Glossary of Insurance Terms

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

ABANDONMENT

From Standard Fire Policy: "There can be no abandonment to this company of any property." From Insurance Service Office Homeowners Policy: "We need not accept any property abandoned by any insured." These provisions mean that the insured cannot force the company to accept possessions of property damaged under a covered loss. The option is solely that of the company.

ABOVE-NORMAL LOSS

A loss which is made more costly than would normally be expected because of extenuating circumstances such as sub-zero weather, heavy rain, faulty or delayed alarm, traffic congestion, etc.

ACCIDENT

An event which occurs by chance: Unforeseen, unexpected and unplanned, resulting in injury and/or property damage. (See also Occurrence.)

ACCIDENT CONTROL OR PREVENTION’

See Loss Prevention Service.

ACCIDENTAL MEANS

The cause of an occurrence which is unexpected and unintentional; a fortuitous cause. (See Occurrence.)

ACCOMODATION LINE

A Line of insurance accepted by a company (which otherwise would be rejected) strictly as an accommodation to a good agent. (See Line.)

ACCORD

An acronym for Agency-Company Organization for Research and Development, a coalition of agents, companies and rating organizations with the purpose of standardizing forms and procedures. Its functions are now performed by a corporation of the same name with headquarters in New Jersey.

ACCOUNT CURRENT

A detailed statement, usually prepared by the agent, of business written by him for a particular company as of the end of each month.

ACQUISITION COST

An insurance company’s cost of obtaining business: services to insureds, agent’s commissions, advertising, etc.

ACT OF GOD

An event which is the result of action of natural forces over which man has little or no control: earthquake, tornado, lightning, flood, etc.

ACTUAL CASH VALUE (A.C.V.)

The cost measured in terms of money to replace or restore any item of property at the time of the loss, less depreciation (except where "Replacement Value" is covered). See also Depreciation, Replacement Value and Stated Amount.

ACTUARY

A mathematician trained in statistics employed by an insurance company or rating bureau who applies the theories of probability to insurance practice; the person who supplies the "educated guess" by predicting the anticipated experience projections upon which the rates and/or premiums for various classes of risks are based.

ADDITIONAL INTEREST

An individual, partnership or corporation, other than the actual named insured, who has an insurable interest. (See "Insurable Interest.") For example, an employer or a salesman who owns his own car which is used in the employer’s business. Should the employee become involved in an accident while on company business, the employer would most likely be named in any action for recovery by an injured party. In this event he (the employer) has a possible loss which can be measured in terms of money, and he therefore has an insurable interest which can be protected by naming him in the employee’s policy as "Additional Interest." (See also Insurable Interest and Non-Ownership Liability, Automobile.)

ADDITIONAL LIVING EXPENSE

(Coverage D in the Homeowners Policy.) The money, above and beyond normal living expenses, which becomes necessary in the event of a loss covered by the policy. For example: A fire loss covered by a Homeowners Policy so damages the home that it is uninhabitable for three weeks. Normal activities of the family (eating, sleeping, laundry, etc.) cannot be carried on as usual during this period. As a result, they must eat out, live in a motel, send out laundry and so on. Additional Living Expenses coverage supplies the extra money (up to the policy limits, and only the additional amount required) to live under these conditions, as opposed to living under normal conditions.

ADDITIONAL PREMIUM

See Premium.

ADJACENT

Term used to describe structures which are near each other, but not physically connected.

ADJOINING

Structures are "Adjoining" when they are physically separated, but are connected or touching.

ADJUSTER

An individual who negotiates on behalf of an insurance company with all parties concerned following a loss to determine the proper settlement of any claim(s). An Independent Adjuster is an individual who adjusts losses for insurance companies, but is paid on a fee basis, and is not an employee of any insurance company. An adjuster who is employed full time by an insurance company is known as a Staff Adjuster. A Public Adjuster is one who, for a fee, negotiates with an insurance company or companies on behalf of the insured(s) in the event of a loss. (See also Arbitration.)

ADMIRALTY COURTS

Courts of law having jurisdiction over ocean marine matters. Legal differences are settled by Courts of Admiralty under rules, procedures and precedents which differ considerably from those of other courts. Their area concerns matters of happenings at sea, marine insurance contracts and settlements of disputes arising from interpretations of provisions of maritime contracts, insurance or otherwise.

ADMITTED COMPANY (OR CARRIER OR INSURER)

A company licensed by a state under the laws of the state, but whose home office is located in another state or country. (See also Alien, Foreign or Domestic Company.)

ADVANCE PREMIUM

See Premium.

ADVERSE SELECTION

The practice by insureds of purchasing insurance protection against only those exposures or perils which they believe will most likely cause a loss. When large number of insureds bought only selective types of certain coverages (although some of these certainly got burned), the result was that a disproportionate number of poorer risks were more heavily insured for certain exposures than the better risks which insured "across the board." This had the effect of defeating the purpose of the "Spread of Risk" doctrine. (This is not to mention the additional cost of issuing and servicing the many individual policies.) With the coming of the "Package" policies in the 1950’s, the problem of adverse selection was largely eliminated.

ADVISORY RATES OR PREMIUMS

Rate or premium schedule promulgated by a rating bureau which may or may not be adopted by a subscribing company, at its option.

AFTER CHARGE

An additional charge or increase in rates used in some insurance group contracts to cover exposures due to correctible hazardous conditions as an incentive to remove such conditions to eliminate the surcharge.

AGE GROUP

A grouping of motor vehicles based on model year for the purpose of automobile physical damage insurance rating.

AGENCY AGREEMENT

A contract between an insurance company and an agent spelling out all the conditions upon which the agreement is based, covering the rights and the obligations of both the company and the agent.

AGENCY PLAN

Term used to describe all of a company’s agents as a group.

AGENT

An individual, partnership or corporation licensed by the state to act for a particular company or companies in soliciting, negotiation, effecting and servicing insurance contracts. By the terms of his contract and bylaw, he is, in many cases, the company. (See also Captive Agent under Direct Writer, Broker, General Agent, Special Agent, State Agent, and Local Agent.)

AGENT OF RECORD

See Broker of Record.

AGGREGATE EXCESS OF LOSS REINSURANCE

See Excess of Loss Reinsurance, Aggregate.

AGGREGATE LIMIT

See Limit(s) of Liability.

AGREED AMOUNT CLAUSE

A provision in fire policies under which the insured agrees to carry an amount of insurance specified by the company (usually 80 to 90% or more of value) and the company in return agrees to waive the requirements of the coinsurance clause. (See Coinsurance.)

ALIEN COMPANY (OR CARRIER OR INSURER)

An insurance company whose home office is located in a foreign country.

ALIENATED PREMISES

Premises transferred to another owner.

ALLIED LINES

Lines of insurance which are allied to Property Insurance, such as Water Damage, Rain Insurance, Business Interruption or Sprinkler Leakage, etc.

ALL-RISK

Term generally found in Inland Marine insurance indicating coverage for losses caused by perils not specifically excluded in the policy. Automobile Comprehensive coverage could be considered "All Risk." (See also Inland Marine, Floater, and Named Perils.)

ALTERATION

See Forgery.

AMENDMENT(S)

See Endorsement.

AMERICAN AGENCY SYSTEM

The system of selling and servicing insurance by means of independent agents who may represent more than one company, and who derive their income from commissions on insurance sold. (For contrast, see Direct Writer.)

AMERICAN INSTITUTE FOR PROPERTY AND LIABILITY UNDERWRITERS

An organization which supports and promotes insurance education and encourages professionalism establishing standards to that end. Those qualified who successfully pass the examinations prepared and conducted by the institute are awarded the designation "Chartered Property and Casualty Underwriter" (CPCU). It is equal to the "CLU" and "CPA" designations awarded in life insurance and public accounting, respectively.

AMERICAN LLOYDS

See Lloyd’s of London.

ANALYTIC SYSTEM

See Dean Schedule.

ANNUAL STATEMENT

An insurance company’s annual report to the -State Insurance Department(s) in the state(s) in which it is licensed. The report, containing information regarding the company’s financial condition, is required bylaw. The form containing the data may vary from state to state, by must include the particulars spelled out by the supervising authority of the state in which the company is licensed.

ANNUALIZATION

See Deferred Premium Payment.

ANTIQUE AUTOMOBILE

A motor vehicle of the private passenger type which is 25 or more years old, maintained solely for use in exhibitions, parades, club activities and occasionally used for other purposes.

APPLICATION

A written statement based on information supplied by a prospective insured, giving full details concerning the risk as may be required by the company and upon which the company relies in rating and underwriting. In some forms of insurance, the application becomes an integral part of the policy.

APPORTIONMENT

The determination of the extent to which each applicable policy must share in a loss when two or more policies cover the same loss. The portion of the loss paid by the sharing policy is called its "Contribution." For example, in a loss of $16,000, where two concurrent policies contribute "Pro Rata," one policy (A) is written for $35,000, and the other (B) is for $45,000, the total amount of the insurance applicable to the loss is $80,000. The "A" policy pays 35/80ths (7/1 6ths) of the $16,000 loss, or $7,000. Policy "B" ($45,000) pays 45/80ths (9/1 6ths) of the loss, or $9,000. In this example, the process is known as "Apportionment," and the amount of the loss paid by each policy is called its ‘Contribution.’

APPRAISAL

Determination of the insurable value of any given property. Also, determination of the extent of financial loss or damage. A clause in some policies (Fire, for example) provides for an appraisal by impartial experts to determine the amount of damage or loss. The terms of the policy provide that such appraisal must be made on demand of either the insured or the insurance company. Appraisals of property to be insured may be required by the insurance company prior to the issuance of the policy, and may constitute a part of the policy, when issued.

APPRAISAL CLAUSE

A condition in a property policy which provides for (see) arbitration in the event of a disagreement between the company and the insured as to the amount of a loss. Either party has the right to request an appraisal; each appraiser is paid by the party selecting him, and other expenses for the (see) umpire, if one is necessary, are shared equally by the company and the insured.

APPRECIATION

The increase in value (in terms of money) of property as the result of market pressure, inflation and/or rarity.

APPROVED

Term indicates meeting or exceeding a set standard, such as "Approved Roof," "Approved Fire Hydrant," etc.

ARBITRATION (AND ARBITRATION CLAUSE)

Most policies provide the mechanics for resolving disputes between the insured and the company when the amount of a loss cannot be agreed upon. The usual procedure is for each party to choose a qualified disinterested person, both of whom in turn select a third party as "umpire." Both the company and the insured agree beforehand that the decision of the arbitrators will be binding. (See Disinterested Party.)

ARSON

The willful, malicious or fraudulent burning of real and/or personal property.

ASSAILING THIEVES

Term used in ocean marine referring to persons who steal or rob by violence or force. Included as a "Specified Peril" in marine policies. Excludes loss as a result of petty thievery or pilferage.

ASSESSABLE POLICY

See Mutual Company.

ASSETS

Owned property, real and personal, including money, accounts receivable and other evidences of debt. Liquid assets are those which are readily available (cash, negotiable instruments) to pay obligations.

ASSIGNED RISK

A "pool" arrangement among subscribing insurance companies, whereby the companies agree to write automobile liability and/or physical damage insurance for risks unable to obtain coverage in the open ("voluntary") market. The assignment of risks is based on the proportionate share of premiums written in the voluntary market by the participating companies. Those undesirable risks are politely referred to as the "Residual Market." The plans and their administration are known variously as "The Blank(State) Automobile Insurance (Assigned Risk) Plan," "Joint Underwriting Association," or ‘Reinsurance Facility."

ASSIGNMENT

1.) The written transfer of interest (legal rights) in an insurance policy from one Party to another, in most cases only with the consent of the insuring company. 2.) The legal transfer of rights or obligations from one party to another. 3.) The designation of a participating company in a "pool" agreement. (See Assigned Risk)

ASSUMED LIABILITY

Liability (other than Legal Liability--see "Liability Insurance") which is assumed by contract or other agreement. Liability assumed by the insured results in exposures which are excluded under most liability policies. (See Contractual Liability Insurance.)

ASSUMING CARRIER

See Reinsurance.

ASSUMPTION BY CONTRACT

Basic liability policies do not contemplate exposures beyond the policy provisions created by liability assumed by contract between the insured and another party. Liability protection of this nature may be obtained by (see) Contractual Liability insurance for an additional premium.

ASSUMPTION OF RISK

One of the defenses which may be used by the party being sued for negligence is that the claimant assumed the risk of suffering injury when he was (or should have been) aware that he was exposing himself to injury when he took action or failed to take action.

ASSURED

See Insured.

ATTACH

A policy or endorsement is said to ‘attach’ when such policy or endorsement becomes effective.

ATTORNEY-IN-FACT

An individual who has been given authority by another to act in his behalf in certain specifically defined transactions. (See also Power of Attorney.)

ATTRACTIVE NUISANCES

An object or situation which normally would not be considered dangerous (such as an abandoned refrigerator) but could cause injury or death to one (such as a child) who is "attracted" to it as a plaything.

AUDIT

An examination of the insured’s records (payroll, inventory, receipts, sales, etc.) in order to determine the actual premium developed when the basis of premium is on factors which cannot be pre-determined. Worker’s Compensation (payroll) and Product Liability (sales, receipts or other units) are examples of policies requiring audit. Such policies are called "Audit Policies," and sometimes "Automatic Policies."

AUDIT BUREAU

See Stamping Office.

AUTHORIZED INSURER

See Admitted Company.

AUTOMATIC COVER CLAUSE

Provides increase in amount of insurance to cover added or transferred property automatically (within limits). Insured is required to report such property additions within 60 days and pay a pro rata additional premium from date of acquisition. Coverage is usually available only to Government, Hospital or Educational Institutions.

AUTOMATIC REINSTATEMENT

Most policies provide automatic reinstatement of the original amount of insurance without payment or additional premium after payment of a loss and effective upon the restoration of the property involved in the loss.

AUTOMATIC REMOVAL

This provision affords coverage for removal of property from one location to another, pro rata at each location. Property in transit is limited to amount provided by the policy for property away from the original premises. Coverage is limited to 30 days from date of removal. Not to be confused with (see) Pro Rata Distribution Clause.

AUTOMOBILE INSURANCE

See Physical Damage, Automobile; Medical Payments, Automobile; Comprehensive Coverage, Automobile; Family Automobile Policy, Basic Automobile Policy.

AUTOMOBILE INSURANCE PLANS

See Assigned Risk.

AUTOMOBILE MEDICAL PAYMENTS

See Medical Payments, Automobile.

AVERAGE CLAUSE

(Also called "Average Distribution Clause.") See Pro Rata Distribution Clause.

AVERAGE RATE (OR PREMIUM)

An average rate or premium is a rate applying to several (2 or more) items under a blanket policy which is generally determined from the average of values and the published rates applicable to each item of property covered.

AVERAGE WEEKLY BENEFIT

The weekly indemnity as prescribed under worker’s compensation law for disability or death. Based on a percentage of the average weekly wage of the worker, the amount of compensation is subject to a minimum and maximum. Determination is made by formula according to the law of the state in which the claim is made. Under "No-Fault" reparations, weekly benefits for work loss are also based on a percentage of income prior to the date of the claim.

AVERAGE, GENERAL; AVERAGE PARTICULAR

See General Average, Particular Average.

back to top back to top arrow

BAIL BOND

A bond which guarantees the court appearance of a person to answer a legal summons. If the person fails to appear, the bondsman or bonding company (the "surety") must pay the amount of the bond to the court. See definition of "Bond."

BAILEE

One who assumes possession, but not ownership, of goods in accordance with an expressed or implied contract, usually for the purpose of servicing, storage or transportation of such goods. In assuming custody the bailee becomes legally liable for the property. For example: Furniture Movers, Laundries, Dry Cleaners Upholsterers, T.V. Repairers, etc.

BAILEE’S CUSTOMERS POLICY

This policy covers loss or damage to customer’s property while in the custody of the bailee whether or not the bailee is legally liable for the loss, with certain limitations and exclusions.

BAILOR

The owner of goods in the custody of a bailee.

BARRATRY(MARINE)

Pertaining to any willful and unlawful act committed by the master or mariners of a ship as a result of which the owners suffer damage to the ship and/or cargo.

BASIC AUTOMOBILE POLICY (BAP)

When ownership of an automobile is by other than an individual or by husband and wife, or is classified as a "Commercial" vehicle, the Basic Automobile Policy (BAP) must be used. This policy is in many ways not as broad as the Family Automobile Policy (FAP) or the Personal Automobile Policy (PAP). The latter makes no mention of other family members resident in the same household. There is limited coverage also on non-owned automobiles, and the addition of the Broad Form Drive Other Car Coverage is recommended.

BASIC LIMITS

An amount of liability insurance for which the minimum premium is charged. If the insured wishes a larger amount, this is called "Increased Limits," and a percentage ("Factor") of the minimum rate or premium is charged in addition to the minimum premium.

BASIC REPARATIONS

As used in No-Fault Automobile Plans, these are benefits reimbursing persons suffering economic loss through injury arising out of the ownership, maintenance, or use of a private passenger motor vehicle.

BATCH PROCESSING

When large quantities of data (items of original entry such as invoices, credit memos, payments, etc.) do not require processing as soon as they are generated, all similar transactions affecting a master file can be processed at one time (say once a day), the files updated and outputs produced. This procedure is know as "batch processing." (Compare to On-Line and Real Time Processing.)

BEACH PLAN

A "Pool" plan similar to the fair plans and the auto assigned risk plans, underwritten by all companies writing fire insurance, to provide fire and extended coverage for risks with high exposure in the so-called "Hurricane Belt." (The "Gulf" states plus the south Atlantic states north to include North Carolina.) Eligibility requires that the property to be certified complies with wind resistance standards according to the Southern Standard Building Code.

BEAUFORT SCALE

A system of classifying the intensity of wind based on "Gale Force" in miles per hour: ‘Moderate,’ 32 to 38; ‘Fresh,’ 39to 46; ‘Strong,’ 47 to 54; ‘Whole,’ 55 to 63 miles per hour. A ‘Storm’ is defined as having winds from 64 to 75 miles per hour, and a ‘Hurricane’ in excess of 75 miles per hour. (see Windstorm.)

BENCH MARK

Term sometimes used to mean "Threshold." See No-Fault.

BENEFIT

The usual dictionary definition of this word is at odds with its meaning in insurance. Most dictionaries describe "benefit" as profit, advantage, or privilege. In insurance, a "benefit," such as those under Reparations Benefits or Personal Insurance Protection (No-Fault Plans) or Worker’s Compensation, does not contemplate profit, but rather a partial compensation for lost wages or disability. A basic principle of insurance is that an individual should not end up in a better financial or physical (including property) condition as a result of a loss than before.

BETTERMENTS

See Improvements and Betterments.

BID BOND

A bond required of a contractor who bids for work which is to be awarded to the lowest bidder. The bond is forfeited in the event the contract is awarded to him and he fails to enter into such contract. See definition of Bond; Performance Bond.

BILL OF LADING

A receipt from a carrier which describes in detail the merchandise or other property which is to be transported by him, and stipulates the carrier’s duties with regard to the property. (See also Bailee and Common Carrier.)

BINDER

A legal written or oral agreement issued by either an agent or a company, limited in term to a specific number of days, to effect immediate insurance in cases where sufficient information or time prevents a policy from being issued. A binder should include all pertinent information available, state the type of insurance, the limits, the perils insured against and (when issued by agent) designate the insurance carrier. Oral binders, although legally binding within the limits of the agency agreement, are dangerous, and should be executed without delay, with-copy to company in which the risk is bound.

BLANKET CATASTROPHE EXCESS LIABILITY

See Umbrella Liability.

BLANKET INSURANCE

A policy which covers two or more items under a single amount (e.g. Buildings and/or Contents), or two or more locations, or a combination of items and/or locations. (See also Specific Insurance and Pro Rata Distribution Clauses.)

BLANKET RATE OR PREMIUM

See Average Rate or Premium.

BLOCK POLICY

An inland marine policy covering the property of a merchant, wholesaler or manufacturer, including property of others while in his custody, property on consignment, property sold but not delivered. The policy covers against loss by most hazards including transportation. Most common forms are jeweler’s block and furrier’s block policies, and these contain many restrictions and limitations.

BOBTAIL (DEAD HEADING) LIABILITY

Auto Liability Insurance for the independent truckman who leases his equipment to trucking firms. This insurance protects him against third party claims when his vehicles operate beyond the bounds of the leasing agreement as for example when they are in for repairs or maintenance, and the lessee’s insurance does not operate. Operation of a tractor without a trailer is know as "bobtailing;" operation of a tractor with an empty trailer is called "dead heading."

BODILY INJURY

The term "Bodily Injury" includes sickness or disease including death at any time resulting there from, sustained by any person or persons, caused by accident and arising out of one or more of the hazards insured against in the policy.

BODILY INJURY LIABILITY INSURANCE

Protection against liability imposed bylaw on the insured for bodily injury as described above, to any person except employees. (See Worker’s Compensation.)

BOILER AND MACHINERY INSURANCE

A combination of liability and physical damage insurance covering loss arising from the operation of boilers, pressure vessels, mechanical and electrical equipment and machinery. Coverage may be written on a "Named Perils" or an "All-Risk" basis, and may be extended to include business interruption and consequential damage.

BOND

An agreement by one party (the Surety) to a second party (the Obligee) guaranteeing the honesty, integrity, ability, financial responsibility and compliance with the law and/or a specific contract of a third party (the Principal). Simply stated, the Surety guarantees to the Obligee the satisfactory performance of the Principal.

BOOK OF BUSINESS

An expression of long standing meaning all insurance accounts of a particular agent, producer, marketing representative, general agent division office or other similar category. Sometimes referred to simply as "book," the term is usually preceded by an adjective. For example: "He (the agent, marketing rep, division manager, etc.) has a good ‘book of business."--meaning profitable; or "...a balanced ‘book of business"--the desired ratio of personal to commercial lines or a "large book"--high volume.

BORDEREAU

A list itemizing in detail a (usually large) number of transactions, documents or policies. When a large number of such items is sent to another company or department, a Bordereau usually accompanies it for transmittal and checking purposes.

BROAD FORM

Term indicating a more comprehensive form of coverage (as opposed to a "Limited" form). Examples are "Broad Form Personal Theft" and "Broad Form Storekeepers" policies. See also Dwelling Forms.

BROAD FORM, DWELLING AND CONTENTS

See Dwelling Forms.

BROKER (OR AGENT) OF RECORD

An agent or broker designated in writing by the insured to examine or copy the make-up of a rate, to apply for a specific rating or re-rating because of changes in occupancy or to inquire as to the effect on a rate of proposed changes in the physical condition or use of the property. Rating Bureaus will generally not cooperate with a broker or agent who is not designated in writing by the insured as his broker or agent "of record." The statement signed by the insured is known as the "Agent (or Broker) of Record Letter."

BUDGET PAYMENT

See Installment Premium.

BUFFER LAYER LIABILITY

See Gap, or Buffer Layer Liability.

BUILDER’S RISK INSURANCE

Insurance against loss to builders, including machinery and equipment, in the course of construction, and to materials incidental to construction.

BULLION

Gold and/or silver considered for its value as metal. Includes -coins, but does not take into consideration their value as coins. (See Numismatic Property.)

BUMBERSHOOT LIABILITY

A form of umbrella liability where the principal exposure is "wet" marine involving the operation of vessels and the use of docking facilities. Covers the insured for Protection and Indemnity, General Average, salvage charges, collision, fire, Sue and Labor and all other legal or contractual liability including Longshoremens and Harborworkers Compensation Act, Employer’s Liability, liability under Admiralty Law, automobile liability and other hazards usually related to liability insurance.

BURDEN OF PROOF

1.) Insurance: The obligation on the part of the insured to prove he sustained a covered loss and to provide evidence supporting the amount of his claim. 2.) Legal (Civil): The obligation on the part of the alleged injured party (the plaintiff) that a third party (the defendant) is the proximate cause of his injury or loss; (Criminal): The obligation on the part of the state (through the prosecutor) to justify the action against the accused by providing the charge.

BUREAU, RATING

See Rating Bureau.

BURGLARY

Unlawful entry into premises by actual force and violence, evidence of which must be in the form of visible marks made by tools, explosives, chemicals or electricity. (See also Premises and Theft.)

BUSINESS INTERRUPTION INSURANCE

Indemnifies the insured for loss of income caused by interruption of business operations as a result of fire or other insured perils. Also called "Use and Occupancy" insurance. (See also Extra Expense Insurance, Time Element, and Gross Earnings Form.)

BUYBACK

Term commonly used to refer to an exclusion of certain coverage in a policy which the company may be willing to eliminate upon payment of an additional premium.

back to top back to top arrow

CANCELLATION

Termination of an insurance policy before the end of the stated period. There are only three ways in which cancellation can be effected: 1.) Surrender of the original policy by the insured, or 2.) Written Notice to the insured (and mortgagee, if any) by the company or agent, or 3.) the signing of a Lost Policy Release by the insured (and mortgagee, if any). Types of Cancellation: Flat: Cancellation of a policy as of its inception date with no premium charge. (Note: In some cases the company is entitled to a fee called a "Minimum Rentention" to cover the cost of processing the policy. Short-Rate: Cancellation at the request of the insured, with the return premium credit less than proportional to the unexpired term. Pro Rata: Cancellation by or at the request of the company or the agent, with the return premium credit proportional to the unexpired term.

CAPACITY

The maximum amount or limit of insurance a company will write on any one risk.

CAPITAL STOCK COMPANY

See Stock Company.

CAPTIVE AGENT

See Direct Writer.

CAPTIVE INSURANCE COMPANY

An insurance company owned by a single interest or a combination of similar interests who control the stock with the purpose of obtaining insurance coverage for its business operations at a lower cost than the market offers. It may be a Non-Admitted Company, Non-Resident or Foreign, and under special circumstances may supply reinsurance to a self-insurer or a Domestic Company. (See Non-Admitted Company.)

CARGO POLICY

A type of insurance covering "Goods and Merchandise in Transit" (by ship, motor carrier, rail or air). Forms vary greatly with regard to exclusions and limitations, and are generally tailored to the individual risk. Common exclusions are what might be expected: loss of market, strikes, locked-out workers, for example. Cargo insurance may be written on either a specified (named) perils or an all-risk basis.

CARRIER

See Insurance Company or Common Carrier.

CASH VALUE

See Actual Cash Value.

CASHIER’S CHECK

A bank’s own check, drawn on its own account and signed by the cashier or other authorized official. It is used to pay direct obligations of the bank, to disburse the proceeds of a loan to the borrower or to credit his account. It is also sold to customers for domestic remittances where a personal check may not be acceptable to the payee. (Compare Certified Check)

CASUALTY INSURANCE

A broad, loose term denoting generally those classes of insurance concerned with losses due to legal liability to third -persons, and also such lines as Accident and Health, Bonds, etc. which would not properly be classified as "Property Insurance." The line between "Property" and "Casualty" insurance cannot be finely drawn. Burglary and Robbery, for example, have always been, and still are, considered "Casualty" lines, and yet, because they involve loss to property and are considered "First Party" situations (between company and insured), such losses could be classified under the "Property Insurance" category without much argument. For purposes of ready understanding and assignment and apportionment under the (see) "Guiding Principles" for losses involving overlapping coverages, however, the traditional terms and definitions of "Property" and "Casualty" are retained. In line with this, a burglary loss is still considered a "Casualty" loss.

CATASTROPHE

A severe loss usually covering a relatively wide area, such as one resulting from a hurricane, tornado, conflagration, flood, etc. (See also Shock Loss and Umbrella Policy.)

CATHODE RAY TUBE (CRT)

A display screen much like a television screen which shows data "called up" by a terminal keyboard, Sometimes called a "Display Screen" or simply "Screen," but mostly referred to as a "CAT."

