pay when there is more than one policy involved in a loss. Apportionment refers directly to the proportioning or splitting of the loss amount.

ARBITRATION CLAUSE – Language in most policies of insurance providing that, in the event the company and the claimant are unable to agree on the amount due after loss, the matter shall be submitted to disinterested parties for solution. One party is appointed by the insured, one by the company, and two appointed arbitrators then picked a third, the “umpire”.

ASSIGNED RISK PLAN – An association of insurers in a given state in which automobile risks unable to get insurance in the voluntary market are shared among subscribing insurers in proportion to the amount of automobile liability insurance each insurer writes in that state. All companies writing this class are required to participate in this activity, currently administered by the Automobile Insurance Plans Service Office, headquartered at Johnston, RI. Also know as automobile insurance plans, these plans sometimes take the form of joint underwriting associations.

ASSUMED LIABILITY – Contractual liability that arises from an agreement between people, as opposed to liability, which arises from common, or statute law.

AUDIT POLICIES – These are the types of policies that the insurer has the right to audit or examine at the end of each policy term, to determine if the premium charged was adequate based on the actual final exposure experienced by that insured.

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BAILEE – One who has custody of the property of another. Bailees “for hire” have certain responsibilities to care for the property of others that is in their custody.

BID BOND – A bond intended to guarantee that the bidder on a construction, supply or service contract will enter into the contract if successful as a bidder. Should the bidder fail to enter the contract, the surety on the bid bond may be called upon to pay the difference between the amount of the principal’s bid and the bid of the next lowest qualified bidder.

BLANKET COVERAGE – A single limit of insurance that covers a number of items, such as one amount of insurance to cover two buildings or a single building and its contents. A blanket policy usually contains certain restrictions, which may be absent in “specific” or “itemized” policies, such as the use of a 90% coinsurance clause.

BODILY INJURY (BI) – Injury, sickness, or disease sustained by a person, including death at any time resulting there from.

BOILER & MACHINERY INSURANCE – Protection against loss from disruption of boilers and machinery by an insured peril: loss to the boiler and machinery itself, damage to other property, business interruption losses, or all three. Also known as machinery breakdown insurance.

BOND – There is more than one type of bond. Insurance bonds are normally three-party contracts in which one party agrees to guarantee the act, performance, or behavior of a second party, to a third party. Two common types of bonds are fidelity and surety.

BOP-BUSINESSOWNERS POLICY – Similar to the commercial package policy (CPP), it provides broad property and liability protection in a single contract and is designed for small and medium-sized mercantile, service, office, or apartment risks.

BROAD FORM PROPERTY DAMAGE ENDORSEMENT – In endorsement to a commercial general liability policy, which amends or modifies the care, custody, or control exclusion that normally eliminates this coverage. A standard endorsement is not currently available to delete the exclusion; thus each insurer endorsing this exclusion must develop its own company-specific version. Endorsements vary greatly as to the extent of coverage.

BROKER – Insurance salesperson who searches the marketplace in the interest of clients, not insurance companies.

BROKER-AGENT – Independent insurance salesperson who represents particular insurers but may also function as a broker by searching the entire insurance market to place an applicant’s coverage to maximize protection and minimize cost. This person is licensed as an agent and broker.

BROKER OF RECORD – A licensed broker who has been designated by the policyholder to represent that policyholder.


1. A building or a ship in the course of construction.
2. A special form dealing with the unique loss exposure of property under construction.

BUSINESS INCOME INSURANCE – A time element coverage which pays for loss of earnings or income when business operations are interrupted, curtailed or suspended due to property loss as a result of an insured cause of loss. Also covered are loss of rents and rental value. Extra expenses incurred to continue operations at another location are included as long as they reduce the total amount of loss.

BUSINESS INTERRUPTION INSURANCE – A time element coverage which pays for loss of earnings when business operations are curtailed or suspended due to property loss as a result of an insured cause of loss. This coverage is now obsolete and has been replaced by a more comprehensive and generic business income insurance.

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CASUALTY INSURANCE – Insurance concerned with legal liability for personal injuries or damage to property of others, including many other types of insurance, such as worker’s compensation, plate glass, burglary, boiler and machinery, aviation, etc. “Casualty” is generally accepted to cover all classes outside the definition of “property insurance,” so that a property and casualty company would tend to handle all forms of insurance other than life.

CAUSE OF LOSS – Previously called “peril” this is the actual type of event that causes the loss. Examples are: theft, collision, earthquake, flood, fire, or mischief.

CERTIFICATE OF INSURANCE – A short-form documentation of an insurance policy.

CGL-COMMERCIAL GENERAL LIABILITY POLICY – The commercial general liability policy provides comprehensive general liability coverage for commercial risks covering all liability exposures for all locations and causes of loss except those specifically excluded or limited either within the coverage form or by endorsement. Protection may provide on either an occurrence type of policy or on a claims-made basis.

CLAIM – An amount requested of an insurer, by a policyholder or a claimant, for an insured loss.

