• Actual Cash Value (ACV)
    If a home is insured for ACV, the policy states that if the property sustains a covered loss, the insurance company will only pay for the value of the damaged dwelling appurtenances, minus depreciation. This is normally much less than the cost to repair or replace the property.


    ACV is also a definition used in Auto to specify the value of the vehicle, less the depreciation. Such as in a total loss.


  • Additional living expense (ALE) coverage
    A type of insurance coverage included with homeowners policies.


    ALE coverage reimburses the insured for the cost of maintaining a comparable standard of living following a covered loss that exceeds the insured’s normal expenses prior to the loss.

    • For example, ALE insurance would cover an insured’s temporary lodging bill while the covered damages to the insured home is being repaired / replaced, or until the insured moves to another permanent residence. ALE coverage is subject to a limit equal to 30 percent of the dwelling limit under homeowners forms HO 2, HO 3, and HO 5. For form HO 8, ALE is 10 percent of the dwelling limit.


  • Adhesion Contract
    Contract by adhesion are issued by one party, but does not require signature by the other party in order to be valid/accepted.


    Typically courts will interpret contract conditions in favor of the party that accepted the contract, rather than the one that constructed it.


  • Adjuster
    A person who settles insurance claims. Adjusters typically investigate the loss and determine the extent of coverage and negotiates payment to 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 firms (independent adjusters) that represent insurers and self-insureds, on a contract basis.
    • Public adjusters are consultants who contract to work for the insured in assisting the insured by presenting claims to insurance companies in a manner that will maximize their recovery.


  • Adverse Selection
    An imbalance in exposure by the insured created by persons that expect 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.



  • Aggregate limit of liability
    An insurance contract provision limiting the maximum liability the insurer will pay for a series of losses in a given time period.


    • For example, a year or for the entire period of the contract. Sometimes called “annual aggregate limit.”


  • Aleatory Contract
    An aleatory agreement concerns an uncertain event , providing for unequal transfer of value between the parties.


    Insurance policies are aleatory contracts because an insured can pay premiums for many years without sustaining a covered loss. Conversely, insureds sometimes pay relatively small premiums for a short period and then receive financial coverage for a substantial loss.


  • All Risks Coverage
    Property insurance covering losses arising from any cause of loss, except those that are specifically excluded.


    This is in contrast to ‘named perils coverage’, which applies only to loss arising out of causes that are listed in the policy as covered.

    Although many industry practitioners continue to use the term “all risks” to describe this approach to define the covered causes of loss in a property insurance policy, it is becoming a less used term in insurance policies because of concern that the word “all” suggests coverage that is broader than it actually is. Because of this, some industry practitioners have begun to use the term “open perils” or “special perils” instead of “all risks.”


  • Arbitration
    Process of handling a dispute by 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 chance to be heard.


    Arbitration Clause

    1. Language provision in an insurance policy which provides a means of resolving differences between an insurer and an insured, without litigation.
    2. Usually, each party appoints an arbiter. The two arbiters select a third, or an umpire; A majority decision of the three becomes binding on the parties in the arbitration proceedings.


  • Automobile Liability Insurance
    Insurance that protects the insured against financial loss resulting from legal liability from automobile-related injuries to others, or damage to other’s property, by an auto.



  • Aviation Hazard
    A hazard associated with the peril of death, or disability, arising from aviation operations (other than commercial aircraft exposures). Coverage may be limited in life and health policies by exclusion, or may be subject to additional premiums.



  • Bad Faith
    The term Bad Faith describes blatantly unfair conduct exceeding mere negligence by an insurance company.


    • Example – A bad faith claim may arise if an auto liability insurer arbitrarily refuses to settle a claim that is within policy limits. Bad faith damages, also known as extra-contractual damages, are very often substantial and frequently exceed the limits of the insurance policy that is the subject of the claim.


  • Bailee
    A person, or organization, to which possession of the property of others has been entrusted. Such as storage, repair, or servicing.



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



  • Best’s Rating
    The rating system developed by and published annually by A.M. Best Company. The rating provided indicates the financial condition of insurers. The ratings resemble grades on a report card ranging from A++ (Superior) through C+ (Marginal) and all the way down to D (Poor), E (Under Regulatory Supervision), F (In Liquidation), and S (Rating Suspended).



  • Betterment Clause
    A provision in insurance policies, which stipulates that if the repair or replacement of the damaged property results in better than “like kind or quality,” the insurers will not pay for this net improvement.


    This clause is designed to preserve the concept of indemnity so the insured does not profit from the loss.

    • Example – If you get in a wreck and total your beat up 72 Gremlin, you may decide you want to replace it with a new Ferrari. The betterment (amount beyond what the insurer owes for the Gremlin) would be your responsibility to bear.


  • Bid Bond or Proposal Bond
    A surety bond used in conjunction with construction bidding processes. The bond acts as a guarantee that, if awarded the contract based on the bid submitted, the contractor will enter into a contract to perform the work at the price quoted. If the contractor declines to enter into a contract to perform the work at the agreed-upon price, the bid bond will reimburse the obligee (owner or upper-tier contractor) the difference between the defaulting contractor’s bid and the next lowest bid, up to the penal sum of the bond.



  • Binder
    A legal agreement of temporary insurance contract that provides proof of coverage until you receive a permanent policy.


    Binders contain policy time limits, and should clearly state the insurer with which the risk is bound (insured by).

    Binders also indicate the amount of insurance, the type of policy, and (in the case of property insurance) the perils insured against.


  • Blanket Fidelity Bond
    Coverage in the case of employee: theft of money, securities, or property, written with a per loss limit rather than a per employee or per position limit.



  • Blanket Policy
    A single insurance policy that covers several different properties, shipments, or locations.



  • Boatowners Policy
    The most common of watercraft policies for individuals and families.


    This policy combines property, liability, medical payments, and uninsured boatowners coverage.

    Boatowners Policy fills the coverage gap found in most homeowners policies, particularly with regard to property coverage.


  • Bodily Injury (BI) Liability Insurance
    BI liability insurance includes bodily harm, sickness, or disease, including resulting death.



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



  • Business Auto Policy (BAP)
    A commercial auto policy that includes auto liability and auto physical damage coverages (other coverages are available by endorsement).


    Except for auto-related businesses, and motor carrier and/or trucking firms, the business auto policy (BAP) addresses the needs of most commercial entities with respect to auto insurance.


  • Cancellation
    The termination of an insurance policy or bond, before its expiration, by either the insured or the insurer. Insurance policy cancellation provisions require insurers to notify insureds in advance (usually 30 days) of canceling a policy and stipulate the manner in which any unearned premium will be returned.



  • Catastrophe
    A severe loss characterized by extreme force and/or sizable financial loss. Often abbreviated term “Cat”.



  • Category 3 water
    Water that is grossly contaminated with pollutants including fungi and bacteria.



  • Cause(s) of Loss (COL)
    The peril(s) that are the initiating cause of loss or damage to a risk.


    COL can be direct or indirect.


  • Cause(s) of Loss (ISO Forms)
    Insurance Services Office, Inc. (ISO) – commercial property insurance forms that establish and define the causes of loss, or perils, for which coverage is provided. A causes of loss form is combined with one or more coverage forms, the commercial property conditions form, the common policy conditions form, and the declarations to make up an ISO commercial property policy.


    There are three causes of loss forms: the basic, broad, and special causes of loss forms. The basic and broad causes of loss forms are named perils forms; they provide coverage for loss from only the particular causes that are listed in the policy as covered. The special causes of loss form is an all risks form; it provides coverage for loss from any cause except those that are specifically excluded.


  • Claim
    This is a request to be reimbursed from an insurance company for a loss to the covered property. In order to get paid on a claim, the damage needs to be caused by a covered peril in the policy.



  • Coinsurance
    • A property insurance provision that penalizes the insured’s loss recovery if the limit of insurance purchased by the insured is not equal to or greater than a specified percentage (commonly 80 percent) of the value of the insured property. The amount of the loss that is not payable to the insured as a result of failure to comply with the coinsurance provision is commonly referred to as a coinsurance penalty. In commercial property insurance policies, coinsurance can sometimes be avoided with an agreed value provision.
    • In health insurance and some casualty lines, the percentage share of losses that an insured retains, in the form of a deductible.


  • Commissioner
    The title of the head of most state insurance departments.



  • Comparative Negligence
    The rule used in negligence cases in some states that provides for computing both the plaintiff’s and the defendant’s negligence, with the plaintiff’s damages being reduced by a percentage representing the degree of his or her contributing fault.


    If the plaintiff’s negligence is found to be greater than the defendant’s, the plaintiff will receive nothing.


  • Comprehensive Auto Coverage
    • Coverage under an automobile physical damage policy that insures against the loss or damage resulting from any cause, except those specifically precluded.
    • Comprehensive auto coverage covers losses such as fire, theft, windstorm, flood, and vandalism, but not loss by collision or upset.


  • Contributory Negligence
    Negligence of a plaintiff constituting a partial cause or aggravation of his or her injury. This doctrine bars relief to the plaintiff in a lawsuit if the plaintiff’s own negligence contributed to the damage. Contributory negligence has been superseded in many states by other methods of apportioning liability.



  • Controlled Insurance Program (CIP)/OCIP
    A centralized insurance program under which one party procures insurance on behalf of all (or most) parties performing work on a construction project or on a specific site. Commonly referred to as “wrap-ups,” CIPs are most commonly used on single projects, but other uses include contract maintenance on a large plant or facility (see “maintenance wrap-up”) or on an ongoing basis for multiple construction projects (see “rolling wrap-up”).


    Typically, the coverages provided under a CIP include builders risk (for construction wrap-ups), commercial general liability (CGL), workers compensation, and umbrella liability. CIPs offer a number of benefits, including greater control of the scope of coverage, potentially lower project insurance costs, and reduced litigation. CIPs can be purchased by the owner (OCIP) or contractor (CCIP) or a combination of participating parties. (See Partner controlled insurance program (PCIP).)


  • Crop-Hail Insurance
    An insurance policy, marketed and underwritten by private insurers, that covers hail damage to insured crops. Farmers often purchase this coverage in areas of the country susceptible to hail, particularly for high-yielding crops. Unlike federal crop insurance, the federal government does not subsidize crop-hail insurance. Licensed insurance agents sell it and the premiums depend, for a large part, on past loss experience. The coverage is township or county rated; in other words, the rate is determined by the historical hail loss experience of that particular township or county. The perils of fire and wind can be added to this coverage; although the availability of these extensions varies by state and by type of crop.



  • Debris Removal
    Coverage for the cost of removal of debris of covered property damaged, caused by an insured peril. This coverage is included in most commercial property insurance policies.
  • Declarations Page
    This is the page of an insurance policy that shows a) name b) address c) time period for the policy d) the amount of premium (cost) of the policy, and e) the amount of coverage


    Aka, “Information page” or abbreviated slang as “Dec page”


  • Deductible
    The deductible is the amount of financial responsibility provided by the PH in order to fix the damage done to the property.


    Most property insurance policies contain a per-occurrence deductible provision that stipulates that the deductible amount specified in the policy declarations will be subtracted from each covered loss in determining the amount of the insured’s loss recovery.


  • Deposition
    Deposition is a pretrial testimony of a witness under oath, such as an adjuster, contractor, engineer or other witness, without the presence of a judge or jury. Depositions are for the purpose of discovering evidence relevant to a lawsuit’s issue.



  • Depreciation
    This is a term used to describe the decrease in value of an object over time due to wear and tear. For example, a car is purchased for $10,000 in 2000, but today is only worth $3,000 due to high mileage, the seats getting worn, the equipment getting old and rusty, etc. This aging and wear devalue the vehicle, making it depreciate.



  • Direct Loss
    Loss incurred due to direct damage to property, as opposed to time element or other indirect losses.



  • Disability Benefit
    The amount payable under a disability income policy or provision in the event of disability of the named insured.



  • Dwelling
    Homeowners insurance term denoting the structure on the residence premises that is listed in the declarations and used principally as a private residence and attached structures.


    • Example of attached structures:  carports and patio roofs.


  • Dwelling Property (DP) Coverage Forms
    Property coverage forms used to insure physical damage to dwellings and personal property, other than homeowners dwellings. Unlike homeowners forms, these policies do not insure liability or medical payments exposures, unless endorsed for those extended coverages (on a per policy/per carrier basis).


    There are three dwelling property forms in the Insurance Services Office, Inc. (ISO), forms portfolio:

    –The basic form (DP 00 01),
    –The broad form (DP 00 02), and
    –The special form (DP 00 03).

    The basic form covers only damage from fire, lightning, and internal explosion, but additional perils can be covered by endorsement. The broad form covers direct damage to dwellings and personal property on a broad named perils basis. The special form covers direct damage to dwellings and appurtenant structures on an all risks basis while covering personal property on a broad named peril basis.


  • Earth movement / earthquake exclusion
    This exclusion is found in most property insurance policies (even all risks/open peril policies) and eliminates coverage for loss resulting from earth movement, except by ensuing fire.


    The exclusion is policy and carrier specific and may apply only to earthquake, or to all forms of earth movement.


  • Effective Date
    The day when your policy becomes effective, or starts.



  • Employers Liability Coverage
    This coverage provided by part 2 of the workers compensation policy. ELC provides coverage to the insured (employer) for liability to employees for work-related bodily injury or disease, other than liability imposed on the insured by a workers compensation law.



  • Endorsement
    An insurance policy form that changes coverage or adds coverage to the provisions included in one or more other forms used to construct the policy.


    Insurance policy endorsements may serve any number of functions, including broadening the scope of coverage, limiting or restricting the scope of coverage, clarifying the application of coverage to some unique loss exposure, adding other parties as insureds, or adding locations to the policy. They often effect these changes by modifying the existing insuring agreement, policy definitions, exclusions, or conditions in the coverage form or adding additional information, such as insured locations, to the declarations page.


  • Estoppel
    A legal doctrine restraining a party from contradicting its own previous actions if those actions have been reasonably relied on by another party.


    • For example, an insurer 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.


  • Event
    An occurrence that may (or may not) result in a claim.


    • For example, a hailstorm “event” may lead to filing  claims; the cause of loss (COL) would attributed to  the hail event.


  • Excess and Surplus (E&S) Lines Insurance
    Any type of coverage that cannot be placed with an insurer admitted to do business in a certain jurisdiction. Risks placed in E&S 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, and excessive risk.


    • Example: A motorcycle racing event, open to the public would be an excessive risk for the spectators.  This type of insurance is not typical, and is considered an E&S line of insurance.


  • Exclusion
    An exclusion is something that is specifically listed to which coverage does not apply.


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

    • For example, flood is excluded on all home insurance policies. Thus if flood damage occurs, the policyholder is not covered under the homeowners policy.


  • Experience Account
    An account into which premiums are deposited that is established as part of a finite risk insurance program. There is no risk sharing with the funds of any other of the insurer’s clients in an experience account (i.e., they contain only a single insured’s reserve fund that has been established for a specific program). Therefore, balances reflect an individual insured’s actual loss experience under a finite program.


    The account earns investment income, and at the end of the policy term (usually several years), any principal and interest that has not been paid out as losses is returned to the insured.


  • Fair Rental Value (FRV) coverage
    This coverage is provided as part of additional living expense (ALE) under a homeowners policy, and as Coverage D under a dwelling policy (DP).


    If the insured rents a home (or a part of a home) to a tenant and that home (or that part of a home) becomes uninhabitable due to damage from a covered peril, FRV coverage reimburses the insured for the lost rent. Any expenses that do not continue while the home (or that part of a home) is uninhabitable (e.g., electricity) are then subtracted from the fair rental value. The payment will be for the least amount of time necessary to repair or replace that home (or that part of a home) rented or held for rental to others.


  • Farm Umbrella Policy
    Insurance policy that provides high limits of liability to protect an insured farmer against a catastrophic liability loss.


    This policy grants liability coverage that stacks on top of the primary liability coverage provided by the insured farmer’s farmowners policy, personal auto, and any other scheduled underlying liability policy.

    The Farm Umbrella Policy covers bodily injury (BI), property damage (PD), and personal injury (PI), which includes offenses such as libel, slander, false arrest, and invasion of privacy. The farm umbrella policy also fills some gaps in coverage over a specified deductible (often called a retained limit) in the underlying policy.


  • Farmowners Insurance
    These policies, sometimes referred to as farm insurance, provide homeowners, commercial property, and commercial liability coverage. The unique combination of commercial and personal coverages is necessary because it is typical for farms to have both residential and commercial characteristics.


    Coverage can apply to farms or ranches. These types of policies typically pertain to family and individually operated farms, not large commercial or corporate farming operations.


  • Federal Emergency Management Agency (FEMA)
    An agency of the U.S. Department of Homeland Security that provides a single point of accountability for all federal emergency preparedness, mitigation, and response activities. FEMA’s primary purpose is to coordinate the response to a disaster that overwhelms the resources of state and local governments. It works closely with these governmental bodies by funding emergency programs and offering technical guidance and training. In addition, FEMA administers the National Flood Insurance Program (NFIP) and advises communities on building codes, emergency response, and floodplain management.



  • Fidelity Bond / Employee Dishonesty Coverage
    Fidelity bonds provide coverage for employee theft of money, securities, or property, written with a per loss limit, a per employee limit, or a per position limit. Employee dishonesty coverage is one of the key coverages provided in a commercial crime policy.