CEDING CARRIER

See Reinsurance.

CENTRAL PROCESSING UNIT (CPU)

This unit is the heart of the computer, without which no processing could be done. There are three basic parts in the Central Processing Unit: the Control Unit which interprets instructions from an Input Device and orders the other two parts to perform their functions; the Storage Unit which holds both instructions and data for the desired use of the system; and the Arithmetic and/or Logic Units which perform the required operations on the data entered into the system.

CERTIFICATE OF INSURANCE

Evidence of insurance, usually in the form of a certified copy of the policy. Also, a description of specific details of the property covered under a "Master" or "Open" policy. The certificate usually carries with it the obligation on the part of the insurance company to notify the holder of the certificate in the event of a change in the terms or the cancellation of the policy. A description of insurance in force does not bear this obligation is often referred to as a "Memorandum of Insurance."

CERTIFIED CHECK

A bank’s customer’s check upon which an officer of the bank or other authorized person has stamped the word "Certified," inserted the name of the bank and signed his name. By its certification, the bank immediately transfers the amount of the certified check into its own funds to guarantee payment of the check when it is presented for payment. (Compare Cashier’s check.)

CERTIFIED MAIL

A special service provided by the United States Postal Service. For insurance purposes, Certified Mail is considered legal proof of mailing, as to the date and the addressee. When this class of mail is brought to the sending post office, it is numbered and recorded, with a receipt given to the mailer. The mail is then treated just as other First Class Mail until it reaches the delivering post office, which then records it before giving it to the carrier for delivery. The mail, on delivery, must be signed for by the addressee or someone acting for the addressee. This receipt is then kept on file at the delivering post office so that evidence of delivery may be available at a later date if necessary. For an additional charge, the Postal Service will obtain and return to the sender a "Return Receipt" which shows the date of delivery and the person signing. If the certified mail is to be signed for only by the addressee, with return receipt, the mail is marked "Restricted Delivery," and an additional charge is made for this service. (See also Registered Mail.)

CHANGE IN OCCUPANCY

When the use or occupancy of a building is changed (e.g. a dwelling is converted from a two-to a three-family, or to a partial or complete business or commercial use, or vice versa) involving alteration or not, the change may result in a use or classification either increasing or decreasing the exposure (risk of loss), the insurance company must be notified. Failure to notify could result in voiding of policy coverage. If the company is notified and the change results in an increase in exposure, the company has the option of cancelling or adjusting the premium to reflect the increase. The insured may also request an adjustment of premium if he feels that the change results in a decrease in exposure. (See Broker (or Agent} of Record.)

CHARTERED LIFE UNDERWRITER (CLU)

A professional designation awarded to those who have completed the prescribed examinations and have satisfied the experience requirements of the American College of Life Underwriters. Comparable to the professional level of (see) Chartered Property and Casualty Underwriter (CPCU) and Certified Public Accountant (CPA).

CHARTERED PROPERTY AND CASUALTY UNDERWRITER (CPCU)

A professional designation awarded to those who have the required experience and have passed the prescribed examinations. Program is under the auspices of the American Institute for Property and Liability -Underwriters.

CHATTEL MORTGAGE

A mortgage on movable or personal property as opposed to real property (land and buildings). (See also Encumbrance, Lien and Mortgage.)

CHATTEL MORTGAGE NON-FILING INSURANCE

Insurance designed to protect a lending institution (bank, savings and loan association, credit union, etc.) against financial loss in the event it is unable to repossess property on which it has a chattel mortgage, or to enforce its rights to the property as a result of intentional non-filing of the chattel mortgage with the proper authorities.

CHECKING SLIP

A sheet accompanying manual pages which are replacements or additions to existing pages. Lists page number(s) of the manual page(s), edition or effective date(s) and frequently includes a brief explanation of the important changes. These "checking slips" should be filed together in the front of the manual (or section) after changes have been made for later reference and "checking." Replaced pages may remain in the manual plainly marked "Replaced" (we recommend this procedure), or they may be discarded.

CIVIL (OR PUBLIC) AUTHORITY CLAUSE

Under Fire Insurance, any order by a civil (public) authority to destroy insured property to prevent or retard the spread of fire (provided such fire, even though not on the premises, originated from a peril not excluded under the policy) is covered. Under Business Interruption, Homeowners Additional Living Expenses and Rent and Rental Value, denial of access to insured property by Civil Authorities (for inspection purposes, etc.), coverage is extended for a period not to exceed two seeks when denial is direct result of damage to adjacent premises by a peril insured under the policy. Under Transportation Insurance, Common Carrier is not responsible for delay occasioned by order of Civil Authority.

CIVIL ACTION

A legal action to recover money, property, rights or privileges by one party from another, claiming injury or damages. (See Tort; Criminal Action.)

CIVIL COMMOTION

A serious and prolonged disorder of and by a number of people. When coverage for this hazard is provided, it includes coverage of riot, riot attending a strike, and in most forms coverage includes direct loss from pilferage and looting occurring during and at the immediate location of the riot or civil commotion. (See also Riot.)

CIVIL DISORDER LOADING

See Loading.

CLAIM

A request for indemnification. (See Indemnity.) First Party Claim: A request for indemnification for a loss involving only the insured and his insurance company. Third Party Claim: A request for indemnification of a loss by other than the insured (a "Third Party") for damages alleged to have been caused by the insured. The term "Claim" also is used to refer to the estimated amount of the loss.

CLAIMANT

The one who makes the claim.

CLAIMS EXAMINER (SUPERVISOR)

An individual who is charged with the examination, investigation and evaluation of claims in process. Working closely with the adjuster in procedures, they agree on the amount of reserves to be set aside for pending claims.

CLAIMS REVIEW (AUDIT)

A periodic review of the claims of an agency (particularly whose which have draft authority.) Bonding companies require these audits, and they may even be conducted by the state insurance department when such action is indicated.

CLASS RATES

See Minimum Rates.

CLASS, CLASSIFICATION

A term used to indicate an established category into which a person, risk, degree of protection, operation or other division is placed for the purposes of determining premium or underwriting decision.

CLASSIC AUTOMOBILE

Term usually applied to an automobile which is not old enough to qualify as an "Antique Automobile" but by reason of its make, model, year and condition, has appreciably increased in market value. (See Antique Automobile; Appreciation.)

CLAUSE

Section of a policy or endorsement dealing with a specific phase of coverage, exclusion of coverage, restriction or other condition, such as "Coinsurance Clause," ‘Mortgage Clause," etc., usually modifying, limiting or otherwise spelling out certain conditions.

CLOSING

A meeting of the buyer and the seller for the purpose of transfer of title of real property from one to the other. As a general rule, each party is represented by his own attorney, although, "closings" are frequently held in the offices of attorneys who specialize in this type of transaction, in which case the interests of all parties concerned are protected. At this time all mortgage arrangements, title search, insurance, etc., are checked to see that all are in order before legal transfer is made and recorded.

COBAL

A computer language most widely used in business data processing. It is an acronym for Common Business Oriented Language.

CODE ("STATISTICAL CODE")

A number (digit) or series of numbers representing the various characteristics of a risk, such as type of policy, class of occupancy, degree of protection, driver class, etc. Enables information to be computerized for statistical analysis, billing and retrieval for actuarial and other purposes.

COINS, COIN COLLECTIONS

See Numismatic Property.

COINSURANCE (REDUCED RATE CONTRIBUTION)

An arrangement by which the insured, in consideration of a reduced rate, agrees to carry an amount of insurance equal to a percentage of the total value of the property insured. For example: A building is valued at $10,000, and the 80% coinsurance rate is agreed upon. In accepting this rate, the insured implies agreement to carry at least $8,000 in insurance. Suppose he carries only $6,000 in insurance and suffers a $4,000 loss. Since he is carrying only 75% of the amount of insurance he agreed to carry, he then becomes a "coinsurer" to the extent of 25% of the loss, the company paying only 75% ($3,000) of the $4,000 loss. Read this again. You should be able to understand it on the fourth or fifth reading.

COINSURER

An insured or an insurance company required to share in a loss under a conisurance agreement. (See Coinsurance.)

COLLISION (AUTOMOBILE)

The colliding of the automobile, stationary or moving, with any other object, stationary or moving. Term also includes overturning ("upset") of the insured automobile whether or not any other object is involved. (See Physical Damage-Automobile.)

COLLUSION

Joint action by two or more individuals to commit a fraud. (See Fraud.)

COMBINATION POLICY

A policy which provides protection against two or more hazards of both property and liability. Dates back to the days when companies were chartered to write only property or liability (Casualty) lines but not both. Homeowners form is an example of a present day "combination policy." (See Package Policy.)

COMBINED ADDITIONAL COVERAGE(C.A.C.)

An automobile physical damage coverage which may be written only in connection with Fire or Fire Theft coverage, and then only for a like amount. Vandalism and Malicious Mischief (subject to a $25 Deductible) may be written only as an addition to, and in connection with Combined Additional Coverage. As compared to (see) Comprehensive Coverage, which is an all-risk type of insurance, Combined Additional Coverage protects only from specified perils of Windstorm, Hail, Earthquake, Explosion, Riot or Civil Commotion, or the forced landing of any aircraft or of its parts or equipment, Flood or Rising Waters, External Discharge or Leakage of Water except loss resulting from rain, snow or sleet whether driven by a wind or not.

COMBINED PHYSICAL DAMAGE COVERAGE

A new automobile physical damage coverage designed to include all perils currently under comprehensive and collision for commercial automobiles. It is aimed at eliminating any confusion which might exist as to whether a loss is covered under comprehensive or collision. The new coverage is available for most commercial auto risks. It is not available for garage dealers because of the special theft, mischief and vandalism deductibles which apply in dealer risks. Obviously, a common deductible must apply equally to both exposures when writing this combined coverage.

COMBUSTION

A chemical change producing heat and light caused spontaneously or from an external source. Fire is always the result of combustion. But combustion does not always cause fire.

COMMERCIAL LINES

A general reference to all of the various forms of insurance designed for the protection of business operations and property exposures, as opposed to those of individuals. (See Persona/Lines.)

COMMERCIAL VEHICLE

A vehicle, generally of the truck type, which does not qualify under the definition of (see) ‘Private Passenger Automobile,’ used for commercial purposes. This classification includes all types of buses, liveries, taxicabs, ambulances, law enforcement vehicles and special or mobile land vehicles (e.g. bulldozers, power shovels, road rollers and graders, farm equipment, etc.).

COMMISSION

The percentage of the total premium which is retained by the agent or broker in payment for his services. Return Commission: That portion of the Return Premium (see Premium) based on the original rate of Commission which the agent must contrib ute in the event of cancellation of reduction in the rate or amount of insurance. Earned Commission: An agent’s commission is a percentage of the premium earned under a given policy. If a policy runs its full term, then his commission is a percentage of the full premium for the period. If the policy is cancelled during its term, then his commission is a percentage of the premium which is earned while the policy is in force. In short, Earned Commission is the difference between Full Commission and Return Commission. (See Commission.) Contingent Commission: See Contingent Commission.

COMMISSIONER OF INSURANCE

The state official who is charged with the responsibility of enforcing state insurance laws. Known in some states as Director or Superintendent of Insurance.

COMMON CARRIER

A trucking concern which carries merchandise for a fee, and which cannot, under the law, refuse to accept shipments from anyone who wishes to use its services. The common carrier may limit the type of merchandise he carries to that which he is especially equipped or accustomed to carry, may refuse to carry certain items such as dangerous materials or perishables, and he may operate within a specifically limited area, but other than these limitations, he must offer his services to the general public. In contrast with a Contract Carrier, whose obligations are limited to those of a bailee (see below), the Common Carrier is responsible for the safety of goods in custody, except when delay or loss is occasioned by Act of God, an enemy nation at war with the carrier’s country, and act of any Civil or Public Authority, negligence on the part of the shipper or inherent vice of the goods themselves. If any delay or loss is not caused by any of the above, the Common Carrier is liable. The detailed description of the merchandise to be carried and contract between the shipper and the carrier is known as the "Bill of Lading," although this, or a receipt or copy of any other agreement is not necessary to make the Common Carrier liable for a loss. A Private or Contract Carrier transports merchandise only for those with whom it has made prior agreements.

COMMON LAW

That part of general law which has gained general acceptance in the United States and Great Britain by reason of custom and usage, and by decisions handed down by courts over the years. Common Law differs from Statutory Law in that the latter has come into existence through enactment into statutes by state and federal legislative bodies.

COMPARATIVE NEGLIGENCE

See Negligence.

COMPENSATION AWARD

An agreed amount to be paid to an injured party, usually periodically over a definite or an indefinite period of time, depending on the nature and extent of the injuries. Payment is usually made in installments, but may sometimes be made in a lump sum. Common in Worker’s Compensation cases. (See also Structured Settlement.)

COMPENSATORY DAMAGES

See Damages.

COMPLETED OPERATIONS COVERAGE

Liability coverage for contractors to cover losses occurring after operations (installations, servicing, etc.) have been completed at the place of occurrence and away form the premises owned or controlled by such contractors. Coverage must be written under a Product Liability form, as it is specifically excluded under the Manufacturer’s and Contractor’s Liability Policy. (See also Product Liability Insurance.)

COMPLETION BOND

A bond required by the bank(or other lender) who supplied a construction mortgage. The bond guarantees that the mortgagor will use money (along with some of his own) for the purpose intended, i.e., the construction of the building or other facility for which the mortgage was given. Differs from "Performance Bond" in that the "Principal" is not necessarily the party doing the construction.

COMPOSITE RATE

A common rate used for a particular insured’s operational exposures, reflecting the variations of insurance hazard. A single rate arrived at based on units of payroll, sales, receipts, inventory, admissions, etc. (See also Average Rate.)

COMPREHENSIVE

The word "Comprehensive" in insurance is used to mean coverage is afforded for all risks of loss within the general scope of the policy except those specifically excluded. To put it another way, a "Comprehensive" policy covers any loss under the Insuring Agreement, except those specifically excluded in the policy.

COMPREHENSIVE COVERAGE (AUTOMOBILE)

Covers any and all physical damage to the insured automobile with the exception of loss caused by collision or upset, mechanical or electrical breakdown, or wear and tear. Any damage or loss (e.g. theft) to the insured automobile except as a result of the hazards specifically named above is covered. Coverage may be written either on a Full or a Deductible basis. See also Combined Additional Coverage; Collision and Physical Damage-Automobile.)

COMPREHENSIVE GENERAL LIABILITY POLICY

A general liability policy which is comprehensive in nature, i.e. covers for loss where no exclusions are specified. Also automatically covers new hazards or locations.

COMPREHENSIVE GLASS POLICY

Although the Standard Glass Policy is generally used to cover plate glass, the Comprehensive Glass Policy may be extended to cover almost every type of glass manufactured. It is also used to cover Residence Glass. Except for Residence Glass and certain large risks, each piece (commonly called "light") must be scheduled. That is each "light" must be described in the policy as to its type, dimensions and position in the building. Even glass signs, lamps and such items as glass bricks may be covered under the Comprehensive Glass Policy. $75 is provided for necessary repairs or replacement of frames, if necessary, at any one location. The policy will also pay for the temporary installation of glass or the boarding up of openings up to $75 for each separate location, with the same amount available for removal of obstructions necessary to replace damaged glass. The usual exclusions are: malicious scratching (malicious damage by acid or chemicals is covered), fire, war, invasion or nuclear energy. (See also Residence Glass Policy, Retention Fifty Percent and Two-Plate (Rider) Agreement.)

COMPREHENSIVE PERSONAL LIABILITY POLICY

This coverage is now rarely written as a separate policy as it is now largely incorporated in the Homeowners forms, and was designed for risks now eligible for the latter form. Comprehensive Personal Liability protects the insured or spouse, resident relatives of either, and any other person under 21 in the care of the insured both on the insured premises and elsewhere for liability for bodily injury and property damage. With respect to those coverages, it is a "single limit" policy. Premises Medical Payments is also afforded without regard to liability of the insured, but does not extend to those persons listed with the insured above, and is restricted to those injuries of an accidental nature. (See Single Limit Policy.) Coverage extends beyond the insured premises to personal acts anywhere, and to premises in which the insured is temporarily residing. As with all liability policies, there are restrictions as well as optional extensions of coverage. Only a study of the contract will afford all of the "ifs," "ands" and "buts."

COMPREHENSIVE POLICY

Policy providing broad coverage. So broad, in fact, that it means, in effect: "This policy covers all losses except those specifically excluded." Standard policies, in contrast, name the specific hazards insured against, and exclude all others not mentioned.

COMPULSORY INSURANCE

Any type of insurance which is required by law, and for which penalties are levied for non-compliance. (Compare Mandatory.)

CONCEALMENT

Deliberate failure to disclose a material fact or facts (whether asked or not) when obtaining insurance or in the filing of a claim. A material fact is one which would have a bearing on a company’s decision to accept or decline the writing of an insurance policy or paying a claim.

CONCOMITANT

Existing or occurring together; refers to coincidence in time and events so clearly related that one seems attendant on the other(s).

CONCURRENT INSURANCE

Insurance under two or more policies which are identical in terms, but may vary in amounts or date. Non-Concurrent Insurance is also insurance under two or more policies which may (or may not) differ in amounts or dates, but also differ in other features as well, principally in forms or coverages. Non-Concurrency can create serious difficulties in the settlement of losses, and should be avoided.

CONDITION

That part of an insurance policy which sets forth the terms of agreement under which insurance is undertaken. Usually spells out the duties and responsibilities of the insured and/or the insurance company with regard to the insurance policy. Limits of liability; insured’s duties after loss, suit against company, bankruptcy or any insured liberalization clause, waiver of policy conditions. These are examples of "Conditions" found in an insurance policy. A Representation is a statement of fact or condition made by or for an insured which is made a part of the policy and which, even though in error or untrue, will not jeopardize coverage unless it is material. (See also Warranty.)

CONDOMINIUM

A multiple unit building or group of buildings featuring individual ownership of single units, wherein each owner has, in addition, a proportional interest in the balance of the total property owned jointly by all the unit owners.

CONFLAGRATION

Widespread destructive burning characterized by great intensity.

CONSEQUENTIAL LOSS OR DAMAGE

Indirect loss or damage resulting from fire or other peril covered by the policy. Example: Windstorm blows tree down damaging electrical wires running to a food freezer, causing food spoilage. Business Interruption Insurance covers "consequential" losses such as "Extra Expenses," "Rental Value," "Profits and Commissions" and "Tuition Fees," among others. This type of insurance contrasts with the "Direct Loss or Damage" forms.

CONSIDERATION

1.) Term sometimes used in place of ‘Premium." 2.) Payment of money, giving of service(s) or property or anything else of value or a combination of these by one party to another, in return for something else of value agreed to by the other party or parties. (See also Contract, Party.)

CONSIGNMENT

The physical transfer of one’s personal property to another primarily for the purpose of selling the property, but sometimes for storage or shipping.

CONSORTIUM, INSURANCE

See Insurance Consortium.

CONSORTIUM, LOSS OF

Loss of companionship and support of a spouse provided by marriage.

CONSTRUCTIVE TOTAL LOSS

When the cost to repair or salvage damaged property equals or exceeds the total value of the property at the time of the loss (even though the loss is not "total" as we usually understand it) it is, in effect "total," and is called a "Constructive Total Loss."

CONTAMINATION, RADIOACTIVE

See Radioactive Contamination.

CONTINGENT COMMISSION

A commission, in addition to the commission, which an agent receives as a result of an agreement with the company as a reward for a lower than average loss ration.

CONTINGENT LIABILITY

Liability resulting from negligence of persons (not employees) engaged by the insured to perform certain jobs. (See Contractor’s Protective Liability.)

CONTRACT

Term often used to mean an insurance policy. In general, a Contract is a written agreement between one who offers something (a service, indemnification, property, etc.) and one who accepts, giving Consideration (payment of money, giving of service or property, something else of value, or a combination of any of these) to the first party (the Offerer). In order to meet the necessary requirements of a legal contract the agreement must meet five conditions - It must be: 1.) in legal form; 2.) entered into by legally competent parties; 3.) based on a consideration (see above); 4.) not against the public good or against the law; and 5.) mutually acceptable, each party being fully aware of all relevant facts known to the other party.

CONTRACT BOND

A bond guaranteeing satisfactory performance of a contractor of a construction contract, and payment of all labor and materials in connection with the specified project. (See discussion under Bond.)

CONTRACT CARRIER

See Common Carrier.

CONTRACTOR’S PROTECTIVE LIABILITY

Covers Contractor’s liability for damages or injuries sustained by any person (other than his employees) resulting from construction or alteration work done by any subcontractors. (See Contingent Liability.)

CONTRACTUAL LIABILITY INSURANCE

Protects manufacturers and! or contractors who are required to assume liability under contract, such as a contractor who assumes liability for injury or damages resulting from materials or equipment on streets or sidewalks during the course of construction. (See also Hold-Harmless Agreement.)

CONTRIBUTION

See Apportionment.

CONTRIBUTION, REDUCED RATE

See Coinsurance.

CONTRIBUTORY NEGLIGENCE

See Negligence.

CONVERSION

Essentially the same as (see) Embezzlement except that Conversion generally refers to property rather than money. Term is also used in Life Insurance to denote a change in one form of life protection to another.

CONVEYANCE

In business transactions, a conveyance is a transfer of title to property of one to another.

CORPORATION

A legal entity made up of individuals which is granted a charter by the state. Each member becomes a "shareholder" to the extent of his investment, and his personal liability for the debts and obligations of the corporation is limited to the degree of his investment. (See Entity, Partnership.)

CORRECTION NOTICE

See Criticism.

COST, ACQUISITION

See Acquisition Cost.

COST, INSURANCE AND FREIGHT (C.L.F.)

A condition of a sales agreement of merchandise wherein the purchaser agrees to pay the cost, insurance and freight charges in connection with the shipping of the goods to their destination.

COUNTERSIGNANTURE

Signature by an agent resident in and licensed by the state in which a risk is located.

COVER NOTE

Similar to a Binder issued by a reinsurance company in favor of a Primary Carrier as evidence of reinsurance.

COVERAGE

Insurance, an insurance policy, or the extent of protection in type, limit or amount afforded by an insurance policy. Sometimes called "Cover."

COVERAGE, EXTENDED

See Extended Coverage.

COVERED LOSS

A loss for which an applicable policy provides indemnification. (See Indemnity.)

CREDIT FOR EXISTING INSURANCE ENDORSEMENT

See "Pick-Up" Endorsement.

CREDIT REPORT

A report containing information about an individual (his personal habits, credit rating, family and job situation, etc.) which enables an underwriter to evaluate him as an insurance risk. Inspection Report (a report on the physical condition, "housekeeping," neighborhood, protection and construction of the property) and Mercantile Report (on the moral and financial status, usually of a business organization) are terms which in recent years have come to be used interchangeably with Credit Report.

CRIMINAL ACTION

A crime is (broadly speaking) an act or an omission in violation of the law. A criminal action is brought against the person accused of a crime which does not only damage or injure another person (See "Civil Action") but is of such a nature that it is a crime against society as a whole, the public in general or, as we refer to it, "The State." In the event, it is the state which brings action against the accused, who, if found guilty, may be punished by death, imprisonment or any other penalty the court see fit. (See also Civil Action, Felony, and Misdemeanor.) Also, see a lawyer.

CRITICISM

A notice of correction in rules, rates, classification and /or forms given by a rating office. (See Stamping Office.)

CURRENT, ACCOUNT

See Account Current.

CURTAIN WALL

A non load-bearing wall in a building of concrete and/or steel, whose purpose is to divide areas within the building or to afford protection against the weather.

back to top back to top arrow

DAILY REPORTS

Copies of an insurance policy which are kept as the agent’s record and sent to the company or branch office either directly or through a stamping office.

DAMAGES

The sum claimed for damages allegedly sustained as a result of the act (or failure to act) of another party. The word "damages" as used in insurance is very broad, and may include loss as a result of injury, malfeasance , malpractice, errors and omissions, acts of God, etc. Compensatory Damages are damages which demand indemnification for measured loss. (See Indemnity.) Punitive Damages are those which are awarded by the court as punishment for the negligent act which caused the loss. (See discussion under Injury.)

DATA INPUT-OUTPUT DEVICES

See Input Device, Output Device.

DATA PROCESSING

The compilation and/or computation of data (facts) for the purposes of supplying information for decision making and/or storage and selective retrieval of such data. In the sense in which the term is used today, Data Processing (often referred to as "EDP"--for Electronic Data Processing) is a system of high speed manipulation of facts, made possible by a Computer System which consists of a (see) Central Processing Unit (CPU), the "brain," to which are connected various devices for entering information (input) into the CPU, and extracting processed information from it (output). A computer system has two main functions:1.) compilation and computation of the facts (data) entered, and 2.) storage of the processed data bring out the data in any form or sequence requested by the user through the use of any of the (see) Output Devices.

DEAD HEADING

Operation of a tractor hauling an empty trailer (see also Bobtaillng.)

DEAN SCHEDULE

(Also known as the "Analytic System.") A system of measurement of exposure to fire loss, devised by Alfred E. Dean, Chief Engineer of the New England Insurance Rating Association, based on debits and credits applied to the basic rate. Adjustments are made in consideration of grade of fire protection, construction and height, housekeeping, nature of occupancy, density or neighborhood, etc.

DEBRIS REMOVAL

This clause, included as an "Additional Coverage" in policies covering property, provides for expense, up to a specified amount, of removal of debris resulting from damage caused by a covered loss.

DECK PAGE

A "Buzz" term meaning the Declarations section of an insurance policy.

DECLARATIONS

Information given by the insured on the basis of which a policy is issued: Name, address, nature, location and description of risk, coverage, amounts or limits, etc. Also included are the numbers and edition dates of the endorsements which are attached and become a part of the policy. The effective and expiration dates, the name of the insurance company and agent and the policy number are also shown.

DEDUCTIBLE

An agreed amount which, in the event of a covered loss, the insured must pay before the company pays the balance of the loss up to the limits of the policy. (See also Disappearing Deductible.)

DEED

A written agreement under seal by which real property is conveyed (title is transferred) from one party to another.

DEFAMATION

To damage, or to attempt to damage, the reputation of a person or group of persons by evil or false reports. (See also Libel and Slander.)

DEFENSE

The method(s) adopted by a person or other legal entity against legal proceedings have been taken, for the purpose of disputing charges of wrong-doing.

DEFENSE OF SUITS, SUPPLEMENTARY BENEFITS

All liability policies provide for the defense of the insured against any suit charging injury or damages, even if such charges are false and groundless. The company also agrees to pay, in addition to the limit(s) afforded, all costs of such defense. It is important to note, however, that the injuries or damages alleged in the claim must be of the type that would be covered by the policy if the charge could be proven. If not, the company has no obligation for defense.

DEFERRED PREMIUM PAYMENT PLAN (D.P.P.)

Method of annual payment of a three-year policy. Annual payments (not including Homeowners and Minimum Fire and some other Iines) are calculated by multiplying the three-year rate (usually 2.7 times the annual) by 35%, and multiplying the resulting figure by the amount (per $100) of insurance. The premium thus obtained is the annual premium payment (subject to the Minimum Premium rule.) Most policies are now "annualized." That is, annual rates or premiums are now shown, and three-year pre-paid premiums are determined by multiplying the annual rate or premium by three. If the insured elects to pay three years in advance, he may protect himself against any interim rate or premium increase during the three-year period. He may, however, prefer to have the policy issued for a three-year period, paying annually (DPP). In electing this method, he is charged for the second and third annual premiums which are in effect at the time they become due. This method of premium payment is called Annualization. Today most policies are for a one-year period only.

DEMOLITION CLAUSE

Fire and Homeowners policies exclude indemnification for demolition of undamaged portions of a building by reason of "any local of state ordinance or law regulation construction, repair or demolition." Coverage can be added for an additional premium.