CLAIMANT – One who presents a claim, or one who has suffered a collectible loss.

CLAIMS MADE – A liability insurance method covering losses from claims asserted against the insured during the policy period, regardless of whether the liability-imposing causes occurred during or prior to the policy period. (However, many underwriters may not cover liability-imposing causes occurring prior to the policy period.) The coverage trigger is based on the retroactive date stated in the Declarations.

CLASSIFICATION – The system of establishing classes of business of rating purposes.

CLASS RATE – Rates for classes of business broad dispersion of risks and low hazard.

CLOSURE & POST-CLOSURE INSURANCE – Insurance coverage that is purchased to protect owners and operators of hazardous waste treatment, storage and disposal facilities, in response to the Resource Conservation and Recovery Act of 1976 (RCRA).

COINSURANCE – The provision in insurance coverages in which the insured and the insurer agree to share in the covered losses in the proportion specified in policy terms and conditions.


1. In property insurance, a clause requiring the insured to maintain insurance at least equal to stipulated percentage of value in order to collect partial losses in full. If the insurance is less than the minimum required, that proportion of the loss- will be paid which the amount of insurance carried bears to the amount, which should have been carried.
Symbolically: Insurance � Carried x Loss = Payment (subject to policy limit) Insurance Required
2. In major medical insurance, the clause which specifies the percentage of a loss which the company will pay and the percentage which the insured will bear.

COLLISION DAMAGE WAIVER – When renting an automobile or other vehicle from a rental agency, the rental agreement between renter and rental agency may contain an option allowing the renter to pay an additional fee in exchange for the agreement by the rental agency to waive their rights to collect any collision losses to the vehicle from the renter.

COMMERCIAL PACKAGE POLICY (CCP) – A package policy designed for commercial insured�s that can provide in one policy, several lines of insurance business as needed by that commercial venture. Lines of business that may be included in the CPP are property/glass, general liability, inland marine, crime, boiler and machinery insurance, and commercial automobile.

COMPARATIVE NEGLIGENCE – A more modern system of allocating damages between two or more persons than the method of contributory negligence, which remains effective in many states (under which one cannot collect damages for bodily injury or property damage caused by another party’s negligence if one were oneself in any way negligent). Under comparative negligence, the damages collectible in relation to another person are diminished in proportion to one’s degree of negligence. In most instances, damages cannot be collected at all if the claimant’s negligence was greater than that of the other party. Currently, in a few instances, the courts have awarded both parties damages as a percent of the total damages, depending on respective degrees of fault.

COMPENSATORY DAMAGES – Not to be confused with punitive damages, which are additional damages requested by an injured party to punish the party responsible for the loss, compensatory damages are normally monetary damages alleged by the claimant to compensate for actual injuries or expenses sustained. These may include all types of medical expenses, as well as other expenses such as lost wages, legal fees, pain and suffering mental anguish. Loss of consortium, etc.

COMPLETED OPERATIONS COVERAGE – Protection for a business, which sells service instead of products against liability, claims arising out of work completed away from the business premises. Differs from products liability coverage, which protects against products liability claims.

COMPREHENSIVE CRIME COVERAGE ENDORSEMENT – Endorsement (now obsolete) that at one time could be attached to a special multi-peril policy providing optional employee dishonesty, money and securities, money orders, counterfeit paper currency, and depositors’ forgery coverages.

COMPUTER FRAUD COVERAGE FORM – A crime coverage form designed to protect against loss of money, securities and property when conversion occurs via computer fraud.

CONCURRENT CAUSATION – Two or more proximate causes of an insured loss any one of which, according to some courts, will trigger the insurance, provided such cause is an insured peril.

CONSEQUENTIAL LOSS – A reduction in value of property (not physically damaged) caused by damage to other property. Examples are food spoilage from a change in temperature due to the damage of a refrigerator by fire, while the food itself is not damaged by the fire, or the reduction in the value of suit jackets whose trousers have been damaged.

CONTINGENT LIABILITY – A liability, which may be incurred by an insured as a result of negligence on the part of independent persons engaged to perform work. The most common example is the contingent liability of a principal contractor, which may result from construction operations undertaken by subcontractors. Also applies to the liability of a principal for the acts of an agent or servant.

CONTINUING EXPENSES – A term used in commercial time element coverage to indicate those expenses that will continue during the restoration period after a business is closed because of a loss. These expenses may include such items as taxes, certain executive and key person payroll, loan payments, utilities, and other expenses the insured may be contractually obligated to continue.

CONTRACTORS’ EQUIPMENT – Equipment used by contractors in their business operations. Examples may be anything from concrete forms, asphalt plants, bulldozers, cherry pickers, and scaffolding, to small hand tools. This equipment is most often protected by inland marine insurance coverages due to its mobile nature.
CONTRACTORS EQUIPMENT FLOATER – An inland marine form, which insures the equipment, tools, and materials of a contractor.

