Glossary of Terms

Replacement cost of lost or damaged property less depreciation.

A person, firm, or corporation, other than the Named Insured on the policy, who is protected against loss by the terms of the policy. With nonprofits, this is frequently the funding source, such as County or State, which provides funds to the organization. Additional Insureds are not protected for their own actions, but are protected only if they are sued for injuries caused by the actions of the named insured.

Injuries caused by oral or written publication of material that libels or slanders another person's or organization's goods, products, or services. Other injuries include violation a person's right to privacy, misappropriation of advertising idea, or infringement of copyright, title or slogan, committed in the course of advertising. See also Personal Injury.

The maximum total amount that the insurance company will pay for all claims covered by the policy. When the policy is a Claims-Made Policy, the aggregate refers to all claims made during the policy year. When the policy is an Occurence Policy, the aggregate refers to all claims based upon occurrences that took place during the policy year.

A temporary evidence of insurance given to the Insured before the insurance policy is actually issued. The binder certifies that insurance is in effect (provided all conditions are fulfilled) and that claims will be paid if loss or damage is sustained prior to the issuance of the policy. It is understood to include the provisions contained in the policy to be issued.

An obligation of the insurance company to protect the Insured against financial loss caused by acts or omissions of another person or persons known to the Insured (the Principal). A Fidelity Bond on employees would reimburse the Insured up to the limits of liability for loss caused by dishonesty of the covered employees. It is usually issued on the security of a mortgage or a deed of trust, or on the credit of the Insurer. See also Surety.

In insurance, a broker is a solicitor of insurance who does not represent a specific insurance company, but places orders for coverage with companies designated by the Insured, or with companies of his own choosing. Brokers are licensed by the State Department of Insurance.

A claims-made policy covers claims first made against the insured and reported to the company during the term of the policy. Claims reported after the policy terminates are not covered. In most cases, covered claims must also arise out of incidents which occur after the effective (or retroactive) date of the policy. When terminating a claims-made policy, the Insured must purchase "tail coverage" or extended reported period endorsement in order to have coverage for claims brought against it later for incidents which occurred during the terms of the policy. Contrast with Occurrence Policy. See also Extended Reporting Period Endorsement.

The coinsurance clause provision requires that the Insured purchase an amount of insurance equal to the percentage of value represented by the coinsurance clause amount. The minimum coinsurance clause available for insuring buildings and business personal property is normally 90 percent. If the Insured fails to keep his insurance amount up to this percentage, he will be penalized to the extent that he is underinsured. For example, if an Insured has a building with a replacement value of $100,000, and a policy with an 90 percent coinsurance clause, the building must be insured for $90,000 to avoid a penalty in the event of a claim. If the building in this example is insured for $50,000, only 5/9ths of any claim would be paid. This percentage is arrived at by comparing the amount the Insured did carry ($50,000) to the amount of insurance he or she should have carried ($90,000). In this scenario, let's assume the insured suffered a covered loss in the amount of $40,000. The insurance company will only pay 5/9ths of the loss, or $22,400 because the building was under insured.

The page of a policy that shows information about the coverages provided. Examples of such information are the types and amounts of insurance and the coverage parts that are applicable. See also common policy declarations.

Used to specify an amount to be deducted from a loss, and assumed by the Insured, in return for a reduced premium rate. See also retention.

One who performs services for another under a contract of hire, acting under the direction and control of the person by whom he or she is hired. Workers' compensation laws sometimes contain special definitions of the term. Compare with Independent Contractor.

Insurance which protects an employer from suits alleging bodily injury or property damage to others arising out of the use of vehicles owned by employees in the course of their business duties for the employer. This coverage does not protect the employees, who must have insurance policies on their own cars. It also does not pay for damage to the vehicle being driven by the employee. Also frequently known as Non-Owned Automobile Liability Insurance.

Special circumstances frequently require that a policy be changed. Such changes are effected by attaching an endorsement to the policy. This endorsement states the language necessary to record the change.

A provision of an insurance policy or bond referring to hazards or property with respect to which no insurance is afforded. An item that is specifically not covered (i.e., is excluded) in an insurance policy. You should always check your policy’s exclusions very carefully.

This term refers chiefly to the state of being open or subject to loss from some hazard or contingency. Provision of childcare services for example, would lead to exposure to sexual abuse liability claims. Proximity to adjoining property, with the resulting danger that a fire therein may spread to the property in question would constitute exposure to fire losses. Also used as a measure of the rating units or premium basis to be used in calculating premium for the policy, such as an exposure of five vehicles, or a payroll exposure of $400,000.