DEPOSIT PREMIUM

1.) The initial premium paid under an installment payment plan or (see) Deferred Premium Payment Plan (D.P.P.); 2.)The estimated premium paid under an audit policy when the actual premium, cannot be determined until after the policy has expired. (See Audit Policy.)

DEPRECIATION

The allowance taken for age, wear and tear and obsolescence of any item, consideration being made of the probable useful life the item may have had. It is important to remember that the depreciation factor is applied to the replacement value at the time of the loss and not to the original cost new of the item.

DEPRECIATION INSURANCE

See Replacement Cost Insurance.

DEVIATION

A rate or premium, usually lower, which differs from the standard rate or premium filed with the state insurance department having jurisdiction. In many states "File and Use" laws have been passed, under which a company may simply file a schedule of rates, and proceed to use them. They will remain in use unless the Commissioner of Insurance contests them. In these states, the bureaus issue rate schedules on an "advisory" basis.

DIARY FILE

See Suspense File.

DIFFERENCE IN CONDITIONS INSURANCE (D.I.C.)

A form of insurance protection usually written for large industrial or commercial property risk in order to cover gaps in the standard coverage. Usually tailored to meet the particular needs of the insured. Normally the responsibility of Inland Marine Departments, the contract may be written separately or may be included in the basic policy by proper endorsement. Can include -Water Damage, Flood, Collapse, Earthquake, Landslide and other accidental occurrences not contemplated in the original contract.

DIRECT BILLING

A System whereby the company bills the insured direct for renewal premiums, and the insured remits directly to the company, or pays the agent, who in turn sends the full premium payment on to the company. The agent receives a monthly statement listing all transactions (including additional and return premiums paid), accompanied by his commission check for the month’s business. In most cases under Direct Billing, the agent performs his usual functions, such as claim reporting and other services.

DIRECT DAMAGE (OR LOSS)

Damage caused directly by a peril insured against under the policy. Under "Consequential Damage or Loss" (above), the damage done by the tree to the electrical wiring is "Direct Damage," while the damage done to the food in the freezer is Consequential or Indirect damage.

DIRECT LOSS

See Direct Damage.

DIRECT WRITER

An insurance company which sells insurance directly to the insured without benefit (either to the company or to the insured) of the services of an independent agent. Captive Agent: A term in general use describing an employee of a Direct Writer who is engaged in a sales capacity. Also applies to a person who sells insurance for a Direct Writer on a commission basis, and who, by terms of his contract, cannot effect or service insurance for any other company.

DIRECTOR OF INSURANCE

See Commissioner of Insurance.

DIRECTORS AND OFFICERS LIABILITY INSURANCE

Directors and officers of corporations may be held personally liable for damages resulting from negligent or wrongful acts even though acting in the name of the corporation. This insurance protects these individuals and reimburses the corporation (and sometimes even the individual directors and officers) for necessary legal expenses incurred for defense. Usually written with a high deductible.

DISABILITY

Physical and/or mental inability to function in a normal manner as a result of physical injury, illness or disease. There are varying degrees of disability: Partial or total; temporary or permanent.

DISAPPEARING DEDUCTIBLE

A deductible which is reduced as the loss increases until, at a given point, the deductible ceases or "Disappears" entirely. For example, in a Homeowners policy, if a $50 "Disappearing Deductible" applies, the company pays 111% of any loss in excess of $50. Thus, if the loss is $250, the company will pay $222 (111% of $200), leaving the insured with only $28 to pay. When the loss reaches $500, the insured pays nothing (111% of $450 equals $499.50) In the case of $100 "Disappearing Deductible," the factor used to apply to the amount of the loss in excess of $100 is $1 25% of $300 (the excess over the $100 deductible) would amount to $375, which is the amount the company would pay, leaving the insured’s contribution only $25. As in the case with the $50 "Disappearing Deductible," in a $500 loss, the insured pays nothing. (125% of $400 equals $500.)

DISCOVERY BOND

A fidelity bond covering the insured’s bonded employees retroactively to the date of their original employment, even if they had not been bonded previously. See Superseded Suretyship Rider and Bond.

DISCOVERY PERIOD

When a bond expires, there may have been a loss during its term which has not yet come to light. A period of time can be allowed under the terms of the bond followed expiration or cancellation to allow the insured to "discover" his loss. The time allowed is called the "discovery period." See also above and Bond.

DISINTERESTED PARTY

See Party.

DISPLAY TERMINAL

A device connected to a computer system by cable or microwaves with a screen ("CAT") and keyboard used for input and output of data.

DISTRIBUTION CLAUSE

See Coinsurance and Pro Rata Distribution Clause.

DIVIDEND

A share in the profits (if any) usually arrived at as a percentage of the premium earned by a given policy at its termination, which is returned to the policyholder of a Mutual or a Stock Participating company. Dividends are paid in accordance with the dividend rate in effect as of the termination of the policy, and can never be guaranteed in advance. In the event of cancellation of a policy during its term, the dividend is figured on the earned premium (see "Premium"), and is known as the earned dividend. Dividends may also be declared from time to time to stockholders in a Capital Stock Company out of earnings. See Mutual, Stock Participating and Capital Stock companies.

DIVISION WALL

A wall, usually of brick, masonry or stone, which separates two sections of a building, runs from the basement floor through the roof and above and has no openings. Sometimes called a "Fire Wall," this construction makes possible lower fire rates for the two -sections.

DOMESTIC CARRIER (OR COMPANY)

An insurance company doing business in a state in which its home office is located.

DRAFT

Similar to a check, except that the bank upon which it is drawn is authorized to transfer funds to cover the draft only after the maker (e.g. the insurance company) has approved payment.

DRAFT AUTHORITY

The authority given to an agent or adjuster to issue drafts in payment of losses. This authority is limited as to types of claims and amounts paid.

DRAM SHOP LAWS

Laws which impose special liability for damages or injuries arising out of the sale of liquor. Coverage for this exposure is excluded under the usual liability.

DRIVE OTHER CAR COVERAGE

The private passenger automobile policy provides protection for the insured when driving automobiles other than the one(s) described in the policy. This extension in coverage is limited in that it excludes operation of owned vehicles and those which are furnished for the regular use of the insured. The insurance on the borrowed automobile is (see) "Primary" for liability and physical damage, and the insurance on the insured’s (owned) automobile is (see) "Excess" in the event of an accident or other covered loss. In "No-Fault," the reparations benefits or "Personal Injury Protection" (PIP) afforded under the insured’s (borrower’s) automobile is primary, and any such benefits which may cover the borrowed automobile are not available to the borrower, since they are not considered "excess," and do not operate in the above situation.

DRIVER TRAINING CREDIT

A credit allowed by insurance companies in consideration of a young driver having successfully completed a driver training course approved by the state board of education and/or the state motor vehicle department.

DWELLING FORMS (FIRE)

In addition to the regular forms for Dwelling Building(s) and Contents, Office Furniture, Fixtures, Instruments and Supplies in buildings otherwise designed and occupied solely for dwelling purposes, there are two forms commonly used for dwellings: Broad Form: ($100 Deductible applicable to all perils.) Covers dwelling building(s) and/or contents for broad named perils. Special Building Form: ($200 Deductible applicable to all perils.) An All-Risk coverage for dwellings (not contents) and excludes only specified exposures. Under the above forms, Dwellings designed for occupancy by more than 4 families or subject to farm rates are not eligible. Also, these forms are not recommended if property otherwise qualifies for Homeowners policy.

back to top back to top arrow

EARNED COMMISSION

See Commission.

EARNED DIVIDEND

See Dividend.

EARNED PREMIUM

See Premium.

EARNINGS INSURANCE

A type of business interruption insurance for small mercantile and non-manufacturing businesses which is a relatively simple form, and requires no coinsurance. It provides payments for loss of business during a shut-down period while the damaged property is being repaired, and is a simplified version of the Gross Earnings form. While no coinsurance is required, the policy does include a limitation of 1/6, 1/4 or 1/3 of the amount of insurance during any 30 day period of delay. The face amount of the policy therefore, should be at least six, four or three times the monthly needs, depending on the limitation selected. See also Business Interruption, Gross Earnings Form and Time Element.

EASEMENT

The right to pass over or through the property of another.

EFECTIVE DATE

The date and hour at which an insurance policy or endorsement goes into force. The Standard Fire Policy provides that insurance takes effect "at Noon, Standard Time at the Location of the property involved." "Standard Time" is generally regarded by the courts as "Daylight Savings Time" if that is legally in effect at the location of the insured property. Most policies covering real or personal property become effective at 12:00 Noon, while most casualty policies become effective at 12:01 A.M. This arrangement was suitable a few years ago when by charter, companies were permitted to write either Property or Casualty Insurance, but not both types. When statutes permitting companies to write both property and casualty lines in a single policy, the definition of "Effective Time" became a problem. Since that time, multi-line (multiple-peril) policies with a common effective time have been approved in practically all states.

ELECTRONIC DATA PROCESSING (EDP)

See Data processing.

EMBEZZLEMENT

The fraudulent appropriation of property (usually money) to which the individual has been entrusted. Although this usually means an employee, it also could be an attorney, an attorney-in-fact, one -who has power of attorney, or any other fiduciary. Conversion has the same meaning, but is restricted to property rather than money.

EMINENT DOMAIN

The right of government to appropriate private real property for public use; to confiscate or condemn any property for the common good. When the property taken results in a necessary public benefit, the owner is entitled to fair compensation.

EMPLOYEE, RESIDENCE

See Residence Employee.

EMPLOYERS’ LIABILITY

The common law doctrine placing legal liability on the employer for injuries to his employees. Modified through the years by statute, Employers’ Liability has now been largely replaced by Worker’s Compensation Insurance, which provides protection for employees whether or not negligence can be shown. Since Worker’s Compensation Insurance covers only the obligations of the employer under the various Worker’s Compensation Laws, no such law covers every situation in which an employee may seek to recover damages from his employer. In such cases the employee is free to take legal action against his employer for recovery. Inasmuch as all other Liability Policies specifically exclude coverage for employees, there has been included in the Worker’s Compensation Policy a second Insuring Agreement, Coverage B, Employers’ Liability, to cover the gap. While there is no dollar limit of coverage under the Worker’s Compensation contract itself (any and all sums must be paid in accordance with the state regulations, regardless of amount). Employers’ Liability (Section B) does have a limit. The limit applies per occurrence, with no separate limit per person.

EMPLOYERS’ NON-OWNERSHIP LIABILITY

See Non-Ownership Liability.

ENCUMBRANCE

Property (real and for personal) to which the owner does not have complete and clear legal title is said to be "encumbered." "Encumbrance" may be in the form of a mortgage, lien for unpaid taxes, "Mechanic’s Lien" for materials and/or labor, attachment (to secure claims by others for alleged obligations of the owner not necessarily related to the property), survivor’s rights or other legal restrictions.

ENDORSEMENT

A printed or otherwise written or typed statement attached to and made a part of an insurance policy, amending, clarifying, restricting or expanding the declarations or conditions of the policy. Changing circumstances often require that alterations be made to an existing insurance contract. Addition or elimination of a mortgagee or loss payee, change in coverage or limits, change of classification or basis of rating are just a few of the many changes which are made possible by the use of an endorsement. Were it not for endorsements, the alternative would be cancellation of the existing policy and issuance of a replacement to accomplish changes. This would be going from bad to worse, or much more worse. A "Rider" accomplishes the same purpose, but applies to bonding, health and accident and life insurance. The two terms have, unfortunately, been often used interchangeably.

ENGINEER

See Safety Engineer.

ENTITY

A unit recognized as being responsible under the law for its (his, her, their) acts or omissions which may affect the physical, mental or financial condition of another entity. An individual, a partnership, a corporation or association is considered an "Entity" under the law.

EQUIPMENT

Term used in insurance describing personal (movable) property owned by a business, not including items of inventory or supplies.

EQUITY

Literally, "Justice." Financially, the owner’s portion of the value (as measured in terms of money) of his property after the amount of (see) encumbrance (mortgage, lien, etc.) is deducted from the value of the property.

EQUITY RATING

A form of rating based on the insured’s experience. Similar to Experience, Merit and Retrospective Rating, but usually used on the very large risks for those insureds with better than average experience.

ERRORS AND OMISSIONS INSURANCE (E & 0)

Coverage for liability resulting from errors or omissions in the performance of professional duties (other than medical (see) Malpractice). Applicable as a general rule to professional business activities such as banking, accounting, law, insurance and real estate. With regard to insurance, covers loss occasioned by failure, whether by error or omission, to have adequate or valid insurance in force, including failure to renew without prior notice to the insured.

ESCROW

A deed or any instrument of property or an amount of money as part of an agreement which is entrusted to a third party (the "Escrowee" or "Escrow Agent") to be held by him until certain obligations of one of the parties to the agreement are fulfilled, at which time the deed, instrument or money is given to that party.

ESTIMATED PREMIUM

See Premium.

ESTOPPEL

A legal term referring to the prevention of a party from making. a claim which he might ordinarily have a right to make, except for a previous action taken by him (e.g., waiver or release) or by a court of law.

EVIDENCE OF FINANCIAL RESPONSIBILITY

See Financial Responsibility.

EX DOCK, NAMED PORT OF IMPORTATION

An ocean marine agreement under which the seller is responsible for all charges involving delivery of goods (including duty) to the designated port of entry. Under this agreement seller must also provide and pay for marine insurance (including War Risk) and is and remains responsible for the goods after delivery to the named port until the buyer or his authorized agent (not his insurance agent) takes physical control of the goods or until the time stipulated in the agreement expires, whichever comes first.

EX GRATIA PAYMENT

Payment by an insurance company of a loss for which it is not obligated to pay under the policy. This is sometimes done because of an error, oversight or misunderstanding on the part of the company, the agent or the insured. Payment is made entirely at the discretion of the company for various reasons, among which may be: to save a favorite agent’s face; to preserve the company’s image; to avoid litigation or simply to keep a prized account.

EX POINT OF ORIGIN’

An ocean marine contract under which the seller agrees to deliver goods to a designated location (warehouse, etc.) on or before a particular date (or within a stated period of time). On the agreed date or upon the expiration of the period of time specified, the goods become the responsibility of the buyer, whether or not he or his authorized agent takes physical possession.

EX WORKS

An agreement in ocean marine under which the buyer is responsible under a purchase agreement for transportation, insurance, duties and all other expenses involved, from the premises of the seller to the final destination of the goods.

EXAMINER, CLAIMS

See Claims Examiner.

EXAMINER, INSURANCE DEPARTMENT

An employee or other authorized representative of a state insurance department whose duties include the examination of the books and the reviewing of the procedures required of insurance companies licensed in that state to verify that the department’s regulations are being followed.

EXCEPTED PROPERTY

Term generally used to refer to property not covered by a policy but which may be added by endorsement. "Uninsurable Property," by contrast, cannot be covered.

EXCEPTIONS, STATE

See State Exceptions.

EXCESS AND SURPLUS LINES

When a risk cannot be placed in either the (see) Voluntary or Residual market, the agent or broker has the option of placing it with a "Non-Admitted" company through an "Excess" or "Surplus Lines" broker who must be licensed under the laws of your state to represent the non-licensed underwriter, such as Lloyd’s of London or other non-licensed facility. Any domestically licensed agent or broker may legally accept a commission for the placement of such a risk. (See Non-Admitted Company, Voluntary Market, Residual Market.)

EXCESS COVER

See Reinsurance.

EXCESS INSURANCE

Insurance which pays only after the amount of a loss exceeds a previously agreed amount which may or may not be insured under another primary policy or policies. An excess policy does not contribute in the event of a loss and until applicable primary insurance is exhausted, and where other excess insurance exists, it contributes only its proportionate share of such excess loss. (See also Primary Insurance, Reinsurance and Retrocession.)

EXCESS OF LOSS REINSURANCE, AGGREGATE

A reinsurance contract under which an insurance company may make certain that it does not exceed a predetermined net loss ratio. Should the company (the "ceding carrier’) exceed the net loss percentage, the reinsurance company (the "assuming carrier") is bound by the agreement to reimburse the primary company the amount necessary to bring its net loss ratio back to the agreed percentage. See Reinsurance.

EXCLUSION(S)

Specific reference to exposure(s), condition(s), situation(s). or item(s) not covered in a policy.

EXEMPLARY DAMAGES

See Punitive Damages.

EXPENSE CONSTANT

An amount added to the premium charged on small policies to help cover the cost of handling such policies. This charge is applied to Worker’s Compensation policies, and is usually $15 or less. The charge depends on the total policy premium developed, rather than the classification of the risk. Generally speaking, on a risk with premiums in excess of $500, no charge for Expense Constant is made. (See also Loss Constant.)

EXPENSE RATIO

The relationship between a company’s (or a line’s) expenses and its premium, expressed in percentage.

EXPENSE, ADDITIONAL LIVING

See Additional Living Expense.

EXPERIENCE

The record of the ratio of premiums to losses of a given insured, agent, area, class of coverage, company, or the industry as a whole.

EXPERIENCE RATING

A system of estimating rating based on loss experience of an industry. Also known as "Merit Rating" or "Judgment Rating."

EXPIRATION DATE

The date (and time) on which insurance protection under a given policy is scheduled to cease. See discussion under Effective Date.

EXPLOSION

This term is generally not specifically defined in insurance policies except for exclusions (see below). A definition widely accepted by the courts is that an explosion is evidenced by a sudden and violent bursting and breaking or expansion of a container caused by an internal force or pressure, with material going outward from the center and usually accompanied by a noise. The following are not considered "explosions" for insurance purposes: 1.) electrical arcing, 2.) water hammer, 3.) rupture or bursting of pipes, 4.) "Sonic Boom" and 5.) rupture or bursting of rotating or moving parts of machinery caused by mechanical breakdown or centrifugal force.

EXPOSURE (OR HAZARD)

A condition, material, activity or situation, or the proximity to any of these, which creates or increases the possibility of a loss. Also, the measure of such possibility. Two risks may be insured against the same exposures (or hazards), but the possibility of loss may be far greater in one (type of construction, operation, materials handled, etc.) than in the other. The greater exposure to loss should determine the rate or premium charged and certainly should be a factor in deciding the acceptability of the risk. Exposure is also defined as the source of possible loss--wind, fire, explosion, earthquake, etc. The terms Exposure and Hazard are often used interchangeably with the word "Peril."

EXTENDED COVERAGE

Extends the coverage of a fire policy (which covers for fire and lightning only) to include loss due to Windstorm, Hail, Explosion, Riot, Riot attending a strike, Civil Commotion, Damage by Aircraft, Motor Vehicles or Smoke Damage. The endorsement excludes Vandalism and Malicious Mischief which may be added by endorsement for an additional premium. The Extended Coverage Endorsement does not apply to a standard fire policy unless a specific additional premium is charged; it must be written for the same amount as the fire policy; it must apply to all items covered by the policy and it does not act to increase the amount of insurance afforded by the policy to which the endorsement is attached.

EXTRA EXPENSE INSURANCE

A "Time Element" form of insurance which helps to pay for loss due to suspension of operations caused by a covered hazard. It is designed to pay for the "extra expenses" involved in continuing operations with a minimum of interruption until such time as the damaged premises can be repaired or a different usable premises can be obtained. Unlike "Business Interruption" coverage, which pays for loss due to suspension of operations, Extra Expense Insurance enables a business to continue necessary operations (health care facilities, laundries, newspaper publishing, etc.) which, if interrupted for any length of time, could seriously, if not fatally, damage a business operation. "Time Element" insurance may be tailored to the particular business, and may be added to the regular property insurance policy or may be written as a separate contract.

back to top back to top arrow

F.A.S.

See Free Along Side.

FACE AMOUNT

The amount shown in dollars of the limit(s) of the company’s liability in the event of a covered loss.

FACE SHEET

A transcript of the information shown on the (see) Daily Report, plus claim and loss history information.

FACSIMILE TRANSMISSION

An electronic, electromechanical system for high-speed transmission and reproduction of exact copies of documents of any kind (letters, contracts, engineering drawings, etc.) over telephone lines, microwave or a combination of both. Sometimes referred to as "electronic mail," or ‘fax," the procedure, as indicated in early court decisions appears to be legally acceptable.

FACTOR

A number (multiplicand) used to multiply base premiums or rates to arrive at the proper premium for a higher (or lower) exposure than the base or norm. Examples are factors to increase limits from basic limits from basic limits shown in the manual, and the "Territorial Factors" (or "Multipliers") used in rating Plate Glass. A Factor is also used in the Revised Classification and Rating Plans (e.g. "217" Plan). In the latter, it is arrived at by the combination of the "Primary" factor and the "Secondary" factor (which adds, subtracts or is 0.00 and therefore has no effect) resulting in the "Final" factor which is used to multiply each Base Premium for the coverages desired. Not to be confused with (see) Increment. In general business use, "Factor" refers to one who acts for another in certain transactions, such as discounting accounts receivable. (See also Increment, and Surcharge.)

FACULTATIVE (BASIS)

A type of reinsurance agreement under which -each risk is specifically reinsured under a separate agreement. Since each item for reinsurance is treated as a separate proposal, subject to acceptance or rejection by the assuming carrier, the method has been largely replaced by "Treaty Basis." (See Reinsurance and Treaty Basis.)

FAIR PLAN

(Fair Access To Insurance Requirements"). A federally funded reinsurance plan designed to increase the availability of property insurance in areas prone to riot damage. Property insurance (not including automobile, farm or manufacturing risks) for home and business owners is made available in eligible urban areas when such coverage is not available through normal channels.

FAMILY AUTOMOBILE POLICY (FAP) OR PERSONAL AUTOMOBILE POLICY (PAP)

Designation of the broad private passenger automobile policy developed from the National Standard Liability Policy which, for example, did not cover the operation of non-owned automobiles except by endorsement or a separate policy. The new policy not only included such operation automatically (with certain exceptions) but is broader in other respects. In order to qualify for the Family (or Personal) Auto Policy, the risk must meet certain eligibility requirements. Excluded are commercial vehicles (except pickup, panel delivery and jeep-type vehicles not customarily used for commercial purposes other than ranching or farming), public or livery conveyances, motorcycles, three-wheeled vehicles, scooters or others not designated for use on public highways. (See also Basic Automobile Policy.)

FAMILY PROTECTION

See Uninsured Motorist Endorsement.

FEDERAL TORT CLAIMS ACT

An act allowing persons to bring legal action against the federal government for injuries or damages in cases where the government could be held liable were it an individual or other legal entity.

FELONY

A crime regarded under the law as especially vicious, punishable by death or imprisonment. (See also Misdemeanor.)

FIDELITY BOND

A bond guaranteeing an employer the honesty of his employee(s). (See Bond.)

FIDUCIARY

A person or corporation appointed in trust to act for another, particularly with regard to monetary or legal matters. A conservator for an incompetent person or an executor or an administrator of an estate are examples of a "Fiduciary." (See also Power of Attorney and Attorney-in-Fact.)

FIELDMAN

See Special Agency.

FILE AND USE

See Deviation.

FINANCED PREMIUM

An agreement by which a lending institution will advance the full premium to the insurance company and accept prearranged periodic payments from the insured. The payment plan is arranged with a down payment and subsequent payments so that premiums paid are always ahead of the cancellation table, and the lender, by contract, has the right to require cancellation.

FINANCIAL RESPONSIBILITY LAWS

All states except Massachusetts and Puerto Rico (which have compulsory automobile insurance) have some form of automobile financial responsibility laws which require that owners and operators of motor vehicles give some proof that they are able to pay for injuries to others or damage done by reason of the operation of the motor vehicle. These laws generally operate after one or more of the following: 1.) an automobile accident involving bodily injury or property damage over a certain minimum; 2.) a conviction for certain offenses (intoxication, etc.) or a series of convictions whether or not they involve an accident; 3.) failure to pay final judgments arising from an automobile accident. Failure to provide Proof of Financial Responsibility will result in license suspension. Proof is usually required for a period of 3 years but can be as long as 5 years. By far the easiest and best evidence of Financial Responsibility is to have an automobile liability insurance policy with adequate limits in force at the time of the accident, or at the time Proof is required. Most states have reciprocal agreements regarding suspension of license for failure to provide Proof of Financial Responsibility in the event of involvement in an out-of-state accident. Proof of Financial Responsibility is often called Evidence of Financial Responsibility.

FINISHED STOCK

Merchandise of a manufacturer which has been completely processed and is ready for sale (as opposed to "goods in process.")

FIRE

From an insurance standpoint a fire must be: 1.) the result of actual ignition of the property covered as evidenced by a flame, glow or some kind of light (smoke alone is not sufficient), and 2.) accidental as far as the insured is concerned. Friendly Fire: A fire located in and confined to a place where it is supposed to be, such as in a burner, stove, fireplace or furnace. Hostile Fire: A fire which escapes its intended original container, or which originates elsewhere, and does damage to property.

FIRE INSURANCE POLICY

The Standard Fire Insurance Policy reimburses the insured up to the specified amount for all direct loss by fire, lightening, and by removal from premises property endangered by the perils insured against in the policy. This is of course a simple statement of what the fire insurance policy does. There are standard restrictions and limitations. Briefly, these are as follows: The policy will not pay for: 1.) More than the extent of the actual cash value (ACV) of the property at the time of the loss; 2.) more than the amount which it would cost to repair or replace the property with material of like kind and quality within a reasonable length of time after the loss; 3.) any increased cost of repair or construction required by any ordinance or law (e.g. local building code, etc.) regulation construction or repair; 4.) compensation for loss resulting from interruption of business or manufacture; 5.) more than the insurable interest of the insured. The above is only a brief summary of the provisions and limitations of the Standard Fire Policy. The limitations described here may be covered by endorsements or other insurance by payment of an additional premium.

FIRE WALL

See Division Wall.

FIRE-RESISTIVE

Refers to noncombustible materials used in construction of buildings and parts of buildings to prevent the spread of fire and to minimize its effect. Also refers to items other than buildings, e.g. clothing, drapery material, furniture, etc.

FIRST AID EXPENSE

See Immediate Medical/Surgical Payments.

FIRST PARTY CLAIM

See Claim.

FIXTURES

See Furniture and Fixtures.

FLAT CANCELLATION.

See Cancellation.

FLAT RATE

Term used in fire insurance before any credits for coinsurance are applied. Rate used by insured if he does not want to carry insurance to value or near value, and still avoid becoming a coinsurer in the event of a loss. Most all insurance companies are averse to writing flat rate policies. See also Coinsurance.

FLEET POLICY

A risk having five or more self-propelled vehicles of any type is eligible for the Automobile Fleet Plan. A Fleet Reduction Factor (discount) begins with the sixth vehicle, but does not apply to any vehicles rated under the Long Haul Trucking Rule, nor to any vehicles which are not owned by the insured. Most fleets are written on a "Reporting Form" basis, which automatically covers newly purchased or licensed vehicles, and allows credit for unlicensed or sold vehicles. A premium is estimated (the "Advance" or "Deposit" premium) based on the equipment owned and operated by the insured at the inception of the policy, and at the end of the policy term, the policy is "audited" to determine the actual premium earned for the exposure. Credits for suspension (See "Suspension--Automobile") are allowed except on vehicles for which a certificate of Financial Responsibility has been filed. (See Reporting Policy.)