CONTRACTORS PROTECTIVE LIABILITY – A policy, which provides liability coverage for the insured for, the negligent acts of contractors and subcontractors hire by the insured. May also cover their own negligent supervision of work performed.

CONTRACTUAL LIABILITY – A legal obligation voluntarily assumed under the terms of a contract, as distinguished from liability imposed by the law (legal liability)

CONTRIBUTION CLAUSE – The clause in a policy which describes how much its issuer must pay if there is insurance in more than one company on a given loss.

CONTRIBUTORY NEGLIGENCE – A common law defense in which the plaintiff must be entirely free from fault in order to recover from a negligent defendant. If the plaintiff has in any way been guilty of neglect, the plaintiff cannot recover from the defendant. This principle has been modified in some states by legislation and interpretation by the courts.

CORRECTIVE ACTION COSTS – Expenses that a party incurs to clean or correct the damage done by pollutants to the ground, water or air after the occurrence of a pollution incident. These costs are usually mandated or assessed in response to a confirmed incident by the Environmental Protection Agency (EPA).

COVERAGE – Protection under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits.

– The event, which determines when coverage of a liability policy applies. In an “occurrence” policy, the event is the occurrence of the injury or damage. In a “claims-made” policy, the event is the notification to the insurer or the insured; whichever comes first, of the happening of the injury or damage.

CPP-COMMERCIAL PACKAGE POLICY – A package policy designed for commercial insured�s that can provide in one policy, several lines of insurance business as needed by that commercial venture. Lines of business, which may be included in the CPP, are property/glass, general liability, inland marine, crime boiler and machinery insurance, and commercial automobile.

CRIME COVERAGES – A generic term used to encompass the variety of crime coverage forms available to protect against losses of money, securities and property by such causes of loss as: employee dishonesty, forgery, theft, burglary, robbery, kidnap, extortion, fraud.

CUT-THROUGH ENDORSEMENT – An addition to an insurance policy between an insurance company and a policyholder, which requires that, in the event of the company’s insolvency, any part of a loss covered by reinsurance is paid directly to the policyholder by the reinsurer. The cut-through endorsement is so named because it provides that the reinsurance claim payment “cuts through” the usual route of payment from reinsured company-to-policyholder and then reinsurer-to-reinsured company, substituting instead the payment route of reinsurer-to-policyholder. The effect is to revise the route of payment only, and there is no intended increased risk to the reinsurer. Similar to the guarantee endorsement, the cut-through endorsement is also known as an assumption endorsement.

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DEBRIS REMOVAL CLAUSE – A property insurance provision that provides coverage for the cost of cleanup and debris removal after a covered cause of loss has occurred, such as clean up after a fire or windstorm.


1. With respect to property and liability insurance, the portion of the insurance policy itself, used to detail the name and address of the insured, the locations covered, the policy period, limits of insurance, endorsements attached and premiums for coverage. Commercial policies also contain such items as the type of entity and type of operation of the insured.
2. A statement made to the company or to its agents by a policyholder upon which the company may rely in undertaking the insurance.

DEDUCTIBLE – In a policy providing a deductible clause, the amount, which must first be subtracted from the total damage incurred before determining the insurance company’s liability. Of several types used, the straight deductible establishes the insurer’s liability above the deductible but not below it; the franchise deductible establishes the insurer’s liability for the entire amount of damage once the deductible amount is exceeded in a loss; and the disappearing deductible establishes the insurer’s’ liability for the entire amount of damage once the deductible amount is exceeded in a loss; and the disappearing deductible establishes the insurer’s liability for an increasing proportion of the loss, as the total damage rises above the deductible, until the deductible finally “disappears.” Then the insurer is liable for the entire amount. The deductible may be in the form of an amount of dollars, a percent of the loss, a percent of the value of the insured property, or a period of time, as in health insurance.

DIRECT PREMIUMS WRITTEN – This item represents the aggregate amount of recorded originated premiums, other than reinsurance, written during the year whether collected or not at the close of the year (plus retrospective audit premium collections), after deducting all return premiums.

DIRECTORS AND OFFICERS LIABILITY INSURANCE – Protects officers and directors of a corporation against damages from claims resulting from negligent or wrongful acts in the course of their duties. Also covers the corporation (and even the officers and directors in some cases) for expenses incurred in defending lawsuits arising from alleged wrongful acts of officers or directors. These policies always require the insured to retain part of the risk uninsured.

DISABILITY INCOME INSURANCE – A form of coverage that provides benefits to employees disabled by sickness or accident not related to employment. An extension of workers compensation acts in New York, New Jersey, California, Hawaii, Puerto Rico, and Rhode Island.

DIVIDEND – An amount of money paid to the policyholders of a mutual insurer because of their ownership interest. A stock corporation may also pay a dividend to its policyholders if it writes participating insurance. In either event, the amount is payable on the basis of certain savings in losses or expenses realized by the insurer on that participating class of business.