This endorsement is used in conjunction with claims-made policies, and it is often referred to as "Tail Coverage." The claims-made policy will not cover any claim reported after the termination date of the policy. When terminating a claims-made policy, the Insured must purchase an extended reporting endorsement. This endorsement allows protection for incidents that occurred during the claims-made policy period but were reported after the termination of the policy. The claim must be reported during the extension of time provided by the extended reporting period endorsement. If the Insured is moving coverage to another carrier, it may be able to obtain prior acts coverage from the new carrier as an alternative to purchasing the extended reporting period endorsement from the incumbent carrier. See also Claims-Made Policy.

A Bond which will reimburse an employer for loss, up to the amount of the bond, sustained by the employer named in the bond (the Insured or Principal) by reason of any dishonest act of any employee covered by the bond. Also known as Employee Dishonesty bond. The Fidelity Bond is frequently purchased as a part of the Crime Policy.

Insurance that protects fiduciaries from claims alleging breaches of duty or errors in judgement and other wrongful acts related to their duties as fiduciaries, including violation of the provisions of ERISA.

The first insured listed on the policy. The insurance company will direct all correspondence only to the First Named Insured and not to all Insureds listed on the policy. See also Additional Insured.

In the commercial general liability form, the maximum amount the insurance company will pay for medical expenses under coverage C and bodily injury, personal injury, and property damage under coverage A and B of the policy. Normally not included in the aggregate is the amount payable for bodily injury and property damages covered under the products and completed operations section of the policy. The products and completed operations section normally has a separate aggregate limit of liability applicable.

One who agrees to perform services or supply commodities under a contract. In carrying out the contract the independent contractor is not under the control of, nor an employee of, the party with whom he or she contracts. Compare with Employee.

Technically, discontinuance of a contract by the Insured by nonpayment of premium before the policy has a cash or other non-forfeiture value; properly, loss or reduction of rights by nonpayment of premium at any time.

Alleged professional misconduct or lack of ordinary skill in the performance of a professional act. A practitioner is liable for damage or injuries caused by malpractice. Such liability, for some professions, can be covered by insurance—for example, medical malpractice for physicians, or attorneys’ errors and omissions for attorneys. See also errors and omissions insurance.

An insurance company that does business in a jurisdiction in which it is not admitted to transact business. Such carriers are not regulated by that state’s insurance commissioner, and their policyholders are not protected by the State’s Guaranty Fund in the event that the insurance company becomes insolvent.

An accident or sickness that results in an insured loss.

An occurrence policy agrees to cover all claims arising out of incidents which occur during the policy period regardless of whether or not the insurance policy is still in effect at the time that the claim is made. Compare to Claims-Made Policy.

Injury to a person or organization which is not bodily injury and is caused by libel, slander, false arrest or detention, malicious prosecution, wrongful entry or eviction or other invasion of the right of private occupancy. These injuries are not covered if committed in the course of advertising, broadcasting, or telecasting. See Advertising Liability.

Applicable to a Claims Made Policy. A clause in a policy or an endorsement to a policy in which the insurance company agrees to provide coverage for claims based upon incidents that took place prior to the effective date of the insurance company’s policy but which are brought against the policyholder after the policy becomes effective. Sometimes also known as “Nose” coverage. See also Extended Reporting Endorsement.

The practice of insurance companies of protecting themselves against large losses. This is done by purchasing insurance from other companies, known as reinsurers, to share the risk. For example, if the company provides liability policies of $1,000,000, it may retain the first $300,000 of each claim for its own account and purchase reinsurance with other companies for the balance. If a $1,000,000 claim then occurs, the reinsurers reimburse the insurance company the $700,000.

Insurance providing that the insured will be paid the cost of replacing the damaged property without deduction for depreciation. The usual replacement cost form requires that the property must actually be replaced before the insured may collect the replacement value. If the property is not replaced, the Actual Cash Value would be paid.

A date shown on the Claims-Made Policy, which is the first date that an incident may take place and be eligible for coverage under the policy. Losses incurred between the retroactive and expiration dates of the policy will be considered made during the policy if reported before the expiration date.

The corporation or individual guaranteeing performance under a bond; one who promises to answer for the debt default or miscarriage of another. Examples of surety bonds are construction or license and permit bonds.