FLESCH READING EASE TEST

This test, developed in the early 1950’s by Rudolph Flesch, attempts to measure the relative ease with which material can be read (and presumably understood) as compared to other material. The approach is to convert into mathematical formula, by means of average number of syllables per word, average number of words per sentence and with credits given for so-called "personal" words such as "you", "we," "they," etc. Random samples of 100 word segments are taken from the text to be rated and scored, and the results are entered into the formula. The test "score" is determined from this equation, and ranges in scale from 100 (the simplest--probably "Da-da" and "ma-ma") down to 0-- the lower the score being the more difficult to understand (an example of which might be Bill Buckley having a conversation with himself). Following are typical score ranges: Comics: 90-100; Time Magazine: 60-70; scholarly works: 30-50; scientific and professional: 0-30, and many in between. Most legislation has required insurance and other consumer contracts to score a 45 or higher grade to be acceptable. The range (30-50) is described by Flesch as "difficult" or (see above) the academic or scholarly level. At this level, according to Flesch, 33% of the adult population of the U.S. who have completed high school and some college are able to understand--one out of three!

FLOATER

A policy designed to cover personal (as opposed to real) property which is moving or can readily be moved, such as jewelry, musical instruments, coin and stamp collections, etc. These are generally written on an all-risk, world-wide basis, except that some are restricted to the United States and Canada. (See also All-Risk and Inland Marine.)

FLOOR PLAN

Dealers in "high ticket" items such as automobiles or expensive appliances frequently borrow money, using as collateral the items "on the floor," i.e. in stock. Insurance taken out by the bank or finance company for its interest alone or together with the dealer on these items is called "Floor Plan" insurance. This type of insurance is written on a "Reporting Form" basis. (See Reporting Policy.)

FOREIGN COMPANY (OR CARRIER OR INSURER)

An insurance company doing business in a given state whose home office is located in another state or country. (See also Domestic, Admitted and Allen company.)

FORGERY

The falsifying of any writing with fraudulent intent. Alteration--Changing the amount or the name of a payee or an endorse ment on a negotable instrument (check, etc.) with intent to defraud--is considered forgery.

FORM

A printed endorsement attached to a policy which restricts, broadens, clarifies or otherwise modifies policy coverage. Term is also used to refer to the basic policy, its type and the "Declarations" made a part thereof.

FORTUITOUS

Happening by chance as opposed to design; accidental; apparently without cause.

FRANCHISE CLAUSE

A marine concept providing that no payment shall be made unless a loss exceeds an agreed amount (the "Franchise"), in which case the company pays the full amount of the loss from the first dollar on. This differs from "Deductible" where only the excess of the agreed amount is paid by the company in the event of a loss. It differs also from the "Disappearing Deductible" in that it makes no payment at all until the "Franchise" is reached, and then the company pays the full amount. (See Deductible and Disappearing Deductible.)

FRAUD

Deception with the purpose of gain at another’s expense. Proof of fraud voids an insurance policy. In order to establish fraud, the following elements must be proven: 1) misrepresentation or concealment of material fact. (See Concealment.) 2) knowledge by the maker that the statement was not true; deliberate concealment or positive statement(s) by the maker when the truth or falsity of such statement(s) is known to him; 3) intention to deceive; 4) actions must result in inducement of the victim, and 5) there must have been reliance in good faith by the victim on the statement(s) made by the maker which resulted in loss (measurable in terms of money), such loss being traceable directly to such reliance.

FREE ALONG SIDE (F.A.S.)

An Ocean Marine term referring to an agreement under which the seller is responsible for goods sold until goods are at ("along side") the transporting vessel.

FREE OF PARTICULAR AVERAGE (F.P.A.)

American Conditions. Under the terms of this Ocean Marine agreement, total destruction of a cargo would be covered no matter the cause, but partial losses would not be covered unless caused by one of the designated perils of the sea. American Conditions usually relate to on-deck cargo. English Conditions: Basically the same as American Conditions, but broader in that the policy will pay partial losses whether caused by designated perils of the sea or losses after such occurrence even if they are in no way directly traceable to whatever peril of the sea might have caused the loss. English Conditions generally have to do with below-deck cargo.

FREE ON BOARD (F.O.B.)

Originally an ocean marine term, now meaning any condition of sale of goods where the seller is responsible until the merchandise is placed "on board" the truck, ship, freight car, aircraft or other conveyance, at which time the burden of risk shifts to the purchaser. Also means that the purchaser is responsible for the cost of transportation from that point. "F.O.B. Destination" holds the seller responsible until the goods are safely at the designated location specified by the purchaser, and the seller pays the cost of transportation to that place.

FRIENDLY FIRE

See Fire.

FULL COVERAGE

Term indicating policy pays in full for all losses caused by perils insured against from the first dollar. Also used to describe a policy which includes all coverages against all hazards possible to insure (even though it may include "deductible" or coinsurance features). An automobile policy, for example, with every available coverage (regardless of any deductible or limit) is referred to as having "Full Coverage," since there is no other coverage which can be written on it. Despite the use of this term, there is no such animal as a "Full Coverage" policy. Some are broader in scope than others (see "Comprehensive" and "All-Risk"), but there is no insurance policy written which can be made to cover all possibilities of all losses, having no restrictions or conditions whatsoever.

FULL REPORTING CLAUSE

A condition in most reporting form policies whereby the insured is penalized in the event of a loss if it is determined that the insured has reported lower values than actually existed. (See Reporting Policy.)

FUR FLOATER

An inland marine form covering all-risks worldwide for scheduled personal furs, including garments trimmed with fur (representing their principal value). Other common "floaters" cover such things as jewelry, cameras, musical instruments, silverware and the like. (See also All Risk, Floater and Inland Marine.)

FURNITURE AND FIXTURES

From an insurance standpoint, the contents of a building except machinery, goods in the process of manufacture, goods held as a bailee or merchandise for sale or held for sale. "Fixtures" refer to personal property of a tenant which can be removed without damage to the building.

FURRIERS’ BLOCK POLICY

This insurance is designed to cover wholesale and retail dealers whose stock consists of furs and garments trimmed with fur. It does not cover those who deal exclusively in raw or dressed skins or those who manufacture for the wholesale or retail trade. Department stores with fur departments are eligible for this coverage, however. Exclusions are property of others accepted for storage, or property rented or leased or sold on the installment plan; after delivery, or generally in transit until they arrive at the insured’s premises, nor mysterious disappearance, unexplained loss or inventory shortage. Many of the above exclusions may be removed by endorsement for additional premium.

FURRIERS’ CUSTOMERS POLICY

This insurance offers all-risk protection for the furrier who (as bailee) accepts furs and garments trimmed with fur for storage, alteration, repairing, cleaning or remodeling, including pickup and delivery, against loss or damage to customer’s goods caused by negligence of the furrier or his employees. It does not cover furs or fur items which are the property of the furrier. (See "Furriers’ Block Policy.")

back to top back to top arrow

GAP OR BUFFER LAYER LIABILITY

In some cases of (see) Umbrella Liability, the primary carrier is unwilling to write underlying limits adequate to meet the limits provided by the Umbrella coverage, thereby leaving a "gap" in coverage between the upper limits the primary carrier is willing to provide and the Umbrella minimum requirements. It is possible to procure in the specialty market "buffer layer" the gap created by this situation--sometimes akin to the procedure described under "Retrocession," except that the third "Layer" of the cake is placed between the bottom and the top layers.

GARAGE KEEPERS’ LEGAL LIABILITY

A commercial automobile form which covers the legal liability of a garage keeper as bailee for damage done to customers’ cars while in his custody. Since it is a legal liability policy, it is designed to protect the insured only for those losses for which the law would hold him responsible. In actual practice, however, the courts have tended to hold him responsible for almost all types of losses to customers’ cars. An application does not usually bring a smile to an underwriter’s otherwise happy countenance.

GARAGE LIABILITY

A commercial automobile form designed to cover the legal liability of automobile dealers, repair shops, service stations, etc., for property damage and/or bodily injury losses arising out of business operations. Coverage excludes injury to employees, damage to owned or customer’s cars or other property while in the care, custody and control of the insured. In general, the policy covers premises liability, product liability, (including completed operations and liability for defective workmanship if resulting damage occurs after the property is no longer in charge of the insured.)

GARNISHMENT

An order by the court to one who has possession of property and/or money (the "Garnishee") of a debtor against whom a judgment has been obtained, directing the garnishee not to transfer the property or money to the debtor. An employer, for example, is the garnishee of an employee whose salary has been attached.

GENERAL AGENT

An agent who has an exclusive contract with a company covering a specific territory, and who, to all intents and purposes, acts as a branch office for the company is called a "General Agent." He supervises other agents (called Sub-Agents, Solicitors, Producers or Brokers) and may not solicit business directly from the public. Also, sometimes refers to an agent who has a liberal form of commission contract with the company and does solicit direct business. (See also Agent, Special Agent, Local Agent and State Agent.)

GENERAL AVERAGE

The principal in maritime law that all interests (hull owners, cargo owners, charterees and shippers) share in any sacrifice for the good of all. A good example would be the jettisoning of a part of the cargo in order to save the ship and the balance of the cargo. Particular Average refers to loss which affects only a particular interest, as opposed to "General Average" in which all interests are involved.

GENERAL CASUALTY INSURANCE

Term in general use referring to lines of insurance other than automobile and property insurance. A catch-all definition which includes many unrelated lines such as Burglary and Robbery, miscellaneous Liability, Glass, Boiler and Machinery Worker’s Compensation, Bonds, etc.

GENERAL LIABILITY

See Comprehensive General Liability.

GLASS COVERAGE, COMPREHENSIVE

See Comprehensive Glass Coverage.

GLASS COVERAGE, RESIDENCE

See Residence Glass Coverage.

GOOD STUDENT DISCOUNT

Many companies allow a discount on automobile insurance for students who maintain high scholastic grades, since there appears to be a high correlation between academic achievement and good driving experience.

GRACE PERIOD

The period of time, after the date a premium is due, during which a policy will continue in force. Usually used in life insurance, meaning a period of time (varying from 28 to 31 days) following the premium due date during which the policy remains in force even though the premium has not been paid.

GRADING, TOWN

See Town Grading.

GROSS EARNINGS FORM

A Form of business interruption where the premium is based on the insured’s total sales less cost of merchandise or service ("Gross Earnings"). This very simple form is popular with small mercantile and non-manufacturing (service) businesses.

GROSS LINE

The amount of insurance a company has on a single risk. The "Net Line" is the same thing, with the amount of reinsurance, if any, deducted.

GROSS PREMIUM

See Premium.

GUARANTY FUND

A state fund maintained through assessments (contributions) by insurance companies which are set aside to satisfy claimants and insureds of an insurance company which may become insolvent. The fund may be set up in advance to be prepared for any insolvency, or it may be created by assessment of the other companies after an insolvency has occurred.

GUEST LAWS

Legislated in about half the states, "Guest Laws" restrict the right of recovery for injury sustained by guests (passengers in the vehicle other than the driver) in automobiles by placing upon the guest the burden of proof of "Gross Negligence" of the driver. Some statutes even require that proof of gross negligence include "willful and wanton misconduct" by the driver. The operation of "Guest Laws" can be affected by the relationship between the owner or driver and the passenger: was the joint ownership or right of control of the vehicle; was money or other benefit a consideration; did an employer-employee or principal-agent exist--these relationships have a bearing on the application of Guest Laws.

GUIDING PRINCIPLES

A set of rules of recommended procedures to be used in the adjustment of claims involving overlapping casualty, fire and/or inland marine policies. Prior to the establishment of these "Guiding Principles." the insured could find himself waiting for his claim to be paid while the insurance companies involved argued as to their participation in the loss and the apportionment, if any. With the advent of combination multi-peril policies (Homeowners, for example) where all coverages are written by one company in the same policy, there are fewer problems in this area, but they do occur, and they can be serious.

back to top back to top arrow

HARBORWORKER’S COMPENSATION

See Longshoremen’s and Harborworker’s Compensation.

HARDWARE

A computer term referring to the electric, electronic or mechanical components (or any combination of these) which are part of a computer system, such as (see) Central Processing Unit (CPU), tapes and disks, optical or magnetic character readers, card readers and punchers, interpreters and sorters, and any other part of the system which could be called "tangible." (See Software.)

HAZARD

See Exposure.

HAZARD, MORAL

See Moral Hazard.

HAZARD, PHYSICAL

See Physical Hazard.

HIRED CAR COVERAGE

This insurance is designed to protect an insured against losses resulting from the operation of rented or hired automobiles. The individual who has a regular automobile policy is covered under the "Drive other Cars" coverage for hired cars only when they are not regularly or frequently used. In addition, there is no coverage under this provision when a hired car is used in the insured’s business, unless it is of the private passenger type, and driven by the insured, spouse, a chauffer or a servant. A Business which hires automobiles is covered as an additional insured under the automobile liability policy in the name of the owner of the hired car. The exposure here is that there may be no insurance or sufficient insurance on the hired car. In both the above cases, hired car coverage may be added by endorsement to the -regular automobile policy. But remember: Hired car coverage is excess over any other valid and collectible insurance under which the insured is entitled to collect, and does not cover automobiles owned by or registered in the name of the named insured, or an executive officer or partner of the insured. In addition, there is no coverage for the operation of any automobile owned by or registered in the name of an employer or agent of the insured who is given any allowance of any kind for the use of such automobile. (See Employer’s Non-ownership.)

HOLD-HARMLESS AGREEMENT

A contract in which one party agrees to assume the legal liability (to "hold him harmless") of another party for damages sustained by still another (third) party. Certain agreements (municipal ordinance requirements, except when involving work done for the municipality; elevator or escalator maintenance; easement agreements and lease of premises, etc.) are covered by Manufacturers; and Contractors’ and Owners’ Landlords’ and Tenants’ Liability policies. Any other type of "Hold-Harmless" agreement should be covered by a Contractual Liability policy. This is practically always required by a General Contractor in a sub-contract with a Sub-Contractor.

HOLDUP

See Robbery.

HOLE-IN-ONE INSURANCE

Reimburses the golfer who hits the once-in-a-lifetime hole-in-one, and then gets hit himself to pick up the tab for a round of booze for everyone who happens to be at the club at the time. This vital insurance protection enables the lucky one to enjoy himself on his day of glory.

HOMEOWNERS POLICY

Although there are other "Package" Homeowners policies on the market, the Homeowners Policy Program developed and filed by the Insurance Service Office (ISO) is much more generally in use than the others. Since most other plans are very similar, the information that follows, based on the ISO Program, is a good general guide to the scope of coverages under this form.
The Homeowners Policy is a property insurance contract which incorporates (see) Comprehensive Personal Liability coverage. With respect to direct physical damage to dwelling buildings and contents, there are five forms: HO-1 (Basic Form), HO-2 (Broad Form), HO-3 (Special Form), HO-5 (Comprehensive Form) and HO-8 (Modified Coverage Form). There are two additional forms: HO-4 (Contents Broad Form, commonly known as "Tenants Form") and HO-6 (Condominium Unit-Owners Form), which are designed to cover contents only (plus Liability). These forms offer a measure of building coverage (limited to a certain amount) applicable only to those building additions and alterations made at the insured’s expense.
All seven Homeowners forms cover property losses on either a "named" (smoke, theft, falling objects, etc.) or on an "all-risk" basis, or a combination of the two. The following is a brief guide to the coverages afforded under the Homeowners forms. The number in parentheses is the number of "named" perils covered in the form.
Form Building(s) Contents
HO-1 Named Perils (10) Named Perils (10)
HO-2 Named Perils (17) Named Perils (17)
HO-3 All-Risks Named Perils (17)
HO-4 ----* Named Perils (17)
HO-5 All Risks All Risks
HO-6 ----* Named Perils (17)
HO-8** Named Perils (10) Named Perils (10)

*Building coverage limited to insured’s interest.
**Building losses settled on an "actual cash value" basis.


All building losses are settled on a "replacement cost" basis (except HO8) provided the coinsurance requirement is met (no coinsurance requirement for HO-8). Contents losses in all forms are settled on the basis of "actual cash value," although a number of states have approved optional "Replacement Cost" endorsements for contents. (See Replacement Cost Endorsement.)
Many endorsements are available to fit the needs of the individual insured (e.g. scheduled personal articles such as furs, jewelry, etc.)

HOSTILE FIRE

See Fire.

HOUSEHOLD CONTENTS

Simplest definition: all property which an occupant of a premises would take with him if he moved. The term includes "Fixtures" (items attached to the building which are the property of the tenant) which can be removed without damage to the building. The wallpaper you put on yourself? Forget it!

HOUSEKEEPING

The degree of care, maintenance and cleanliness of a premises or operation. An important consideration in underwriting a risk.

HULL POLICY

A marine or aviation form covering damage to the body of the ship or plane.

HURRICANE

See Windstorm.

HYGIENE, INDUSTRIAL

See Industrial Hygiene.

back to top back to top arrow

IMMEDIATE MEDICAL/SURGICAL PAYMENTS

Under most liability coverages, the insured has the right to incur expense for the immediate medical and/or surgical relief to others, and to be reimbursed by the company, regardless of fault.

IMPACT PRINTER

See Printer.

IMPLIED WARRANTY

Although warranties in law are generally thought of as those made by the seller (which they are), those made in an insurance transaction are also those representations made by the purchaser. In insurance, however, the emphasis is on statements (warranties) made by the purchaser upon which the contract of insurance relies. A warranty need not be spoken or written to be legally binding. An inference which is not specifically expressed in any way may result in an "implied warranty." A material fact which is not revealed simply because no question was asked relative to that fact, is an example. Let us say you want to insure your 1989 Mercedes Benz for full coverage comprehensive and collision. The agent will not ask you if there is an engine in the car, so you do not tell him there is none. It is assumed (implied) that there is an engine in the vehicle. It is also implied that the boat you are insuring is not at the bottom of the lake, or that there are no firemen battling the blaze at your home while you are taking out a fire policy. (See Warranty.)

IMPROVEMENTS AND BETTERMENTS

Fixtures, alterations, additions or installations made a part of the building by or at the expense of the tenant or lessee. Such "Improvements and Betterments" (painting, etc.) become the property of the owner of the premises, except that the tenant is responsible for restoring such betterments in the event of a loss under most leases. The tenant’s interest in improvements and betterments may be protected under a fire policy by the addition of the endorsement of the same title at the applicable regular contents rate, and is automatically covered under Homeowners Form HO-4 ("Tenant’s") policy for 10% of the Coverage amount.

INCHMAREE CLAUSE

In ocean marine, a clause which extends the policy to cover losses caused by bursting boilers, breakage of shafts, latent defects in machinery, hull or equipment, and faulty navigation or management. Named after a ship of the same name involved in a lawsuit in 1887.

INCREASE IN HAZARD

Can void a policy. (See Change in Occupancy.)

INCREASED LIMITS

See Basic Limits.

INCREMENT

An increase; an additional amount added, sometimes expressed as a percentage of the premium or the rate. See also Surcharge, Factor.

INCURRED LOSSES

Insurance company losses (claims) which have been paid or for which reserves have been set up. The statement of Incurred Losses usually covers a fixed period of time (one year, three years, etc.) and is computed by adding the losses paid during specified period to the reserves (unpaid losses) outstanding at the end of the period. The amount of the reserves shown at the beginning of the period is then subtracted. The resulting figure is the amount of "Incurred Losses." (See Loss Reserve.)

INDEMNITY

The restoration of individual, individuals or other entity to approximately the same economic condition as prior to any loss. Sometimes, because of applicable deductibles, coinsurance or other factors, such restoration may not be complete, but the principle of indemnification does not permit the person or persons suffering a loss to be better off after a loss than before.

INDEPENDENT ADJUSTER

See Adjuster.

INDEPENDENT AGENT

A licensed individual who represents two or more insurance companies for whom he sells and services policies, and whose income is derived solely on commissions. (Compare Captive Agent under Direct Writer and Broker.)

INDIRECT LOSS

See Consequential Loss.

INDUSTRIAL HYGIENE

Term referring to the technological approach to recognition, evaluation and control of environmental factors originating in or from the workplace, including conditions which may cause sickness, impaired health or well-being or discomfort and inefficiency among workers or others in the area of such factors. These may take many forms, among which are dust, fumes, irritating liquids, gases, vapors, mists or toxic waste. Radiation, noise, vibration or extremes of temperature or pressure are also among these factors. Industrial Hygiene also includes studies of stress resulting from boredom, monotony, worry, work pressures and fatigue. The Industrial Hygienist is charged with recognizing and minimizing or, ideally, eliminating the conditions which result in adverse effects.

INFLATION GUARD ENDORSEMENT

An endorsement (optional for an additional premium) providing for automatic increases in amount of insurance periodically to prevent possibility of the danger of falling below the 80% of replacement cost coinsurance requirement.

INHERENT VICE

"X-rated" where most insurance policies are concerned. Refers to an intrinsic or innate characteristic or condition of an article which, for no apparent reason, will cause fading, cracking or even disintegration, which cannot be traced to any outside influence. Pearls will lose their luster, opals will suddenly shatter, or furs will crack or split, all evidently due to some condition in the article itself.

INITIAL PREMIUM

See Premium.

INJURY

The word "injury’ in law and in insurance is often used broadly. It can include (in addition to Bodily Injury) damage to property, or, in a broader sense, the result of an action or occurrence resulting in a change for the worse of an individual’s financial, social or professional condition or standing.

INJURY, BODILY

See Bodily Injury.

INLAND MARINE

A form of insurance designed to cover moving or moveable property, so-called because it has its origins in ocean ("wet") marine---probably the oldest form of property insurance. Since such property was known as "Floating Property," inland marine policies are frequently referred to as "Floaters." Ocean Marine contracts held the transporter liable for loss of goods before the beginning and after the completion of (in addition to) the actual ocean voyage, and the "non-ocean" part grew to large proportions during the 19th century. Most of the property reaching this country from Europe continued on its journey through the Erie and many other canals by barge, hence "Inland Marine" became a natural designation for such insurance. (See also All-Risk, Floater and Ocean Marine.)

INPUT DEVICE

Any device (card reader, magnetic tape or disk units, console typewriter terminal, etc.) capable of entering data into the Central Processing Unit (CPU) of the computer both for instructing it on how to process data and the data to be processed. (See Output Device.)

INSOLVENT INSURANCE COMPANY

See Guaranty Fund.

INSPECTION REPORT

See Credit Report.

INSTALLMENT PREMIUM

An installment payment of premium other than the initial (or "Deposit") premium under an installment premium plan. (See Audit.)

INSTRUMENT (LEGAL)

A written document detailing the terms of a legal agreement between two or more parties, spelling out the specific rights and obligations of each party. (See also Contract and Consideration.)

INSURABLE INTEREST

In the definition of insurance, we see that any loss in order to be paid must be measurable in terms of money. If a loss occurs, therefore, which cannot be translated in such measurable terms suffered by an individual or individuals, it then follows that he has not had a financial loss which can be attributed to the accident or occurrence, and he therefore has no "insurable interest" in the event. You may have a particular sentimental fondness for the Leaning Tower of Pisa, but, should it fall on its face, you would have to show a loss measurable in terms of money in order to prove you had an "insurable interest" in it. You cannot purchase insurance on property or persons with yourself as beneficiary in whose condition or state of well being you have no "insurable interest."

INSURANCE

1) An agreement by which the individual can, by payment (of "premium") to an insurance company, be indemnified partially or fully in the event of a covered loss. Such loss must be measurable in terms of money.
2) A pooling of contributions by a number of individuals for the purpose of lessening or eliminating economic loss to any one of such individuals by indemnifying him from the pooled contributions if he should suffer a loss from any one of the previously agreed upon hazards common to all the contributors.
Ed. Note: As you can see from the above, insurance is almost the exact opposite of gambling. A gambler places a bet (thereby voluntarily exposing himself to loss) with the hope of monetary gain. On the Other hand, an insured (who is faced with an involuntary exposure to loss) pays a fee--the "premium"--in order to reduce or eliminate such exposure.

INSURANCE COMMISSIONER

See Commissioner Of Insurance.

INSURANCE CONSORTIUM

A franchised arrangement for independent insurance agencies which provide for an independent contractor to work as an associate of the individual agency in servicing accounts, thereby freeing the principal(s) to pursue the larger and more lucrative accounts. The franchise agreement, in addition to providing increased visibility through group advertising, also enables the agency to participate in the benefits in training, etc. It is similar to franchises now operating nationwide in the real estate field.

INSURANCE INFORMATION INSTITUTE

A clearing house for property and casualty insurance information supported by a great many stock and mutual insurance companies. Its main purpose is to provide information to both the public and the industry for better understanding of the operation and functions of this important sector of the economy.

INSURANCE POLICY

The written contract of insurance, including all endorsements attached. Endorsements usually include the wording: "attached to an forming part of Policyd No---," etc.

INSURANCE SERVICES OFFICE (ISO)

A property/casualty rating and advisory organization which provides a variety of services to the P & C industry nationwide. Among these are statistical, actuarial and advisory support based on its broad access to the experience of its many supporting member and subscriber companies. A voluntary, non-profit association, it also designs policy and endorsement forms for all classes of insurance in this field and provides manuals for rates and rules. It is the result of the consolidation in the early 70’s of a number of separate and independent associations and rating bureaus which performed these same services for specific lines of insurance.

INSURANCE TO VALUE

An amount in insurance substantially equal to the value of the property insured.

INSURED (ASSURED)

The person(s) or other legal entity on behalf of whom an insurance company agrees to pay benefits or to indemnify for losses in the event of certain occurrences as described in the policy.

INSURED (CARRIER)

An insurance company. There are a number of different types of insurers, definitions of which may be found elsewhere in the text: Admitted, Alien, Domestic, Foreign, Mutual, Stock, Stock-Participating, Reciprocal, Reinsurance, etc.

INSURING AGREEMENTS

The portion of the insurance policy which sets forth the terms under which the insurance company agrees to indemnify the insured for loss suffered from specified perils or to pay benefits upon the occurrence of certain events as described. In brief, the agreements describe the conditions under which the company will identify the insured in event of a loss.

INSURING CLAUSE

The part of the insurance policy which spells out the basic agreement between the company and the insured.

INSUROR

A local insurance agent who is a member of Independent Insurance Agents of America (IIAA), formerly the National Association of Insurance Agents, the so-called "Stock" Association.

INTEREST, ADDITIONAL

See Additional Interest.

INTEREST, INSURABLE

See Insurable Interest.

INTERESTED PARTY

See Party.

INTERFACE

A connection (electronic, manual or electronic/manual) which makes it possible for a peripheral device to communicate with the main storage of a computer. Since insurance companies use various makes of computers, a problem of communication for producers, insurance department and rating organizations arises when it is necessary to intercommunicate. The producer, for example, in the near future would possibly have need for more than one terminal if he represented several companies which had systems which differed from on another. Adaptable interfacing devices are now available which bring about compatibility.

INVESTMENT INCOME

The earnings of an insurance company from investments such as stocks, bonds, real estate and mortgages. The manner in which these funds may be invested is governed strictly by guidelines set by the state regulatory agencies (insurance departments) which require that a certain percentage of their premium income be held in liquid reserve for payment of claims. The investment of remaining available funds is also strictly regulated as to the percentages allowed to be used for investing in various categories.

INVITEE

An individual on premises owned or in the care, custody or control of the owner or lessee, who is on or in the premises at the expresses or implied permission of such owner or lessee or agent, for business of mutual benefit to both parties. A high degree of care is imposed by law on the owner (or controller) to see that the condition of the premises is such as to minimize the possibility of injury to the "invitee." (See also Licensee, Trespasser and Guest Laws.)

INVOICE

A listing sent to a purchaser containing a description of the merchandise, and sometimes the method of shipment, the unit cost and the terms. Also, a notice of charges made for services rendered or a combination of both. (See also Statement.)

ITEMS OF ORIGINAL ENTRY

See Source Document.

back to top back to top arrow

JETTISON

An ocean marine term referring to the throwing overboard of part of the cargo or ship’s equipment in order to save the ship and the balance of the cargo. (See Genera/Average.)

JEWELERS BLOCK POLICY

See Block Policy.

JEWELRY FLOATER

An all-risk worldwide coverage contract for scheduled personal jewelry. May be issued as a separate policy or added as an endorsement to an existing policy. (See Floater.)