  • Fiduciary Bond
    Guarantees that the individuals or legal entities appointed by the court to oversee the property of others will execute those appointed duties in good faith and be accountable for any deficits that may occur.



  • Financial Responsibility
    The legal requirement for an owner of an automobile to evidence ability to pay losses, either through purchase of insurance or by providing other proof of financial strength.


    The term is used to ensure that drivers carry adequate auto liability insurance.


  • Fire Department Service Charge coverage
    Coverage in a property insurance policy for charges imposed by a fire department for their services in fighting a fire,


    Usually subject to a separate limit of insurance, such as $500.00 – $1,000.00. Typically no deductible applies to this coverage.


  • 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.


  • First-Party Insurance
    Insurance applying to the insured’s own property or person.



  • Floater Policy
    This is an inland marine property insurance policy that covers personal property wherever it may be within the policy territory.


    • For example: Good being shipped and/or transferred in transit to their end destination.


  • Flood Coverage
    Coverage for damage to property caused by flood. Flood coverage be available (but is not common) by endorsement to an all risks policy or to a difference-in-conditions (DIC) policy.


    Normally, Flood Coverage is provided subject to a per occurrence sublimit, an annual aggregate limit, and a separate deductible.

    Coverage is available from the National Flood Insurance Program (NFIP).


  • Flood Exclusion
    A provision found in nearly all property insurance policies (even in all risks policies) eliminating coverage for damage by flood.


    This exclusion may also eliminate coverage for other types of water damage, such as seepage and sewer backup. (Flood coverage can sometimes be provided by endorsement).

    A separate flood insurance policy may be available from the National Flood Insurance Program (NFIP).


  • Form
    A document prepared in a prescribed arrangement of words and layout.


    A rider, policy, endorsement, or application – all of these are forms.


  • Fraud
    Deception used to cheat or intentionally mislead. This is closely related to misrepresentation and concealment.


    Proof of fraudulent acts by an insured in procuring insurance may lead to a denial of coverage and voiding of the policy by the insurer.


  • Friendly Fire
    An intentionally kindled fire that remains within its intended confines, such as in a furnace or fireplace.


    The courts have generally held that property insurance written on a named perils basis does not cover damage done by a friendly fire. However, property insurance written on an all risks/open peril basis does cover damage from a friendly fire, since there is no exclusion for such damage.


  • Garage Policy
    A commercial auto policy designed to address the needs of auto dealers. Coverages include garage liability, garagekeepers, and auto physical damage.


    Additional coverages are available by endorsement.


  • Garagekeepers Coverage/Garagekeepers Legal Liability
    Coverage provided under a garage policy for auto and trailer dealers, particularly those dealers that maintain a service department or body shop, for liability exposures with respect to damage to a customer’s auto or auto equipment that has been left in the dealer’s care for service or repair, for example.



  • General Exclusions
    In workers compensation insurance; operations that are specifically excluded from the basic classifications and are always separately classified unless specifically included in the basic classification wording.



  • General Inclusions
    In workers compensation insurance; operations (e.g., commissary or restaurant for insured employees) that are to be included in all the basic classifications, even though they may appear to be separate operations.


    This rule holds true unless the risk operates as a separate business or is specifically excluded from the classification wording, or the governing business is categorized as a standard exception.


  • Glass Insurance
    A property insurance policy covering breakage of building glass (such as windows) regardless of cause.



  • Gross Negligence
    Defined as: Willful and wanton misconduct.



  • Hangar Keepers Liability Insurance
    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.



  • Hazard
    Conditions that increase the probability of loss. Examples include broken stairs on a home, poor housekeeping in a factory, inadequate lighting, etc .



  • Hazard Risk / Pure Risk
    Risk of loss associated with fortuitous occurrences (e.g., fires, hurricanes, tortuous conduct). Event risk, which is synonymous with pure risk, hazard risk, or insurance risk, presents no chance of gain, only of loss. The perils covered by traditional property-casualty (P&C) insurance products are within the realm of event risk.



  • Homeowners Modified Form 8 (HO 8)
    The HO 8 form provides basic named perils coverage for direct damage to property, personal liability coverage, and medical payments to others as respects owner-occupied dwellings.


    The HO 8 is designed for situations in which the replacement cost of a home may be substantially higher than its market value or where the restoration costs using antiquated and inefficient materials and methods exceed current and common materials and methods. The insurance limits are directly related to the replacement cost; thus, this creates a moral hazard if the replacement cost greatly exceeds the market value.

    The HO 8 form amends the loss settlement basis as well as the insurance-to-value stipulation; this makes insurance coverage more accessible for owners of older, urban homes. In particular, this form insures the dwelling and other structures based on the amount required to repair or replace the property using common construction materials and methods.

    Part of the Insurance Services Office, Inc. (ISO), homeowners portfolio.


  • Homeowners Policy
    A package insurance policy that provides property and liability coverages to fit the needs of most home owners, condominium owners, and apartment tenants (contents only). Various versions are available depending on the type of dwelling insured and the scope of protection to be covered.


    It is the most commonly used insurance policy protecting homes in the United States.


  • Homeowners Policy – Contents Broad Form 4 (HO 4)
    The HO 4 insurance policy is a Renters Policy that insures a tenant for direct damage to unscheduled personal property on a broad named perils basis.


    This policy also provides personal liability coverage and medical payments coverage.

    Part of the Insurance Services Office, Inc. (ISO), homeowners forms portfolio.


  • Homeowners Policy – Unit Owners Form 6 (HO 6)
    The HO 6 form covers the real property interest and the personal property of insureds who own a unit in a condominium or share an ownership interest in a cooperative building. It also provides personal liability coverage and medical payments coverage.


    This form is similar to the HO 3 in many ways but provides less real property coverage since it is designed to coordinate coverage with a “master policy” covering the structure and common areas that the condominium or cooperative association purchases.

    Part of the Insurance Services Office, Inc. (ISO), homeowners forms portfolio.


  • Homeowners Policy Basic Form 1 (HO 1)
    Discontinued Form – Provided basic named perils coverage for direct damage to property, personal liability coverage, and medical payments to others coverage.


    Originally drafted as part of the Insurance Services Office, Inc. (ISO), homeowners forms portfolio, this basic form has been discontinued in nearly all states because buyers demanded the broader coverages available in the other ISO homeowners forms.


  • Homeowners Policy Broad Form 2 (HO 2)
    This Form of insurance insures the described dwelling, private structures in connection with the dwelling, unscheduled personal property on and away from the premises, and loss of use. The policy also provides personal liability coverage and medical payments to others coverage. It is a broad named perils form, but the list of covered perils is more extensive than that of discontinued HO 1.


    HO 2 is part of the Insurance Services Office, Inc. (ISO), homeowners forms portfolio.


  • Homeowners Policy Comprehensive Form 5 (HO 5)
    The HO 5 insures the described owner-occupied dwelling, other structures in connection with the dwelling, unscheduled personal property on and away from the premises, and loss of use.


    This policy also provides personal liability coverage and medical payments coverage.

    This is the broadest homeowners form, as coverage is on an all risks basis for both the dwelling and other structures, as well as personal property.

    Part of the Insurance Services Office, Inc. (ISO), homeowners forms portfolio.


  • Homeowners Policy Special Form 3 (HO 3)
    The HO 3 insures the described owner-occupied dwelling, private structures in connection with the dwelling, unscheduled personal property on and away from the premises, and loss of use. Personal liability coverage and medical payments coverage are also provided by this policy. Coverage of the dwelling, related structures, and scheduled personal property is on an all risks basis, while coverage of unscheduled personal property is on a broad named perils basis. Losses to the dwelling and other structures are paid on a replacement cost basis, with no deduction for depreciation if certain conditions apply.


    Losses to personal property are paid on an actual cash value (ACV) basis, unless amended by endorsement.

    Part of the Insurance Services Office, Inc. (ISO), homeowners forms portfolio,


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


    • For example, a fire set intentionally to burn brush becomes hostile if it spreads to other property; likewise, a fire that becomes much hotter than it is supposed to be or that cannot be extinguished is hostile even if it never spreads from the location where it was intentionally kindled.

    A fire can begin as a friendly fire, but becomes hostile when it becomes uncontrollable and beyond its intended area.


  • Hull (physical damage) Coverages – Aircraft
    Property damage to an aircraft a business entity owns or operates is excluded under the Insurance Services Office, Inc. (ISO), commercial general liability (CGL) policy by way of the damage to property exclusion, which precludes coverage for property damage (PD) to property in the insured’s care, custody, or control (CCC). Thus, many aircraft insurance policies include physical damage or “hull” coverage. Hull coverage may also be written as a separate policy. Coverage may apply on a named perils or an open perils/all risks basis. Hull coverage is typically subdivided to address aircraft while in motion and while not in motion.


    Hull coverage is usually subject to a deductible, which varies depending on insurer, the type of aircraft, and its age. Exclusions applicable to hull coverage include conversion or embezzlement, wear and tear, mechanical breakdown, electrical failure, and damage to turbine engines caused by excessive heat from operation or shutdown of the engine. Hull coverage is normally written on a valued basis, with the value of the aircraft determined at policy inception and the amount listed in the declarations. If the aircraft incurs a total loss, the insurer pays the scheduled value less the applicable deductible. If the aircraft incurs a partial loss, the insurer generally will pay no more than the scheduled value.


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



  • Inchmaree clause
    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.



  • Incurred Losses
    The total amount of paid claims and loss reserves associated with a particular time period, usually a policy year. It does not ordinarily include incurred but not reported (IBNR) losses.



  • Indemnify
    To make compensation to an entity, person, or insured for incurred injury, loss, or damage.



  • Indemnity Bond
    A bond indemnifying an obligee against loss that arises as a result of a failure on the part of a principal to perform as required.


    • For example, a lease bond guarantees that a tenant will make his/her rental payments.


  • Indemnity Bond / Hold Harmless Agreement
    A provision in a contract that requires one contracting party to respond to certain legal liabilities of the other party.


    • For example, construction contracts typically require the contractor to indemnify the owner of the property 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. There are a number of types of hold harmless clauses, differentiated by the extent of the liabilities they transfer. The most commonly used types of clauses are the “broad,” “intermediate,” and “limited” form hold harmless clauses.

    Limited form—Where Party A holds Party B harmless for suits arising out of Party A’s sole negligence. Party B is thus protected when it is held vicariously responsible for the actions of Party A.

    Intermediate form—Where Party A holds Party B harmless for suits alleging sole negligence of Party A or negligence of both parties.

    Broad form—Where Party A holds Party B harmless for suits against Party B based on the sole negligence of A, joint negligence of A and B, or the sole negligence of B. Broad form hold harmless agreements are unenforceable in a number of states.


  • Independent Adjuster
    A claims adjuster who provides services on a contract basis to insurance companies, self-insured firms, and governmental entities.


    Depending on the nature of the claim being handled, billing can be on a time-and-expense basis, flat fee-per-claim basis, flat fee per day, or flat annual fee for all claims.

    Independent adjusters are used at will, when an insurer is overloaded with claims (often due to a catastrophe), when a claim occurs in a remote locale, or when special expertise is required to adjust a claim.


  • Indirect Damage Loss
    Loss resulting from direct damage to property.


    • For example –  Income and expense loss as a  result from the insureds inability to use damaged business property.


  • Inland Marine Coverage
    Property insurance for property in transit over land, certain types of moveable property, instrumentalities of transportation (such as bridges, roads, and piers, instrumentalities of communication (such as television and radio towers), and legal liability exposures of bailees.


    Many inland marine coverage forms provide coverage without regard to the location of the covered property; these are sometimes called “floater” policies.


  • Inside Adjuster / Desk Adjuster
    An adjuster who performs the claims adjusting function without leaving the office. Inside adjusters are also known as “desk adjusters”.


    For claims unable to be documented and/or settled over the phone, the inside adjuster will send the request to the field. A “field adjuster” continues the investigation, and settles the claim with the insured.


  • Insurable Interest
    An interest by the insured person in the value of the subject of insurance, including any legal or financial relationship.


    Insurable interest usually results from property rights, contract rights, and potential legal liability.


  • Insurance
    A contractual relationship that 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).


    The term “assurance,” commonly used in England, is considered synonymous with “insurance.”


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


    In Texas, this entity is know as the Texas Department of Insurance, or TDI.


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



  • Insurance Line
    A type of insurance business, grouped according to the reporting categories used when filing an insurer’s statutory reports.


    Aka, monoline


  • Insurance Policy / Insurance Contract
    In broad terms, the entire printed insurance contract. Generally, an insurance policy is assembled with a combination of various standard forms, including a declarations page, coverage form, and endorsements. Sometimes a causes of loss form is also required. Together these forms delineate the coverage term, the insurance policy limits, the grant of coverage, exclusions and other limitations of coverage, and the duties and responsibilities of the insured in the event of a loss.



  • Insured
    The person(s) or entity protected under an insurance contract.



  • Insurer / Carrier
    The insurance company / insurance carrier that undertakes to indemnify for losses and perform other insurance-related operations.



  • Insuring Agreement
    That portion of the insurance policy in which the insurer promises to make payment to or on behalf of the insured. The insuring agreement is usually contained in a coverage form from which a policy is constructed.


    Often, insuring agreements outline a broad scope of coverage, which is then narrowed by exclusions and definitions.


  • Intermodal
    Transportation of cargo by two or more types of carriers—for example, motor, rail, air, ocean.



  • Interpolicy Stacking
    “Stacking” is the aggregation of multiple insurance coverages or limits to cover a single loss.


    Attempts to “stack” coverage can be based on a theory that a party is entitled to coverage under more than one policy.

    This is called interpolicy stacking.


  • Intrapolicy Stacking
    “Stacking” is the aggregation of multiple insurance coverages or limits to cover a single loss. Attempts to “stack” coverage can be based on a theory that a single policy provides more than a single limit of coverage applicable to the claim.


    This is called intrapolicy stacking.


  • Intrastate Commerce
    As defined by federal motor carrier regulations, the term refers to any trade, traffic, or transportation in any state that is not described in the term “interstate commerce.” Normally this would involve trade, traffic, or transportation contained within a single state.



  • Invitee
    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.


  • Jones Act (Merchant Marine Act of 1920)
    Provides seamen with a negligence remedy for on-the-job injury without having to overcome employer defenses of assumption of the risk or fellow servant liability. Contributory negligence of the employee does not bar recovery, but recovery is reduced by the proportion of negligence attributable to the employee. Employers can obtain coverage under a standard workers compensation policy by purchasing a maritime coverage endorsement.



  • Jury Waiver Provision
    A contractual provision by which one or both of the parties agree to waive the right to have a jury trial, replacing it with a bench trial as the default process to resolve disputes under the contract.


    Jury waiver provisions are frequently included in contracts because jury trials can be time-consuming and expensive.

    Furthermore, juries are perceived as more likely than judges to make extremely large damages awards.


  • Known Loss Provision
    Language commonly included in the insuring agreement of a liability policy that stipulates that the policy does not apply to losses of which the insured was aware prior to the policy period. In some policies, this restriction appears in the exclusions section of the policy.


    Some policies stipulate that where the insurer has issued successive policies, the only policy that will apply is the one in force when the insured first becomes aware of the loss. The difference in these two types of provisions is most dramatic when progressive injury or damage goes undetected over multiple policy periods.


  • Known Loss Rule
    The principle of insurance practice stating that coverage may not be obtained against a loss that has already occurred. This loss is known to the person seeking to obtain the coverage.



  • Lapse
    A period of time of one day or greater when for whatever reason there has been no insurance coverage on a property.



  • Law of Large Numbers
    A statistical axiom that states that the larger the number of exposure units independently exposed to loss, the greater the probability that actual loss experience will equal expected loss experience.


    In other words: the credibility of data increases with the size of the data pool under consideration.


  • Legal Action Against Insurer
    A provision in most standard insurance coverage forms that imposes certain limitations on an insured’s right to sue the insurer for enforcement of the policy. Sometimes titled “Legal Action against Us,” such provisions typically require that the insured meet all its own obligations under the policy before bringing suit in contract.


    Some legal action against insurer clauses in liability policies also attempt to limit the prerogatives of third-party beneficiaries by stipulating that nothing in the policy gives any third party a right to sue the insurer for damages being sought against an insured.


  • Legal Liability Coverage Form (ISO)
    The Insurance Services Office, Inc. (ISO), commercial property coverage form (CP 00 40) that provides coverage for sums the insured is obligated to pay as a result of accidental damage from a covered cause of loss to property of others in the insured’s care, custody, or control (CCC). Not a suitable means of insuring leased premises because of a contractual liability exclusion that eliminates coverage for contractually assumed liability unless the insured would have been liable in tort regardless of the contract.



  • Lenders Loss Payable Endorsement
    A commercial property policy endorsement that gives a creditor of the insured that has loaned money in connection with the insured’s personal property the same rights and duties that a mortgage clause gives a mortgagee.


    The standard loss payable provisions endorsement (CP 12 18) includes this as one of its three options.


  • Liability
    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.

    Liability insurance coverage protects and insureds assets from lawsuits.


  • Liability Insurance
    Insurance paying or rendering service/protection on behalf of an insured for loss arising out of legal liability to others.