DUTY TO DEFEND – A provision in commercial and personal liability insurance policies where the insurer has the right and duty to defend lawsuits against the insured, even when those suits are considered false, groundless, or fraudulent.

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EARNED PREMIUM – The portion of the policy premium allocable to the expired portion of the policy term.

EARTHQUAKE INSURANCE – Insurance against damage by earthquakes and earth movement. Written most frequently on the Pacific coast.

ECONOMIC PERILS – One of the three common categories of perils used in the insurance industry to classify causes of loss. Economic perils are those caused by loss of market, loss of income, local, national, or worldwide economic conditions, inflation, or obsolescence of an industry. The other two common categories of perils are human perils and natural perils.

EDP INSURANCE – An “all-risk” policy that provides protection on equipment, software and extra expenses incurred as a result of failure of such equipment caused by an insured loss and loss of earnings. Also known as an EDP policy. Coverage may be extended to include liability claims alleging errors and omissions by date processing companies.

EFFECTIVE DATE – The day upon which a policy first becomes eligible to pay covered losses.

EMPLOYEE BENEFIT PLAN – The benefit package offered by employers to their employees that may include such items as health, dental, accident, disability, and life insurance, as well as other non-insurance items such as vacation and retirement plans. The cost of the package or plan may be paid in its entirety by the employer, but is most often subsidized by the employer so that the employee pays only a portion of the cost.

EMPLOYERS LIABILITY INSURANCE – Coverage against the common law liability of an employer for injuries sustained by employees, as distinguished from liability imposed by a workers compensation law.

ENDORSEMENT – A document with language attached to and becoming part of a basic policy for the purpose of amplifying or modifying it, either at its inception or during its term. Any such modification can become effective only with the agreement of the insured, unless clearly made solely for the benefit of the insured.

ERGONOMICS – The applied science involving the factors and interaction of the workplace environment on its workers. Although it is most often associated with automation in the workplace, this science covers the cause and effect of any workplace environment.

ERP-EXTENDED REPORTING PERIOD – In “claims-made” liability policies, only those claims that occur after the retroactive date and are reported or filed against the insured during the policy period, are covered by the policy. The ERP, or tail, is an endorsement available to extend the reporting period for the filing of a claim to give additional time in order to be considered covered.

ERRORS AND OMISSIONS INSURANCE – An insurance that protects the insured against liability for committing an error or omission in performance of professional duties. Generally, such policies are designed to cover financial losses rather than liability for bodily injury and property damage.

EXCESS LIABILITY INSURANCE – Liability insurance designed to provide an extra layer of coverage above the primary layer. The excess insurance does not respond, however, until the limits of liability in the primary layer have been exhausted. Because of the method of response, it is often much less costly than the primary layer, per $1,000,000 of coverage. The excess layer provides not only higher limits, but also catastrophic protection for very large losses.


1. That which is not covered by the insurance as stated in the policy.
2. A clause in an insurance policy, which specifies that which is excluded from the policy’s coverage.

EXPENSE RATIO – Expenses incurred, expressed as a percentage of net written premiums.

EXPERIENCE RATING – A form of individual risk rating which takes into consideration the loss experience of the particular risk as a credit or a debit to the manual rate for the insured’s classification. As the size and number of exposure units increase (e.g., a multiple location risk), more credibility is given to the insured’s experience.

EXTENDED REPORTING PERIOD (ERP) – A designated period of time after a claims-made policy has expired during which a claim may be reported and coverage triggered as if the claim had been made during the policy period.

EXTRA EXPENSE INSURANCE – Reimbursement for additional expenses incurred because of an insured loss. This is typically a separate policy or as an endorsement.

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FAULTY WORKMANSHIP EXCLUSION – Most liability policies contain this property damage exclusion for products-completed operations losses, although it is now more often referred to as the work performed exclusion. The intent of this exclusion is to make sure that insiders are maintaining acceptable standards of performance and are not using the insurance contract to recover for poor training or poor business practices by the insured. Coverage does not exist for property losses to work performed or as a result of the work performed by the insured.

FINANCED PREMIUM – Insurance premiums that are financed, either by an outside financial institution or, in some cases, through a financing agreement arranged with the insurer, which involves interest and collateral. This is not the same as an installment premium whereby the insurer allows the insured to pay the earned premium as it becomes due on an installment basis.


1. Covers losses caused by fire, lightning and removal of insured property from the premises to avoid further loss. All resultant damage such as that done by water and smoke is also covered. Usually supplemented by extended coverage. Currently, this insurance is referred to as property insurance.
2. A type or line of insurance, as opposed to marine, casualty or fidelity bonding. The term fire insurance is now referred to as property insurance when denoting a line of insurance.

FIRST DOLLAR COVERAGE – Insurance coverages or benefits that pay the entire covered amount without subtraction of or use of a deductible.


1. In reinsurance, the rate agreed upon between the reinsurer and ceding company to be charged that insured for the coverage, which is a final rate and not adjusted for loss experience, size of the risk, or any other credits or debits.
2. A rate set for a coverage that remains unchanged throughout the policy period, even if the insured suffers unexpected losses.