JUDGEMENT RATING

See Experience Rating.

back to top back to top arrow

KEETON-O’CONNELL PLAN

See No-Fault Automobile Insurance.

KEY-PUNCH

A machine with a typewriter-like keyboard which punches rectangular holes in a card, enabling an operator to record data from (see) Source Documents resulting in a standard code pattern so that the data may be "read" into the computer for processing or storage. For the most part Key-Punch now means the direct recording of data into the computer memory, (key-punch) cards are used little if ever.

KINNE RULE

A guide used by adjusters in apportioning losses under non-concurrent policies.

back to top back to top arrow

LANDLORDS PROTECTIVE LIABILITY

When an owner leases, under a written lease, at least 90% of the area of a building to another who assumes full control (except repair or maintenance for the preservation of the premises), the landlord may protect his interest under a "Landlords Protective Policy" at 50% of the rates otherwise applicable under the regular OLT form.

LAPSE

The voiding of an insurance policy because of non-payment of a renewal premium.

LARCENY

The legal term referring to the wrongful appropriation of another’s property regardless of the method used. See also Burglary, Robbery, Theft, Embezzlement and Conversion.

LARGE NUMBERS

See Law of Large Numbers.

LASER PRINTER

See Printer.

LAST CLEAR CHANCE, LAW OF

Under Contributory (see) Negligence, wherein the injured party must show himself completely free of any fault, there is a concept known as ‘Last Clear Chance" when the defendant is considered liable if it can be proven that he had a "last clear chance" to avoid the accident. Since the doctrine of contributory negligence is now for all practical purposes ignored, or at least modified, and the new No-Fault laws are substituting Comparative Negligence for Contributory Negligence, the question of ‘Last Clear Chance" has become largely academic.

LATENT DEFECT

An intrinsic defect which is not apparent in a product, and which may later make itself known with perhaps dire results. A weakness, for example, which develops in the hardening process in the fabrication of a steel drive shaft may cause the entire shaft to break under heavy strain or prolonged use.

LAW OF LARGE NUMBERS

The theory that the occurrence of events resulting in loss is the end product of pure chance, and not of the willful or deliberate action (or lack of action) by any individual or group of individuals. The larger the number of risks or exposures, the more accurate the estimate of the occurrence of such events. (See also Actuary, Insurance and Probability, Theory Of.)

LEASEHOLD INTEREST INSURANCE

A "Time Element’ type of protection which indemnifies the lessee (tenant) in the event his lease is cancelled either by a clause in the lease which automatically terminates the lease when the property is damaged, making the premises untenable (a very common, if not universal provision in leases), or by an ordinance or statute of condemnation. Such termination would require the tenant to move to other quarters, most likely at an increased rental. The difference in the new rental and the old is made up for by this type of insurance.

LEDGER-LINE RECORD

Agency copy of the original invoice, usually ontaining space for premium payments, commissions to sub-agents, etc.

LEGAL LABILITY

See Liability.

LESSEE, LESSOR

A Lessor (Landlord) grants a lease of occupancy (written permission to occupy) to a Lessee (Tenant).

LESSOR’S RISK ONLY

An Owners’ Landlords’ and Tenants’ Liability classification covering buildings or premises--bank, mercantile, manufacturing or office--not occupied by the insured (owner). Form is based on the assumption that the insured is not responsible for the care and maintenance of such buildings, and carries a lower rate than would otherwise apply.

LETTER OF TRANSMITTAL

A letter or other communication (form, etc.) which accompanies a document or other papers, describing such in detail, copy of which letter serves as evidence that such material was transferred to another party or parties. See also Bordereau.

LETTER, BROKER OR AGENT OF RECORD

See Broker (or Agent) of Record.

LIABILITY

Noun. The state or condition of being exposed, as above.

LIABILITY INSURANCE

Insurance under the terms of which the company agrees to pay a third party for bodily injury or property damage on behalf of the insured who may be held legally liable because of negligence. Legal Liability is that which is imposed by law; Assumed or Contractual Liability is that which is assumed by agreement. (See Assumed Liability, Contractual Liability, Contractor’s Protective Liability and miscellaneous other types of liability insurance discussed throughout.)

LIABILITY LIMIT(S)

See Limits of Liability.

LIABLE

Adjective. Simply stated, being obliged or held responsible for penalty, expense or burden, either imposed by law or assumed by agreement or contract.

LIBEL

The defaming of another by written or otherwise published word. Slander is also defamation, but by word of mouth (orally; spoken.) Both terms are subject to interpretation under law, but, generally speaking, in either case malicious intent must be shown. Relatively recent court decisions have in some instances denied the right of redress to well known public figures. Strangely enough, it has not always been necessary to prove that the charges themselves are false. In Ocean Marine, "Libel" means to bring suit against a ship and/or its cargo.

LIBERALIZATION CLAUSE

A clause attached to some policies (Homeowners, for example) which provides that if, during the term of the policy, any endorsements are authorized, or filings or regulations are made which would broaden or extend the coverage afforded without additional charge, such broadenings or extensions automatically apply to the policy in force without the attachment of the pertinent endorsement(s). This eliminates the need to issue thousands of endorsements to existing policies when a broadening provision is adopted. Conversely, filings or regulations made after the policy is in force which would restrict or otherwise limit coverage originally offorded may not be applied to such policy during its term. There is an exception to this rule, however, where subsequent premium payments on a policy written on a (see) Deferred Premium Plan may be subject to increase in rate or premium in effect at the due date of such subsequent installment(s). By the same token, a decrease in rate or premium would also be reflected in the subsequent installment(s).

LICENSEE

1) One who is granted the right to do something by someone in authority. 2) Similar to a (see) In v/tee, but who is on or in premises for personal or social reasons (rather than business), where the obligation of the owner or lessee with regard to care is of a somewhat lesser degree than in the case of an "lnvitee." (See also Invitee, Trespasser and Guest Laws.)

LIEN

A legal claim against real or personal property which guarantees satisfaction of some obligation (usually monetary). A Mechanic’s Lien is a lien by a person who has done some kind of work (plumbing, electrical etc.) pertaining to the property and who has not yet been paid for the work. He files the lien to make sure the property cannot be sold or otherwise disposed of unless and until he has been paid for his labor and materials. (See also Encumbrance and Mortgage.)

LIGHT

Glazier’s term for a pane or plate of glass.

LIGHTNING

A charge of electricity generated by nature, as opposed to a short circuit which is caused by electrical current artificially generated.

LIMIT(S) OF LIABILITY

This term refers to the maximum amount(s) an insurance company is obliged to pay in the event of a loss.
In most policies covering for liability for Bodily Injury, two limits are provided: the first is the limit of liability for injury to any one person; the second (usually higher) is the limit of liability for bodily injury as a result of a single occurrence, regardless of the number of persons injured, and the first limit is contained in the second, and is not excess. (25/50 limits does not afford $75,000 protection, for example.)
Property Damage is written with one limit per occurrence, subject sometimes to "Aggregate Limit--see below.
When you hear the expression, "20-50 and 5," or a similar expression, the first two figures given refer to the Bodily Injury limits (in thousands) as described above; the third refers to the Property Damage limit, also in thousands.
In some types of policies (Malpractice, Product, Manufacturers’ & Contractors’ Liability, for example) there is also an Aggregate Limit of liability which is the maximum limit payable under the policy for losses paid during the policy period.
Some policies (e.g. "Special Auto") provide a Single Limit of liability for one occurrence for Bodily Injury and/or Property Damage. Single limits are becoming more common on Automobile Insurance Policies as of the printing of this publication.

LIMIT(S), INCREASED

See Basic Limits.

LIMITED COLLISION COVERAGE

A form of automobile physical damage insurance which covers only when the insured is free of fault.

LIMITED POLICY

Type of policy which specifically limits the kind(s) of losses covered. (See Broad Form and All-Risk.)

LINE

1) Any particular category or type of insurance.
2) All the different types of insurance written for any particular insured.
3) The dollar limit written for an insured on a particular risk.

LINE GUIDE (OR LIMIT OR SHEET)

A list issued as a guide for agents and underwriters specifying the maximum amounts of limits to which a company will commit itself on any one risk, risk classification and/or area.

LIQUID ASSETS

See Assets.

LIVING EXPENSES

See Additional Living Expenses.

LLOYD’S OF LONDON

A corporation organized to supervise a group of underwriters who underwrite nearly every kind of insurance risk. It was originally a group of shipping merchants who met regularly at Lloyd’s Coffee House in London and pooled their resources so as to be able to contribute their share to marine losses resulting from perils of the sea, piracy, fire, mutiny and other hazards to ship and cargo. Lloyd’s, now made up of syndicates of underwriters, will assume almost any insurance risk, tailoring their contracts to fit the needs of their insureds.
Lloyd’s of London has to this day never failed to honor a claim. A "non-admitted" market facility, Lloyd’s also does a considerable business in the reinsurance field. U.S. brokers and agents generally do not have direct access to Lloyd’s, but (depending on various state laws), may place business with their U.S. representatives for risks not acceptable in the domestic "voluntary" or "residual" market.
American Lloyd’s (no connection) operate in a similar fashion, but are managed by attorneys-in-fact who act for members who participate in a given percentage of each risk. Individual participating underwriters usually have an agreement which limits their liability for losses, and must make deposits with the organization from time to time as evidence of their financial responsibility.

LOADING

A flat charge or percentage added to the regular premium to provide for extra expenses or profits, or to compensate for special conditions or situations in a risk or class of risk. Most minimum fire premiums now contain a "loading" charge. A Civil Disorder Loading (usually ranging from 2%to 4% of the policy rate) is added to the Fire and Extended Coverage rate in many areas where chances of unusual damage may result from such disturbances. Often applies in Inland Marine insurance.

LOCAL AGENT

An agent whose function is described generally under the definition of "Agent." His operations are mostly local in nature, confined to his own towns, but he may write and service insurance anywhere in his state.

LONGSHOREMENS & HARBORWORKERS COMPENSATION ACT

A special federal compensation law similar to Worker’s Compensation, but covering maritime workers other than masters and members of the crews of vessels.

LOSS

A term loosely used. Generally speaking, it refers to 1) the amount for which an insurance company becomes liable if the event insured against occurs, or 2) the event itself. The word Loss is used in property insurance to refer to damage or injury sustained by the insured (the so-called "First Party" claim). In liability, the term refers to injury to others or damage to their property for which the insurance company is liable to pay on behalf of the insured (a "Third Party’ claim). (See also Consequential Loss and Constructive Total Loss.)

LOSS CONSTANT

A surcharge applied to Worker’s Compensation Policies to off set the disproportionately higher loss ratio found in policies developing relatively smaller premiums. The Loss Constant charge varies with the classification, usually ranging from $5.00 to $20.00, and is waived when the premium exceeds $500. (See also Expense Constant.)

LOSS CONTROL

See Safety Engineer.

LOSS INFORMATION SERVICE

A service maintained by the National Board of Fire Underwriters which supplies insurance companies with the names of persons who have been suspected or convicted of arson, or who have in some way been connected with fires of suspicious origin.

LOSS OF CONSORTIUM

See Consortium, Loss of.

LOSS PAYABLE CLAUSE

A clause providing for payment of loss to someone other than the insured who has an insurable interest in the property involved. Generally used for property other than real estate. As a general rule, when a loss occurs, payment is made to the order of the insured and the Loss Payee.

LOSS PAYEE

See Loss Payable Clause.

LOSS PREVENTION SERVICE

As the term implies, this is work done by independent consulting organizations or by a department within an insurance company involving inspection of large risks with a view to eliminating conditions which might cause accidents or other types of losses.

LOSS RATIO

The relationship of losses in dollars to premiums in dollars, expresses in terms of percentage. Other comparisons are also referred to as "Loss Ratios," such as Earned Premiums to incurred Losses; Written Premiums to Paid Losses, etc. (See also Incurred Losses and Experience.)

LOSS REPORT

A report to the company describing a loss involving an insured. Should be made promptly, even if all details may not be immediately available. A report of loss by an insured to the agent is considered a report to the company. Many policies also require a report to the police (or "proper authority") within a time limit specified in terms of hours; others within a "reasonable time."

LOSS RESERVE

An estimate of the amount of money an insurance company expects it may have to pay for reported loss. This amount of money is set aside as a "reserve" as soon as possible after receipt of the loss report.

LOST INSTRUMENT BOND

When stock certificates, bonds, insurance policies, government checks, certificates of indebtedness or of deposits, etc. are lost, the issuer will issue a duplicate when the owner can guarantee the issuer against loss in the event that the issuer may mistakenly honor the lost instrument and pay the bearer into whose hands the document may fall. A Lost Instrument Bond supplies this guarantee to the issuer. (See Bond, Instrument.)

LOST POLICY RELEASE (OR RECEIPT)

A document which, when signed by the insured (and, when named in the policy, the mortgagee), legally effects the cancellation of a policy in the event it cannot be located. (See also Cancellation.)

back to top back to top arrow

MACHINE (COMPUTER) ISSUANCE

The preparation of policies and endorsements by computer printout. (See Data Processing.)

MAGNETIC-INK CHARACTER RECOGNITION (MICR)

A computer technique used in reading numbers of a specific size and configuration which are printed in an ink mixed with finely ground iron powder which can be magnetized and read by special reading devices. This method is used primarily by the sorting and recording of the millions of checks processed daily, a job which would be totally impossible if left to manual handling. (See also Optical-Character Recognition--"OCR".)

MALFEASANCE

See Malpractice.

MALICIOUS MISCHIEF

Willful damage to or destruction of property with malice. Vandalism results in the same damage, but the malicious intent is somehow absent, or unproved. Although the definitions are historically different ("Vandalism" at one time referred to damage done to works of art, for example), the two terms are used almost interchangeably today.

MALPRACTICE

Failure to exercise the degree of skill which could normally and reasonably be expected of a professional person. Improper or illegal treatment, as in medicine or surgery, including omission of indicated treatment. Malfeasance (mal-feez’-ance): Unlawful or wrongful action, especially by a public official. Misfeasance (mis-f eez’-ance): Failure to perform an act required by law; improper performance of a lawful act.

MANDATORY INSURANCE

A type of insurance required by statute but more in the vein of pointing to an imposed rule. Stops short of definite implication that severe penalties for non-compliance will result. Example: some states "require’ automobile liability insurance, but do not require a policy or other evidence of financial responsibility to be on file with the state motor vehicle department. In this case it is possible for an individual to operate a motor vehicle without insurance--that is unless he becomes involved in an accident or is charged with a violation. If it happens, the penalties range (depending on the state) anywhere from a small fine and a slap on the wrist to a heavy fine and a requirement to file evidence of financial responsibility. In states with "mandatory" laws, some risk categories (repair garages, public or livery services, taxi and other similar services) which require special licenses to operate, must show evidence of insurance or financial responsibility with the motor vehicle department in order to obtain and maintain their licenses to operate. (See also Compulsory Insurance, Financial Responsibility.)

MANUAL

A book containing rules and rates covering a particular field of insurance (Fire, Plate Glass, Inland Marine, etc.). It is usually published by a rating bureau having jurisdiction, an insurance company to cover a special program, or a private publisher such as SIMPLA-FAX, which publishes digests of rules and pre-figured premiums and rates.

MANUAL RATES

Rates set forth as the basic cost of units of insurance as shown in the particular manual(s), promulgated by Rating Organizations having jurisdiction, or by a company itself. These rates (or premiums) are usually subject to modification by surcharges or credits for increased amounts or limits, or above or below average exposure to loss. Contrast to Judgment or Experience Rates.

MANUFACTURERS’ AND CONTRACTORS’ LIABILITY ("M. & C.")

A form of insurance covering liability of insureds for bodily injury or property damage (except to insured’s employees) on or away from the insured’s business premises or shop operations.
This form is generally used for an insured whose operations away from owned or rented premises are substantial, such as a heating, plumbing or electrical contractor. Premium is usually based on payroll, although in come cases receipts.
Coverage is not provided for damage to property which is owned by, rented to, or in the care, custody or control of the insured. For example: If an installer of Venetian blinds should accidentally knock over a lamp belonging to a customer when bringing the blind into the room to install it, there would be coverage, for the simple reason that the lamp was not owned, rented to, or in the care, custody or control of the insured. Completed Operations Coverage is also excluded. (See Completed Operations.)

MARINE EXTENSION CLAUSE

Provision in Ocean Marine policies which provides automatic continuation of coverage at no additional premium when transit is interrupted, delayed or suspended because of circumstances beyond the control of the insured.

MARINE INSURANCE

See Ocean Marine, Inland Marine.

MARINE PROTECTION AND INDEMNITY INSURANCE

See Protection and Indemnity.

MARINE SURVEY

See Survey.

MARKET VALUE

The amount of money a seller may expect to receive from the sale of real or personal property, service or securities at any given time.

MARKET VALUE CLAUSE

An agreement (not permitted in all states) providing that, in the event of a covered loss, stock (merchandise) is to be valued at its selling price (whether sold or not). Clause is limited to stock the value of which may at any date be determined when it is of a kind which is traded on an established exchange.

MARKETING REPRESENTATIVE

See Special Agent.

MASS MERCHANDISING

A plan of insurance covering certain lines of insurance which is offered under the auspices of a large employer or other homogeneous group, such as a labor union or fraternal organization, where a large number of persons are covered by one insurance company with the idea of convenience (principally payroll deduction and economy).
Although this marketing concept has been used for many years in the Life and Accident and Health fields, it has been applied to automobile and homeowners since 1968.
The employer’s willingness to allow solicitation on company premises and time, and to make the necessary payroll deductions are naturally important to the success of any such plan.
There has been a natural antipathy toward such plans by independent agents, most of whom predict that the insured will suffer by loss of counseling service and assistance, particularly at the time of a loss; and also, that the company which engages in mass merchandising, supposedly for the benefit of a large group, should accept all those who wish to participate in the program, "dogs" and all, and forego the traditional risk selection.

MASTER POLICY

A single policy issued to cover a large number of risks under identical coverage, certificates being issued as needed for individual risks, with reference to the "master policy."

MATERIAL FACT

See Concealment, Perjury.

MECHANIC’S LIEN

See Lien.

MEDIA MARKETING

Direct solicitation by an insurance company, using media other than agents---television, radio, direct mail, etc.--to sell insurance.

MEDICAL EXPENSES

Term (also sometimes known as "allowable expenses") means reasonable charges incurred, for reasonably needed products, services and accommodations, including, but not limited to, those for medical, surgical, dental and hospital care, nursing services, ambulance services, X-ray, prosthetic devices, laboratory fees and drugs, rehabilitation, treatment and care. "Medical Payment" generally refers to benefits provided under Automobile and Premises Liability policies, plus Section II of the Homeowners Policy. See Medical Payments.

MEDICAL PAYMENTS

1) Automobile: Pays for medical payments up to the limit specified for injuries sustained in connection with an owned motor vehicle by the -insured, members of his family and/or others, regardless of negligence on the part of the insured or any operator of the motor vehicle. Covers any person while riding in, getting into or out of the insured’s automobile. Coverage also extends to all members of the insured’s family who reside in his household with regard to any non-owned motor vehicle, or being struck as a pedestrian by any non-owned automobile.
2) Premises: Pays for medical expenses up to the limit specified for injuries sustained on, and in connection with premises owned by (or rented to) the insured, by persons other than the insured, resident members of his family, his employees, (including domestic or resident) who are covered or required to be covered under Worker’s Compensation or tenants (or employees of tenants). As in Automobile Medical Payments, negligence on the part of the insured need not be shown.
(Ed. Note: As in other sections of this work, the information given above on Medical Payments is to be used simply as a guide, and in no way intended to be considered technically or legally exact or complete.)

MEDICAL/SURGICAL PAYMENTS, IMMEDIATE

See Immediate Medical/Surgical Expenses.

MEMORANDUM OF INSURANCE

See Certificate of Insurance.

MENU

A display of the various programs contained in a computer.

MERCANTILE OPEN STOCK POLICY

See Open Stock Burglary Policy.

MERCANTILE REPORT

See Credit Report.

MERCANTILE SAFE BURGLARY

This policy covers loss of money and securities (excluding manuscripts, records and accounts) for burglary or attempted burglary, and when all doors of the safe and vault are locked by all combinations and time locks, at all hours, whether the premises are open for business or not. (See Money and Securities Broad Form, Open Stock Burglary Policy.)

MERCHANDISE

Finished goods held for sale.

MERIT RATING

A system of determining a rate based on the known past experience of the individual risk, or of a large group of similar risks.

MEXICAN AUTOMOBILE INSURANCE

Mexico does not recognize an automobile policy written by any U.S. Insurance Company in satisfying Mexican Financial Responsibility laws. Visitors to Mexico would be well advised to purchase at the border special short-term policies issued by Mexican insurance companies so as to avoid difficulties with the local authorities and detainment following an accident or violation.

MINIMUM PREMIUM

See Premium.

MINIMUM RATES

Also known as Class Rates, minimum rates are used in fire insurance to cover those classes of risks which fall into general categories, such as dwellings and contents and small apartment buildings and their contents. On larger risks, such as mercantile, manufacturing and larger apartment buildings and many dwellings in congested areas, the Rating Bureau having jurisdiction promulgates a Specific Rate for the building and contents with particular regard for construction, housekeeping, use, grade of protection, etc. (See also discussion on Rates.)

MINIMUM RETENTION

The minimum amount of premium kept by the insurance company in the event of short rate cancellation.

MISDEMEANOR

A crime or offense not usually characterized as "vicious’ and therefore not a (see) Felony.

MISFEASANCE

See Malpractice.

MISREPRESENTATION

Representing a material fact affecting a policy or a claim as true, when in reality it is not true; lying. (See also Concealment.)

MONEY

As used in insurance, "Money" means domestic or foreign currency, coin, bank notes and bullion. Can also mean unissued registered checks, cashier’s checks, money orders and travelers checks.

MONEY AND SECURITIES BROAD FORM

Basically a policy including premises and outside messenger coverage on an all-risk basis on money and securities with limited protection on other types of property. Among the exclusions are dishonesty of insured or employees, accounting or bookkeeping errors and loss of books, manuscripts and records of account. After a loss, it is often possible to recover some of the stolen or lost property from individuals who caused the loss or from others. The Money and Securities Broad Form Policy provides that any recovery shall be applied to indemnify the insured to the degree of recovery. The Company is entitled to deduct any expenses involved in the recovery of such salvage.

MOPED

A Moped is defined as a two-wheeled cycle with a power-assisting engine, with a piston displacement of 50cc or less (or if -electrically powered, with rating of not more than two braking horsepower). Some states require registration, but most do not. All mopeds are subject to motor vehicle laws of the states and are prohibited from use on limited access highways. Homeowners and personal liability policies specifically exclude coverage for mopeds. A number of companies do write moped coverage under motorcycle forms, rating them as 100cc or less. Other sources are specialty-line writers with specially designed moped policies.

MORAL HAZARD

A condition of the character of the insured, the circumstances in which he finds himself, or a combination of the two resulting in a increase in the possibility of loss constitutes a Moral Hazard. Carelessness or untidiness on the part of the insured, for example, creates a moral hazard, as would pressure from creditors. If the possibility exists that the insured, in the event of a loss, could receive payment in excess of the value of the property destroyed, moral hazard has entered the picture. Insurance rates and premiums are determined on the basis of Physical Hazards which for the most part can be measured or appraised. Since a moral hazard cannot be measured or appraised, no insurance company would insure a risk with the knowledge it contained such an exposure to loss.

MORTGAGE

A legal claim against real property (as opposed to personal property) guaranteeing satisfaction of financial obligation. A Mortgagee is the lien holder to whom the Mortgagor (the owner of the property) has the obligation. (See also Lien.)

MORTGAGE(S) CLAUSE

A clause which is attached to an insurance policy protecting the interest of the mortgagee in the event of a loss. The Mortgagee must be named on any check in payment of a loss (in addition to the insured) and must also be given advance notice of cancellation. The clause is attached to a policy covering real estate property (buildings).

MORTGAGEE

The lender of money to the owner of real property in exchange for a conditional lien on the property as security for repayment.

MORTGAGOR

The owner of mortgaged property.

MOTOR VEHICLE (ACCIDENT) REPORT

A detailed report of an accident required to be submitted to the motor vehicle department where the accident occurred by any operator involved. State requirements vary as to the extent of property damage involved, but when bodily injury to any extent results, virtually all states require a motor vehicle accident report to be made within a specified time limit.

MOTOR VEHICLE RECORD (MVR)

A detailed account of violations, fines and accidents of an individual operator kept by the motor vehicle department; a driving record history or a transcript thereof.

MULIT-CAR DISCOUNT

Most insurance companies writing automobile insurance allow a discount (usually 15 to 20%) if two or more private passenger automobiles (generally excluding those used for business purposes or operated by young drivers) owned by an individual or by husband and wife resident in the same household are insured in the same policy. Also known as "Two or More Automobiles Discount."

MULTI-PERIL POLICY

See Special Multi-Peril Policy.

MUTUAL INSURANCE COMPANY

An insurance company owned by its policyholders who share in its profits, if any, through dividends. The dividends are based on a percentage of premiums paid by the policyholder, and can never be guaranteed in advance. In former years, the policyholders of a mutual company were also liable to share in its losses through assessment. These were holders of so-called Assessable Policies. Today, most mutual insurance companies have enough reserves so that they are in a position to issue Non-Assessable policies.

MYSTERIOUS DISAPPEARANCE

The loss of an item or items which cannot be explained or presumed to be caused by fire, theft or any other insured peril; an unexplainable disappearance.

back to top back to top arrow

NAMED (SPECIFIED) PERILS

The specific exposures to loss listed in the policy for which, if determined to be the proximate cause of the loss, the -company agrees to indemnify the insured. (See All-Risk)

NAMED INSURED

The person or the (see) entity specifically named in the policy (as opposed to a party having an interest, such as a mortgagee) as the insured. Depending on the type of insurance, "named insured" may be extended to spouse (automobile) resident in the same household, and even to all relatives in the insured’s household without age restriction, and even to non-related persons under age 21. (See Automobile, Comprehensive Personal Liability and Homeowners Policy Section II)

NAMED NON-OWNER POLICY

A form of automobile liability insurance written for an individual who does not own an automobile. It covers the named insured and spouse (if resident in the same household) for liability for accidents occurring while driving any automobile not owned by either party or by a member of his or her household. The named non-owner policy is excess over any other insurance available to the insured.

NEGLIGENCE

The law imposes a duty on every person to exercise reasonable care with respect to his own acts and to the maintenance of his own property so as not to cause injury to other persons or damage their property. Failure to exercise such reasonable care constitutes Negligence. The burden of proof of negligence lies with the injured party with few exceptions.
In theory, one who charges another of being guilty of negligence must himself be completely free of blame. Any degree of blame on the part of the injured party is called Contributory Negligence, which (again in theory) act to void his claim for recovery of damages. In actual practice, however, such is not the case. In some jurisdictions, the very harshness of the concept of Contributory Negligence, wherein the injured party receives no compensation for injuries or damages, the doctrine of Comparative Negligence has been introduced, wherein an attempt is made to determine the degree of negligence (blame) of both parties which allows partial recovery by the injured party.
In all cases involving a charge of negligence, intent to harm must be absent. Where intent to harm is present, the action, if substantiated, then becomes a crime which is a wrong against the state and punishable by fine and/or imprisonment.
The degree of reasonable and prudent care required to avoid a judgment on a charge of negligence varies as to the relationship between the parties involved: employer to employee; manufacturer and retailer to the general public; bailees to bailors; owners and tenants to the general public, etc.
Volumes have been written on the subject of negligence and its ramifications. Some of the latter are determined by Common Law (based on the court decisions handed down by the years representing precedent) and Statutory Law covering certain situations (employer-employee relationships resulting in Worker’s Compensation, for example) which has been enacted into law by legislative bodies having jurisdiction. (See also Torts, Common Law, Statutory Law, Res Ipsa Loquitor.)