  • Liability Limits
    The stipulated sum or sums limit of financial responsibility, beyond which an insurance company is not liable for payments due to a third party.


    The insured remains legally liable above the limits.


  • Liberalization Clause
    A clause within the insurance policy stipulating that the policy may be changed to accommodate the changes mandated by legislation or rating authorities, at no extra premium paid by the insured.



  • License and Permit Bond
    Required by a municipality or other public body as a condition to granting a license or permit, to engage in a specified activity.


    This bond guarantees that the party seeking the license or permit (the obligor) will comply with applicable laws or regulations.

    These bonds can also be structured to provide indemnity guarantees to third parties who sustain injury or damage as a result of the obligor’s activities as described in the license or permit when such a guarantee is required.

    • For example, businesses that hang signs over public sidewalks may be required to provide indemnity guarantees for injuries to pedestrians.


  • Licensee
    In tort law, a licensee is a person on the property of another, despite the fact that the property is not open to the public; The owner of the property has allowed the licensee to enter.



  • Limit
    The total amount of losses to be paid under an insurance policy or reinsurance agreement, expressed either on a per occurrence basis (per accident / event) or on an aggregate basis.



  • Limit of Insurance / Limit of Liability
    The most that will be paid by the insurer in the event of a covered loss under an insurance policy.



  • Limited Mexico Coverage Endorsement
    A standard endorsement for use with the business auto policy (BAP) (CA 01 21) to provide limited excess coverage for autos taken across the Mexico border. Significant limitations apply.


    • For example, the accident must occur within 25 miles of the U.S. border, and the duration of the trip must be 10 days or less. This coverage may not meet Mexican insurance requirements. (Failure to procure Mexican insurance may result in criminal charges.)


  • Line
    A class of insurance, such as property, marine, auto, workers comp, etc.



  • Loss
    (1) The basis of a claim for damages under the terms of a policy.


    (2) Loss of assets resulting from a pure risk. Broadly categorized, the types of losses of concern to risk managers include personnel loss, property loss, time element loss, and legal liability loss.


  • Loss Assessment
    A property owner’s share of a loss to property owned in common by all members of a property owners association. Homeowners policies and condominium unit owners policies typically provide a small amount of coverage for such assessments, with additional amounts available by endorsement for an additional premium.



  • Loss History
    This term refers to the number of claims a person has filed, what type of claims were filed, and whether or not an insurance company paid out on those claims. Home insurance loss histories typically go back 3 to 5 years.



  • Loss Limit
    A property insurance limit that is less than the total property values at risk but high enough to cover the total property values actually exposed to damage in a single loss occurrence.


    This approach is usually used when the insurer is unable to provide a limit equal to the total property values at risk or when reinsurance costs for a full blanket limit are prohibitive.


  • Loss of Use / Additional Living Expenses
    This is the section of your standard home insurance policy that will reimburse you for any additional living expenses you incur if you have to live elsewhere while your home is being repaired. This coverage typically pays for a hotel or apartment, additional food costs, and sometimes extra gasoline and lost wages.



  • Loss Payee
    A person or entity that is entitled to all or part of the insurance proceeds in connection with the covered property in which it has an interest.


    Several different loss payee clauses address different insurable interest situations.

    A loss payee is also common in a personal auto policy (PAP) in which the automobile is financed. The lending institution would be listed as the loss payee on the declarations page.


  • Marine Insurance
    A type of insurance designed to provide coverage for the transportation of goods either on the ocean or by land as well as damage to the waterborne instrument of conveyance and to the liability for third parties arising out of the process.


    The two branches of marine insurance are ocean marine (primarily water-based exposures) and inland marine (primarily land-based exposures).


  • Market Value
    The price that would have to be paid to purchase an asset in its particular market.



  • Market Value Clause
    A property insurance endorsement or provision establishing market value (rather than actual cash value (ACV) or replacement cost (RCV) value) as the valuation basis for covered property.


    Usually used in connection with agricultural products and other commodities whose value fluctuates in accordance with a commodities exchange.

    Also occasionally used as the valuation basis for a building.


  • 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.


  • Mediation
    The act of a third person in assisting two adverse parties in adjusting or settling their dispute.



  • Medical Payments – Auto
    Optional coverage under an auto policy to pay for medical expenses for an insured who sustains bodily injury (BI) caused by an auto accident, without regard to fault. Coverage for persons other than the named insured and his or her family members is typically restricted to circumstances when they are occupants of the insured auto.



  • Medical Payments / General Liability
    A general liability coverage that reimburses others, without regard to the insured’s liability, for medical or funeral expenses incurred by such persons as a result of bodily injury (BI) or death sustained by accident under the conditions specified in the policy.



  • Medical Payments / Homeowners
    Coverage designed to pay for medical expenses to others who are accidentally injured on an insured location or by the activities of an insured, resident employee, or an animal owned by or in the care of an insured.


    These payments are not based on the law of negligence; that is, no negligence on the part of the insured has to be proven for payment to be made.

    It does not apply to everyday residents of your household.


  • Mexico Coverage
    (1) The coverage provided under certain nonstandard automobile policies issued by U.S. insurers for operation of an insured motor vehicle within Mexico, usually limited to a stated number of miles from the U.S. border.


    (2) Coverage purchased from a Mexican insurance company for the operation of a motor vehicle within Mexico. In the event of incurred automobile liability, Mexican law recognizes only coverage written by Mexican insurance companies as proof of financial responsibility.


  • Mobile Home Policy
    Specialized form designed to meet the unique needs of mobile home or manufactured housing owners. The policy provides coverage comparable to the homeowners policy, including property, loss of use, and premises and personal liability. In some cases, coverage is granted via a mobile home endorsement to the standard homeowners policy.


    In other cases, a stand-alone mobile home policy is used to provide coverage.


  • Moral Hazard
    A term used to describe a subjective hazard that tends to increase the probable frequency or severity of loss due to an insured peril. Moral hazard is measured by the character of the insured and the circumstances surrounding the subject of the insurance, especially the extent of potential loss or gain to the insured in case of loss. For example, insurance on a thriving business is not subject to a moral hazard to as great an extent as insurance on an unprofitable business.


    On the other hand, an insured with high moral standards may pose less of a moral hazard even with an unprofitable business than an insured with low moral standards. Moral hazards are considered when underwriting insurance, particularly fire insurance, and are addressed by certain policy exclusions. For example, underwriters are hesitant to insure vacant and unoccupied buildings because of the possibility that an insured will be tempted to intentionally start a fire to obtain an insurance recovery.


  • Mortgage (mortgagee) Clause
    A property insurance provision granting special protection for the interest of a mortgagee (e.g., financial institution that has an interest in the property) named in the policy, in effect setting up a separate contract between the insurer and the mortgagee. It establishes that loss to mortgaged property is payable to the mortgagee named in the policy and promises advance written notice to the mortgagee of policy cancellation.


    It also grants continuing coverage for the benefit of the mortgagee in the event that the policy is voided by some act of the insured (e.g., arson). In this situation, the clause specifies the obligations of the mortgagee in continuing coverage.

    Without the protection of the mortgagee clause, financial institutions would be unlikely to loan the large amounts of money necessary to purchase homes, office buildings, or factories.


  • Motor Carrier Act Endorsement / MCS-90 endorsement
    An endorsement that must be attached to the auto liability policy of certain regulated motor carriers to ensure that federally mandated coverage (e.g., required liability limits and environmental restitution coverage) is in place. The endorsement does not actually provide insurance except on a reimbursement basis. For example, a standard unendorsed Insurance Services Office, Inc. (ISO), commercial auto policy contains a pollution exclusion that would preclude coverage for environmental restitution.


    In the event the broadened pollution liability coverage endorsement (CA 99 48) is attached to a regulated motor carrier’s policy, the pollution exclusion is modified but not totally deleted. In either event, if the MCS-90 endorsement is attached, the insurer’s obligation with respect to such a situation is determined by the MCS-90 endorsement provisions regardless. If the policy would provide such coverage even without that endorsement, the insurer pays the claim and the endorsement effectively has no impact on the issue. However, if the claim would not have been covered under the policy except for the MCS-90 endorsement provisions, the insurer pays the claim and then has the right to seek reimbursement from the insured.


  • Motor Carrier Policy
    A commercial auto policy introduced by Insurance Services Office, Inc. (ISO), in 1993 to address the needs of the motor carrier (i.e., trucking) industry. Coverages available include auto liability, trailer interchange, and auto physical damage; other coverages are available by endorsement.


    The policy was developed as an alternative to the truckers policy because of the changes taking place in the industry. That is, the truckers policy is applicable only for “for-hire” motor carriers, whereas the motor carrier policy is appropriate for all types of motor carriers—for-hire, private, or a combination of both types of operations.


  • Motor Home Policy / Recreational Vehicles (RV’s)
    Specialized form designed to meet the unique needs of recreational vehicle owners. The policy provides coverage such as liability, personal injury protection (PIP) or medical payments, uninsured/underinsured motorists (UM/UIM), and physical damage including protection for attached accessories, roadside assistance, emergency expense, and personal effects.


    In addition, the policy can be tailored to those individuals and families who live in their motor homes on a full-time basis (full-timers coverage).


  • 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 vehicles.


    Coverages vary depending on the form used.


  • Motor Vehicle
    A term, commonly used in vehicle registration and financial responsibility statutes, that is generally defined to mean a device capable of transporting people or property and is self-propelled by mechanical or electrical power.


    However, state “motor vehicle” definitions usually contain a list of exceptions of the kinds of vehicles that do not qualify—for example, vehicles that are not designed for use on public roads, vehicles propelled solely by human power, bicycles, motorized wheelchairs or other electric personal assistive mobility devices, farm tractors, implements of husbandry, motorized bicycles, mopeds, snowmobiles, all-terrain vehicles, motor scooters, and vehicles running only upon rails or tracks, etc.


  • Motor Vehicle Insurance Law
    Any state law that addresses the manner in which third-party liability or first-party indemnity coverage must be offered, provided, or maintained with respect to a motor vehicle (e.g., a financial responsibility, compulsory insurance, uninsured/underinsured motorists (UM/UIM), or personal injury protection (PIP) law).


    In determining the distinction between what is an “auto” and thus covered under an auto liability policy and what is “mobile equipment” and thus subject to coverage under a commercial general liability (CGL) policy, it is important to note that any statute that could have a bearing on whether a court of law would find that a particular piece of equipment is a motor vehicle for purposes of determining liability would be included in the term “other motor vehicle insurance law.”


  • Motorcycle Insurance
    A stand-alone form designed to provide appropriate coverage for a variety of motorcycles and related vehicles, such as trikes, mopeds, scooters, dirt bikes, all-terrain vehicles, Segway® personal transporters, golf carts, and snowmobiles.


    A motorcycle is typically defined as (1) a two-wheel land motor vehicle with wheels in tandem (including an attached side car) that is designed primarily for use on public roads or

    (2) a three-wheel land motor vehicle designed primarily for use on public roads.

    Although motorcycles can be added to the personal auto policy (PAP), coverage gaps can result. Several insurers have developed this insurance for motorcycle owners, which reduces or eliminates these gaps. Some insurers also have specialty policies for off-road cycles, such as dirt bikes.


  • Multi Peril Crop Insurance / Federal Crop Insurance
    Coverage for farmers that is overseen and subsidized by the federal government and marketed and serviced by private insurers and agents. Federal crop insurance offers an array of insurance policies that cover loss of crop value arising from extremely hot weather, drought, excessive moisture, flood, wildlife damage, earthquake, insects, and disease.


    These policies protect a farmer against production or revenue losses when a particular insured crop does not meet a preset production guarantee. The Risk Management Agency (RMA) of the U.S. Department of Agriculture oversees the federal crop insurance program. RMA provides policies for more than 100 crops, the majority of U.S. crops, although coverage may not be available for some crops in some areas.

    Federal crop insurance is also referred to as multi-peril crop insurance (MPCI).


  • Named Insured (NI)
    Any person, firm, or organization, or any of its members specifically designated by name as an insured(s) in an insurance policy.


    Named Insured are distinguished from others that, although unnamed, fall within the policy definition of an “insured.”


  • Named Non-Owner Policy or Endorsement
    A personal auto policy (PAP) or an endorsement to a PAP that provides auto liability coverage for an individual who does not own a car but may operate borrowed or rented vehicles.



  • Named Perils Coverage
    A property insurance term referring to policies that provide coverage only for loss caused by the perils specifically listed as covered. It contrasts with all risks coverage, which applies to loss from all causes not specifically listed as excluded.



  • 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. It also addresses the need to make the various state laws more uniform for insurance companies and other parties.



  • 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; there is no time element coverage.



  • Nationwide Marine Definition
    Specifies the types of property that may be insured on inland marine and ocean marine insurance forms. Qualifying property must generally be moveable, be in transit, or bear some other relationship to transportation or communication. The National Association of Insurance Commissioners (NAIC) adopted the Nationwide Marine Insurance Definition in 1953 and revised it in 1976. This definition is normally used to classify marine insurance, rather than as a definition of underwriting powers. Although the definition does not differentiate between ocean marine and inland marine, its primary focus is on inland marine classifications.



  • Negligence
    A tort involving failure to use a degree of care considered reasonable under a given set of circumstances. Acts of either omission or commission, or both, may constitute negligence. The four elements of negligence are a duty owed to a plaintiff, a breach of that duty by the defendant, proximate cause, and an injury or damage suffered by the plaintiff. Liability policies are designed to cover claims of negligence.



  • Net Loss
    The amount of loss sustained by an insurer after deducting collectible reinsurance, salvage, and subrogation recovery.



  • New for Old
    A historic provision in marine insurance contracts stipulating that when repairs are made and new parts are supplied in place of old ones that have been lost or damaged, there is an agreed discount for depreciation. Modern marine policies, however, generally provide for the repairs without a deduction for depreciation.



  • No-pay/No-play Laws
    State laws that prohibit uninsured drivers from collecting certain types of damages from negligent insured drivers. The theory is that those who do not buy insurance should not receive benefits from those who do purchase it. These laws prohibit injured, uninsured drivers from collecting noneconomic damages and often require uninsured drivers to pay a large deductible (typically $10,000) before they can sue for property damage (PD).



  • NonInsurable Risk
    A risk that cannot be measured actuarially, or in which the chance of loss is so high that insurance cannot be written on it.



  • Nonresident Agent / Nonresident Performer
    An agent/performer who is licensed to engage and transact business in a state in which he/she does not reside.



  • Nonstandard Auto Insurance
    Auto insurance coverage for drivers with poor driving records, who may have been denied coverage from standard insurers offering standard auto coverage forms.


    Such coverage may also be appropriate for a new driver, an older adult who just got a driver’s license or someone who has allowed his or her policy to lapse and is seeking to be insured again. The premium is typically much higher than that available in the standard market.


  • Nontransferability Provisions
    Clauses found in professional liability policies indicating that an insured cannot transfer coverage to a noninsured without the insurer’s approval.


    • For example, attorney A who sells his practice to B cannot transfer coverage under his professional liability policy to B without the assent of his insurer. This is because professional liability insurance is a “personal” contract.


  • Nose Coverage
    The period between the inception date and retroactive date in a claims-made liability policy, if the specified retroactive date is earlier than the inception date of the policy. Claims-made liability policies typically include a retroactive date, and the policy will not cover claims arising from covered occurrences, acts, or omissions committed prior to that date.


    Nose coverage receives its name from its attachment to the “front” of the policy term, as opposed to “tail” coverage provided by an extended reporting period (ERP) on the end of a claims-made policy.


  • Notice
    The knowledge of facts that would lead a reasonably prudent person to take action.



  • Notice of Cancellation Endorsement
    Modifies an insurance policy to provide notice of cancellation beyond that stipulated in the policy. The endorsement typically stipulates an additional number of days’ notice the insurer must provide of its intent to cancel the policy, additional parties that are to receive notice of cancellation, or both.


    Additional insureds, for example, sometimes request a notice of cancellation endorsement guaranteeing them a right to notice of cancellation. Insurers vary regarding their willingness to expand their notice of cancellation obligations.


  • 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.


    Additionally, most policies require that the insurer provide advance notice of nonrenewal with the notice requirement ranging from 10 to 75 days depending on jurisdiction and circumstances surrounding the nonrenewal.


  • Notice of circumstances during extended reporting period provision
    A provision found within an extended reporting period (ERP) endorsement of a claims-made liability policy. Such provisions state that in addition to covering claims reported to the insurer during the ERP, the policy also covers “incidents” or “circumstances” reported to the insurer that have the potential to produce a claim in the future.


    About half of all ERP provisions are written on this basis, which is favorable for an insured because regardless of how far in the future a claim is made against the insured in conjunction with a reported “incident” or “circumstance,” coverage will apply under the ERP.


  • 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.



  • Novation
    An agreement to replace one party to an insurance policy or reinsurance agreement with another company from inception of the coverage period. The novated contract replaces the original policy or agreement.



  • Nuclear Exclusion
    (1) A provision or endorsement found in or attached to virtually all 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 or 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 exclusion does not normally apply to liability arising from radioactive isotopes, the most common commercially used nuclear materials


  • Object
    A boiler and machinery (BM) insurance term for equipment or machinery.