FLOOD INSURANCE – Coverage against damage done by the rising or overflowing of bodies of water.

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GARAGE POLICY – Protects garage or service station operators, vehicle rental agencies, car washes, auto or vehicle dealers, and trailer or RV dealers for claims alleging bodily injury or property damage caused by the operator’s negligence in business operations and the sale or use of automobiles.

GENERAL AGGREGATE LIMIT – The sum or total amount that will be paid in any one-policy period, regardless of how many claims, losses, suits, or insured�s may be involved. Some policies allow the aggregate limit to be reinstated after it has been exhausted, by endorsement and for additional premium.

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HAZARD – Circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an explosion.

HOLD HARMLESS AGREEMENT – A contractual arrangement in which one party agrees to assume certain liability which otherwise would be borne by the other party. For example, an insurer may wish to pay a loss when it is uncertain whether it may be called upon a second time to some other party. The payee may be asked to execute an agreement whereby the company will be reimbursed or held harmless by the payee if such request should happen. Another example is when the principal in a large construction project frequently demands hold harmless agreements from all subcontractors in respect to claims made against the principal arising out of the subcontractors’ negligence. The principal often stipulates the purchase of a liability policy by the subcontractor to support the hold harmless agreement.

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IBNR – INCURRED BUT NOT REPORTED – The liability for future payments on losses which have already occurred but have not yet been reported to the insurer. This definition may be extended to include expected future development on claims already reported.


1. The insurance of property (generally on an “all-risk” basis), which is in the course of transportation or is of such a nature that It may easily be transported. Also includes some risks at fixed locations considered “instruments of transportation or communication”, such as bridges, tunnels, neon signs, and street clocks, etc., which were accepted as inland marine by custom.
2. Originally meant the insurance of goods in transit “inland”, instead of at sea, by underwriters who specialized in ocean marine insurance.

INSTALLATION INSURANCE – Protection for the installer of equipment against loss by specified perils or on an “all-risk” basis to property in the course of installation.

INSURANCE SERVICES OFFICE (ISO) – A voluntary, nonprofit association of property and casualty insurance companies providing a great variety of services on a national basis. Among its operations are rating, statistical, actuarial, and policy form services for all classes of property and casualty businesses. The association also functions, as provided by law, as an insurance rating organization. In addition, where applicable, ISO acts as an advisory organization or as a statistical agent. Established in 1971 by the consolidation of numerous associations and bureaus performing these services for separate class of business and in various parts of the country. Headquarters: New York, N.Y.

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JOINT & SEVERAL LIABILITY – This type of liability occurs when more than one party is involved in a contract and where both joint liability (that of all the parties to the contract) and several liability (that of each individual party to the contract) promise the action in the contract. If the terms of the contract are not fulfilled, the injured party has the ability to seek a legal remedy from all the parties involved (joint) or each individual party (several).

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LEGAL LIABILITY – Liability imposed by law, as opposed to liability arising from an agreement or contract.


1. An obligation imposed by law or equity.
2. Money owed or expected to be owed. In an insurance company financial statement, the two columns it contains are its “assets” (or the amounts It owns) and the “liabilities” (or the amount it owes or expects to owe). Liabilities generally are defined by state statute or insurance department regulation for use in the annual statement of an insurer. The term is also defined for special purposes by other regulatory officials, such as the Securities and Exchange Commission.

LIABILITY INSURANCE – Insurance that pays and renders service on behalf of an insured for loss arising out of his responsibility, due to negligence, to others imposed by law or assumed by contract.

LICENSE AND PERMIT BOND – A surety bond often required by municipalities and other public authorities to indemnify them against loss from breach of any regulation or ordinance under which the license or permit is issued.

LIMIT OF LIABILITY – According to the terms of a given policy, the most an insurer will pay for any one loss.

LLOYD’S OF LONDON – A collection of individuals who assume policy obligations as the individual obligations of each. The formal name id Underwriters at Lloyd’s, London. Also, Lloyd’s of London is a service organization which provides a central marketplace and ancillary services (such as policy writing accounting, inspections, and adjusting) for its underwriting members and its brokers.

LONG-TERM DISABILITY INSURANCE – A disability insurance designed to offer income payments for long-term injuries, illnesses or disabilities. Long- term if often considered over 90 days.

LOSS CONTROL – All methods of reducing the frequency and/or severity of losses including exposure avoidance, loss prevention, loss reduction, segregation of exposure units and non-insurance transfer of risk. A combination of risk control techniques with risk financing techniques forms the nucleus of a risk management program. The use of appropriate insurance, avoidance of risk, loss control, risk retention, self-insuring, and other techniques that minimize the risks of a business, individual, or organization.

LOSS EXPERIENCE – The loss history for an account, a line of business, a book of business, or some other defining category. Loss experience may include the date of loss, type of loss, amount of loss, whether the loss is open or closed, and a summary of the details of the loss.