NEGOTIABLE INSTRUMENT

(Also known as "Commercial Paper".) A document of value (meaning measurable in terms of money) which is transferable from one person to another by endorsement, assignment or delivery. Checks, drafts, bills of exchange, notes, and some bonds and securities. (See Stale Check, Draft.)

NO-FAULT AUTOMOBILE INSURANCE

A system of automobile insurance (patterned roughly after Worker’s Compensation) designed to eliminate the time-consuming, inexact, expensive and often impossible task of determining negligence (fault) in the event of an automobile accident.
Ideally, No-Fault would work something like this: If you become involved in an accident, the determination of fault as a factor would be eliminated. Your own insurance company would pay for expenses incurred by you, and the other party’s insurance would pay for his injuries and/or damages. There would be no blame to fix, no investigation, no lawyers, no courts and no delays in receiving compensation.
Total ("Pure") No-Fault would pay all economic losses to all insured parties without regard to fault. There would be no limits to the total amount of benefits, and there would be no delays and no law suits.
The standard tort liability system (meaning the one at fault has to pay for damages he caused) seems to be equitable enough, yet not only does the party to blame not pay (his insurance company and all who pay premiums pick up the tab), but the system has turned into a very expensive method of making settlements which is often slow and frequently unfair. In addition, it is expensive out of all proportion to the benefits paid.
Figures show that under the present compensation system where an economic loss is $500 or less, four and one half times that amount is paid out in settlement. Conversely, where the economic loss is $25,000 or more, settlements amount to one third of the real economic loss. Only about forty-five cents out of each premium dollar is paid out in actual benefits. (Figures are from U.S. Department of Transportation study.)
Objections put forward by opponents of No-Fault are directed mainly at the reduction or elimination of the injured party’s right to recovery in the courts, thereby violating his constitutional rights. Several judicial bodies have declared the system constitutional.
A number of No-Fault plans have been enacted into law, or are about to be adopted by many states. All of these have set various limits ("thresholds") of economic loss and other losses, providing that if these limits are reached or exceeded, injured parties may resort to courts. Most of these "thresholds" are quite low.
In order to be effective, No-Fault state laws must eventually conform to the same general standards.

NON-ADMITTED INSURANCE COMPANY

An insurance company which is not licensed in a particular state or country, is termed "non-admitted" in that state or country. Insurance may be obtained from these companies however, under the following conditions:
1) when the needed coverage is not available from either the voluntary or the residual market (and the agent has done everything he can do to accomplish this, and)
2) the insurance is placed with the non-admitted company only through a state licensed "excess" or "surplus lines" broker.

NON-ASSESSABLE POLICIES

See Mutual Insurance Company.

NON-CONCURRENCY

See Concurrent Insurance.

NON-IMPACT PRINTER

See Printer.

NON-OWNERSHIP LIABILITY-AUTOMOBILE

The liability of persons or organizations by reason of the operation for their interest of automobiles which they do not own. For example, an employer who has salesmen who operate their own automobiles in pursuit of the company’s business may be held jointly or solely liable in the event of an accident during such pursuit. An Automobile Non-Ownership Liability Policy may be issued to cover the interest of the employer or organization for this exposure. (See also Named Non-Owner Policy and Hired Car Policy.)

NON-WAIVER AGREEMENT

An agreement between the insured and the insurance company after a loss, whereby it is agreed that the investigation or appraisal of damages shall not be construed as an admission of liability on the part of either party.

NOTICE OF CANCELLATION

See Cancellation.

NOTICE OF LOSS

See Loss Report.

NOTICE OF NON-RENEWAL

Written notice issued by company to insured (with copy to agent) of its intention not to renew a policy. Same notice may be issued by agent (with copy to company). When required, notice must be given a specified number of days in advance of expiration date.

NUCLEAR HAZARDS CLAUSE

Specifically excludes loss caused by nuclear hazards explosion (accidental or otherwise) from any source, except fire resulting from such an occurrence is covered.

NUMISMATIC PROPERTY

Coins and medals and collections thereof.

back to top back to top arrow

OBLIGEE

See Bond.

OCCUPANCY

The nature of the use of premises; description of the nature of the contents of premises.

OCCURRENCE

The commonly accepted definition: "An injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured." This wording eliminates the necessity of pinpointing the exact time of the loss.

OCEAN ("WET") MARINE

That class of insurance covering ships, their equipment, cargoes and other liabilities. Often referred to as "Wet Marine" as opposed to "Inland Marine." See also Cargo Policy, General Average, Hull Insurance, Longshoremen’s and Harborworker’s Compensation, etc.

OFF PREMISES

Refers to insurance applying away from the premises described in the policy. Personal activities (liability), personal property (homeowners and inland marine) are examples of such coverage. Often referred to as "away from the premises."

OFFICERS AND DIRECTORS LIABILITY INSURANCE

See Directors and Officers Liability Insurance.

OFF-LINE

Not under control of the Central Processing Unit (CPU).

OMNIBUS CLAUSE

The term commonly used to refer to the section of the automobile policy which defines the word Insured wherever used in the policy. Originally the automobile policy covered only the person, persons or organization(s) specifically named in the policy, and a separate charge was made for each. Subsequently, when the National Standard Automobile Policy was adopted, the definition of insured was broadened to include his (or her) spouse, members of the insured’s family residing in his household, and any other person or organization operating the automobile with the expressed (or implied) permission of the named insured. "Implied Permission" means permission which would have been granted had the insured been present to give it. Insurance people refer to the Omnibus Clause, a term which you will not find in the policy. The concept, however, is contained in the section of the policy titled "Definition of Insured." The term is also used in Marine Insurance.

ONE-BANK HOLDING COMPANY

A separate corporation formed by a commercial bank for the purpose of transacting business related to its usual operations, such as the selling and servicing of insurance (among other services) which it is prohibited from doing by reason of terms of its charter and other banking regulations. It is a means of permitting the bank to expand and diversify its related services.

ON-LINE PROCESSING

The technique used when date requires some form of immediate processing. For example, when a member of a medical insurance plan is admitted to an emergency room, the patient’s membership number may be entered through a terminal to the main computer which, in a matter of seconds, can locate the member’s file and return a complete printout of his medical history and make it available to the emergency room staff. (Compare to Batch and Real Time Processing.)

OPEN LOT

See Standard Open Lot.

OPEN MARKET

See Voluntary Market.

OPEN POLICY

A policy having no expiration date but continuing in force until cancelled. There is generally an annual premium deposit (with company retention of the minimum) and the policy is written more or less on a "reporting form" basis with adjustments in premium made at arranged periodic intervals. Usually a marine form (e.g. Parcel Post, Marine Cargo) where values exposed to loss at any given time fluctuate. The Fidelity Bond has an expiration date and is also therefore an "open" form.

OPEN STOCK BURGLARY POLICY

(Also known as the Mercantile Open Stock Policy.) Policy covers loss by burglary of merchandise, furniture, fixtures and equipment from within the insured’s premises when such premises are not open for business, provided there are visible signs of forcible entry. Coverage is also provided for robbery of a watchman when the premises are not open for business. The policy provides, in addition, some protection for damage done to contents and/or building during the burglary if the insured is owner of the premises or responsible for such damage under the terms of his lease. This policy does not cover money, manuscripts, securities, records or accounts. Theft, shoplifting, inventory shortages, etc. are also excluded, but day or night robbery and theft may be included by endorsement for an additional premium. (See Forcible Entry definition.)

OPTICAL CHARACTER RECOGNITION (OCR)

A computer operation which can "read" numbers and letters (typed, printed or handwritten)from a source document (anything that contains information needed for data processing) and converts them directly into electrical impulses for entry into the computer. This process eliminates the need for manual entry of data from terminal keyboard or key-punched cards. (See also Magnetic Ink Character Recognition--MICR).

ORAL BINDER

See Binder.

ORDINANCE

A law enacted by a municipality.

OTHER INSURANCE CLAUSE

A provision in the policy outlining the procedures to be followed in the event of a loss where (or when) other existing insurance may be applicable.

OUTPUT DEVICE

Any device which transfers processed data from computer storage and records it in whatever form is required (e.g. payroll, loss and claim summaries, account statements, printouts of any desired information, etc.)

OVERKILL

1) Accomplishing more than your job description requires. Incurs wrath of fellow bureaucrats.
2) The act of killing someone more than once.

OWNERS’ & CONTRACTORS’ PROTECTIVE LIABILITY

See Contractor’s Protective Liability.

OWNERS’, LANDLORDS’ AND TENANTS’ LIABILITY (O.L.&T.)

Liability arising out of the ownership, occupancy or use of real estate, or of operations in connection therewith, including maintenance of premises. The scope of protection under the O.L.&T. policy covers the insured for liability described above, but is broader in protection than appears at first glance. In addition to premises, the policy provides coverage for "all operations necessary or incidental thereto," a phrase which extends the liability protection for the insured beyond the limits of the premises as defined to cover accidents occurring away from the premises providing they result from the insured’s regular operations. Even though this extension may include delivery and installation, there are the usual expected exclusions (see Completed Operations, Loading and Unloading) such as Liability assumed under Contract, Vehicles, Aircraft and New Construction or Demolition, among others.

back to top back to top arrow

PACKAGE POLICY

A policy containing protection against a number of different exposures in a single contract such as fire, theft, burglary and liability. Other all-risk options such as scheduled items for all-risk coverage are available at the option of the insured. Personal Package Policies are usually of the Broad Form or Special Dwelling Policies, or, more frequently the Homeowners Policies. Commercial Package Policies are also now available under the Special Multi-Peril (SNP) Forms, and may be tailor made for particular businesses, such as Motels, Hotels, various Mercantile and Office Risks and others. Also known as "Combination Policy."

PAIR OR SET CLAUSE

Clause found in inland marine policies which provides that in the event of covered loss of one item of a pair or one or more items of a set, the company is liable only as the value of the item(s) lost bears to the total value of the complete pair or set, and the loss of the item(s) shall not be construed as the total loss of the entire pair or set. For example, the loss of one of a pair of earrings would require the company to pay the reasonable and fair proportion of the total value of the pair, some consideration being given to the importance of the lost item. -Some years back, the settlement would have been half the value of the set, no questions asked. Today, however, adjustment is frequently made by replacing the set in exchange for the remaining piece for salvage. This practice does not usually hold, however, in matters of loss or damage of a part of a set which is made up of a number of parts, where the individual parts are not considered for their value as part of a complete set. For example, it two units of a twenty unit set, each unit being of equal value, are lost or damaged (2/20th or 1/10th), then the company would pay 10% (1/10th) of the total value of the set.

PARTICIPATING POLICY

A policy which entitles the policy holder in a stock insurance company to share in the underwriting and/or investment profit (if any), based on a percentage of the premium paid, in the form of dividends based on individual earned premiums. (See also Stock Participating Company.)

PARTICULAR AVERAGE

See General Average.

PARTNERSHIP

A legal entity created by combining the work, talents, money and other assets of two or more individuals in order to accomplish more than any one could do alone. A copy of the partnership agreement must be filed in the county (or equivalent) clerk’s office for notice to the public that a partnership exists. Many partnerships have been highly successful, but there are many dangers to the participants in this type of arrangement. Unlike a (see) Corporation, the liability of each partner is not limited to the extent of his investment. If the firm fails and its obligations exceed its assets, creditors may recover from assets of the individuals involved. In addition, all partners are bound by the acts of one of them. (See Corporation, Entity.)

PARTY

An individual or other legal entity (partnership, corporation, unincorporated association) who is or becomes principal in a contract or other legal action. An entity whose physical or financial condition may be altered as a result of the settlement of a claim or judgment in litigation is referred to as an "Interested Party" or as a "Party at Interest." A "Disinterested Party" is one who has knowledge of a contract or an occurrence resulting in litigation, but who has no personal or financial interest in the parties involved. An "Uninterested Party" is one who doesn’t care one way or the other. And we can’t resist the story Bob Steele of WTIC, Hartford, Connecticut, tells about when he asked someone "What is the difference between ‘ignorance’ and ‘apathy?.’ The answer was, "I don’t know and I don’t care." (See also Contract and Claim.)

PARTY WALL

A wall constructed on the building line dividing two pieces of property, the use and the responsibility of which is common to both owners of the adjoining property.

PAYMENT BOND

A bond guaranteeing the owner of a building under construction that the building will be turned over to him upon completion free and clear of any liens for unpaid labor or materials or other encumbrances. (See Bond.)

PAYMENT PLAN

Any of the various premium payment plans for the convenience of payment of premium.

PAYROLL AUDIT

When the premium for certain types of policies is based on payroll (Worker’s Compensation, for example) a "payroll audit" may be made by the insurance company in order to verify the figures supplies by the insured. (See Audit.)

PENALTY

The limit of liability or the maximum amount of insurance of the company (the Surety) writing a bond.

PERFORMANCE BOND

A bond guaranteeing the satisfactory performance of a contract (usually construction). This bond is sometimes erroneously referred to as a "Completion Bond." See that term elsewhere for correct definition. (See also Payment Bond.)

PERFORMANCE VEHICLE’

A private passenger automobile which is more highly powered, relative to its size and weight, than would be expected for the normal operation of private passenger vehicles. A "performance vehicle" is usually subject to a surcharge for liability and physical damage, and may be identified as such in the Symbol and Identification of the Private Passenger Automobile Manual.

PERIL

See Exposure.

PERILS OF THE SEA

The hazards insured against in an ocean marine policy which refer to unusual (but natural) action of heavy seas or high winds resulting directly in sinking, collision or stranding on reefs, rocks or shoals. The usual action of the winds, waves or tides does not come under the meaning of this term.

PERILS ON THE SEA

A reference to hazards in an ocean marine policy which are not the result of "Perils of the Sea," but instead are losses or damage caused by such things as theft, pilferage, non-delivery, fire, breakage, shifting of cargo, condensation in the hold, contact with other cargo and other occurrences brought about by external causes. Excepted are losses which are described in certain warranties, such as -those resulting from capture, seizure, strikes, lockouts, riots, war risks, etc.

PERIPHERAL DEVICES (PERIPHERALS)

Equipment used primarily for the processing of punched cards (key punchers, sorters, reproducers, collators, etc.). These devices are not connected directly to the computer. They are not part of the computer system, but serve an important role in the operation of the data processing function by reducing the burden of card processing on the computer. (Punched cards have been for the most part replaced by other storage devices.)

PERJURY

The willful making of a false statement concerning a material fact under oath in a legal proceeding; false testimony.

PERSONAL ARTICLES FLOATER

A policy used to provide coverage for a variety of valuable personal articles, such as furs and jewelry, cameras and equipment, silverware, golfer’s equipment, musical instruments, fine arts, stamp collections and coin collections on an all-risk basis. The items to be covered are "scheduled" (described in detail and evaluated, and coverage is usually world-wide but may sometimes be limited to the United States and Canada), and, unlike the Personal Effects Floater, cover at the residence of the insured. The floater form may be attached to and made a part of the Homeowners policy.

PERSONAL AUTOMOBILE POLICY (PAP)

See Family Automobile Policy.

PERSONAL EFFECTS FLOATER

(Also known as "Tourist Floater.") This form covers personal articles such as are usually carried by tourists or travelers belonging to, used by or worn by the insured and members of his immediate family residing together against practically all risks or loss or damage anywhere in the world except in the insured’s residence premises or in storage except that which might be incidental to travel. Property is not "scheduled" but does have limitations (jewelry and the like, for examples is limited to 10% of the policy amount or $100 on any one article, whichever amount is less) and exclusions such as borrowed or rented property, theft from unattended automobile, or from premises of schools, dormitories or fraternity or sorority houses. Coverage under the Personal Effects policy is now covered to a large degree by the Homeowners policy.

PERSONAL INJURY

Physical damage to the human body, as opposed to damage to property. (See also discussion under Injury.)

PERSONAL INJURY PROTECTION (PIP)

See No-Fault Auto Insurance.

PERSONAL LINES

Various forms of insurance written to cover the activities and movable property of individuals as opposed to those of business. (See Commercial Lines.)

PERSONAL PROPERTY

In insurance terms, Personal Property is movable property as opposed to Real Property (land and buildings).

PERSONAL PROPERTY FLOATER (P.P.F.)

A broad form inland marine type policy covering all types of personal and household property anywhere on an "all-risk" basis with certain exclusions. This form is now seldom written since much of the protection afforded is now covered under the Homeowners form, particularly under Homeowners HO-5 and "C" policies.

PERSONAL PROPERTY REPLACEMENT COST ENDORSEMENT

Except for such personal property as jewelry, silver, coin collections, etc., written on a "Stated Value" basis and scheduled on a (see) floater policy or endorsement, personal property has always been subject to depreciation, and loss adjustment subject to "Actual Cash Value." The Replacement Cost Endorsement is now available in some states for attachment to homeowners policies. As expected, it has some restrictions. Ineligible property (which will be adjusted on an actual cash value basis) are such things as antiques, fine arts, paintings and similar articles of rarity or antiquity which are irreplaceable; memorabilia, collectibles and similar articles whose age or history contribute to their value; articles that are not maintained in good workable condition or that are outdated, obsolete or not being used. There are also limits, such as policy or special limits, beyond which the company will not pay. Consult manual for availability, additional charges and other specific limitation and conditions. (See Actual Cash Value and Valued Policy.)

PERSONAL PROPERTY, UNATTENDED

See Unattended Automobile.

PHILATELIC PROPERTY

Stamps and stamp collections.

PHYSICAL DAMAGE (AUTOMOBILE)

1.) Refers to damage done to the insured automobile (not to be confused with "Property Damage" which is damage done by the insured automobile) such as fire, theft, collision or upset, windstorm, vandalism, malicious mischief, flood, falling objects, etc.
2.) That portion of automobile insurance other than liability (Bodily Injury, Medical Payments, etc.).

PHYSICAL DAMAGE (TO PROPERTY OF OTHERS)

Unlike Property Damage found in general liability policies, this coverage provides the insured protection for damage to property of others while in the care, custody or control of the insured, including intentional damage by a child of 12 or under. Covers for damage to property borrowed by the insured, but not to property owned or rented by the insured, any member of his family residing with him, nor to property owned by a tenant of the insured. This coverage is included in the standard Comprehensive Personal Liability Policy, and is incorporated in the Homeowners forms under Section II, Liability.

PHYSICAL HAZARD

The physical properties of characteristics of real or personal property, together with the physical conditions adjacent to such property, which might contribute to creating or increasing the possibility of loss. (See also Moral Hazard.)

PICK-UP ENDORSEMENT

An endorsement used when a package policy written to "pick up" certain lines already covered by policies which are still in force, allowing them to continue to expiration. This form is also know as the "Credit for Existing Insurance" endorsement, and allows the insured premium credit on a pro rata basis for the existing policies, and automatically picks up such coverages upon their expiration, contingent upon their remaining in force until that time. This presents the insured from being penalized for short rate cancellation, and also eliminates any suspicion that the agent may be guilty of "Twisting."

PILFERAGE

Petty theft of personal property.

PLAIN LANGUAGE LEGISLATION

The move toward plainer language and away from the "fine print" has given rise to Federal and State legislation mandating that legal contracts be made more readable to lay persons (consumers) who are made parties to these contracts. The legislation affects the Insurance Industry which had made attempts in this direction long before the government decided to do something about the problem. Much of the legislation has required that rewritten contracts use as a yardstick for readability, the "Flesch Reading Ease Test" and obtain a minimum grade on a scale of 1 to 100 (1 being the most difficult; 100 being the easiest). The problem of writing contracts which must necessarily cover almost every conceivable contingency without resorting to litigation and with an absolute minimum of possibility of more than one interpretation for any of the conditions, is enormous. The aim is to use a minimum of simple words to spell out an agreement between two or more parties, each of which has, certain obligation and privileges. An uncountable number of situations could arise requiring this simple contract to be called upon to give an unequivical interpretation as to the proper application of its terms. That there is room for improvement, no one can doubt; archaic language must go. (See Flesch Reading Ease Test.)

PLANT

See Agency Plant.

POLICY

The written contract between the insurance company and the insured containing the details of an insurance agreement, including any modifying endorsements attached at the time of issue or thereafter.

POLICY PERIOD

The length of time, specified as to the start (effective date and time) and the finish (expiration date and time) insurance protection is afforded by an insurance policy. Also commonly referred to as "Term." (Ed. note: See important discussion under Effective Date.)

POLICY REGISTER

A record of all policies (by number) kept by an insurance company to account for all policies issued and not yet issued. (i.e. those not yet used either by the company, or those in the possession of its agents not yet reported as having been issued.) Policies missing because of loss, damage, voided or flat-cancelled must be accounted for. If voided or flat-cancelled by agent, the policies must be returned to the company to be entered in the policy register as such. If lost or destroyed by fire or other cause, the agent must sign a statement releasing the company from all liability for policies which may have been issued but yet remain unaccounted for. The release must also be recorded in the policy register.

POOL

Companies joined together to write on a fixed share basis a certain (usually undesirable) class of business. (See Assigned Risk)

POWER OF ATTORNEY

A legal document authorizing another person or corporation to act on behalf of and obligate the giver of such Power Of Attorney within certain specified limitations. (See also Attorney-in-Fact.)

PREFERRED RISK

A risk that from the standpoint of exposure to loss is less likely than the average to result in a claim.

PREMISES

The location of the property insured, including the buildings(s) insured and/or containing the property insured, plus the insured property immediately adjacent thereto.

PREMISES MEDICAL PAYMENTS

See Medical Payments.

PREMIUM

The amount of money charged for a specific amount or limit of insurance for a specified length of time.
Additional Premium: An additional amount charged above and beyond the original premium by reason of a corrected rate, a "published" -rate replacing a "subject" rate (see below), or an additional policy amount, limit or coverage requested by the insured.
Earned Premium: The amount of total premium which has been used up at any given point during the policy period. (See also Unearned Premium below.)
Estimated (Advanced, Initial or Deposit) Premium: a premium agreed upon when the exact actual premium cannot be determined until the end of the policy period. Used on policies the premiums of which are based on payroll, sales, receipts or other units, the exact amount or number of which cannot be known in advance. (See also Audit.)
Gross Premium: The total premium paid by insured before any deduction for agent’s commission, reserve or reinsurance premium. Minimum Premium: The least amount for which an insurance company will insure a risk for a given period of time. Aside from the risk involved, an insurance company must take in at least enough money to cover the expenses of handling the necessary paperwork.
Minimum Retained Premium: See Minimum Retention. Return Premium: That portion of the total premium due the insured by reason of cancellation of the policy; reduction in the coverage, rate, limit or amount; or upon determination on audit that the Advance or Deposit Premium is greater than the actual premium developed.
"Subject "Premium: See Subject Rate.
Unearned Premium: The portion of the total premium applicable to the unexpired (unused) portion of the policy period at any given point during its term. (See also Earned Premium above.)

PREMIUM NOTICE

A statement sent to a policyholder giving advance notice of a premium due.

PRIMA FACIE

Refers to the indiscriminate mixing of clients and companies’ funds by an agent or broker with his own funds. This is illegal under state law and can result in revocation of license and fines.

PRIMARY CARRIER

An insurance company which is first obligated to pay its limit of coverage before any other applicable insurance ("excess") is required to pay.

PRIMARY INSURANCE

The applicable insurance which is called upon first to satisfy a covered loss. (See Excess Insurance and Reinsurance.)

PRINCIPAL

See Bond.

PRINCIPAL AMOUNT

See Face Amount.

PRINTER

One of many types of data processing output devices which can produce data from a computer that can be read by the human eye.

PRIVATE CARRIER

See Common Carrier.

PRIVATE PASSENGER AUTOMOBILE

The generally accepted insurance definition of this term is a four-wheeled motor vehicle of the private passenger, station wagon or jeep type, not used as a public or livery conveyance nor rented to others without a driver, owned or hired under long-term lease by an individual or by husband and wife residing in the same household, or by a corporation or co-partnership. Automobiles used in connection with business pursuits (sales calls, etc.) are included in this definition, providing they are not used for wholesale or retail delivery. Also included in the "private passenger" definition is a motor vehicle with a pick-up body, a delivery sedan or a panel truck (none of which has a load capacity in excess of 1,500 pounds), owned by an individual or by a husband and wife residing in the same household, and not used in the occupation, profession or business of the insured, other than driving to and from work or pleasure use. (See definition of Commercial Vehicle.)

PRO RATA

Literally "in proportion." For example, if a one-year policy calls for a premium of $120, at the end of 3 months, the Pro Rata Earned Premium is $30, and the Pro Rata Unearned Premium (for the remaining nine months) is $90. See Premium, Apportionment, Short Rate and other Pro Rata headings.

PRO RATA CANCELLATION

See Cancellation.

PRO RATA DISTRIBUTION CLAUSE

(Sometimes called "Average Clause.") A clause attached to blanket forms of policies covering various items or locations to enable the insurance to be distributed proportionately as to the value of each item or location and its relationship to the total value of the property insured at the time of the loss. An example of the benefit to the insured of this clause would be a man who had two or more warehouses in which the goods he manufactured would vary from time to time. If he carried enough total insurance, particularly with regard to any Reduced Rate Contribution Clause requirement (80% Coinsurance, for example), he would have no concern relative to variations of inventory between the warehouses.

PROBABILITY, THEORY OF

1.) Statement of the observation that, in a large ("Significant") number of situations, a predictable number of events of various types will occur as a result of pure chance. The degree of accuracy of prediction of the occurrences will be in direct proportion to the number of such situations. The concept of probability is the basis of insurance. See also Actual’,’, Insurance and Law of Large Numbers.
2.) The expression of the likelihood of the occurrence of a particular event, based on the relative frequency of events of the same kind having occurred in the known course of past experience.

PRODUCER

An agent, sub-agent, broker or salaried solicitor who sells insurance. (See also Agent and General Agent.)

PRODUCT LIABILITY INSURANCE

This coverage protects manufacturers and retailers (and all the people in between) of goods against claims for damages or injuries arising out of possession, use or consumption of such goods. Food poisoning is a good example of a claim under this type of insurance. (See also Completed Operations.)

PROFESSIONAL LIABILITY

The liability of those engaged in offering professional services is practically unlimited. The law has forced increasing responsibility for errors and omissions on Attorneys, Physicians and Surgeons, Dentist, Druggists, Nurses, Hospitals, Laboratories and many others who supply professional services and may be held liable for errors -and omissions, malpractice or malfeasance. The area of responsibility was even further expanded by legislation in the early 1970’s to hold Corporate Directors and Officers individually liable for civil claims made against them and caused by a negligent act or error or omission while acting in their official capacities.
It is important to remember that this coverage is limited to protection against liability arising out of professional services, and is not designed to protect against exposure of claims arising from premises or other hazards which can properly be covered by other forms of liability insurance.

PROFITS INSURANCE

When a fire or other covered peril destroys merchandise which is covered under the policy, only the value of the damaged goods or destroyed merchandise is paid. Profit Insurance reimburses the insured for loss of profit that could have been realized had the goods been sold. Coverage can be provided for this exposure by adding (see) "Selling Price Clause" endorsement.

PROGRAM

A detailed set of instructions given to the computer telling it what kinds of input data it will receive, what operations it will perform on it and what form of output to produce.

PROHIBITED LIST

A list provided by the company to the agent outlining the classes of risks which it will not insure under any conditions. A Prohibited Risk is the same, except that it refers to a particular risk.

PROMULGATE

Determine and publish (make known) a rate.

PROOF OF FINANCIAL RESPONSIBILITY

See Financial Responsibility.