    BM coverage applies to loss or damage resulting from an accident (such as a breakdown or explosion) to a covered object.


  • Obligee
    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. For example, under a performance bond, the obligee is the project owner for whom the bonded contractor is required to perform the specified work.



  • Obligor
    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.

    • For example, under a performance bond, the obligor is the contractor that is required to perform the specified work for the project owner and/or higher tiered contractor.


  • 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.



  • Occupational injury
    An injury arising in the course and scope of employment that is caused by factors associated with the work undertaken.



  • Occurrence
    In a commercial general liability (CGL) coverage form, an accident, including continuous or repeated exposure to substantially the same general harmful conditions.


    General liability policies insure liability for bodily injury (BI) or property damage (PD) that is caused by an occurrence. This is also a common homeowners provision.


  • Occurrence Policy
    A policy covering claims that arise out of damage or injury that took place during the policy period, regardless of when claims are made.


    Most commercial general liability (CGL) insurance is written on an occurrence form.


  • Occurrence Year
    The time period defined by a body of losses composed of all claims occurring during a particular year.



  • Ocean Marine Coverage
    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. This type of marine insurance also encompasses coverage for damage to the vessels involved in shipments and any legal liability arising in the course of shipment.



  • Off-duty Coverage
    Coverage for police officers’ personal liability exposure while moonlighting or otherwise off duty. This exposure is typically excluded in most law enforcement liability policies. However, coverage can usually be added by endorsement for an additional premium.



  • Offer
    The terms of an insurance contract as proposed by one party (the potential insured) to another party (the potential insurer).



  • Offer of Judgment
    A legal strategy sometimes used in managing and settling employment-related litigation. An offer of judgment applies in the following manner: if a specific settlement made by a defendant (deemed an “offer of judgment”) is rejected by the plaintiff, but the jury’s verdict is lower than the defendant’s offer of judgment, then the plaintiff who rejected the offer of judgment will be subject to specific penalties that are paid to the defendant who made the offer of judgment.


    Although the amounts of such penalties vary by state, they include certain legal fees, other litigation costs, and prejudgment interest.

    In addition, the party that rejected the offer may lose its right to collect attorneys’ fees, compensable litigation costs, and prejudgment interest. An offer of judgment therefore puts pressure on plaintiffs to accept reasonable offers.


  • Offeree
    When an offer to enter into a contract is made, before the contract is executed, the party to whom the offer is made.



  • Offeror
    When an offer to enter into a contract is made, before the contract is executed, the party making the offer.



  • Omnibus clause
    A provision in standard automobile liability policies that embraces within the definition of “insured” certain persons without the necessity of naming them or designating them specifically.



  • On-demand Bonds / Bank Guarantees
    An unconditional bond or bank guarantee required of many contractors and sellers by overseas buyers to guarantee the tender (the actual form of money exchanged) as security against the value of advance payments under a contract, or to guarantee performance of the contract.


    Payable “on demand,” these bonds and guarantees may be called even when the contract has not been breached or when the breach is caused by circumstances outside the contractor’s or seller’s control, such as a trading embargo.


  • Ongoing Operations
    Work or other business activity that has not been completed or abandoned.


    Standard additional insured status under a general liability policy applies only with respect to liability in connection with the named insured’s “ongoing operations,” preventing coverage from extending to the additional insured’s liability for the named insured’s completed operations.


  • Open Perils / Special Perils / All Risks
    Refers to property insurance that insures against loss to covered property from all causes except those that are specifically excluded. This method of identifying covered causes of loss in a property policy has traditionally been referred to as “all risks” coverage. Many industry practitioners continue to use the term “all risks” to describe this approach to defining covered causes of loss in a property insurance policy.


    Recently, the use of the term “all risks” has been decreasingly less used in insurance policies because of concern that the word “all” suggests coverage that is broader than it actually is. Because of this concern, some industry practitioners have begun to use the term “open perils” or “special perils” instead of “all risks.”


  • Ordinance or Law Coverage (OL)
    Coverage for loss caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings. Older structures that are damaged may need upgraded electrical; heating, ventilating, and air-conditioning , and plumbing units based on city codes.


    Standard commercial property insurance forms do not cover the loss of the undamaged portion of the building, the cost of demolishing that undamaged portion of the building, or the increased cost of rebuilding the entire structure in accordance with current building codes. However, coverage for these loss exposures is widely available by endorsement.

    Standard homeowners policies include a provision granting a limited amount of building ordinance coverage; this amount can be increased by endorsement. Also referred to as building ordinance coverage.


  • Ordinary Construction
    Characterized by noncombustible exterior bearing walls (i.e., brick, concrete, or masonry) and combustible floors, roofs, and interior walls. Less sturdy than mill construction, this type of joisted masonry construction of the exterior walls generally receives a fire-resistive rating of an hour.
  • Ordinary Payroll Limitation or Exclusion Endorsement

    A business income coverage endorsement limiting to a specified number of days (such as 90 days), or eliminating altogether, coverage for payroll expense of employees other than executives, department managers, employees under contract, and other “important” employees.

    The 2012 edition of the standard ordinary payroll limitation or exclusion endorsement (CP 15 10) was retitled “payroll limitation or exclusion.” It limits or excludes coverage for payroll expense for any employee or category of employees, rather than just “ordinary” payroll.


  • Organizational Risk

    The business, treasury, and pure risks of an organization (i.e., all exposures, hazards, and perils, whether traditionally the subject of insurance or not), which collectively create uncertainty as to the financial outcome of an enterprise.


  • Original Insurer

    Insurer that issues the policy to the insured. May also be called “primary company,” “direct company,” or “front company.”


  • Other Insurance Clause

    A provision found in both property and liability insurance policies establishing how loss is to be apportioned among insurers when more than one policy covers the same loss. These provisions vary: some policies provide no coverage when other insurance is in place, some pay a pro rata share, and others apply in excess.


  • Other States Coverage

    Workers compensation and employers 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 in item 3.C of the information page of the policy.

    This endorsement expands the policy so that an injured employee can receive compensation benefits as prescribed by the other states listed on the endorsement. However, coverage only applies to states so listed, and coverage cannot be extended in this manner to monopolistic fund states.


  • Other Structures: Homeowners Policy

    Homeowners policy coverage part covering structures on the residence premises separated from the dwelling by a clear space or connected to the dwelling by a fence, utility line, or related connection. Examples include a detached garage, tool shed, driveway, swimming pool, gazebo, or fence. The limit of insurance for all other structures combined is 10 percent of the dwelling limit. Due to increasing home prices and lack of land availability, home construction changed in the United States in the 1970s. Builders stopped building homes with detached garages and, instead, built the homes with the garages attached or built under the home. At this point, many consumers began to view the charge for other structures in the homeowners policy as a charge for unneeded—and unusable—coverage.

    As a result, some insurers started issuing homeowners policies without this coverage and giving the insured a rate credit. Others changed the wording in their policies to allow for the addition of the other structures limit into the dwelling limit, if the home owner had no other structures.


  • Other-than-Collision Coverage

    Coverage available under the personal auto policy (PAP) that provides a form of “all risks” protection for damage to a covered auto from perils other than collision. Losses include but are not limited to fire, theft or larceny, explosion or earthquake, windstorm, hail, water, flood, malicious mischief, vandalism, riot, contact with an animal, and glass breakage.

    This protection is sometimes referred to as “comprehensive” coverage.


  • 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.


  • Outstanding Premiums

    Premiums due but not yet collected by the insurer.


  • Over-line

    An amount of insurance or reinsurance that exceeds an insurer’s or reinsurer’s normal capacity.


  • Overinsurance

    Insurance in an amount that is in excess of the insured object’s/risk fair or reasonable value.


  • Overlapping Insurance

    Coverage from two or more policies or insurers that duplicates coverage for certain hazards in whole or in part.


  • Owners and Contractors Protective (OCP) Liability Coverage

    A stand-alone policy that covers the named insured’s liability for bodily injury (BI) and property damage (PD) caused, in whole or in part, by an independent contractor’s work for the insured.

    The contractor purchases the policy to provide coverage for vicarious liability the client (project owner) incurs as a result of the contractor’s acts or omissions on the project.

    The OCP policy also responds to liability arising out of the insured’s own acts or omissions in connection with its general supervision of the contractor’s operations.


  • Owners Protective Errors & Omissions Insurance

    A policy that provides coverage for a construction project owner’s exposure to liability for negligent design work on the project. Such forms are written to apply as excess coverage over multiple underlying policies that insure the various design professionals working on a given project (or group of projects).

    Unlike a project liability policy in which the various design professionals are the named insureds, the project owner is the named insured under owners protective errors and omissions (E&O) forms.


  • Owners, Landlords, and Tenants (OL&T) – Liability Policy

    Now obsolete, this form was designed for businesses whose liability loss exposure (other than automobile and workers compensation) derives principally from the business premises. Manufacturers and contractors, whose principal liability loss exposure derives from the business operations, products, or completed operations, commonly purchased a manufacturers and contractors (M&C) liability policy.

    Now both types of businesses are customarily insured under a commercial general liability (CGL) policy.


  • Package Policy

    A combination policy providing several different coverages. Usually refers to a policy providing both general liability insurance and property insurance.

    Premium discounts are usually allowed to reflect cost efficiencies.


  • Paid Losses

    That portion of incurred losses actually paid out by the insurer.


  • Pain and Suffering

    A term for physical discomfort, emotional trauma, and other non-quantifiable ills for which a claimant may collect from a negligent party in addition to the actual damages awarded.


  • Pair or Set Clause

    A provision found in homeowners and commercial property forms dealing with losses involving part of a set or one of a pair. In this case, the insurer can either:

    (1) repair or replace any part to restore the pair or set to its value prior to the loss, or

    (2) pay the difference between the actual cash value (ACV) of the property before and after the loss.


  • Panel Counsel

    An attorney or law firm chosen by an insurance company to represent its policyholders in defending liability claims. Defense firms are selected for the panel based on their expertise in handling claims involving the particular coverage lines written by the insurer and their willingness to use billing rates acceptable to the insurer.

    When a policy is written on a duty to defend basis, either the insurer selects or the insured is allowed to select defense counsel from one of the firms contained within the panel. However, in some instances, insurers allow insureds to choose law firms that are not part of a panel. This is especially true if:

    (1) the request is made prior to policy inception, and

    (2) the insured’s preferred firm has demonstrated capabilities in the applicable line of coverage.


  • Parcel Post Coverage

    Inland marine coverage on packages shipped by registered or unregistered mail or parcel post against all risks of transportation, from the time property is placed in custody of the U.S. Postal Service.


  • Parent Company

    Where property-casualty (P&C) insurers constitute a group of companies, the “flagship” or senior company. The use of multiple corporate entities allows additional flexibility in working with varying state regulations.

    • For example, an insurance company group might consist of one or more admitted insurers and one or more non-admitted insurers operating in various states. The entire group is often referred to by the parent company’s name.


  • Parol Evidence

    The facts outside a contractual agreement that may be used to interpret the agreement.

    Contract law prescribes a complicated set of tests—termed the parol evidence rule—by which the admissibility of parol evidence in discerning the contracting parties’ intent may be decided. The admissibility of parol evidence is extremely limited in cases of an integrated agreement—a contract whose provisions make it clear that it contains within itself all the terms of the agreement between the parties.

    The “entire contract” clause found in many insurance policies is intended to make those policies integrated agreements and prevent the use of parol evidence in interpreting them.


  • Partial Disability

    Disability that is not total.

    The definition of “partial disability” varies from policy to policy, 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 (i.e., 50 percent) of the total disability benefit for a limited time period.


  • Partial Loss

    A property insurance term referring to a loss that does not completely destroy or render useless the insured property, or the appurtenance damage (repairs made to a roof slope, would be considered a partial loss; as opposed to replacing the entire roof), or does not completely exhaust the applicable insurance limit.


  • Participating Policy

    An insurance policy that allows the insured to receive policyholder dividends, not taxable distributions—that is, return of profits not treated as income by the Internal Revenue Service (IRS) but instead as return of premium.


  • Party

    Any person or entity named as a plaintiff, defendant, cross-complainant, or cross-defendant in a lawsuit.


  • Patient Dumping

    A statutorily imposed liability that occurs when a hospital capable of providing the necessary medical care transfers a patient to another facility or simply turns the patient away because of the patient’s inability to pay for services. Hospitals that knowingly, willfully, or negligently fail to comply with legislation prohibiting this practice are subject to various monetary penalties as well as suspension of their Medicare provider agreements.


  • Patient Protection and Affordable Care Act (PPACA)

    A 2010 law that enacted the most significant regulatory overhaul of the American healthcare system since passage of Medicare and Medicaid in 1965. It is also referred to as the Affordable Care Act (ACA) or as “Obamacare.”

    Following are the highlights of the PPACA.

    Health insurance market reforms: Among the reforms include: (a) health insurance policies are barred from having annual or lifetime coverage limits; (b) insurers must cover all applicants, with new minimum policy standards, and offer the same rates regardless of preexisting conditions or gender; (c) those with preexisting conditions cannot be denied coverage; (d) health insurers may not drop insureds who develop a medical condition; (e) parents with children up to the age of 26 can cover them under their own policies.

    Individual mandate: Everyone in the United States must purchase health insurance or pay a penalty to the Internal Revenue Service (IRS) on their income tax return. Exemptions will be granted for financial hardship, religious objections, American Indians, prison inmates, those without coverage for less than 3 months, undocumented immigrants, people with incomes below certain tax filing thresholds (currently $9,500 for individuals and $19,000 for married couples), and those for whom the lowest cost plan option exceeds 8 percent of household income.

    Medicaid expansion: As of 2013, every state has different Medicaid eligibility requirements based on income, age, gender, dependents, and other specific requirements. Starting in 2014, states have the option, but not the obligation, to expand Medicaid eligibility levels to 138 percent of the federal poverty level (FPL). The expansion covers the gap for those who earn too much to qualify for Medicaid but not enough to qualify for subsidies available under the individual mandate.


  • Patient Protection and Affordable Care Act (PPACA)

    Insurance exchanges: Directs states to establish insurance exchanges where individuals and small businesses can compare various insurers’ healthcare plans, band together to form larger purchasing groups, and obtain coverage at more affordable rates. In states that choose not to establish such exchanges, the federal government will do so.

    Premium subsidies: Provides sliding-scale subsidies that reduce the cost of coverage. To be eligible for a premium subsidy, household income must be between 100 percent and 400 percent of the FPL. (Below 100 percent of FPL, the household qualifies for Medicaid. Above 400 percent of FPL, subsidies are no longer available.)

    Large employer mandate: Requires employers with more than 50 full-time employees to offer “affordable” coverage to their workforce or pay an annual penalty to the IRS. “Full-time” employees are defined as working 30 hours or more per week (which means the law does not apply to part-time workers). The amount of the penalty depends on whether the employer does or does not offer coverage and whether any of the employees receive a premium credit for purchasing individual or family coverage on a state-based exchange.

    Small employer subsidies: Offers a modest tax credit to small employers to help defray some of the cost of purchasing health insurance for their employees. To be eligible, a small business must meet the following criteria: (a) 25 full-time employees or fewer (meaning tax credit subsidies are unavailable for companies with between 26 and 50 employees); (2) average annual wage less than $50,000; and (3) employer contributes at least 50 percent to the premium cost.


  • Patient’s Bill of Rights Legislation

    Laws allowing claimants to sue managed care organizations (MCOs) for malpractice and other treatment-related causes of action. The effect of such legislation is to lift the so-called Employee Retirement Income Security Act (ERISA) preemption, which places substantial legal restrictions upon a patient’s ability to sue an MCO.

    Currently, only a few states, most notably Texas, allow lawsuits against MCOs. Interestingly, only a few lawsuits have been filed against MCOs in Texas, thus calling into question some of the insurance industry’s high cost estimates in the event that the ERISA preemption against lawsuits is removed, per pending federal legislation.


  • Paul v. Virginia

    An 1869 U.S. Supreme Court decision holding that insurance is not commerce and is therefore not subject to regulation by the federal government.

    The ruling was overturned in 1944 by another Supreme Court decision, United States v. South-Eastern Underwriters Ass’n, 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440 (1944). [75 U.S. 168, 19 L. Ed. 357, 8 Wall. 168 (1869)]


  • Payment Account

    An account established by an insurer under a finite insurance program. Payment accounts are the opposite of experience accounts because they are used to hold funds specifically earmarked to pay losses. Funds are moved from the experience account into the payment account for this purpose.


  • Payment Bond

    Guarantees that suppliers and subcontractors will be paid for materials and labor furnished to the contractor.

    The owner’s purpose in requiring a payment bond is to guarantee that the project will be delivered free of liens.


  • Payor Benefit

    A provision under which premiums are waived if the person paying the premiums becomes disabled or dies.

    This option is often used when the insured is the child or spouse of the policyholder.


  • Payout Profile

    A schedule illustrating the percentage of loss dollars actually paid in settlement of claims over time. For example, less than 25 percent of the total loss dollars for workers compensation claims are paid during the first year of coverage. The final claim costs are usually not completely settled until year 10.

    General liability losses have a payout that is even slower than workers compensation. As a result, many insureds choose insurance options that allow them to retain control of loss reserves and therefore the income accrued on the reserves while waiting for the claim to be paid.