LOSS OF USE INSURANCE – Insurance that compensated the policyholder for the inability to use property destroyed or damaged by an insured peril. For example, if a car is stolen, loss of use insurance will pay or contribute to the cost of hiring a substitute car.

LOSS PAYABLE CLAUSE – A condition in a policy whereby the company may be directed by the policyholder to pay any loss due the policyholder so some other party designated in the policy. Usually the payment is made by check or draft payable to both the insured and the designated payee.

LOST POLICY RELEASE – An agreement signed by the policyholder relieving the insurer from liability under an insurance contract which has been lost, misplace, or is otherwise unavailable.

LOSS RATIO – The ratio of incurred losses and loss adjustment expenses to net premiums earned, expressed as a percent. This ratio measures the company’s underlying profitability, or loss experience, on its total book of business.

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MANUSCRIPT POLICY – A nonstandard policy specifically designed to meet the needs of the individual insured. Normally, this type of policy contains nonstandard forms or a combination of standard and nonstandard forms and nonstandard wording which have been developed and tailored to the coverage needs of the client. Unusually this type of approach is used for large insureds or: specialty exposures.

MARKET VALUE CLAUSE – A clause in which the insurer agrees that the amount it will pay in the event of loss shall be the value of the destroyed merchandise “on the market”, which is the amount which could have been realized by selling the merchandise. Obviously, this includes the seller’s profit; therefore, the clause is used with caution to avoid the creation of a moral hazard.

MAXIMUM FORESEEABLE LOSS – The anticipated maximum property fire loss that could result, given unusual or the worst circumstances with respect to the nonfunctioning of protective features (e.g.; firewalls, sprinklers, and a responsive fire department, among others), as opposed to probable maximum loss (PML), which is a similar valuation, but which is made under the assumption that such protective features function normally.

MANAGING GENERAL AGENT – An individual or organization given the authority to act as an insurer or reinsurer in performing certain functions for that specific insurer or reinsurer, e.g., underwriting, inspection or adjusting. Functions may include the appointment of sales agents or intermediaries. Most MGA’s also operated as wholesale excess and surplus lines brokers.


1. The minimum or lowest rate that the insurer will charge for the coverage, policy or endorsement.
2. The lowest rate available for the least hazardous exposures within a given classification or coverage.

MOBILE EQUIPMENT – Vehicles not normally designed for use on public roads and not normally required to be licensed.

MONOPOLISTIC STATE FUND – A state-controlled workers compensation plan, which writes insurance on such risks within the state and prohibits private insurers from doing so.

MORAL HAZARD – A condition or characteristic by which an insured intends to profit from an insured loss.

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NAMED INSURED – The person designated in the policy as the insured, as opposed to someone who may have an interest in a policy but who is not shown by name.

NEGLIGENCE – The failure to exercise the care that an ordinary prudent person would exercise: either doing that which a prudent person would not do, or failing to do that which a prudent person would do.

NET PREMIUMS EARNED – This item represents the adjustment of the net premiums written for the increase or decrease during the year of the liability of the company for unearned premiums. When an insurance company’s business is increasing in amount from year to year, the earned premiums will usually be less than the written premiums. With the increased volume, the premiums are considered fully paid at the inception of the policy so that at the end of a calendar period, the company must set up premiums representing the unexpired terms of the policies. On a decreasing volume, the reverse is true.

NONOWNED AUTOMOBILE LIABILITY INSURANCE – Coverage for the policyholder against liability incurred while driving an automobile not owned or hired by the policyholder or resulting from the use of someone else’s automobile on the insured’s behalf, such as an employee using a personal car for the employer’s business purposes. This coverage is automatically included in personal and most commercial automobile policies.

NON-STANDARD AUTO (High Risk auto aka sub-standard auto) – Insurance for motorists who have poor driving records or have been canceled or refused insurance. The premium is much higher than standard auto due to the additional risks.

NOTICE OF LOSS – The notice submitted by an insured to the insurer regarding the occurrence of a loss. Policy conditions specify how long the insured has to notify the insurer of the loss, in what format, and the information the loss notice must contain.

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OBLIGEE – The party in whose favor a bond runs, such as the party protected from loss under the bond.

OBLIGOR – One bound by the obligation covered by a bond. Also called the principal.


1. In a non-insurance sense, an incident, event or happening. In insurance, the term may be defined as continual, gradual or repeated exposure to an adverse condition which is neither intended nor expected to result in I injury or damage, as contrasted with an accident, which is a sudden happening. In reinsurance, per occurrence coverage permits all losses arising out of one event to be aggregated instead of being handled on a risk-by-risk basis.
2. One basis or determinant for calculating the amount of loss or liability in insurance or reinsurance when an aggregation of related losses is to constitute a single subject of recovery. For example, in property catastrophe reinsurance treaties, occurrence is usually defined so that all loses within a specified period of time involving a particular peril is deemed an occurrence.

