Glossary of Terms
Agent – an individual, partnership or coporation licensed by the state to act for a particular company or companies in soliciting, negotiating, effecting and serving insurance contracts.
All-risk – term generally found in Inland Marine insurance indicating coverage for losses caused by all perils not specifically excluded in the policy.
Audit – an examination of the insured’s records (payroll, receipts, sales, etc.) in order to determine the actual premium developed where the premium could only be estimated at the time the policy was issued.
Binder – A written or oral temporary agreement, usually limited to a specific number of days, to effect insurance until a policy can be issued. Generally used when information sufficient to issue the policy is not immediately available.
Bodily injury – Bodily injury, including sickness or disease including death at any time resulting therefrom, sustained by any person or persons, caused by accident, and arising out of one or more of the hazards insured against in the policy.
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 state, the Surety guarantees to the Obligee the satisfactory performance of the Principal.
Broker – a person who represents the insured in arranging insurance protection.
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, or apply for a specific rating or reconflagration, flood, etc.
Certificate of insurance – evidence of insurance usually in the form of a copy of the policy. Also, a description of specific details of the property covered under a “master” or “open” policy. The word “certificate” generally carries with it the obligation on the part of the company to notify the holder of the certiciate in the event of a change or cancellation of the policy. A description of the insurance which does not carry this obligation is usually referred to as a “memorandum of insurance.”
Claimant – One who takes action for indemnification for damages, usually against a “third party.”
Contract – 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]. To qualify as a legal contract, an agreement must meet five conditions: It must be 1) in legal form; 2) made by legally competent parties; 3) Based on a consideration [see above]; 4) Not against public good or law; and 5) mutually acceptable, each party being away of all relevant facts known to the other.
Coverage – Insurance, an insurance policy, or the extent of protection in type, limit or amount afforded by an insurance policy.
Declarations -- Information given by the insured on the basis of which a policy is issued: Name, address, nature locations and description of the risk, coverage, etc.; information contained in the “Declarations” section of the policy, including form numbers attached and dates, etc.
Deductible – An agreed amount which, in the event of a loss, the insured must pay before the company pays the balance of the loss.
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.
Employers, liability – The common law doctrine imposing legal liability on the employer for injuries to his/her employees by reason of negligence. Modified through the years by statute, Employer’s Liability has now been largely replaced by Workmen’s Compensation Insurance, which provides protextion for employees whether or not negligence can be shown. Since Workmen’s Compensation Insurance covers only the obligations of the employer under the various state Workmen’s Compensation Laws, no such law covers every situation in which an employer may seek to recover damages from his employer. In such cases the employee is free to take legal action against his/her employer for recovery. Since all other Liability Policies specifically exclude coverage for employees, there has been included in the Workmen’s Compensation Policy a second Insuring Agreement, Coverage B, Employers’ Liability, to cover this gap. While there is no dollar limit under the Workmen’s Compensation section, Employers’ Liability does have a limit of $100,000 (or more for an additional premium.)
Endorsement – A printed or otherwise written statement attached to and made a part of an insurance policy changing, amending or clarifying the declarations or conditions of the policy. A Rider is the same as an endorsement, but is applicable to bonds. The two terms have, however, become interchangeable.
Exclusion – Reference to an exposure, condition, situation or item not covered by a policy.
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 and an executor of an estate are examples of fiduciaries.
hold harmless and indemnity agreements – indemnity agreements provide that the culpable party bear the costs and expense for damages on a job site claim. Since the contractor does not have total control over the entire job site and all subcontractors, this protects them from being held completely responsible on a claim.
Insurable report -- In the definition of insurance we understand 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 particularly 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 – An arrangement by which the individual can, by payment (the “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.
Lapse – The voiding of an insurance policy because of non-payment of a renewal premium.
Liability – Stated simply, a responsibility or obligation, usually financial, which one might be called upon to meet.
Legal liability is that imposed by law (as opposed to an agreement or contract) on one person (or other legal entity) for injuries to person or damage to the property of others.
Loss ratio – The relationship of losses in dollars to premiums in dollars, expressed 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.
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.
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.
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.
Premises – The location of the property insured, including the building(s) insured and/or containing the property insured, plus the insured property immediately adjacent thereto.
primary and non-contributory clauses -- meaning the contractor’s policy must pay before other applicable policies (primary) and without seeking contribution from other policies that also claim to be primary (non-contributory)
Producer – An agent, sub-agent, broker or salaried solicitor who sells insurance.
Primary Insurance – the applicable insurance which is called upon first to satisfy a covered loss.
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.”
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 proportionate 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.
waiver of subrogation -- in the event of a claim, this is an agreement not to sue a third-party who might be responsible for any negligence