  • Per Occurrence Limit

    In liability insurance, the maximum amount the insurer will pay for all claims resulting from a single occurrence:

    • no matter how many people are injured, how much property is damaged, or how many different claimants may make claims.
  • Per Occurrence Limitation of Liability Provision

    A nonstandard commercial property insurance provision that essentially converts blanket limits to specific, per location limits. This provision establishes that the most the insured can collect for a commercial property loss at a given location is the amount reported for that location on the insured’s statement of values.

    It is sometimes used in combination with another nonstandard commercial property insurance provision: a margin clause.

    • A margin clause softens the negative impact of the per occurrence limitation of liability provision by stipulating that the most the insured can collect for a loss at a given location is a specified percentage greater than 100 percent (such as 110 or 125 percent) of the values reported for that location.


  • Per Person Limit

    In liability insurance, the maximum amount the insurer will pay for one person’s injuries. If two people are injured in an auto accident and the at-fault driver’s policy has a $50,000 per person limit, the insurer will pay no more than $50,000 to each person for his or her injuries.

    If one person’s injuries are worth $25,000 and the other person’s are worth $75,000, the first claimant will receive $25,000 and the second will receive the per person maximum of $50,000 from the insurer.


  • Per-loss Deductible

    Specifies the amount of first-dollar loss paid by the insured for each loss.


  • Performance Bond

    A performance bond guarantees that the contractor will perform the work in accordance with the construction contract and related documents, thus protecting the owner from financial loss up to the bond limit (called the penal sum) in the event the contractor fails to fulfill its contractual obligations.


  • Peril

    Cause of loss—for example, fire, windstorm, collision, hail.

    An event or disaster that causes a loss or damage to covered property.


  • Peril of the Sea

    Refers to extraordinary forces of nature that maritime ventures might encounter in the course of a voyage.

    Some examples of these perils include stranding, sinking, collision, heavy wave action, and high winds.


  • Permanent Partial Disability

    A workers compensation disability level 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 capability of the worker is affected.

    Most 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.

    Under most statutes, the employee will receive weekly wages for life.


  • Personal and Advertising Injury

    (1) A standard coverage (Coverage B) of the 1986 and later commercial general liability (CGL) forms.

    (2) A defined term in the standard CGL since 1998, it combines elements of the earlier separate categories of “personal injury” (PI) and “advertising injury.”


  • Personal Articles Floater

    A personal lines inland marine policy that is used to cover scheduled personal property on an all risks basis. The policy is particularly appropriate for property that receives limited coverage under the homeowners forms, such as furs, jewelry, fine arts, silverware, cameras, musical instruments, stamp and coin collections, and similar property.

    Standard forms have been developed by both Insurance Services Office, Inc. (ISO), and American Association of Insurance Services, Inc. (AAIS).

    Coverage is also sometimes afforded in homeowners policies by endorsement.


  • Personal Auto Policy (PAP)

    The policy may be structured to provide a combination of liability, personal injury protection (PIP), medical payments, uninsured and underinsured motorists (UM/UIM), and physical damage coverages.

    A standard form by Insurance Services Office, Inc. (ISO), for insuring private-passenger-type autos owned by individuals.


  • Personal Effects Floater

    Insurance designed for tourists who desire worldwide coverage on their personal effects, which refers to transportable property of the type carried by tourists or travelers.

    This all risks coverage is sometimes procured by people who travel extensively in their motor homes and who do not have homeowners coverage.

    Since the personal property coverage in homeowners policies has been expanded in recent decades, personal effects floaters are not as commonly used today as they once were.


  • Personal Injury (PI)

    Under general liability coverage, a category of insurable offenses that produce harm other than bodily injury (BI). As covered by the 1986 commercial general liability (CGL) policy, PI includes: false arrest, detention, or imprisonment; malicious prosecution; wrongful eviction; slander; libel; and invasion of privacy.

    Also addressed in the homeowners policy. Under umbrella liability insurance, a broad category of insurable offenses that includes both BI and the offenses defined as “personal injury” in CGL policies.


  • Personal Injury Protection (PIP)/ No-fault / “Add-on”

    Statutes applicable in some states that allow the addition of personal injury protection (PIP) coverages to auto insurance policies without limiting an injured party’s right to sue in tort. In some of these “add-on” states, purchase of these personal injury (PI), or “no-fault,” coverages is mandatory. In others, purchase is at the insured’s option, although insurers are required to offer them. The statutes typically require insurers to provide or offer to provide first-party benefits for medical expenses, loss of income, funeral expenses, and similar expenses without regard to fault.

    Coverages, limits, and each party’s responsibilities vary from state to state, as provided by law.


  • Personal Liability Coverage

    Liability coverage provided by the homeowners policy that protects the insured against the financial consequences of liability to others for bodily injury (BI) and property damage (PD). This coverage also insures the cost of defense in addition to the policy limit.


  • Personal Lines

    Insurance purchased by an individual (as opposed to an organization) to protect against personal risks.


  • Personal Property

    All tangible property not classified as real property.



  • Personal Umbrella Policy

    Provides high limits of liability to protect an insured against a catastrophic liability loss. This policy grants liability coverage that stacks on top of the primary liability coverage provided by the insured’s homeowners, personal auto, watercraft, and any other scheduled underlying liability policies. It covers bodily injury (BI), property damage (PD), and personal injury (PI), which includes offenses such as libel, slander, false arrest, invasion of privacy, and others.

    The umbrella policy also fills some gaps in coverage over a specified deductible (often called a retained limit) in the underlying policy.


  • 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.

    • Examples include costs to replace a key employee who has died or becomes disabled and benefits mandated under workers compensation laws. Other categories of loss exposures include direct and indirect property risks and liability risks.
  • Physical Hazard

    The material, structural, or operational features of a business that may create or increase the opportunity for injury or damage.


  • Physical Impairment

    In the context of the Americans with Disabilities Act (ADA) of 1990, any physiological disorder, condition, cosmetic disfigurement, or anatomical loss affecting one or more of the following body systems that substantially limits one or more major life functions. Those body systems are neurological, musculoskeletal, special sense organs, respiratory (including speech organs), cardiovascular, reproductive, digestive, genitourinary, hematic and lymphatic, skin, and endocrine.


  • Physical-mental Injuries

    Psychiatric disorders that are secondary to physical injuries.


  • Plain Language Laws

    State laws that require insurance policies to be written in everyday language. The intent is to make policies more easily understood and to encourage insureds to read their policies.


  • Plaintiff

    In a civil action, the party bringing suit and seeking damages from the defendant.


  • Police Professional Liability Insurance

    Provides liability coverage for police officers and police departments, in conjunction with acts, errors, and omissions while performing their professional duties. The policies cover such perils as false arrest and civil rights violations.

    Unlike most professional liability insurance, the policies are sometimes written with occurrence triggers.


  • Policy

    A written contract of insurance between the insurer and the policyholder. It is typically composed of a declarations page, policy form, and endorsements or riders that amend the policy form.


  • Policy Anniversary Date

    In policies with a term that exceeds 1 year, the anniversary of the policy inception date.

    For 1-year policies, this term can also be used to refer to the policy’s renewal date.


  • Policy Conditions

    The section of an insurance policy that identifies general requirements of an insured and the insurer on matters such as loss reporting and settlement, property valuation, other insurance, subrogation rights, and cancellation and nonrenewal. The policy conditions are usually stipulated in the coverage form of the insurance policy.


  • Policy Definitions

    In defining the scope of coverage, insurance policies rely on terms and phrases that have very special and often very specific meanings. Since these terms and phrases are usually repeated many times in the insurance policy, a single definition of the term or phrase is included in the definitions section of the policy instead of being repeated whenever the term is used. The reader is alerted when a defined term is used in the insurance policy, usually by its placement within quotation marks.

    Since definitions may have a significant impact on the scope of coverage, they must be carefully reviewed when interpreting the policy’s coverage intent.


  • Policy or Effective Date

    The date on which an insurance binder or policy goes into effect and from which time protection is provided.


  • Policy owner

    The person who has ownership rights in an insurance policy, usually the policyholder or insured.


  • Policy Period

    The term of duration of the policy. The policy period encompasses the time between the exact hour and date of policy inception and the hour and date of expiration.


  • 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 Writing Agent

    An agent empowered to write and issue policies on behalf of his or her insurer.


  • Policy Year

    The period between anniversary dates.


  • Policy Year Experience

    The premium and losses associated with a given annual policy period. The policy year experience for an individual insurance policy includes each premium and loss transaction that relates to that particular policy. An aggregate policy year experience for an entire book of business is calculated by including the individual experience of all policies that became effective during that year. For example, 2007 policy year data would include the experience of all policies effective between January 1, 2007, and December 31, 2007, regardless of the date on which losses or other events associated with those policies occur. This approach provides a clear match between losses and premiums.


  • Policyholder (PH)

    Person in actual possession of insurance policy; policy owner.


  • 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.


  • Pollution Exclusion

    A provision in either first-party or third-party insurance policies that excludes coverage for losses caused by “pollution,” a term usually defined to mean an irritant or contaminant, whether in solid, liquid, or gaseous form, including—when they can be regarded as an irritant or contaminant—smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.


  • Port Risk

    A type of coverage afforded a vessel that is laid up for an extended time period, normally in excess of 30 days.

    Coverage is provided for both physical damage and protection and indemnity.


  • 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 U.S. 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.


  • Preamble

    An introductory paragraph in a contract that identifies the parties by name and the date upon which the parties entered into the contract and often includes the place of residence of an individual or the place of formation and place of business of a corporation or other entity. Also a preliminary statement or clause at the beginning of a statute stating its purpose and often explaining the reason for its enactment.


  • Precedent

    A case, actions and/or decisions that provides guidance or authority.


  • Predominant Cause / Proximate Cause

    The peril having the most significant impact in bringing about the loss in a situation involving two independent perils that operate concurrently to produce the loss, as determined by the courts.

    The predominant cause is then selected as the proximate cause.


  • 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 Risk

    Any risk considered a better or preferred risk (i.e., one having lower potential loss frequency and severity) than the standard or “average” risk upon which premium rates are calculated.


  • Premises

    (1) In a property insurance policy, the location where coverage applies. Usually described in the policy with a legal address. (2) Building or land occupied or owned by an insured.


  • Premises Burglary Coverage

    The Insurance Services Office, Inc. (ISO), crime form E, CR 00 06. Covers loss of property, other than money and securities, stolen from within the insured’s premises or taken from a watch guard inside the premises.


  • Premises theft and outside robbery Coverage form H

    Insurance Services Office, Inc. (ISO), crime form (CR 00 09) that covers property other than money and securities for theft from inside the premises and robbery of a messenger away from the premises


  • Premises-Operations

    One of the categories of hazards ordinarily insured by a general liability policy. Composed of those exposures to loss that fall outside the defined “products-completed operations hazard,” it includes liability for injury or damage arising out of the insured’s premises or out of the insured’s business operations while such operations are in progress.


  • Premium

    The amount of money an insurer charges to provide the coverage described in the policy or bond.


  • 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 a year from today. Due to the earning power of funds on hand compared to funds received in the future, delaying loss and/or premium payments generates cash flow and increases the present value of funds held. Present value analysis can be used for a variety of purposes including (1) calculating loss funding needs for risk retention programs and (2) comparing risk financing alternatives having different loss and premium payment streams.


  • Preservation of Property / Sue and Labor Clause

    A term based in ocean and inland marine insurance provision that requires the insured to protect damaged property from further loss once a loss has occurred. It also establishes that the expenses of doing so will be borne by the insurer and the insured “in proportion to their respective interests” in the property. Thus, the insurer will pay the full “sue and labor” costs if the amount of insurance is equal to or greater than the value of the property.

    Current property and marine forms usually contain a similar provision, but it is seldom labeled a sue and labor clause. Instead, it is typically included as one of the insured’s “Duties in the Event of Loss.” An example would be the temporary placement of a tarp over a damaged roof to mitigate further damage.


  • Primary and Noncontributory

    This term is commonly used in contract insurance requirements to stipulate the order in which multiple policies triggered by the same loss are to respond. For example, a contractor may be required to provide liability insurance that is primary and noncontributory. This means that the contractor’s policy must pay before other applicable policies (primary) and without seeking contribution from other policies that also claim to be primary (noncontributory).


  • Primary Beneficiary

    The beneficiary named as being first to receive proceeds or benefits when they come due or are payable. If the primary beneficiary is not living at the time the proceeds are payable, the benefits are paid to the secondary beneficiary.


  • Primary Cover

    The policy that responds first to an insured loss, either on a first dollar basis or after allowing for a deductible. When the primary coverage limits are paid, any remaining loss is covered by whatever excess layer of insurance may be in place


  • Primary Liability

    As respects professional liability coverage for contractors, the direct performance of design and other professional services conducted by in-house employees. This is in contrast to design services that are subcontracted to third parties for which the design firm has contingent liability.


  • Principal

    In a surety bond, the entity whose performance is being guaranteed—that is, the obligor.


  • Principle of Indemnification

    A defining characteristic of insurance, providing that a loss payment will replace what is lost, putting the insured back to where it was financially prior to the loss without rewarding or penalizing the insured for its loss.


  • 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 Work Exclusion

    An endorsement sometimes attached to contractors’ general liability policies. The exclusion eliminates coverage for injury or damage resulting from the insured’s work that was completed before a stated date


  • Private Crop-Hail Insurance

    The first type of crop insurance written in the United States, it typically covers the single peril of hail. The perils of fire and wind can also be included in this coverage but only for some crops and some locales. Private crop-hail insurance is usually purchased for high-yielding crops in areas of the country susceptible to hail. Unlike federal crop insurance, private insurers offer and underwrite this policy. It is sold by licensed insurance agents, and the premiums depend, for a large part, on past loss experience. One advantage of private crop-hail coverage (over hail coverage available through federal crop insurance) is the ability to get spot coverage (coverage on an acre-by-acre basis).


  • 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 non-contracting party, nor may a non-contracting party claim any right or benefit as being guaranteed by the contract.


  • Pro rata



  • Probability

    A numerical measure of the chance or likelihood that a particular event will occur.

    Probabilities are generally assigned on a scale from 0 to 1.

    A probability near 0 indicates an outcome that is unlikely to occur, while a probability near 1 indicates an outcome that is almost certain to occur.


  • Producer

    A term commonly used for an agent, broker, Adjuster, or other insurance representative who has responsibility for selling, transacting or settling claims of insurance.


  • Product Liability

    The liability for bodily injury (BI) or property damage (PD) incurred by a merchant or manufacturer as a consequence of some defect in the product sold or manufactured.


  • Professional Liability

    A type of liability coverage designed to protect traditional professionals (e.g., accountants, attorneys) and quasi-professionals (e.g., real estate brokers, consultants) against liability incurred as a result of errors and omissions in performing their professional services. Although there are a few exceptions (e.g., physicians, architects, and engineers), most professional liability policies only cover economic or financial losses suffered by third parties, as opposed to bodily injury (BI) and property damage (PD) claims. This is because the latter two types of loss are typically covered under commercial general liability (CGL) policies. The vast majority of professional liability policies are written with claims-made coverage triggers. In addition, professional liability policies contain what are known as “shrinking limits,” meaning that unlike CGL policies (where defense costs are paid in addition to policy limits), the insurer’s payment of defense costs reduces available policy limits. Accordingly, when attempting to determine appropriate policy limits, insureds must consider the fact that because defense costs are often a high proportion of any claim settlement or judgment, they must usually purchase additional limits. The most common exclusions in professional liability policy forms are for BI, PD, and intentional/dishonest acts


  • Professional services exclusion

    An exclusion commonly endorsed onto general liability policies and found within directors and officers (D&O) liability insurance policies. As a modification of commercial general liability (CGL) policies, the exclusion serves to segregate general liability from professional (errors and omissions (E&O)) exposures, leaving only the former insured. (For example, it would not interfere with coverage of a physician’s premises liability if someone falls and is injured while in the office, but it would exclude any liability arising from the physician’s providing of medical care.)


  • Progressive Injury or Damage

    Injury or damage that worsens over time. For insurance purposes, this most often refers to injury or damage that occurs over multiple policy periods and thus raises questions about which policy(ies) may be triggered for the loss.


  • Prohibited Risk

    Any class of business excluded by underwriters of an insurance company that will not be insured under any condition.


  • Project Liability Insurance

    A form of architects and engineers (A&E) liability coverage in which coverage applies only to an insured’s work on a single project rather than to the entire scope of an insured’s practice.

    Such policies are advantageous because they provide coverage for all members of a project’s design team, reduce the incidence of disputes in the event of a claim, ensure coverage continuity following completion of work, and facilitate the availability of high limits needed on large projects.


  • Promisee

    In contract law, the party to which the promise is made.


  • Promisor

    In contract law, the party that makes the promise and has a duty to fulfill it.


  • Promissory estoppel

    The doctrine that courts will enforce an agreement where consideration does not exist when it is necessary to do so to avoid injustice.


  • Proof of Loss

    A formal statement made by the insured to the insurer regarding a claim, especially in property insurance, so that the insurer may determine its liability under the policy.


  • Property Damage (PD)

    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. Also addressed in the homeowners and personal auto policies.


  • 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, such as fire or explosion.