OCCURRENCE POLICY – The traditional occurrence liability insurance method provides coverage for losses from liability-imposing causes, which occurred during the policy period, regardless of when the claim is asserted. Once the policy period is over a claims-made form, the approximate extent of the underwriter’s liability is known. With the traditional occurrence liability coverage method, the underwriter may not discover the extent of liability for years to come from losses claimed to have occurred within the policy period.

ORDINANCE OR LAW COVERAGE – A property endorsement, which provides the insured the option to purchase coverage for three types of common building ordinance or law requirements, that applies after an insured has suffered a physical damage loss such as fire. These ordinance or law damages are normally excluded in standard property coverage forms. The coverages available in this endorsement are cost to demolish the undamaged portion of the building, cost to replace with superior construction as required by law, and cost to clear the land of debris after demolition.

OWNERS & CONTRACTORS PROTECTIVE LIABILITY INSURANCE – Insures the legal liability of contractors and others for the negligent acts of independent contractors engaged by them and also, in some cases, for their own negligent supervision of the work performed.

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PAYROLL AUDIT – An examination and verification of an insured’s records for the amount of payroll for classes of employees which is used in determining the premium for certain lines of insurance, such as workers compensation. The company sends out auditors to determine the accuracy of the figures provided by the insured.

PERFORMANCE BOND – In general terms, a surety bond guaranteeing the performance of a contract, usually associated with construction work, but possible for almost any kind of contract.

PERIL – Cause of a possible loss.

PERSONAL INJURY – Injury, other than bodily injury, resulting from false arrest, false detention, false imprisonment, malicious prosecution, wrongful eviction, wrongful entry, or the invasion of privacy of a premises. It also includes injury caused by oral or written material that slanders a person, goods, products, services, or which violates the right of privacy.

POLICY – The written contract effecting insurance, or the certificate thereof, by whatever name called, and including all clause, riders, endorsements, and papers attached thereto and made a part thereof.

PREEXISTING CONDITION – Injuries from accidents which occur earlier than, and sicknesses which begin earlier than, the date on which insurance becomes effective. Individual health insurance policies, and some group policies generally cover only injuries from accidents, which occur after the individual’s coverage becomes effective, and only sicknesses, which begin or are first manifested after the individual’s coverage has been in effect for a period of time, often 15 days.

PREMIUM – The amount of money an insurance company charges to provide coverage. PRIMARY INSURANCE The insurance policy providing the first layer of coverage that will respond first to any loss exceeding the deductible.

PREMIUM EARNED – The amount of the premium that as been paid for in advance that has been “earned” by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.

PREMIUM UNEARNED – That part of the premium applicable to the unexpired part of the policy period.

PRODUCT-COMPLETED OPERATIONS INSURANCE – Coverage designed to protect against the liability for injury, loss, or damage, which a merchant or a manufacturer may incur as the result of some defect in the product sold or manufactured.

PRO RATA CANCELLATION – Termination of a policy by the insurer, for which the return premium due the policyholder is full proportionate part for the unexpired term. In other words, the pro rata refund is not a “short-rate” return.

PROTECTIVE LIABILITY INSURANCE – Insurance against claims, which arise because of some secondary cause, such as the negligent act of some subcontractor engaged by a principal contractor or against an employer for the act of an employee.

PROXIMATE CAUSE – That which brings about a result without the intervention of any other force. Important in insurance since it establishes which policy (ies) will pay for a loss, i.e.; the one(s) insuring the peril, which was the proximate cause of the loss.

PUNITIVE DAMAGES – Damages awarded separately and in addition to compensatory damages, usually on account of malicious or wanton misconduct, to serve as a punishment for the wrongdoer and, possibly, as a deterrent to others. Sometimes referred to as “exemplary damages” when intended to “make an example” of the wrongdoer.

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RATE – The price for a unit of insurance; all units in a give policy, multiplied by the rate per unit, produce the premium. In fire insurance, the price per $100 of insurance for one year. The basis for pricing other types of insurance varies greatly; for example, payroll is used in workers compensation. Insurance, area of retail floor space or sales volume is used in certain types of general liability insurance, and so forth.

REINSURANCE – An agreement between two or more insurance companies by which the risk of loss is proportioned. Thus the risk of loss is spread and a disproportionately large loss under a single policy does not fall on one company. Acceptance by an insurer, called a reinsurer, of all or part of the risk of loss of another insurer. A company issuing an automobile liability policy, with a limit of $100,000. A fire insurance company, which issues a large policy generally, reinsures a portion of the risk with one or several other companies.

REPLACEMENT COST INSURANCE – Protection, which pays the cost to restore or replace, damaged or destroyed property without deduction for depreciation. Automatically included in homeowners forms.


1. The amount, which an insured or an insurer assumes as its own liability and which is not insured otherwise.
2. In reinsurance, the amount that a primary insurer assumes for its own account. In pro rata reinsurance contracts, the retention may be a percentage of the policy limit. In excess of loss contracts, the retention is a dollar amount of loss.