PROOF OF LOSS

A formal written affidavit accompanied by pertinent supporting data filed by the insured requesting payment from the insurance company of a "First Party" claim. (See Claim.)

PROPERTY

See Real Property and Personal Property.

PROPERTY DAMAGE

Damage to property of others as opposed to (see) Physical Damage for which the insured may be held legally liable.

PROPERTY INSURANCE

This type of insurance indemnifies the insured for the loss of property (real or personal) resulting from the direct physical damage or loss by a peril insured against (Fire, Explosion, Windstorm, etc.).

PROSTHETIC DEVICE

An artificial substitute for a missing part of the human body, such as a denture, an artificial eye, appendage (leg, arm, hand, etc.). Canes, walkers, wheelchairs and the like are not considered prosthetic devices, but supportive braces worn on and attached to the body are so considered.

PROTECTION AND INDEMNITY INSURANCE (P. & I.)

The ocean marine equivalent of Bodily Injury and Property Damage Liability Insurance. Since there are some differences inasmuch as P. & I. has its origins in maritime law, this definition is general in nature, and further study is recommended depending on interest and need.

PROTECTION STATEMENT

A description of the degree of fire protection in terms of proximity of available fire hydrants and fire stations. Term is used to define the exposure for minimum (as opposed to specific) rated risks. Protection Statements are numbered. For example, Protection Statement No.1 indicates that the risk is located within 500 feet of the nearest (acceptable) fire hydrant, and within 3 (road) miles of an available fire station. Notice the words "acceptable" and "available" (ours). If the hydrant is located on private property and cannot be used, it is obviously not "acceptable"; similarly, if a fire station is located within 3 miles of the risk, but is located in another municipality, and will not respond to a call for help, it cannot be considered available. Statements usually range from 1 to 4. When the distance requirements are met, but the hydrant and/or fire station are located in a different municipality, and there is a reciprocal agreement between the municipalities to respond without prior approval of an authority of either town, then the facilities are considered as "available."

PROTECTIVE LIABILITY INSURANCE

See Contractors’ Protective Liability.

PROXIMATE CAUSE

Property: The hazard to which a loss can be directly attribute, such as wind, fire, lightning, flood, etc.
Liability: The direct causal connection between a negligent act and an injury.

PUBLIC ADJUSTER

See Adjuster.

PUBLIC AUTHORITY

See Civil Authority.

PUBLISHED RATE

See Promulgate.

PUNITIVE DAMAGES

See Damages.

back to top back to top arrow

RADIOACTIVE CONTAMINATION

This exposure in Property Insurance is specifically excluded under the "Nuclear Hazard Clause," meaning damage resulting from any nuclear reaction, radioactivity or radioactive contamination however caused, either directly or indirectly, except the direct loss by fire resulting from the nuclear hazard is covered. "Radioactive Contamination Assumption" endorsements have been developed for certain risks (hospitals, etc.) by associations and pools specializing in these exposures.
Liability coverage is excluded under all policies, and those engaged in activities which might give rise to resulting damage or injury to others must obtain the coverage through one of the pools or associations. Information can be obtained from the Atomic Energy Commission. (AEC).

RAIN INSURANCE

A special form of insurance providing indemnity for loss of income, anticipated profits or expenses incurred because of rain, hail, snow or sleet. It is written for those who have a financial interest in any event which might be jeopardized in the event of inclement weather, such as a fair or a department store sale. The terms of the policy are quite specific as to the exact amount of precipitation, and the hours between which it must fall. United States Weather Bureau Figures are generally the criterion, although other mutually agreed upon authorities can be used.

RANDOM ACCESS

The process by which stored data may be retrieved without having to read all the records that precede it. Magnetic disks make this operation possible; magnetic tape or punch card systems do not.

RATE

In Fire and Marine ("Property") insurance, the per unit (usually per $100 of value) charged for insurance coverage for a specified period of time, expressed in dollars and cents or a percentage of the amount of insurance desired. In Casualty insurance, the rate is the amount which is charged by the company per unit of exposure to loss. The "unit" may be location, classification, occupancy, each $100 of payroll or receipts, or other measurement of exposure. The rate multiplied by the unit used results in what is called the Premium. (See Premium.)

RATE CARDS

Rates on specifically rated risks are indexed by the Rating Bureau on "Rate Cards." Also known as "Tariff Cards."

RATE, ADVISORY

See File and Use Under Deviation and Rating Bureau.

RATE, AVERAGE

See Average Rate.

RATE, BLANKET

See Average Rate.

RATE, CLASS

See Minimum Rates.

RATE, MINIMUM

See Minimum Rates.

RATE, PRO RATA

A rate for a short term policy, based on the regular rate for the annual period, but Pro-Rated for the period in force. Usually used, for example, for a dwelling under construction when policy at the regular rate is to replace it on completion of construction. (See Pro Rata definition.)

RATE, PUBLISHED

See Promulgate.

RATE, SCHEDULE(D)

Also known as Specific Rate. See Promulgate and discussion under Minimum Rates.

RATE, SUBJECT

See Subject Rate.

RATE, TERM

See Term Rate.

RATING

The determination of the premium based on the classification of the risk, the amount or limit desired and other factors such as particular exposure to loss, experience of similar risks and other considerations. (See also Experience Rating, Merit Rating.)

RATING BUREAU

The determination of rates which will adequately measure exposure to loss requires person with highly developed technical skills who are able to collect and analyze data in order to make projections as to the relative exposure to loss of various classes of risks, They must be able to predict, with some degree of accuracy, the possibility of loss. These specialists ("actuaries") have no crystal ball, and must base their predictions on what has happened in the past (the "experience"). Computers have made the collection and analysis of the available data much faster and more accurate.
It stands to reason that such an operation as described above would be rather expensive for individual companies to support on their own. Central organizations to perform the function of rate-making were set up by groups of companies ("subscribers") and are called Rating Bureaus.
Rating Bureaus make available to individual subscribing companies (and to others for a fee) valuable information and services such as rate-making at far less expensive, and with the additional advantage that the collective experience of the member companies make possible much more predictable results. Rates promulgated by rating bureaus are not necessarily mandatory for all lines and all states. Most are now "Advisory" depending on state law, and are used as guides for companies filing rates schedules with regulatory agencies. The latter procedure is sometimes called "File and Use."

RATING OFFICE

See Stamping Office.

REACTION, NUCLEAR

See Radioactive Contamination.

REAL PROPERTY

Real estate (land and/or buildings) as opposed to personal movable property.

REAL-TIME PROCESSING

The use of monitoring terminals feeding information to the computer which is used immediately to modify the programming. An example would be a process-control computer in a chemical plant. Not the same as On-Line Processing, which does not change the program, but immediately updates the file in accordance with the program.

REASONABLY PRUDENT, REASONABLE CARE

In cases of alleged negligence, these terms are used. For example, did the individual so charged fail to use the care that a reasonably prudent person would be expected to use under like circumstances, either by taking some action which would be expected of a reasonably prudent person, or did he fail to take action as such a person would be expected to take? The law imposes a duty on every person to exercise "reasonable care" to a degree relative to that individual’s age and experience, with a greater degree expected of a person deemed to have superior skill, knowledge and experience. (See Negligence.)

REBATING

The selling of an insurance policy for less than the established rate; the sharing of a commission with a person who is not a licensed agent; giving the insured or any other person anything of value in return for the opportunity of writing such a policy--all of these are acts of rebating, which is not only illegal but unethical. The term "Rebate" is sometimes erroneously used in place of "Return Premium." See that definition under Premium.

RECIPROCAL

A group of individuals who get together to form an organization (sometimes called an "inter-Insurance Exchange") to share losses and expenses. Best described as group self-insurance, since all members are both insureds and insurers, somewhat along the lines of a Mutual Company. Each member gives power of attorney to an Attorney-in-Fact who manages the exchange. (See also Self-Insurance, Mutual Company, Power of Attorney, and Attorney-in-Fact.)

RECOVERY

The amount of money received by an insurance company after paying a loss from subrogation, salvage or reinsurance.

REDLINING

The practice of insurance companies in designating certain geographical areas which, by experience have been shown to produce disproportionate loss frequency and/or severity relative to other comparable areas. The use of "redlining" is termed discriminatory.

REDUCED RATE CONTRIBUTION

See Coinsurance.

REFERRAL RISK

A risk of an exposure or limit beyond the underwriting authority of a branch or regional office which must be submitted to a higher level for consideration.

REGISTERED MAIL

This service of the U.S. Postal Service is used for valuable papers, etc. and is similar to treatment to (see) "Certified Mail," except that a monetary value is placed on the contents (insurance), it travels with other Registered Mail under lock and key, and every postal station along the way must record its receipt. It is not handled with the regular First Class mail. The options for "Return Receipt Requested" and "Restricted Delivery" are open to the sender at additional charge as with "Certified Mail." (See Certified Mail.)

REIMBURSEMENT

Payment as an equivalent for what has been spent or lost; refund; indemnity. For example, return premium paid by company to insured for cancellation of a policy or an endorsement reducing a. premium charge; also the insured’s share of recovery (minus expenses) as the result of (see) Subrogation.

REINSTATEMENT, AUTOMATIC

See Automatic Reinstatement.

REINSTATEMENT, AUTOMOBILE

See Suspension--Automobile.

REINSURANCE

A method by which an insurance company protects itself against unusually large losses. For a premium, such a company (the "Ceding carrier") purchases reinsurance from another company (the "Assuming carrier") which agrees either to pay the primary company the excess over an agreed amount in case of a large loss ("Excess Cover"), or to reimburse the primary company a fixed percentage ("Quota Share") of every loss it has to pay, regardless of size. The reinsurance contract between the carriers is called a "Treaty."

REJECTION

The refusal of an insurance company to write a policy for an applicant.

RELEASE (OF ALL CLAIMS)

A legal document executed by (or on behalf of) a person claiming injuries or damages, stating that, in consideration of a specified number of dollars, he agrees to accept that amount of money in full satisfaction of any claims he might have now or in the future, and to bring no further action for recovery in connection with that particular claim. An insurance company, even though it might supply the money and arrange for the execution of the release, is rarely, if ever, named in the release. Only the "First Party" (the insured) and the "Third Party" (the claimant) are named in the release.

REMOVAL OF DEBRIS

See Debris Removal.

REMOVAL, AUTOMATIC

See Automatic Removal.

RENEWAL

Continuation of insurance coverage for an additional specified period of time beyond the original (or previous) date of expiration by use of a renewal certificate or renewal policy.

RENEWAL CERTIFICATE

A certificate signed by an authorized agent as evidence that a policy is being extended for a specified period of time upon payment of the required premium.

RENT INSURANCE

Reimburses the landlord of a tenant-occupied building for loss of rental income when the building becomes partially or totally untenable because of a fire or other peril insured against. This is one of the so-called "Time-Element" coverages.

RENTAL VALUE INSURANCE

Same as "Rent Insurance" except for owner-occupied buildings. Reimburses the owner for the cost of renting elsewhere.

REPARATIONS BENEFITS

See No-Fault Auto Insurance.

REPLACEMENT COST COVERAGE

This guarantees the replacement cost new of any property destroyed by a covered hazard without allowances for depreciation, provided insurance to value or a specified percentage of value is carried.
Depreciation Insurance provides the difference between what would be paid by an Actual Cash Value policy and full replacement cost. Replacement Cost coverage is automatically included in Homeowners forms, providing the building at the time of the loss is insured for 80% or more of the full replacement cost, but this feature applies to buildings only, unless replacement cost coverage is attached to the policy. (See Personal Property Replacement Cost.)

REPORTING POLICY

A policy generally used when the insured’s inventory fluctuates (seasonal, etc.). It requires the insured to report at certain specified intervals the actual value of stocks or goods or other types of property on hand. An initial deposit (estimated) premium is usually charged, and the final premium is determined at the end of the policy period when the actual values are known, at which time the premium adjustment is made. Some policies, such as a Bailee’s Customers policy, are based on gross receipts rather than values, and such receipts are "reported" periodically (usually monthly) also.

REPRESENT

An agent who is licensed by the state to act for an insurance company is said to "represent" that company.

REPRESENTATION

See Condition.

RES IPSA LOQUITOR

Although as pointed out in the section on "Negligence," the burden of proof lies with the injured party, there are some accidents which occur under circumstances which make the question of burden of proof academic. When evidence of prudent and reasonable care is patently absent, but direct evidence to the contrary is not available (to establish the negligence of the defendant), and the injured person is without fault, the courts usually resort to the doctrine of "Res Ipsa Loquitor" (Res, ‘the thing’---lpsa, ‘for itself’---Loquitor, ‘speaks’) or "The thing speaks for itself." In short, the circumstances of the accident itself leaves no room but for the inference of negligence of the defendant.

RESERVE

Monies received which are set aside for specific purposes. Principal among these in the insurance industry are (see) Loss Reserve and Unearned Premium Reserve.

RESERVE, LOSS

See Loss Reserve.

RESERVE, UNEARNED PREMIUM

See Unearned Premium Reserve.

RESIDENCE EMPLOYEE

An employee of any insured whose duties are in connection with the maintenance or use of the insured premises, including the performance of household or domestic services, or who performs elsewhere duties of a similar nature not in connection with any insured’s business. The term "Residence" excludes premises used for commercial farming.

RESIDENCE GLASS COVERAGE

Although this coverage may be added to other policies by endorsement, it is most commonly found in the Dwelling Policy and Homeowners Forms, where it is automatically included. Residence glass is defined as that which is a permanent part of the building including storm doors and windows. The word "glass" includes safety glazing (e.g. Plexiglass, etc.), and when breakage of glass is required by ordinance or law to be replaced with safety glazing materials, the company will pay for such replacement. There is no coverage for glass if dwelling is vacant for 30 consecutive days immediately preceding the loss. A building under construction is not considered as being "vacant." A "Scheduled Glass" endorsement is available for an additional premium if desired by the insured. In this case, each piece must be described as to its location, dimensions and replacement value. In addition, the standard Deductible, Loss Settlement conditions do not apply, and the company will pay for making necessary installations and for removing and replacing obstructions because of loss to glass. (See also Comprehensive Glass Policy.)

RESIDUAL MARKET

Those risks which by nature, history or high exposure are not generally accepted by insurance companies as desirable, constitute the "Residual Market," e.g. (see) Assigned Risk or Fair Plan. These plans have been devised to provide needed insurance protection for risks unable to be secured in the "Open Market." (See also Voluntary Market.)

RESTORATION PREMIUM CHARGE

The charge made to reinstate the original limit or face amount of a policy after a loss has been paid. (See Automatic Reinstatement.)

RESTRICTION OF TRADE AGREEMENT

An agreement usually incorporated in an employment or business (e.g. and Insurance Agency) sale contract, providing that the employee (or seller) upon leaving employment(or selling his business) is restrained from competing with his former employer (or with the purchaser of the business) within a specified geographical area and within a specified time. Such agreements cannot be made so as to keep an individual from making a living; the restrictions of area and time must be reasonable, or that portion of the contract may be declared invalid. Restriction of Trade Agreements are often included in contracts of employment or sale of insurance, real estate or travel or other personal service businesses.

RETENTION

That portion of a risk "retained" by the primary carrier (the "ceding carrier") when there is reinsurance. (See Reinsurance.)

RETENTION OF PREMIUM

See Minimum Premium.

RETENTION, FIFTY PERCENT ("50-50" POLICY)

A Comprehensive Glass Policy written with the agreement that insured pays 50% of the annual premium, and pays no more if there are no losses during the policy period. The insured assumes losses up to the amount of the 50% "retention" (portion of the full premium he did not pay), and when and if he has losses in that amount, he pays no more and has full coverage for the remainder of the policy period.

RETROACTIVE RESTORATION

The clause in an insurance policy providing for automatic restoration of the original limit to cover future as well as prior undiscovered losses. Frequently used in bonding.

RETROCESSION

A "Layer Cake" operation. A reinsurance company may "chicken out" (it has a right to), feeling that it has taken ("assumed") a greater portion of a risk than it should have, and may "cede" to another reinsurer a portion of its share, sort of "hedging the bet." (See Reinsurance.)

RETROSPECTIVE RATING

A rating plan under which the final premium is determined by the loss experience during the policy period.

RETURN COMMISSION

See Commission.

RETURN FOR NO CLAIM

Certain marine policies contain a "return for no claim" clause providing a return premium (usually 20%) in the event of no claim during the policy period.

RETURN PREMIUM

See Premium.

REUNDERWRITING

A procedure similar to an IRS Audit used by a company to review the risks of a particular agent or class of business. -Usually employed to try to locate and "weed out" poor or marginal risks.

RIDER

See Endorsement.

RIOT

The legally accepted definition of a "riot" is a violent disturbance of the public peace by three or more persons acting in unison and with purpose, often resulting in widespread vandalism, looting and attacks on innocent bystanders.

RISK

The thing or person insured; the possibility of loss; the hazard insured against.

RISK MANAGEMENT

An organized service for large commercial, industrial, institutional and government risks which may serve a number of different functions, ranging from risk recognition to loss prevention and control. A risk management operation is usually management-oriented and, although overlapping to some degree the services provided by the insurance agent and broker, does not have as its main thrust the production of premium. Risk management can be part of management, an independent consulting service or a risk management company or individual on contract or retainer. Risk management analyzes all exposures, examines all options, recommends courses of action, implements approved programs and continuously monitors their operation, or any combination of these. Their suggestions may include, where indicated, the adoption of partial or total risk assumption on all or certain of the exposures, risk transfer to self insurance (with partial, selective or no reinsurance), an association mutual, a captive insurer or a composite of these options. Risk managers may assist in the placement of coverages or supply related supporting services such as claims handling, inspections, occupational health and industrial hygiene educational programs and compliance with government regulations.

RISK, ASSIGNED

See Assigned Risk.

ROBBERY

The forcible taking of property with felonious intent from the owner or custodian of such property by actual or threatened violence. (See also Burglary.)

ROUNDING (OF PREMIUM) RULE

See Whole Dollar (Premium) Rule.

RUNNING DOWN CLAUSE

A provision in the Ocean Marine Hull Policy which covers the insured for liability damage done to another vessel by collision. (See Hull Policy.)

back to top back to top arrow

SAFE BURGLARY

See Mercantile Safe Burglary.

SAFE DRIVER RATING PLANS

A variety of private passenger automo-bile risks designed to reward operators with clean driving records by affording them lower rates, and to penalize those who have (or develop) a history of accidents and/or violations. Often based on a "point system," the point surcharges depend on the frequency and severity of accidents and/or violations during a specified period of time (usually three or five years) called the "Experience Period." Sometimes called "Careful Driver" or "Merit Rating" plans.

SAFETY ENGINEER

An individual trained in the field of safety and loss prevention and control who inspects the property and operations of an insured and recommends elimination or reduction of hazardous condition or operations with the purpose of helping to reduce or eliminate the probability of injuries to employees or the public or damage to or loss of property.

SALVAGE

1.) The residual value of property after it has suffered partial damage from fire or other covered peril; 2.) The act of saving and preserving endangered property so as to reduce or eliminate future loss or damage; 3.) Under fidelity, fiduciary, burglary, theft, etc.: the recovery made from the perpetrator or from others; 4.) Ocean Marine: Compensation given in Maritime Law for services and expenses incurred rescuing a vessel, its cargo and/or its passengers; 5.) The property saved.

SALVOR

One who saves or helps to save a vessel and/or cargo at sea; a vessel used in salvage operations. (See Salvage.)

SCHEDULE

A description of items to be specifically insured, including descriptions and values placed on each; the plan or formula which shows the various credit and surcharge factors used in arriving at a rate promulgation. Called "Schedule Rating." (See Promulgate.)

SCHEDULED PROPERTY

Property covered under a policy which is listed and described item by item, with a specific amount of insurance placed on each item. (Contrast to Blanket insurance where a single amount applies to the total of all insured items as a group.)

SEASONAL RISK

A risk which is occupied for only a portion of the year (usually the same period every year) such as a summer cottage or a ski resort. These risks can also be mercantile, manufacturing or processing operations such as may be found in the produce or fishing industry.

SEAWORTHINESS

One of the two implied warranties in connection with ocean marine insurance (the other being that the undertaking must be legal). The "Seaworthiness" warrants that the vessel is of proper design and construction and ready for the voyage in every respect: properly manned, fueled, provisioned and otherwise it is equipped for the cargo it has contracted to carry.

SECURITIES

All negotiable instruments (excluding "money" as defined elsewhere) or contracts representing money or property, including stamps in current use, tokens representing specific value, and tickets. (See Negotiable Instruments, Money.)

SECURITIES

All negotiable instruments (excluding "money" as defined elsewhere) or contracts representing money or property, including stamps in current use, tokens representing specific value, and tickets. (See Negotiable Instruments, Money.)

SELF-INSURANCE

A system of self-protection whereby a large firm or organization deposits money in a fund in lieu of insurance premiums against any losses which may occur. The plan can work only if the self-insured has sufficient resources and geographical spread of risks so as to reduce the possibility of a single loss wiping out the fund (and possibly the business itself.)

SELLING PRICE CLAUSE

Endorsement which can be added to a fire policy reimbursing the insured for an amount exceeding the actual cash value of damaged or destroyed goods to include the profit included in the selling price, as opposed to the actual cash value. There are generally two types: one type, available to both mercantile and manufacturing risks, reimburses the insured for merchandise sold but not delivered based on the selling price (which would include actual cash value plus profit); the other form, available only to manufacturers, reimburses the insured for the amount of the loss based on the price for which the manufacturer expected to sell the goods.

SET CLAUSE

See Pair or Set Clause.

SETTLEMENT

An agreement whereby an agreed amount is accepted by the concerned parties as compensation for loss or damage. (See also Arbitration and Structured Settlement.)

SHOCK LOSS

An unusually heavy single loss which is much greater than that anticipated based on experience.

SHORT RATE

A method of weighting the charge for a policy more heavily early during its term as opposed to Pro Rata, where the premium charge is proportional to the period covered. In effect, it is a penalty against the insured for cancelling a policy. Such penalty is higher during the earlier part of the policy period. See Cancellation.

SHORT RATE CANCELLATION

See Cancellation.

SHORT TERM POLICY

Generally, a policy written for a term of less than one year. Seasonal risks, Rail Insurance, Wedding Presents Floater, for examples. In recent years, six-month automobile policies were in common use; but due to high inflation, they have, for the most part, returned to a one year term.

SHORTFALL

A marriage of two perfectly respectable words arranged by some unknown bureaucrat in order to impress his superiors. Term promptly adopted by the latter as their own. Real meaning: "They didn’t give us enough money, so we weren’t (or won’t be) able to finish the job." Also can refer to a situation when an individual, descending stairs in the dark, thinks there are 12 steps when there are really 13.

SIDETRACK AGREEMENT

An agreement by the owner/operator of private property to hold a railroad harmless when it builds a sidetrack or spur on the property to facilitate receiving or shipping of materials. Under such an agreement, the insured (owner and/or tenant of the premises) assumes two risks of loss: one is loss or damage to the property; the other liability for loss or damage to any third party, either of which could be caused by the railroad in operating on the siding. Since he is holding the railroad harmless, he must protect himself. With regard to the first exposure (property), the applicable policy should include the "Railroad Subrogation Waiver Clause" as evidence that the insurance company is waiving its subrogation rights. The insured should also be protected by Sidetrack Liability insurance in orderto protect himself in the event of third party liability assumed by him under the Sidetrack Agreement. (See also Hold-Harmless Agreement.)

SINGLE INTEREST POLICY

A policy designed to cover the interest of the lender only. Used generally in connection with property sold on the installment plan. Also available to the finance company ordealerto cover loss due to wrongful conversion or illegal disposal by the purchaser, such exposures being excluded in the regular forms.

SINGLE LIMIT POLICY

A policy providing a blanket amount to cover Bodily Injury and Property Damage Liability losses with no limit per person and no separate Property Damage Limit. The Single Limit used puts Bodily Injury and Property Damage in one lump sum. (Used in Special Auto Policy and Comprehensive Personal Liability, among others.)

SINKHOLE COLLAPSE

Sudden settlement or collapse of the earth supporting property, resulting from subterranean voids created by the action of water on limestone or similar rock formations. This condition is found primarily in Florida and other southeastern and Gulf states. Resulting damage to buildings is now automatically included in the property policy without additional endorsement or premium in Florida and certain other states, but still may require an endorsement and additional premium in some remaining states.

SLANDER

See Libel.

SMOKE DAMAGE

Damage which is the direct result of sudden, unusual and faulty operation of a heating or cooking unit when the unit is connected to a chimney by a smoke pipe or vent, and only while in or on the premises described in the policy. To be covered, the smoke damage must satisfy all three descriptive terms: sudden, unusual and faulty.

SOFTWARE

A computer term referring to (see) Programs. Without "software," computers would be useless. Refers to everything except the (see) hardware.

SOLE PROPRLETORSHLP

An individual who operates a business and who is the sole owner of all the assets. He may use a Trade Name, but that does not alter the fact that the individual and this very necessary operation are one and the same. They are not separate legal entities. (See Entity.)

SOLICITOR

See General Agent.

SOUND VALUE

The value of property for property insurance purposes. (See Actual Cash Value.)

SOURCE DOCUMENT

Anything that contains information concerning a transaction related to other transactions, written, printed, typed or checked on a form, which must be processed (added, subtracted, multiplied, divided, stored, etc.). Could be cash register tape, invoice, credit memo, return commission debit, items making up an account current or amounts set aside for loss reserves. In bookkeeping, these items are referred to as "Items of Original Entry."

SOUTHERN STANDARD BUILDING CODE

See Beach Plans.

SPECIAL (PACKAGE) AUTO POLICY

A single limit automobile policy (written by different companies under various names), in the past written for a six month period (now mostly for a one year duration), in which all Casualty coverages, Bodily Injury, Property Damage, Medical Ex-penses, Accidental Death and Uninsured Motorist Protection, must be carried. Collision, Comprehensive and Towing and Labor Costs are optional coverages. The policy is somewhat more restrictive (Medical Expenses, for example, is excess over any other applicable insurance) than the Family Automobile policy.

SPECIAL AGENT

A salaried company employee who generally serves as the direct connection between the insurance company and its agents in a given territory. He may also perform other duties such as making adjustments or inspections. He is more frequently referred to in recent years as "Marketing Representative."

SPECIAL BUILDING FORM, DWELLING BUILDINGS

See Dwelling Forms.

SPECIAL HAZARD

An exposure to loss not generally anticipated in the underwriting of a risk, such as "Hazardous Waste," dangerous operations in an adjacent premises, etc.

SPECIAL MULTI-PERIL POLICY (S.M.P.)

A "package" policy, vaguely similar to the homeowners form, designed to cover commercial risks for damage to real and personal property (Section I) and Liability (Section II). Section III, Crime Coverage and Section IV, Boiler and Machinery Coverage are optional. Special Multi-Peril Coverage is divided into seven major categories: 1.) Motel-Hotel Program; 2.) Apartment House Program; 3.) Office Program; 4.) Mercantile Program; 5.) Institutional Program; 6.) Processing or Service Program and 7.) Industrial Program.

SPECIAL RISK

A risk containing special and unusual exposures not usually contemplated in its class. Requires careful underwriting and often is a candidate for (se) Non-Admitted Company consideration.

SPECIFIC INSURANCE

Insurance written to cover separate items, indicating description, location and amount of each, as opposed to "blanket" insurance, which would, for example show one amount to cover "building and contents." The term Specific Insurance is sometimes erroneously used to mean Primary Insurance. Do not make this mis-take. (See Blanket Insurance, Schedule and Scheduled Property.)

SPECIFIC RATES

A property insurance term. Also known as "Schedule Rates," "Published Rates" and "Tariff Rates." (See discussion under Minimum Rates.)

SPECIFIED PERILS

See Named Perils.