    In this sense, property insurance encompasses inland marine, boiler and machinery (BM), and crime insurance, as well as what was once known as fire insurance, now simply called property insurance: insurance on buildings and their contents.


  • Property Transfer Liability Insurance

    Property transfer liability insurance covers the buyer of a property for third-party bodily injury (BI) and property damage (PD) claims and cleanup costs arising out of the property, but only for contamination that had not yet been detected as of the policy’s inception date.

    Failure to disclose known contamination voids coverage with respect to that particular pollution incident.


  • Proportional Liability

    Refers to an arrangement for the assignment of liability in which each member of a group is held responsible for the financial results of the group in proportion to its participation.


  • Protection and Indemnity (P&I) insurance

    Liability insurance for practically all maritime liability risks 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.

    There is no standard P&I form with the specific terms and conditions for each insured tailored by underwriters based on the nature of the risk and the character and amount of insurance desired by the insured.

    Additionally, since the P&I policy is essentially a contract of indemnity, the insurer is not obligated to pay unless the insured must actually pay the claim.


  • Protection Classes:

    The 10 categories used by the Insurance Services Office, Inc. (ISO), to rank the fire protection in cities and towns according to the following three factors.

    Fire department quality—this includes its equipment (e.g., ladders, fire trucks), staffing (i.e., paid or volunteer), training, and geographic distribution of firefighting companies; this factor accounts for 50 percent of the total classification.

    Water supply system—this includes the condition, distribution, inspection, and maintenance of fire hydrants and a comparison of the available water to the amount needed to extinguish a fire; this accounts for 40 percent of the total classification.

    Fire alarm and communications systems—this includes telephone systems, telephone lines, staffing of these systems, and the quality of the dispatching system; this factor accounts for 10 percent of the total classification.

    The Public Protection Classification program is a rating system with a range from 1 (best) to 10 (worst) that numerically ranks a community’s municipal fire protection system. Class 1 represents an excellent fire protection system, and class 10 indicates virtually no protection. Actually, classes 9 and 10 are both “unprotected” classes; that is, they indicate rural areas without adequate fire hydrants or fire departments. Whether protection class 9 or 10 applies is determined by the distance from an available fire hydrant and a fire department that would respond.

    Nearly all U.S. insurers use ISO’s public protection classification in calculating rates for homes. Note, however, that many insurers deviate in some way from the rules of the public protection classification program through the use of independently filed rules.


  • Protective Liability Insurance

    A general term describing a type of liability insurance that is purchased by an indemnitor, such as a contractor, for its indemnitee, such as the person for whom the contractor is performing operations, to protect that party against liability for bodily injury (BI) or property damage (PD) arising out of the indemnitor’s operations


  • Protective Professional Indemnity Insurance

    Provides supplemental coverage for professional errors and omissions (E&O) claims by the insured against its own design professionals. The policy sits atop all of the insured’s design professionals’ practice policies as a form of excess coverage in the event the design professional’s policy limit has been exhausted or is not sufficient to pay the claim.

    The insured (i.e., project owner or design-build contractor) must prove a legal claim for professional negligence against the design professional to collect under the policy.


  • 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.


  • Proximate cause

    (1) The cause having the most significant impact in bringing about the loss under a first-party property insurance policy, when two or more independent perils operate at the same time (i.e., concurrently) to produce a loss. Courts employ a set of proximate cause rules to resolve causation disputes when a property policy states that it covers or excludes losses “caused by” a peril and there is more than one peril at work in a fact pattern. Under common law, whether the policy provides coverage depends on which peril is chosen as the proximate cause. If the peril selected as the proximate cause is covered, courts consider the loss to have been caused by the covered peril and will hold that the loss is covered. If the peril selected as the proximate cause is uncovered or excluded, courts consider the loss to have been caused by the uncovered or excluded peril and will hold that the loss is not covered.

    (2) As a principle of tort law, proximate cause refers to a doctrine by which a plaintiff must prove that the defendant’s actions set in motion a relatively short chain of events that could have reasonably been anticipated to lead to the plaintiff’s damages. If the defendant’s actions were “proximate” or close enough in the chain of causation to have foreseeably led to the plaintiff’s damages, courts will impose liability. Otherwise, if the defendant’s actions set in motion a long, bizarre chain of events that could not have reasonably been foreseen to lead to the plaintiff’s damages, courts will not impose liability. In tort law, multiple actions by one or more defendants that are a substantial factor in producing the loss can qualify as proximate causes


  • Public Adjuster

    A claims adjuster who is hired by and represents the interests of the insured in a property loss. Public adjusters negotiate settlement of such claims with the insurer’s claim representative. Public adjusters are compensated with a percentage of the payable loss that they are able to secure for their clients (2 to 15 percent, depending upon the agreement between PA and client; typically based upon the size and complexity of the claim).

    PA’s are frequently retained in situations involving commercial claims, business interruption (BI) claims, which involve special expertise in the areas of accounting and insurance coverage analysis.


  • Public Employee Dishonesty Coverage

    Insurance for governmental entities (e.g., cities, towns, counties, etc.) covering loss resulting from employee dishonesty. Limits can be written to apply per loss (Insurance Services Office, Inc. (ISO), coverage form O, CR 00 16) or per employee (coverage form P, CR 00 17).


  • Public Law 15 (McCarran Act)

    A congressional act of 1945 exempting insurance from federal antitrust laws to the extent that the individual states regulate the industry. The legislation was made necessary by the U.S. Supreme Court decision in United States v. South-Eastern Underwriters Ass’n, 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440 (1944).


  • Public Liability Insurance

    Insurance covering an insured’s liability to third parties for causing bodily injury (BI) or property damage (PD).


  • 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 Officials Liability Insurance

    Provides liability coverage for the errors and omissions of public officials. In effect, such policies serve the same function for elected/appointed officials of state and local government as directors and officers (D&O) insurance serves for the directors and officers of corporations. However, one major difference is that under public officials liability forms, employees and the public entity itself are insureds, whereas this is not the case with D&O policies.

    Exclusions under this policy include losses due to fraud or dishonesty, bodily injury (BI) or property damage (PD), false arrest, assault and battery, defamation, and fiduciary liability.


  • Public or Livery Conveyance Use

    The transporting of people and/or goods for hire, such as by a taxi service, motor carrier, or a delivery service. This coverage is excluded under the personal auto policy (PAP). Incidental use in an insured’s sideline business can be an exception to this exclusion. A taxi service and a delivery service would need a business auto policy (BAP), and a motor carrier would need a motor carrier or truckers policy.


  • 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 (E&O) 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.


  • Pure Claims-Made Policy

    A type of claims-made policy requiring that a claim must be made against the insured during the policy period for coverage to apply. Unlike claims-made and reported forms, pure claims-made policies do not specify that the claim must also be reported to the insurer during the policy period. Instead, they indicate only that the claim must be reported to the insurer “immediately” or “as soon as practicable.”

    For insureds, pure claims-made policies are preferable to claims-made and reported policies because it is sometimes difficult to report a claim to an insurer when it is made late in a policy period.


  • Pure Endowment

    An endowment payable at the end of the policy period if the insured is alive. If the insured has died, there is nothing paid in the form of benefits.


  • 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.


  • Purpose not Designated Exclusion, Aircraft

    A unique feature of aircraft insurance policies is that they commonly specify in the declarations the intended use of the aircraft (e.g., business and pleasure, industrial aid, or crop dusting). This exclusion may invalidate coverage if the aircraft is used for a purpose other than the one stated in the policy.

    For the exclusion to apply, the aircraft typically must be used for an unauthorized purpose with the knowledge and consent of the named insured, an executive officer, or partner.


  • Qualified Person with a Disability

    Within the scope of the Americans with Disabilities Act (ADA) of 1990, an individual with a disability who satisfies the requisite skills, experience, education, and other job-related requirements of the employment position. Such an individual can perform the essential functions of the position with or without reasonable accommodation.


  • Railroad Protective Liability

    Insurance coverage that protect s a railroad from liability it may incur due to the work of contractors on or near the railroad right-of-way.


  • Railroad Sidetrack Agreement

    An agreement between a railroad and a business in which the railroad agrees to build a siding on the property of the business; the business will hold the railroad harmless for certain liability arising out of the use of the sidetrack.

    Sidetrack agreements are “insured contracts” under the provisions of standard contractual liability insurance coverage.


  • Ratable Losses

    The insured’s incurred loss dollars, including all losses paid and outstanding, subject to a maximum per-loss amount or loss limitation.


  • Rate

    A unit of cost that is multiplied by an exposure base to determine an insurance premium.

    An insurance rate is the amount of money necessary to cover losses, cover expenses, and provide a profit to the insurer for a single unit of exposure.

    Rates, as contrasted with loss costs, include provision for the insurer’s profit and expenses.


  • Rate Discrimination

    Using different rates for exposures of the same risk type and classification.

    Rate discrimination is illegal in most states.


  • Rate Making

    The process of using underwriting information to calculate a premium for the exposure


  • Rate Manual

    A book, or manual, containing classifications and rates for a given line of insurance.


  • Rated Insurer

    An insurance company that has received a financial size and strength rating from a rating agency such as A.M. Best or Standard and Poor’s.


  • Rating

    Determining the amount of premium to be paid to insure a risk. Guaranteed cost rates are fixed during the policy period.

    Loss sensitive rates are those that can be adjusted after the end of a policy period, based upon the insured’s actual loss experience


  • Rating Bureau

    An organization that collects statistical data (such as premiums, exposure units, and losses), computes advisory rating information, develops standard policy forms, and files information with regulators on behalf of insurance companies that purchase its services. Years ago, insurers were required by law in most states to belong to the designated rating bureau and to use its rates and policy forms. Today, however, these organizations serve in an advisory capacity for most services and most coverage lines; generally, insurers are free to use their products and services as they see fit.

    The best known rating bureaus are National Council on Compensation Insurance (NCCI) (for workers compensation insurance), the Surety Association of America (SAA) (for surety bonds and crime insurance), Insurance Services Office, Inc. (ISO) (for most commercial and personal lines other than workers compensation insurance), and American Association of Insurance Services, Inc. (AAIS) (for many commercial and personal lines other than workers compensation).


  • Rating Class

    The classification for rating purposes of an individual exposure


  • Rating Experience

    Computing a premium based on the loss experience of the risk itself. Essentially a comparison of actual losses with expected losses.

    If actual losses are lower than expected, a premium credit to the manual rate or prior-year premium results.

    If actual losses are greater than expected, a premium surcharge results.


  • Rating Methodology

    The method used by an underwriter when calculating premiums.

    Principal methods are manual, experience (retrospective or prospective), burning cost, or judgment.


  • Rating Organization

    The financial strength of insurance companies and their ability to pay the claims of their policy owners are very important to the insurance-buying public and to the states that license and certify those insurers. Accordingly, insurance companies are rated by various rating organizations. Some of these rating organizations are:

    • A.M. Best Company
    • Conning & Company
    • Demotech
    • Fitch Ratings
    • Moody’s
    • Standard and Poor’s
    • Weiss Rating
  • Real Property

    Land and most things attached to the land, such as buildings and vegetation. Growing crops, since they are physically attached to the soil, are generally considered real property.

    The definition of “land” includes not only the surface of the earth, but also everything above and beneath it. Thus, the ownership of a tract of land includes both the air-rights above it and the soil from its surface to the center of the earth.


  • Reasonable Accommodation

    As defined in the Americans with Disabilities Act (ADA) of 1990, either modifications or adjustments to a job application process or a job performance process that enable a qualified applicant with a disability to be considered for or perform the position, or modifications or adjustments that allow the disabled worker the same benefits and privileges afforded other similarly situated employees without disabilities.

    This modification or job adjustment must be achieved without imposing an undue hardship on the employer’s operations.


  • Reasonable Expectations Doctrine

    Courts sometimes agree to apply the reasonable expectations doctrine and interpret a policy to provide the protection an insured party might reasonably have expected, even if the policy wording does not provide that coverage.


  • Reasonable Repairs

    Additional coverage provided by the homeowners policy.

    The insurer will pay for any reasonable costs incurred by the named insured to protect his or her insured property from further damage, if the cause of loss is a covered peril. This is additional coverage and does not affect the limit of insurance applicable to the covered property.

    This concept is referred to as the “sue and labor clause” in most commercial property and marine forms.


  • Rebating

    Returning a portion of the premium or the agent’s/broker’s commission on the premium to the insured or other inducements to place business with a specific insurer. Rebating is illegal in the majority of states. Insurers must use filed rate credits or have supporting methodology.


  • Reciprocity

    The practice of exchanging things with others for mutual benefit; to issue licenses to applicants from other states with credit for their courses or license level from another state in an effort to reduce requirements and increase efficiency.


  • Rectification Coverage

    An element of coverage sometimes included in contractors professional liability (CPrL) insurance policies. Also referred to as “mitigation of damages” coverage in some forms, rectification coverage provides first-party insurance for the costs a contractor incurs in correcting a design defect that is discovered after the construction is put in place but before it actually results in a professional liability claim.

    With this coverage in place, a contractor has the funding to correct the error and keep the project moving without having to file a claim against the design professional and establish negligence.


  • Recurrent Disability

    A period of disability resulting from the same or a related cause of a prior disability.


  • Redlining

    An underwriting practice involving the rejection of a risk based solely on geographical location.

    This practice is prohibited under the laws of the U.S as it is discriminatory to minorities, and class.


  • Redomiciling

    Changing the insurer’s domicile. Requires permission from the existing domicile and a new license to be issued.

    Redomiciling does not require formation of a new company if the new domicile has re-domestication laws allowing a license to be issued to an existing insurer.


  • Registered Agent

    In the United States, the person or firm legally appointed to accept service of process.

    Alien insurers must appoint (by filed proxy) the insurance commissioner as their agent, in states where they do business, to ensure protection of policyholder rights.


  • Regulatory Estoppel

    A form of equitable estoppel whereby insurers are prevented, or “stopped,” from asserting an interpretation of an insurance policy provision that is contrary to the insurer’s explanation of that policy provision to state insurance regulators when the insurer originally sought approval of the policy form from the state department of insurance.


  • Reimbursement Policies

    Insurance policies in which the insured must first pay losses out-of-pocket and then seek reimbursement for any covered loss from the insurer, as opposed to policies in which the insurer is required to “pay losses on behalf of” an insured.


  • Reinsurance

    A transaction in which one party, the “reinsurer,” in consideration 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.”


  • Reinsurer

    An insurer that accepts all or part of the liabilities of the ceding company in return for a stated premium.


  • Remediation

    Cleanup or other methods used to remove or contain a toxic spill or hazardous materials from a Superfund site. 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.


  • Remote Cause

    In first-party property cases, a peril that takes place before the proximate cause—for example, in sequence of events type situations where one peril is followed by—but does not cause—a second peril that was unforeseeable at the time the policy was issued. In these kinds of situations, courts hold that the second peril is the superseding cause, and hence, the proximate cause of the loss.

    Coverage for the loss depends on whether the superseding cause is covered. In this kind of situation, the initial peril that is not selected as the proximate cause is said to be only a remote cause.


  • Renewal Policy

    An insurance policy issued to replace an expiring policy.


  • Rental Cost Reimbursement (cost of hire) Endorsement

    A contractors equipment coverage endorsement that adds coverage for the cost of renting temporary replacement equipment in the event of covered damage to covered equipment.


  • Rental Reimbursement Coverage Endorsement

    An optional commercial auto coverage endorsement (CA 99 23) that adds coverage for an additional amount incurred for the cost of renting an auto in the event of covered damage to the covered auto. Coverage under this endorsement is in addition to any other physical damage coverage available and is not subject to any deductible.


  • Rents or Rental Value Insurance

    Time element property insurance that pays for loss of rental income when a building that is rented out to others has been damaged by a covered cause of loss. Coverage is also provided for the fair rental value of the portion of the premises occupied by the insured.

    Rental value insurance can be provided by a business income coverage form or a specialized rents or rental value coverage form.


  • Repatriation

    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 Coverage

    A property insurance term that refers to one of the two primary valuation methods for establishing the value of insured property for purposes of determining the amount the insurer will pay in the event of loss. (The other primary valuation method is actual cash value (ACV).)

    It is usually defined in the policy as the cost to replace the damaged property with materials of like kind and quality, without any deduction for depreciation.


  • Reported Losses

    Paid losses plus case reserves. Excludes incurred but not reported (IBNR) losses.


  • Repossessed Autos Endorsement

    An automobile policy endorsement providing coverage for autos that have become the property of the financing institution because of the failure of the purchaser to comply with the terms of the financing agreement.


  • Representation

    A statement made in an application for insurance that the prospective insured represents as being correct to the best of his or her knowledge. If the insurer relies on a representation in entering into the insurance contract and if it proves to be false at the time it was made, the insurer may have legal grounds to avoid the contract.


  • Representations and Warranties Insurance

    A form of coverage designed to guarantee the contractual representations made by sellers associated with corporate mergers and acquisitions. For example, the seller of a company may represent that the company’s underground storage tanks are in good repair. If a serious leak is discovered following the purchase, the buyer can seek recovery for repair and clean-up costs from the seller’s representations and warranties insurance policy. The key benefit of the policies is that they provide a viable alternative to escrow funds, which have traditionally used to satisfy claims associated with representations and warranties contained in merger and acquisition documents.