RETROACTIVE – The earliest date for which coverage is afforded under a claims-made form. Usually the effective date of the first year of such policy form provided tot he insured.

RISK MANAGEMENT – Management of the pure risks to which a company might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through such practices as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.

RISK RETENTION GROUP – An insurance company organized by a group of businesses or institutions in the same line of business to provide liability insurance for the owners or organizers. As permitted by federal legislation passed in 1986, such a group is eligible to provide insurance for its members in any state after being licensed in any one state.

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SMOKE DAMAGE – Damage caused by smoke other than smoke, which accompanies a hostile fire. One of the extended coverage endorsement perils, but subject to certain restrictions.

SPECIAL FORM – One of the extended. A property coverage form protecting an insured from all causes of physical damage loss unless otherwise limited or excluded.

SPECIFIED PERILS – An insurance contract that covers only those causes of loss (otherwise known as perils) that are specifically indicated as being covered.

STATE AMOUNT – When the value of property, either real or personal, is agreed upon at the issuance of the contract and, therefore, coinsurance and any other valuation clauses will not apply at the time of a loss.

STATE OF DOMICILE – The state in which the company is incorporated or chartered. The company is also licensed (admitted) under the state’s insurance statutes for those lines of business for which it qualifies.

STATUTE OF LIMITATIONS – A statute limiting the time within which a legal action may be brought.

SUBROGATION – In insurance, the substitution of one party (insurer) for another party (insured) to pursue any rights the insured may have against a third party liable for a loss paid by the insurer.

SUBSIDENCE – Damage due to land movement, e.g., a house on a hill due to heavy rains. Not earthquake damage.

SUNSET CLAUSE – A clause in a casualty excess of loss reinsurance cover that provides that the reinsurer will respond only to losses reported before some predetermined future date (sunset). The clause is used to limit the reinsurer’s exposure to the “long-tail” of liability exposure, particularly in the US.


1. The guarantee gives for the fulfillment of an obligation.
2. The person or organization guaranteeing the fulfillment of an obligation.
3. The underwriter who guarantees something under a bond.

SURETY BOND – A written agreement wherein one party (the surety) obligates itself to a second party (the obligee or beneficiary) to answer for the default of a third party (the principal) in failing to perform specified acts within a stated time. Such obligations include payment of debts and responsibility for defaults.

SURPLUS LINE – A line of insurance provided by insurers not licensed in the states where the risks are located and placed under the surplus line laws of the various states. Before such placements can be made through specially licensed surplus line agents and brokers, state laws generally require evidence that placements could not be readily made in licensed insurers. Broadly referred to as being all lines of insurance placed with non-admitted insurers.

SURPLUS LINES INSURANCE – Insurance written by insurers not licensed in the states where the risks are located and placed with such insurers under the surplus lines laws of the various states. Before such placements can be made through specially licensed surplus line agents and brokers, state laws generally require evidence reported before some predetermined future date (“sunset”).

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THIRD PARTY – The claimant under a liability policy, so called because the first two parties are the insured and insurer, who enter into the insurance contract, which pays the third party’s claim.

TIME ELEMENT INSURANCE – A coverage which pays for loss of earnings or income when business operations are interrupted, curtailed or suspended due to property loss as a result of an insured cause of loss. Also covered are loss of rents and rental value. The current commercial time element coverage forms are business income and extra expense. Extra expense covers costs incurred to continue operations at another location.

TORT – A legal wrong arising from a breach of duty fixed by law, except under contract, causing injury to persons or property and redressible by legal action for damages.

TOTAL LOSS – A loss of sufficient size so that it can be said there is nothing left of value. In other words “complete destruction of the property”. The term is also used to mean a loss requiring the maximum amount a policy will pay.

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UMBRELLA LIABILITY INSURANCE – A form of liability insurance protecting policyholders for claims in excess of the limits of their primary automobile, general liability and workers compensation policies, and for some (few) claims excluded by their primary polices which are subject to a deductible, which may range from $250 for a personal umbrella to a minimum of $10,000 for a commercial umbrella.

UNDERWRITE – To determine whether an individual is insurable under the policy for which he has applied and at what premium rate.

UNDERWRITER – The individual whose duty it is to determine the acceptability of insurance risks. A person whose duty it is to select risks for insurance and to determine in what amounts and on what terms the insurance company will accept the risks.

UNDERWRITING – The process of selecting risks for insurance and determining in what amount and on what terms that insurance company will accept the risk.

UNDERWRITING GUIDE – Underwriting guide, also call underwriting manual, underwriting guidelines, or manual of underwriting policy. Regardless of its name, the guide details the underwriting practices of the insurance company and provides specific guidance as to how underwriters should analyze all of the various types of applicants they might encounter.

UNEARNED PREMIUMS – The calculated aggregate net amount, after deducting reinsurance credits, which an insurance company would be obliged to tender to its policyholders as return premiums for the unexpired terms, should it wish to cancel every policy in force