SPREAD OF RISK

Related to (see) Law of Large Numbers. Concentration of a large number of property insurance risks in a given location or limited area invites the possibility of catastrophic losses. A geographic "spread of risk" can avoid such situations.

STAFF ADJUSTER

See Independent Adjuster.

STALE CHECK

Since a check is a "bill of exchange" and always payable on demand, it is expected to be cashed, deposited or otherwise negotiated within a reasonable time. There seems to be no hard and fast rule as to when a check becomes "stale." As a general rule, however, a bank will routinely return a check unpaid if it was issued more than six months (some banks 90 days) prior to being presented for payment.

STAMPING OFFICE

A central regional office to which agents may send copies of policies ("dailies" or "daily reports") or endorsements for approval or correction. On approval, the policies are "stamped" and sent on to the respective companies. If corrections are necessary, correction notices ("criticisms") are sent back to the agent with or without the policy or endorsement for proper action. When a rate error on a daily report or endorsement results in an error in the total premium of $3.00 or less, a criticism will be sent and the rate corrected on the agent’s and company’s copy, but the premium difference is waived. The $3.00 amount more than likely is higher today.

STAMPS AND STAMP COLLECTIONS

See Philatelic Property.

STANDARD FIRE POLICY (SFP)

This usually refers to the "New York Standard Fire Policy" adopted July 1, 1943. This form, frequently referred to as the "165 line form," covers the basic agreements in the contract, and is, with minor changes, used in almost all states. (See Fire Insurance.)

STANDARD FORM (STANDARD POLICY)

A policy form, with identical wording which is used by a large number of insurance companies and approved by many state regulatory agencies. Examples are (see above) the "Standard Fire Policy," the "Basic Automobile Liability and Physical Damage Policy" and the so-called "76" or newer "84" Homeowners Policy Program.

STANDARD OPEN LOT

Under Commercial Automobile--Dealers’ Theft Coverage, a "Standard Open Lot" is defined as an open parking storage lot enclosed on all sides by a metal cyclone fence or equivalent fence not less than six feet in height; or bounded on one or more sides by the wall or walls of a building, with no unprotected openings, and with the exposed sides of the lot enclosed by a metal cyclone or equivalent fence not less than six feet in height, with openings securely locked when unattended. Broad Form Theft Coverage applies when lot qualifies as above. Non-Standard Open Lot and open lot which does not meet the above qualifications, and $50 (or higher) Deductible Theft Coverage applies.

STANDARD PROVISIONS

Clauses contained in insurance contracts in accordance with certain state statutory requirements; contract provisions in general use by a group of insurers, and approved by state regulatory agencies.

STATE AGENT

An insurance company salaried representative who deals with agents in a given state in the company’s interests. Usually senior to other special agents. (See also Agent, Broker, General Agent, Local Agent and SpecialAgent.)

STATE EXCEPTIONS

Most bureau manuals are designed to cover afield of insurance for a large number of states. Most of an individual manual is taken upwith General Rules: General Instructions, Scope of Coverage, Interests Insured, Definitions, Limits of Liability, Basis of Premium, Minimum Premiums, Classifications, etc. There are however, differences applicable in the different states where conditions warrant variations from the General Rules. These differences are called "Exceptions" and are found following the main section of the manual. Here will also be found Territorial Definitions, rates and premiums applicable to the particular state.

STATED AMOUNT

See Valued Policy.

STATED VALUE

See Valued Policy.

STATEMENT

A request for payment for merchandise sold or services rendered; an itemized summary of invoices charged, credits if any, and balance due. Usually prepared and forwarded at specified intervals.

STATEMENT (INSURANCE)

A written detailed description of an accident or other loss made by an insured, an involved person or witness. Signed statements are important in these cases and should be taken promptly while the facts are fresh in the mind of the maker. Statements are necessary to make a permanent record of events, and aid in the investigation of a loss.

STATUTE

A law enacted by a state legislative body.

STATUTE OF LIMITATIONS

A state law limiting the time within which legal actions of various types may be brought. These time limitations vary with the type of charges and also in different states.

STATUTORY LAW

See Common Law.

STATUTORY VIOLATION

Violation of a statute is prima facie evidence of negligence. Violation of an ordinance or law, even if resulting in bodily injury to another, does not always result in the violator being found negligent.

STOCK

Goods awaiting processing, in the process of manufacture or completed and held for sale, as opposed to (see) "Furniture and Fix-tures."

STOCK INSURANCE COMPANY

An insurance company owned and controlled by stockholders for the purpose of making a profit. A portion of the earnings (after setting aside the reserves required by law) are distributed to the stockholders from time to time in the form of dividends. There is no requirement for a policyholder to be a shareholder, and vice versa. Also known as "Capital Stock Company."

STOCK PARTICIPATING COMPANY

A stock insurance company as described above, but which distributes a portion of net earnings to policyholders as well as stockholders in the form of dividends on premiums paid. The stock in this type of company is not generally widely held.

STOP LOSS REINSURANCE

See Excess of Loss Reinsurance, Aggregate

STOREKEEPERS BURGLARY AND ROBBERY POLICY

A limited package burglary and robbery policy designed for the small retail establishment of mercantile risk which covers Burglary of Merchandise, Inside or Outside Robbery, Kidnapping, Safe Burglary, Theft of Night Depository and Damage to Property and Premises. The policy excludes loss by Dishonesty of Employees and by Fire.

STOREKEEPERS LIABILITY POLICY

A package liability policy designed for relatively small retail (not more than 50% of sales by mail order) store, providing, generally speaking, the following coverages: Premises and Operations, Products Completed Operations, Contractual Liability for "incidental contracts": and Independent Contractor (protective) Liability. Elevator Liability and Elevator Collision may be added at the appropriate manual rates and rules.

STRICT LIABILITY

That liability imposed on an individual who deliberately takes an action (or fails to take an action) in a hazardous situation resulting in injury to another’s person or property.

STRUCTURED SETTLEMENT

A relatively new concept suggested to replace "Lump Sum" awards in cases involving large awards to victims of serious accidents which may entail lifetime disabilities, and require lifetime income. "Lump Sum" settlements may dissipate in a relatively short time due to inexperience of the victim in financial planning (not to mention inflation.) The alternative is a "Structured Settlement" tailored to the needs of the injured party. Such an arrangement could consist of an immediate cash settlement, in addition to monthly maintenance payments for a specified period, plus substantial amounts at intervals of five to ten years.

SUB-AGENT

A licensed agent who operates undeer an agency agreement within and under the jurisdiction of the agency.

SUBJECT RATE

A fire insurance risk, if not clearly qualified for Minimum Rating (a new commercial building, for example), may be bound or written pending specific rating by the bureau having jurisdiction, If a policy is written for such an unrated risk, the rate charged is usually $1.00 (per $100) "subject to revision and approval," and a written application for a rating should accompany the daily report. When the risk has been rated, the promulgated rate shall apply as of the effective date of the policy. The same procedure must be followed when the property is transferred to a new unrated location. The temporary rate used is referred to as Subject Rate, and the premium developed is called the Subject Premium.

SUBROGATION

The right reserved by the insurance company to take (at its own option) action to recover a loss paid to a policyholder if the loss was caused by the negligence of a third party. Any recovery made, minus expenses, must be shared proportionately with the insured in the event a deductible is applied to the loss.

SUE AND LABOR CLAUSE

Inland Marine policies: This clause requires the insured to: 1.) Make every effort to preserve injured property from further loss; 2.) to assist in recovering the property. The insured is entitled to reimbursement for any expense he incurs in these efforts.
Ocean Marine: The Sue and Labor expenses involved in preserving a ship or its cargo from further loss or damage from a covered peril can often run into a great amount of money. The extra expenses to save a ship and/or cargo and prevent further damage is provided for in the "Sue and Labor" clause. It must be mentioned that the captain of the ship is considered the agent of the owner and may take any measures he considers necessary to preserve property. Generally speaking, sue and labor expenses (providing they are incurred to preserve the property from a peril insured against) are reimbursed over and above the face amount of the policy.

SUPERSEDED SURETYSHIP RIDER

A form attached to a fidelity bond stating that it will cover a loss which occurred while the previous bond was in force, and which would have been covered had the loss come to light during the (see) Discovery Period.

SUPERVISOR OF INSURANCE

See Commissioner of Insurance.

SURCHARGE

An additional charge made to cover a risk with an exposure greater than that usually anticipated for the class. Usually expressed as a percentage of the rate or premium. (See also Factor and Increment.)

SURETY

An inspection report on the characteristics of an insurance risk for an insurance company for the purposes of underwriting or loss prevention or control. The term is also used to describe a detailed study and report of the exposures and insurance recommendations for an individual or organization. A "Marine Survey" is the report of a detailed examination of the condition, seaworthiness and sometimes the market or actual cash value of a yacht, or vessel or other watercraft.

SURETY BOND

A type of bond in which one party (the Surety) guarantees the satisfactory performance of a second party (the Principal) to a third party (the Obligee). (See Bond.)

SURPLUS LINES

See Excess and Surplus Lines.

SUSPENSE (FILE)

A file in which copies or correspondence are placed for checking at a later date to see if requested action has been taken or if correspondence has been answered. (Also known as Diary File.)

SUSPENSION—AUTOMOBILE

When an automobile is put out of operation, insurance coverage (except Comprehensive) may be suspended for all liability and physical damage for a period of not less than 30 consecutive days, and a pro rata return premium be allowed for the period of suspension. Portions of the liability (Medical Payments, Uninsured Motorist, etc.) may be continued in force during the period of suspension at the option of the insured. The reattachment of the suspended portions of insurance at the request of the insured is called Reinstatement. Suspension is not allowed where a certificate has been filed in compliance with any Financial Responsibility law.

SYMBOL

A letter or number assigned to a particular make, model, year, body style and power (usually indicated by cubic displacement and br horsepower) of a private passenger automobile to establish its relative value for the purposes of rating for physical damage insurance.

SYNDICATE

A group of insurers joined together to insure property or a certain category of risks. Lloyd’s of London is a good example of a syndicate.

back to top back to top arrow

TAKE OUT

An expression meaning to "arrange for the purchase of an insurance policy," as in "I am going to ‘take out’ a policy on my wife’s jewelry."

TARGET RISK

A large undesirable risk which is continually offered to many agents who attempt to place it with their companies because of its size. Strangely enough, the same term is used to describe a large account or prospect which is sought after by many competing agents.

TARIFF

1.) A rate promulgated by a rating organization having jurisdiction.
2.) The rules and schedules of credits and surcharges used to arrive at a given rate.

TARIFF CARDS

See Rate Cards.

TELECOMMUNICATIONS

A system which makes possible the exchange of information (data) between terminals and computers. The transmission is by telephone line or microwave via satellite. Telecommunications requires that the data stored in the computer as magnetic (computer) codes on tapes or disk be converted into sound codes for transmission by phone lines. On the receiving end, this process must be reversed: the telephone (sound) code must be reconverted into computer code so as to be understood by the receiving unit. The data may be transmitted in either direction, from computer to terminal or from terminal to computer. The conversion from computer code to sound code (or the reverse) is accomplished by a device called a "modem" (modulator-demodulator) which is capable of encoding or decoding, depending on the direction of data flow. Two modem units are required, one at each end, one to convert computer code to sound code for transmission; the other to "decode" from sound code to computer code to be understood at the receiving end.

TENANTS POLICY

A form of Homeowners policy covering the interest of a tenant with regard to protection of his property and his liability. Also refers to an owner of a co-op apartment arrangement. (See Homeowners Policy)

TERM

See Policy Period.

TERM POLICY

A policy written for a term of more than one year. (Not to be confused with "Term Policy" as used in Life Insurance.)

TERM RATES

Rates for a policy which has a term of more than one year. In certain classes a discount is allowed. For example, a three year policy in some cases can be written at 2.7 times the annual rate. The trend of late has been toward "Annualization." See discussion under Deferred Premium Payment.

TERMINAL

See Display Terminal.

THEFT

The wrongful appropriation of another’s property; the felonious removal of another’s property from premises without leaving visible signs of forcible entry or exit; any act of stealing. (See Burglar,’, Robber,’.)

THIRD PARTY CLAIM

See Claim.

THIRD PARTY INSURANCE

This is another term meaning "Liability" or "Casualty" insurance which provides that the insurer reimburse a third party for injuries or damages caused by the action or omission of the insured. (Compare Property Insurance.)

THRESHOLD

See No-Fault Insurance.

TIME ELEMENT

Term used to describe insurance which indemnifies the insured for an occurrence which results in loss of use of property. It is not to be confused with "Property Insurance" which is measured in terms of the actual damage to physical property. The amount of loss under time element forms is measured in terms of time lost, hence the name. Business Interruption, Extra Expense, Tuition Fees, Rents and Rental Value, Additional Living Expenses and Leasehold Interest are examples of "Time Element" forms.

TIME SHARING

The operator of a computer system may "rent" out its processing capacity to other businesses on the basis of time used. The developer of (see) Telecommunications, makes possible access to the main computer by remote terminals via telephone lines. The practice is known as "Time Sharing," and enables smaller companies to utilize computer services while paying only for the services they need.

TITLE INSURANCE

A form of insurance which will indemnify the owner of real property in the event that prior legal faults are discovered which may affect the owner’s clear and valid title to the property.

TORNADO

A type of windstorm, funnel-shaped and of extreme violence, characterized by a very rapid drop in barometric pressure. The resulting relatively high pressure within buildings can cause them to appear to explode. Winds have been of so high a velocity that they have exceeded the capacity of the measuring devices. Tornadoes are included in the general category of "Windstorm" for insurance purposes, as are Cyclones. (See Windstorms.)

TORT

Any violation of another person’s rights; a wrong (the result of commission or omission) caused another person which is unintentional. An intentional wrong is not generally considered a tort, but rather a crime against the state, punishable by a fine and/or imprisonment. A tort, on the other hand, is ordinarily the result of negligence, and is subject to civil (as opposed to criminal) action, resulting, if proven, in judgement for damages payable to the aggrieved party. (See Negligence.)

TORTFEASOR

Wrongdoer; guilty party; one guilty of a tort (e.g. a trespasser, one who causes an automobile accident).

TOTAL LOSS

Total loss of or damage to the entire value of the property insured, real or personal; loss or damage requiring payment by the company of the full (see) face amount of the policy; loss or damage to be such that the cost to replace or repair exceeds the actual cash value or the agreed amount less slavage. (NOTE: The latter is called (see) Constructive Total Loss.)

TOURIST FLOATER

See Personal Effects Floater.

TOWING AND LABOR COSTS

An optional coverage available for Private Passenger automobiles only which pays for labor (at the site of the disablement) and towing of usually up to $25 per disablement. Premium charge is usually nominal.

TOWN GRADES

A system of grading cities and towns according to their ability to handle fires based on the availability of fire hydrants, personnel, equipment, water supply, communications and fire safety control. The grading determines the minimum fire rates of the municipality, and is a reflection on how close it measures up to the ideal standards as put forth by the (see) Insurance Services Office.

TRADE NAME

An individual or partnership may for business reasons adopt and use a name, not his or theirs, such as "Jay’s Dry Cleaning Service," which in reality is John O’Dwyer doing business as (DBA) "Jay’s Dry Cleaning Service." The trade name should be filed with the county. clerk’s office so as to (theoretically at least) let the world know that "Jay’s Dry Cleaning Service" is in reality John O’Dwyer. In the case of an individual, he is referred to as a "Sole Proprietorship" whether or not he uses a trade name. (See Sole Proprietorship.)

TRANSMITTAL, LETTER OF

See Letter of Transmittal.

TREATY

An agreement (contract) between an insurance and a reinsurance company. (See Reinsurance.)

TRESPASSER

One on premises without legal right (compare "Invitee" and "Licensee"). Premises-holder (owner, lessee) is free of negligence unless he is found to deliberately have allowed or constructed dangerous physical conditions (guard dogs, ditches, electrical fences--all without prominent warning signs or other indications) for the purposes of causing injury to trespassers.

TRIP (TRANSIT) INSURANCE

Insurance covering single shipments of various classes of personal property, merchandise, furniture, livestock, etc., for individuals or for firms which do not make regular shipments. Coverage of property in transit may be extended to cover for temporary storage and for theft. Premium depends on mode of transportation, distance and extent of carrier’s liability.

TUITION FEES

A "Time Element" coverage designed to protect schools which charge tuition, and who stand to lose if the physical plant is damaged, preventing the carrying on of normal educational activities.
Since ordinary Business Interruption protection ceases to pay upon restoration of the property (which, in the case of schools, may be in mid-term), the school suffers for the balance of the term in loss of tuition fees. Additional interruption income (from athletic events, entertainment, con-sulting service, etc.) may also be covered. Policy may also be extended to cover seasonal camps (excluding hotels).

TWISTING

The illegal inducing of a policyholder to cancel an insurance policy by making incomplete or misleading comparisons and replacing it with another. This practice is against state insurance laws, and violation is generally classified as a misdemeanor. Life, accident and health fields hold more temptations for twisting than do others.

TWO OR MORE AUTOMOBILES DISCOUNT

See Multi-Car Discount.

TWO-PLATE (RIDER) AGREEMENT

An agreement by endorsement between the insured and the company in a Comprehensive Glass Polciy, that in the case of breakage of a single plate with a total area of 100 or more square feet, the insured agrees that it may be replaced by tow plates of the same total area. The company assumes all costs for any alterations necessary to make the replacement. The insured is allowed a discounted premium when he agrees to this endorsement. (See Comprehensive Glass Policy.)

back to top back to top arrow

UMBRELLA LIABILITY

Excess liability for individuals or corporations to protect them for liability losses which may exceed their primary liability limits. Also called Blanket Catastrophe.
Excess Liability, the policy also provides primary coverage, subject to some limitations, for all other liability for which no provisions may be made in his basic coverage.

UMPIRE

See Arbitration

UNATTENDED AUTOMOBILE

An automobile which is unoccupied, unattended and unlocked. With respect to ‘Theft Away from Premises" coverage under the Homeowners form, an automobile which is broken into while all doors and windows are closed and locked, and which shows visible signs of forcible entry, is not considered "unattended." Coverage is also afforded under the same conditions for theft from a fully enclosed and locked luggage compartment. There is no restriction in Homeowners Form HO-5 (Comprehensive Form) relative to unscheduled personal property. Where applicable, the above restrictions pertain also to "unattended" watercraft (boats).

UNDERINSURED MOTORIST PROTECTION

See Uninsured Motorist Protection.

UNDERWRITER

1.) An insurance company. 2.) An employee of an insurance company whose duties consist of passing on the selection of risks, and determining the amounts and terms of insurance acceptable to the insurance company.

UNDERWRITERS SALVAGE CORPORATION

An organization supported by many insurance companies which reclaims and resells merchandise salvaged from the covered losses thereby reducing the participating companies’ net losses.

UNDERWRITERS’ LABORATORIES

A non-profit organization under the auspices of the National Board of Fire Underwriters which tests equipment (appliances, etc.) and materials against established safety standards. Those which meet or exceed these standards are entitled to use the "U.L. Approved" label.

UNDERWRITING PROFIT OR LOSS

The profit or loss resulting from the underwriting operations, based on earned premiums less losses, adjustment expenses and other incurred underwriting expenses, as contrasted to (see) "Investment Income."

UNEARNED PREMIUM

See Premium.

UNEARNED PREMIUM RESERVE

Insurance companies are required to set aside (see) "Unearned Premiums" in a reserve fund. Last month’s premium on a policy has been "earned," today’s is being "earned" and next month’s is yet to be "earned." Since it would be highly impractical to attempt to determine the amount required for this reserve by calculating the unearned premium for each individual policy, a factor (fixed by law) is used. For example, it could be agreed that one half of the total of all premiums on all policies in force at any given time be used to represent the Unearned Premium Reserve required. Unearned Premium Reserves cannot be used to pay losses or any other operating expenses.

UNINSURABLE PROPERTY

See Excepted Property.

UNINSURED MOTORIST PROTECTION

Protects the insured in the event of injury by a motorist who does not carry automobile Bodily Injury Liability Insurance. No protection is afforded under this coverage for Property Damage sustained by the insured. The bodily injury limits available under this endorsement are the same as those required by the state financial responsibility laws. This limitation has been lifted in most states, and higher limits are now available for an additional premium. The insurance operates only when the Uninsured Motorist is found legally at fault, and the latter need not be proven insolvent in order for the insured to collect. This type of insurance is also known as "Family Protection." "UNDERinsured Motorist" coverage. This insurance is excess, and provides the additional amount (up to the policy limit) needed to satisfy a judgement or settlement given the insured against a third party whose liability limits are not ;sufficient to satisfy the award.

UNINSURED MOTORIST PROTECTION

Protects the insured in the event of injury by a motorist who does not carry automobile Bodily Injury Liability Insurance. No protection is afforded under this coverage for Property Damage sustained by the insured. The bodily injury limits available under this endorsement are the same as those required by the state financial responsibility laws. This limitation has been lifted in most states, and higher limits are now available for an additional premium. The insurance operates only when the Uninsured Motorist is found legally at fault, and the latter need not be proven insolvent in order for the insured to collect. This type of insurance is also known as "Family Protection." "UNDERinsured Motorist" coverage. This insurance is excess, and provides the additional amount (up to the policy limit) needed to satisfy a judgement or settlement given the insured against a third party whose liability limits are not sufficient to satisfy the award.

UNOCCUPANCY

This refers to a condition which exists when contents remain in the building, but no tenants. There is, however, the implied intention for tenancy to continue. (See Vacancy.)

UNSATISFIED JUDGMENT FUND

A state fund to reimburse persons injured in an automobile accident who are unable to collect damages awarded them by the court because the party who was responsible forthe injury is both uninsured and insolvent. A portion of the automobile registration fee is the usual method of financing the fund, which will pay unsatisfied judgements only up to the pre-established limits.

USE AND OCCUPANCY

See "Business Interruption."

back to top back to top arrow

VACANCY

The condition of vacancy exists when neither contents nor tenants are present in the building. Care must be taken when "vacancy" exists, since most policies exclude certain coverages (e.g. freezing, vandalism and malicious mischief) if the building remains vacant after a specified period of days. (See Unoccupancy.)

VALID CONTRACT

See Contract.

VALUED (STATED AMOUNT, STATED VALUE) POLICY

A policy in which the company agrees to pay the fullface amount of insurance in the event of a total loss, with no allowance for depreciation. This type is most commonly used in all-risk inland marine forms covering items of particular values such as Jewelry, Furs, Silverware, Cameras and the like. The agreed value is determined by the Bill of Sale or by professional appraisal (at the insured’s expense) and (except for miscellaneous equipment such as camera lenses, tripods, etc. which may be covered by a blanket amount based on a percentage of the full schedule) must be specifically described in detail and a value given for each. The possibility of moral hazard cannot be overlooked in this class of insurance. Where personal articles are concerned, they may be added by endorsement to the Homeowners Policy.

VALUED POLICY LAW

Although practically all Standard Fire Policies limit recovery to the "actual cash value" of the property at the time of the loss, some states have special statutes which may modify or eliminate this limitation. The most common of these laws is one which requires the company to pay the full amount of insurance in the event of a total loss. In some states, the company can exercise its option "to rebuild or replace" the property instead of paying the policy amount. The effect of these laws is to discourage companies form "overinsuring" certain properties. In general, Valued Policy Laws pertain to real ratherthan personal property.

VANDALISM

See Malicious Mischief.

VERIFICATION, VERIFYING

One of various methods of checking the processed data recorded on any medium (punched card, magnetic tape or disk) for accuracy.

VIABLE

Literally, "capable of living and growing." Once a perfectly legitimate word. Met slow death at the hands of government and executive types; poor word is no longer "viable."

VICE, INHERENT

Not what you think. See Inherent Vice.

VOLUNTARY MARKET

Term used to describe those classes of risks which are generally acceptable to insurance companies. Sometimes called "Open Market." (See Residual Market.)

VOLUNTARY PROPERTY DAMAGE

See Physical Damage to Property of Others.

back to top back to top arrow

WAIVER

1.) An agreement in writing not to enforce a right or privilege. 2.) An agreement in writing by the company to change a particular provision or condition in the policy. (See Non-Waiver Agreement.)

WAIVER OF (RESTORATION) PREMIUM

An agreement contained in many insurance policies which provides that the company will restore the original amount of the policy after a loss without additional charge.

WAR RISK EXCLUSION CLAUSE

This clause serves to exclude damages or loss to property as the result of any act of war, with the exception of resulting fire.

WARRANTY

1.) A statement made by the insured on the basis of which the company agrees to write a poicy at a given premium, such statement appearing on the policy. In order for the company to be able to void the policy, however, the warranty must contain material misstatements, such that the company would have declined or uprated the risk had the true facts been known. 2.) A condition of the policy with which the insured must strictly comply.

WEDDING PRESENTS FLOATER

An inland marine all-risk form de-signed to cover wedding presents in transit or at any location before the wedding and (usually) for a period of not more than 90 days after the wedding. No scheduling (detailed description of the items) is required. Exclusions are real estate, animals, travel conveyances of any description, money, deeds and similar documents, tickets and passports. Also excluded: wear and tear, deterioration, breakage of china and similar fragile articles (which may be covered for an additional premium), mechanical or electrical breakdown and other hazards usual to inland marine policies.

WET MARINE

See Ocean Marine.

WHOLE DOLLAR (PREMIUM) RULE

Rule stating that the premium for each exposure (coverage) shall be rounded to the nearest whole dollar (50 cents or more, use next higher whole dollar). Applies also to interim premium adjustments, endorsements and cancellations. Each "exposure" means each coverage for which a separate premium is charged.

WINDSTORM

For insurance purposes, "Wind Damage" by itself is not covered. "Windstorm," defined as general atmospheric turbulence covering a relatively wide area, usually is indicated when resulting in a number of claims for damage to property. When isolated claims are made, there is no hard or fast rule. Usually a check with the nearest weather facility indicating gusts or winds to 40 MPH and over would justify payment of a claim. Gale, hurricane, cyclone, tornado and typhoon are all considered "windstorms" in insurance. (See ExtendedCoverage.)

WITHOUT PREJUDICE

An action designated as being taken "without prejudice" indicates that it is not to be construed as an admission of liability on the part of any party. Usually used in connection with claims or losses. (See Non-WaiverAgreement.)

WORD PROCESSING

A computerized system for the production of documents and other written communication. Information is entered by way of typewriter keyboard into a (see) Central Processing Unit where it can be edited and otherwise manipulated by viewing on a screen. (See Cathode Ray Tube.) When and as needed, it may be recalled from the storage unit and produced on paper in whatever form desired (letters, contracts, manuscripts, etc.) by a high speed printer.
The system greatly reduces the use of paper, as the contents and form of the information may be viewed and changed in any way before it is produced by the printer. If necessary, proofs may be produced by the printer and returned for changes (insertions, deletions, corrections, format, etc.) which may be made directly on the CAT for final production by the printer.

WORKER’S COMPENSATION INSURANCE

Worker’s Compensation laws require the payment of certain benefits to injured employees or to the dependents of employees who are killed in the course of their employment, regardless of negligence. In return for this protection, the employee does not have the right to sue his employer at common law for injuries covered. Worker’s Compensation Insurance conforms to Worker’s Compensation laws of a given state, and the insurance company must comply with any requirements and pay any sums required by these laws. (See also discussion under Employer’s Liability.)

WRITTEN PREMIUM

The total amount of premiums in dollars written by a company in a given specified period of time (as opposed to, for example, Earned Premiums.)

back to top back to top arrow

 
Site Map|FAQ | Privacy Statement|Contact Us|RSS
Designed and Developed by Americaneagle.com
(C) 2017 Crissie Insurance Group | 1700 Higgins Road Suite 320 | Des Plaines, IL 60018
Phone: 847.296.0655 | Fax: 847.297.7779 |