  • Reproduction cost

    The cost to duplicate an item exactly by using materials, artistry, and other expertise comparable to those used in the original.


  • Reputational Risk

    The risk that negative publicity regarding an institution’s business practices will lead to a loss of revenue or increased litigation. An institution’s reputation, particularly the trust placed in the organization by its customers, may be irrevocably blemished due to perceived or actual breaches in its ability to conduct business ethically, securely, and responsibly. For example, companies that are publicly condemned for their poor environmental policies or high greenhouse gas emissions might eventually suffer a blow to their reputation. A tarnished brand can negatively influence voters who sit in judgment in court cases, community decision-makers on corporate expansion and new construction, reporters who cover a corporation’s business activities, consumers who are potential customers, environmental activists who may protest a company’s operations, and investors.


  • Request for proposal (RFP)

    A document used to secure proposals for work to be completed on a contract basis, insurance or risk management services.


  • 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 whether coverage applies (in whole or in part) without waiving its right to later deny coverage based on information revealed by the investigation.

    Insurers use a reservation of rights letter because in many claim situations, all the insurer has at the inception of the claim are various unsubstantiated allegations and, at best, a few confirmed facts. In reserving its rights to later deny coverage, the insurer is merely telling the insured of its concerns that the claim, in whole or in part, may not be covered under the policy, pending further 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.


  • Reserves

    Monies earmarked for a specific purpose. Insurers establish unearned premium reserves and loss reserves indicated on their balance sheets. Unearned premium reserves show the aggregate amount of premiums that would be returned to policyholders if all policies were canceled on the date the balance sheet was prepared.

    Loss reserves are estimates of pending losses, loss adjustment expenses (LAEs), and other related items.

    Self-insured organizations also maintain loss reserves.


  • Resident Agent

    An agent domiciled in the state in which he or she conducts his or her business activities.


  • Residential Wrap-Up

    A wrap-up insurance program implemented for a condominium or other residential development project primarily to provide commercial general liability (CGL) and umbrella/excess liability insurance for the contractors. Unlike most wrap-ups, residential wrap-ups usually do not include workers compensation insurance. Because they are implemented as a way to ensure adequate coverage rather than to reduce project costs, they can be implemented on much smaller projects than would qualify for a traditional wrap-up.


  • Residual Value Insurance

    Guarantees the owner of leased personal property (e.g., 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) of 1976

    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.


  • Restoration of Limits Provision

    When a scheduled item has been lost or destroyed, there is nothing left to insure. After insured property is destroyed, and an insurer indemnifies the insured, what happens to the insurance? Many property policies include a restoration of limits provision that answers this question. Three approaches are common. Some policies state that the limits are restored after a loss is paid, and some state exactly the opposite—that paying a loss does not reduce the policy limits. With others, however, after the insurer pays a total loss, coverage ceases and the insurer returns any unearned premium.


  • Rider

    A form that is attached to a surety or fidelity bond that alters the provisions of the bond form in some manner.

    A rider is the surety and fidelity equivalent of an insurance policy endorsement, and though not common, insurance endorsements are sometimes called riders.


  • Riggers Liability Insurance

    Insurance for a contractor’s liability arising out of the moving of property and equipment that belongs to others, such as lifting air-conditioning units onto a roof with a crane. The standard commercial general liability (CGL) policy does not cover this risk due to the exclusion for “personal property of others in your care, custody or control.” Riggers liability coverage can be effected by attaching a riggers liability endorsement to the CGL policy that modifies or deletes the “care, custody or control” exclusion. (Note that if the contractor is an insured under a builders risk policy on the project, coverage is usually provided in that policy for property of others for which the insured may be liable. The builders risk policy may include a deductible, however, and may not include coverage for loss of use.)


  • Right of Recourse Provision

    A provision in fiduciary liability policies giving an insurer the right to subrogate against an insured. (Subrogation is the process by which an insurer collects monies from a party responsible for causing a loss, for which an insurer has already made an indemnity payment.) For example, assume that a fiduciary’s negligence in administering an employee benefit plan caused a loss that was covered by a fiduciary liability policy. After the insurer pays that loss, a right of recourse provision would give the insurer the right to seek reimbursement from the fiduciary whose negligence caused that loss. Right of recourse provisions represent an exception to the general practice in the insurance industry whereby insurers do not subrogate against insureds. Within the past decade, however, right of recourse provisions have become relatively uncommon. In fact, few fiduciary liability insurers currently include right of recourse provisions in their forms. Instead, most fiduciary liability forms are silent as to the issue of subrogating against an insured.


  • Right to Repair Law

    Places limitations on a home owner’s ability to sue a construction contractor for construction defects. Provisions differ by state but typically require home owners to give the contractor notice of the issue and an opportunity to repair the faulty work prior to filing a lawsuit. These laws include varying provisions for inspection and arbitration disputes. Further, in some states, a builder can argue that the home owner caused or contributed to the loss by failing to maintain the property in accordance with written instructions provided by the builder. The effect of these laws is to make it more difficult for a home owner to sue a builder, but the theory is that the resources will be channeled into repair of the defective home itself rather than litigation.

    Currently, more than half of the states have a right to repair law, and several more are considering this type of legislation.


  • Rip and Tear Coverage

    Covers the cost of tearing out a contractor’s bad work due to defects that make its inclusion in the project unsafe. The normal method of providing this coverage is by endorsement to the commercial general liability (CGL) policy. (There is no standard endorsement for this purpose, but insurers active in construction markets may have company-specific endorsements that add this coverage back.) For coverage to apply, the work must fail to meet contractual specifications or other industry standards that apply to the type of construction into which the materials were incorporated. There is no coverage with respect to defects that are purely cosmetic. A similar coverage, contractors rework coverage, covers both the cost of tearing out bad work and the cost of replacing it. The primary markets for rip and tear and contractors rework coverage are concrete and masonry contractors.


  • Risk

    The insured or the property to which an insurance policy relates.


  • Risk Tolerance

    The willingness of an organization to incur risk to gain future reward. In insurance, risk tolerance may be evidenced by a willingness of the insured to increase deductibles or self-insured retentions (SIRs).

    Alternative risk transfer is used by insureds with low risk tolerance and the corresponding desire to reduce the uncertainty arising from purchase of commercial insurance.


  • 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.


  • Robbery and safe burglary coverage, other than money and securities form D

    Insurance Services Office, Inc. (ISO), crime form (CR 00 05) insures against the loss of property, other than money and securities, by robbery or safe burglary.


  • Rolling Policy Limits

    Refers to an arrangement in which the amount of insurance stated at inception of the policy period is an aggregate limit over a multiyear period, with premium adjusted at each annual anniversary. Provides a continuous multiyear limit and an extended notice period for cancellation based not on the annual anniversary but the end of the multiyear policy period.


  • 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.


  • Runoff Provision

    A provision in a claims-made policy stating that the insurer remains liable for claims caused by wrongful acts that took place under an expired or canceled policy, for a certain time period.

    For example, consider a policy written with a January 1, 2015-2016, term and a 5-year runoff provision. In this situation, coverage will apply under the runoff provision to all claims caused by wrongful acts committed during the January 1, 2015-2016, policy period that are made against the insured and reported to the insurer from January 1, 2016-2021 (i.e., the 5-year period immediately following the expiration of the January 1, 2015-2016, policy).

    Although runoff provisions function in a manner that is identical to extended reporting period (ERP) provisions, there are several differences. First, ERPs are generally written for only 1-year terms, whereas runoff provisions normally encompass multi-year time spans, often as long as 5 years. Second, while ERPs are most frequently purchased when an insured changes from one claims-made insurer to another, runoff provisions are generally used when one insured is acquired by or merges with another. In such instances, the acquired company buys a runoff provision that covers claims associated with wrongful acts that took place prior to the acquisition but are made against the acquired company after it has been acquired.


  • Safe Burglary Insurance

    Coverage for loss of property caused by forcible entry into a safe or vault or by theft of the entire safe. Coverage for property other than money and securities is available under an Insurance Services Office, Inc. (ISO), coverage form D (robbery and safe burglary—property other than money and securities, CR 00 05);


  • Safe Depository Coverage

    Commercial crime coverage plan 8 of the Insurance Services Office, Inc. (ISO), portfolio. Provides coverage for any loss to property located in any safe or box leased to a customer of the insured, other than a financial institution, within the safe deposit vaults located within any of the insured’s offices. There are two optional coverage forms. Coverage form M (CR 00 14) applies only to the extent the insured is legally liable. Coverage form N (CR 00 15) covers loss of customers’ property regardless of liability. Financial institutions can obtain this coverage through the combined safe depository policy promulgated by the Surety Association of America (SAA) (Form CSD-1).


  • Saffir-Simpson scale

    A rating scale used by hurricane forecasters based on the hurricane’s present intensity. The hurricane’s wind speed is the determining factor in the scale, with category five having the highest and most damaging wind speed and category one having the lowest and least damaging wind speed. This scale provides an indicator of the potential property damage (PD) and flooding expected along the coast from a hurricane landfall.


  • Sales

    Exposure base in commercial general liability (CGL) insurance for insureds in the manufacturing/processing or mercantile business classifications. Gross sales as an exposure base is defined as “the gross amount charged by the named insured, concessionaires of the named insured or by others trading under the insured’s name for all goods or products, sold or distributed; operations performed during the policy period; rentals; and dues or fees.”


  • Salvage

    (1) Property after it has been partially damaged by an insured peril such as a fire.

    (2) As a verb, to save endangered property and to protect damaged property from further loss.


  • Salvage Value

    The amount for which an asset can be sold at the end of its useful life. In insurance circles, this term commonly refers to the scrap value of damaged property. In property insurance, salvage value (e.g., scrap value) will be subtracted from any loss settlement if the insured retains the damaged property. In extra expense coverage, the salvage value of property purchased for temporary use while repairs are made will be deducted in determining the amount of loss recovery.


  • Schedule

    A list of an insured’s locations or property such as computers, mobile equipment, or vehicles. Can also refer to a list of primary or underlying insurance.


  • Schedule Bond

    A fidelity bond in which covered persons (usually employees) are listed by name, with a corresponding coverage limit for each individual listed.


  • Scheduled Limits

    Separate property insurance limits that apply to each type of covered property interest (building, personal property, business income, 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.” This is in contrast to a blanket limit, which is a single limit of insurance that applies over more than one location, more than one type of property, or both.


  • Scheduled Loss

    A permanent partial disability that is rated and paid based on a schedule in the state statute. Unscheduled disabilities are rated based on subjective estimates of permanent disability.


  • Seasonal Risk

    A business that operates during only 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.


  • Secondary Classification—special industry class

    In commercial auto insurance rating, the classification based on the specific industry for which the vehicle is being used. The secondary classification is a tool for gathering statistical data for assessment of factors other than the primary classification factors of size of vehicle, radius of operations, and business use.


  • Securities Insuring Agreement

    A provision of the SAA Financial Institution Bond No. 24 that provides coverage to banks and other financial institutions for loss resulting from alteration or forgery of a signature on specified types of securities (such as those typically accepted as collateral for loans), from counterfeit securities of specified types, and from guaranteeing or witnessing signature of certain types of securities and financial documents. This coverage may be removed from the bond by rider.


  • Self-contained Policy

    An insurance policy that consists of a single document that contains all of the insuring agreements between the insurer and the insured. It is often preprinted and standardized to be utilized for a large number of insureds. Tailoring the coverage to the particular needs of various insureds is accomplished through collateral documents such as endorsements.


  • Self-Insurance

    A system whereby a firm sets aside an amount of its monies to provide for any losses that occur—losses that could 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-insurance is a means of capturing the cash flow benefits of unpaid loss reserves and offers the possibility of reducing expenses typically incorporated within a traditional insurance program. It involves a formal decision to retain risk rather than insure it and is distinguished from noninsurance or retention of risks through deductibles by a formalized plan or system to pay losses as they occur.


  • Self-insurer’s Bond

    A type of surety bond that provides a promise to pay self-insured losses in case the promisor (self-insurer) is unable to meet its obligations. For example, in order to self-insure workers compensation risk, 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.


  • Severability of Interests Clause

    A policy provision clarifying that, except with respect to the coverage limits, insurance applies to each insured as though a separate policy were issued to each. Thus, a policy containing such a clause 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.


  • Severity

    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.


  • Single Entity Coverage

    One of three approaches used for condominium insurance coverage. Under a “single entity” approach, the condominium association master policy covers virtually all real property in a residential condominium structure, including fixtures in individual units. Note that this coverage does not include any structural improvements, betterments, or additions that the individual unit owner has made. With this approach, the unit owner is responsible for covering only his or her personal property (along with any improvements or betterments) under the HO 6 or unit owners form. The other two methods to coordinate this coverage are the “bare walls” coverage and the “all inclusive” coverage. The condominium association rules and covenants typically specify which approach is required.


  • Single Interest Insurance

    Property insurance protecting the interest of only one of the parties having an insurable interest in the property. Usually refers to insurance protecting a mortgagee or other lending institution but not the owner-borrower.


  • Sinkhole Collapse

    Sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or similar rock formations. Sinkhole collapse does not occur everywhere but is common in Florida and Pennsylvania. This peril is covered in all three of the commercial property causes of loss forms. It is not covered by the basic homeowners policy, but coverage may be added by endorsement.


  • 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. Commonly referred to as a “product recall” exclusion.


  • Size Class

    In commercial automobile insurance, the type and weight of the automobile—that is, gross vehicle weight (GVW) for trucks, gross combined weight (GCW) for trucks-tractors, and load capacity for trailers. Automobiles are classified by vehicle size, with higher rates applying to larger vehicles.


  • Smooth Limits – Aircraft

    Some aircraft insurance policies contain a smooth limit, which is a combined single limit that applies to all bodily injury and property damage that arises out of a single occurrence. A smooth limit offers flexibility as it applies to any combination of third-party bodily injury, bodily injury to passengers, or property damage.


  • Solicitor

    A representative of an agent appointed and authorized by that agent to solicit and receive applications for insurance.


  • Special Flood Hazard Area (SFHA)

    A term used by the Federal Emergency Management Agency (FEMA) in the National Flood Insurance Program (NFIP) to refer to the land area covered by the floodwaters of the base or 100-year flood (an area of land that has an approximate 1 percent probability of a flood occurring on it in any given year). In these areas, the NFIP’s floodplain management regulations must be enforced, and the mandatory purchase of flood insurance applies. Structures located in SFHAs have a 26 percent chance of suffering flood damage over the normal 30-year life of a loan, according to FEMA. Structures that are not located in SFHAs are viewed as less subject to flooding. SFHAs are identified in flood insurance rate maps (FIRMs).


  • Special Perils

    Property insurance that insures against loss to covered property from all fortuitous causes except those that are specifically excluded. This method of identifying covered causes of loss in a property policy has traditionally been referred to as “all risks” coverage. Many industry practitioners continue to use the term “all risks” to describe this approach to defining covered causes of loss in a property insurance policy. However, it is no longer used in insurance policies because of concern that the word “all” suggests coverage that is broader than it actually is. Because of this concern, some industry practitioners have begun to use the term “special perils” or “open perils” instead of “all risks.”


  • Split Limits

    Many auto insurance policies use the split limits approach, which combines the per person and the per occurrence approach. With split limits, three separate dollar amounts apply to each accident.

    • The first limit is a per person limit: the maximum amount that will be paid to any one injured person.
    • The second limit is a per occurrence limit: the maximum amount that will be paid to all injured persons.
    • The third limit is a per occurrence limit that applies to property damage claims; this is the maximum amount that the insurer will pay for damage to other cars or property resulting from the accident.


  • SR-22

    Also called a “Financial Responsibility Filing.” A form that states require a high-risk driver to file to prove that he or she has auto insurance.


  • Stacking

    The application of two or more policies’ 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 auto liability or uninsured motorists (UM)/underinsured motorists (UIM) coverage in the business auto policy (BAP) or the personal auto policy (PAP) when two or more vehicle limits can be stacked to apply to a single occurrence.


  • Standard Exceptions

    Certain classes of employees in workers compensation insurance who are common to many types of business and are separately rated unless included specifically in the wording of the governing occupational classification. Some of these exceptions include clerical employees, drivers, and salespersons.


  • Standard Form or Standard Policy

    An insurance policy form that is designed to be used by many different insurers and has exactly the same provisions, regardless of the insurer issuing the policy. Most standard insurance policy forms are developed by insurance advisory organizations, such as Insurance Services Office, Inc. (ISO), American Association of Insurance Services (AAIS), the Surety Association of America (SAA), and National Council on Compensation Insurance, Inc. (NCCI).


  • Standard Property Policy

    An Insurance Services Office, Inc. (ISO), commercial property policy (CP 00 99) intended for use when, for underwriting reasons, coverage would otherwise be unavailable.

    Combines in one form many of the provisions of the common policy conditions, commercial property conditions, building and personal property coverage, and basic causes of loss forms.

    However, there are significant coverage restrictions in the following areas: covered causes of loss, cancellation, vacancy, coverage territory, and coverage options.


  • Statute of Repose

    A law that cuts off a right of action after a specified time period has elapsed, regardless of when the cause of action accrues. Most states have statutes of repose specific to construction projects that prohibit claims for construction defect beyond a specified number of years after the construction is completed. These statutes vary widely with regard to the limitation periods, what is covered, and whom the statute protects. A statute of repose differs from a statute of limitation in that the time periods specified in statutes of limitations usually do not begin to run until the injury or damage actually occurs, irrespective of when the work was performed or the product was sold.


  • Statutory Coverages

    Lines of insurance required by law, such as workers compensation, auto liability, and pollution liability (for underground storage tanks and waste disposal sites).


  • Statutory Inspections

    In boiler and machinery (BM) insurance, the requirement for inspection of pressure vessels as a condition of insurance.


  • Statutory Insurance

    Insurance that the insured is required to buy under a country, state, or federal law.


  • Stevedores Legal Liability Coverage

    Provides liability insurance including coverage for care, custody, and control (CCC) for stevedoring operations related to the exposures arising from the loading and unloading of cargo from vessels. Stevedoring organizations are responsible for the damage to the vessel, the cargo being loaded or unloaded, and surrounding property like other vessels, docks, and wharves caused by the negligent acts of their employees.


  • Stevedoring

    The act of loading or unloading cargo from vessels. While third-party bodily injury (BI) or property damage (PD) arising out of stevedoring operations are covered under the standard commercial general liability (CGL) policy, damage to the property being loaded or unloaded would not be covered unless the policy was specially modified to do so. A special endorsement is needed on the workers compensation policy to cover benefits payable to stevedoring employees under the U.S. Longshore and Harbor Workers’ Compensation Act (LHWCA), if applicable.


  • Strict Liability

    A legal doctrine under which liability is imposed with respect to injury or damage arising from certain types of hazardous activities. For example, under strict liability standards, 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.


  • 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.


  • Subrogation

    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.


  • Subrogation Provision

    A provision in an insurance policy addressing whether the insured has the right to waive its recovery rights against another party that may have been responsible for loss covered under the policy. In standard commercial policies, the subrogation provision is called “Transfer of Rights of Recovery Against Others to Us.”


  • Supplementary payments

    A term used in liability policies for the costs associated with the investigation and resolution of claims. Supplementary payments are normally defined to include such items as first aid expenses, premiums for appeal and bail bonds, pre- and postjudgment interest, and reasonable travel expenses incurred by the insured at the insurer’s request when assisting in the defense of a claim. Actual settlements/judgments are considered damages rather than supplementary payments. Attorneys’ fees may be considered as either damages or supplementary payments, depending on the policy. Commercial general liability (CGL) and business automobile liability policies cover supplementary payments in addition to their limits of liability. In contrast, supplementary payments reduce the limit of coverage under most (although not all) professional liability policies.


  • Surcharge

    An extra charge added by an insurance company for something. Examples are poor credit, older home, etc.


  • Surety

    A party that guarantees the performance of another. The contract through which the guarantee is executed is called a surety bond.


  • Surety bond

    A contract under which one party (the surety) guarantees the performance of certain obligations of a second party (the principal) to a third party (the obligee).

    • For example, most construction contractors must provide the party for which they are performing operations with a bond guaranteeing that they will complete the project by the date specified in the construction contract in accordance with all plans and specifications.


  • 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 within the standard market.


  • Tail

    Claims from workers compensation and liability exposures in a given period can arise for many years thereafter. The aggregate of such incurred but not reported (IBNR) losses is often called tail liability.


  • Tail coverage

    A provision found within a claims-made policy that permits an insured to report claims that are made against the insured after a policy has expired or been canceled, if the wrongful act that gave rise to the claim took place during the expired/canceled policy. Tail coverage requires that the insured pay additional premium.

    For example, assume that a claims-made policy with a January 1, 2015-2016, term contains tail coverage with a term of January 1, 2016-2017. Also assume that the insured did not renew the policy when it expired on January 1, 2016. Under the tail coverage, the insured will be able to report claims to the insurer during the January 1, 2016-2017, period of tail coverage, provided the claim resulted from a wrongful act that took place during the expired January 1, 2015-2016, policy term.

    Tail coverage, which is synonymous with extended reporting period provisions, includes several important features: (1) the coverage applies only if the wrongful act giving rise to the reported claim took place during the expired/canceled policy period. Thus, there is no tail coverage available for wrongful acts if committed during the period of tail coverage. (2) Tail coverage applies for a limited time period, generally 1 year. (3) Purchasing tail coverage for a specific time period does not reinstate the policy’s aggregate limit of liability.


  • 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 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.


  • Terminal Coverage

    Coverage for damage to vehicles garaged or stored at a common location sometimes included in a property insurance policy or inland marine floater. This coverage is purchased by organizations that otherwise self-insure automobile physical damage exposures but desire to protect against a catastrophic loss affecting a number of vehicles garaged or stored together.


  • Theft, disappearance, and destruction of money and securities coverage – Form C

    Insurance Services Office, Inc. (ISO), crime form (CR 00 04) that insures against loss by theft, disappearance, or destruction of the insured’s money and securities inside the insured’s premises (or insured’s bank’s premises) as well as outside the insured’s premises while in the custody of a messenger.


  • Third-party Claims

    Liability claims brought by persons allegedly injured or harmed by the insured. The insured is the first party, the insurer is the second party, and the claimant is the third party.


  • Third-party Liability Coverage

    In general, any type of insurance covering the legal liability of one party to another party. For example, commercial general, business auto, and errors and omissions (E&O) liability policies all provide third-party liability coverage. In the context of employment practices liability (EPL) insurance, a so-called third-party liability coverage option is sometimes available to address claims made by nonemployees (e.g., customers, vendors, clients) against the insured company that arise from acts committed by employees. Most often, third-party claims allege some form of either discrimination or harassment. The majority of EPL policies do not explicitly cover third-party claims, although most insurers will provide such coverage by endorsement.


  • Third-party Risk

    The risk of losses to third parties, usually insured under casualty or liability insurance.


  • Third-party-over Action

    A type of action in which an injured employee, after collecting workers compensation benefits from the employer, sues a third party for contributing to the employee’s injury. Then, because of some type of contractual relationship between the third party and the employer, the liability is passed back to the employer by prior agreement. Additionally, there are instances in which the third party can circumvent the exclusive remedy doctrine of workers compensation and enjoin the employer in the action.

    Depending on the nature and allegations of the action, coverage may be afforded under the contractual liability section of the employer’s commercial liability policy or the employers liability section of the employer’s workers compensation policy.


  • Time Element Insurance

    A property insurance term referring to coverage for loss resulting from the inability to put damaged property to its normal use. This type of coverage is called “time element” insurance 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.


  • Time Element Loss

    Claim for loss resulting from inability to use a property.

    • Examples are business interruption, extra expense, rental income, etc


  • Tort

    A civil or private wrong giving rise to legal liability.


  • 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).


  • Tortfeasor

    A party accused of committing a tort; customarily, the defendant in a liability lawsuit.


  • Total Disability

    As defined in a disability income policy, determines the liability of the insurer. 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.

    Policies that are more restrictive define it to be the inability to perform the duties of any gainful occupation.


  • Total Insurable Value (TIV)

    A property insurance term which refers to the sum of the full value of the insured’s covered property, business income values, and any other covered property interests.


  • 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, polychlorinated biphenyls (PCBs), or insecticides.


  • Trade Disruption Insurance

    Political risk insurance that covers loss of gross earnings and extra expenses caused by a delay or non-arrival 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.


  • Trespasser

    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 or her and the owner or occupant.

    Certain forms of trespass have been covered under personal injury (PI) liability coverage.


  • Trial Court

    The court assigned to preside over the trial and, discovery of a particular case.


  • Trip Transit Insurance

    Insurance that is written to cover a specific individual shipment.

    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 on an occurrence.

    This approach states that all policies in force from the time of initial exposure, through manifestation, apply. One court may hold that injury triggers coverage, including injury occurring with inhalation exposure, while the injurious substance is “in residence” within the injured person and at manifestation of the illness or disease.

    This theory is also referred to as “exposure and manifestation” and “exposure-in-residence.”


  • Truckers Downtime Insurance

    Business interruption coverage for truckers indemnifies the policyholder for loss of earnings resulting from inability to operate because of damage to a tractor or trailer from an insured peril

    • Example, collision or fire


  • Truckers Policy

    A commercial auto policy designed to address the needs of the “for-hire” motor carrier (i.e., trucking) industry.

    Coverages available include auto liability, trailer interchange, and auto physical damage; other coverages are available by endorsement.


  • Trustee

    A person appointed to manage the property of another.


  • Umbrella Liability Policy

    A policy designed to provide protection against catastrophic losses. It generally is written over various primary liability policies, such as the business auto policy (BAP), commercial general liability (CGL) policy, watercraft and aircraft liability policies, and employers liability coverage. The umbrella policy serves three purposes: it provides excess limits when the limits of underlying liability policies are exhausted by the payment of claims; it drops down and picks up where the underlying policy leaves off when the aggregate limit of the underlying policy in question is exhausted by the payment of claims; and it provides protection against some claims not covered by the underlying policies, subject to the assumption by the named insured of a self-insured retention (SIR).


  • Umpire

    An umpire is a person hired by the two appraisers during the Appraisal Process to make the final determination as to the value of the claim as well as the extent of the damages of the property damaged from the covered loss.


  • 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 (PD) 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.


  • Underinsurance

    A situation resulting from a failure to carry enough coverage on the value of a property, especially when there are coinsurance implications.


  • Underinsured Motorists (UIM) Coverage

    Coverage for bodily injury (BI) and, in some states, property damage (PD) incurred by an insured when an accident is caused by a motorist who is not sufficiently insured. Depending on the jurisdiction, UIM coverage may be written with a limits trigger or a damages trigger.

    With a limits trigger, UIM coverage applies when the limits of liability carried by the other motorist are lower than the UIM limits carried by the insured. With a damages trigger, UIM coverage applies when the insured’s damages are more than the at-fault party’s available limits.


  • 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.


  • Underwriter

    Any individual in insurance who has the responsibility of making decisions regarding the acceptability of a particular submission and of determining the amount, price, and conditions under which the submission is acceptable.


  • Underwriting

    The process of determining whether to accept a risk and, if so, what amount of insurance the company will write on the acceptable risk, and at what rate. Underwriters are companies, individuals, or insurance companies that carry on this critical activity for their own account or for that of others.


  • Underwriting class

    All risks with a specified risk profile—for example, age, location, and occupation. Risks are classified using characteristics likely to produce the same or similar loss experience for each risk over time.


  • 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.


  • 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 must only fulfill certain conditions—such as paying premiums and reporting accidents—to keep the policy in force.


  • Uninsured Motorists (UM) Coverage

    Coverage for bodily injury (BI) and, in some states, property damage (PD) incurred by an insured when an accident is caused by a motorist who is not insured. This coverage allows an insured to collect from his or her insurer as if it provided liability coverage for the negligent third party.


  • Unoccupied

    Many property provisions contain a vacancy provision. Two similar terms—vacant and unoccupied—have specific meanings in the language of insurance and are specifically defined in some policies. A vacant building contains little or no furniture or other personal property. Even if it is not vacant, a building is unoccupied when people are absent.

    The wording in many property insurance policies limits reduces or entirely eliminates coverage when a building has been vacant (or, in some forms, vacant or unoccupied) for a designated period of time such as 45 or 60 days.


  • Unseaworthiness

    Concept based on general maritime law that warrants that the 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.


  • Utility Service Interruption Coverage

    Coverage for loss due to 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.” Not provided in a standard property insurance policy but available by endorsement. Utility service interruption coverage 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.


  • Vacancy Provision

    Property insurance policy 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.


  • Vacant

    Many property provisions contain a vacancy provision. Two similar terms—vacant and unoccupied—have specific meanings in the language of insurance and are specifically defined in some policies. A vacant building contains little or no furniture or other personal property. Even if it is not vacant, a building is unoccupied when people are absent. The wording in many property insurance policies limits reduces or entirely eliminates coverage when a building has been vacant (or, in some forms, vacant or unoccupied) for a designated period of time such as 45 or 60 days.


  • Valuable Papers and Records Coverage

    Inland marine coverage that pays the cost to reconstruct damaged or destroyed valuable papers and records. “Valuable papers and records” usually is defined to include almost all forms of printed documents or records except money or securities; data processing programs, data, and media are usually excluded.


  • Valuation

    A provision in a property or inland marine policy that specifies the basis of indemnification when property is destroyed. An actual cash value (ACV) valuation clause stipulates that the insurer will deduct depreciation from the cost to replace the property, whereas a replacement cost (RC) valuation clause stipulates that there will be no deduction for depreciation.


  • Valued Business Interruption Coverage

    Business interruption (BI) coverage that provides for the payment of a stipulated amount for each day of fully interrupted operations, rather than for payment of the amount of loss actually sustained. Also referred to as “per diem business interruption coverage.”

    Valued business interruption coverage is much more common in boiler and machinery (BM) insurance than in commercial property insurance.


  • Vessel in Navigation

    A watercraft or any type of machinery that is intended for use in navigable waters as a means of transportation. This is one of the qualifications that an injured worker must establish in order to make a claim under the Jones Act.


  • Vesting

    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/persons that represent the principal.

    Vicarious liability can result from the acts of independent agents, partners, independent contractors, employees, and children.


  • Voluntary Compensation Maritime Coverage Endorsement

    Allows an employer with maritime workers compensation exposure to offer benefits of the state designated in the endorsement to an injured employee or survivors of a deceased employee. Used in conjunction with the maritime liability endorsement, which extends employers liability cover. The voluntary compensation maritime endorsement provides injured seamen an alternate remedy to legal action.


  • Voyage Clause

    A marine insurance policy provision specifying the 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 (BI) 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 (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 that must pass following an accident or illness causing disability before salary continuation benefits are payable.


  • Waiver of Recourse Endorsement

    An endorsement to a fiduciary liability insurance policy that prevents an insurer from exercising its subrogation rights against an insured fiduciary. Premiums for this endorsement are based on a charge per covered fiduciary. Unlike most other forms of insurance, under fiduciary liability policies, insurers sometimes exercise subrogation rights against insureds for non-willful or criminal acts. Insurers’ rationale for subrogating against insureds is based upon the fact that insureds should not be absolved of wrongdoing when the premiums for fiduciary liability coverage are paid from the assets of the employee pension and welfare plans the fiduciaries are charged with administering.


  • Waiver of Subrogation

    An agreement between two parties in which one party agrees to waive subrogation rights against another in the event of a loss. The intent of the waiver is to prevent one party’s insurer from pursuing subrogation against the other party. 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.


  • 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 freely written on marine exposures but is virtually unobtainable on property exposures.


  • Warehouse operators legal liability insurance

    Insurance coverage against liability that might be incurred by businesses that store property of others for a fee. Previously referred to as warehousemen’s legal liability insurance.


  • 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.


  • Wedding Insurance

    A specific type of insurance that is available to people preparing for a wedding. This coverage provides indemnification due to (1) wedding cancellation or postponement for a variety of reasons such as weather-related catastrophes, (2) theft of wedding presents or rings, (3) loss of deposits due to the cessation of the provider’s business, or (4) injuries at the wedding events.


  • Wind or Hail Deductible

    A separate, higher deductible provision that applies to loss caused by wind or hail. Often, the deductible is expressed as a percentage of the value of the property or, in a homeowners policy, as a percentage of the dwelling limit, rather than as a flat dollar amount.

    In some Atlantic and Gulf coast states, insurers have filed a variation of this deductible that applies an even higher percentage deductible in the event of loss from a “named storm,” such as a hurricane.


  • Work Performed Exclusion

    A garage liability insurance exclusion that precludes coverage for damage to the insured’s work resulting from any part of the work itself or from the parts, materials, or equipment used in connection with the work.


  • 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 and Employers Liability Policy

    An insurance policy that provides coverage for an employer’s two key exposures arising out of injuries sustained by employees. Part One of the policy covers the employer’s statutory liabilities under workers compensation laws, and Part Two of the policy covers liability arising out of employees’ work-related injuries that do not fall under the workers compensation statute. In most states, the standard workers compensation and employers liability policy published by the National Council on Compensation Insurance (NCCI) is the required policy form.


  • 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.


  • Workplace Tort

    A civil wrong committed within the workplace that can give rise to an employee’s cause of action against an employer. Workplace torts are those that cannot be categorized within the scope of wrongful termination, sexual harassment, and discrimination. Workplace torts are employer actions that fall outside the scope of workers compensation coverage but are afforded coverage by employment practices liability (EPL) policies.

    • Examples of workplace torts include constructive discharge, wrongful demotion, retaliation, misrepresentation, and defamation.


  • Writ

    Document by use of which a party may “appeal” a nonfinal order issued by a trial court.


  • Write-Your-Own (WYO) Program

    A program available under the National Flood Insurance Program (NFIP) that allows participating insurers to issue NFIP flood insurance policies, in contrast to policies issued directly by the NFIP. WYO insurers write the coverage on their own “paper,” but the NFIP reinsures 100 percent of the coverage. Regardless of whether NFIP or a WYO insurer issues the policy, the coverage provided is identical. WYO insurers employ exactly the same policy terms that are included in policies issued directly by NFIP. The majority of flood insurance policies are written via the WYO program.


  • 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 upon 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.


  • 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.



More terms, which includes an overlap of the terms on this page, may be found at