This is a comprehensive glossary of insurance terms. As new coverages, policies and terms develop, or even if we update a term’s definition, the glossary will be updated. If you are looking for a term that is not here, let us know and we will be sure to add it. Just send it in via Ask the Experts, and we’ll make the update.

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“A” (or Judgment) Rates – Rates that are based on the judgment of the underwriter on an individual risk basis and not supported by loss experience.

Abandonment - A term that applies to property and signifies both a relinquishing of it and the letting go of all legal rights to it, as well, with the intent to claim a total loss. Abandonment of property to an insurance company is something insureds are expressly prohibited from doing in most property polices.

Abandonment clause – A property policy provision that stipulates that the insurer need not accept any damaged property that the insured chooses to relinquish.

Ab initio – Means from the beginning. An insurance policy may be void ab initio when it has been discovered that the insured made misrepresentations on the application. The policy is void back to the inception date, and there is no coverage for any losses.

Absolute liability – Liability that is triggered automatically at the performance of an egregious activity, when the performance of an act is so dangerous it is sufficient to trigger liability regardless of the degree of negligence. Triggering explosives is often used as an example. Sending workers aloft for construction or repair at elevated heights is another. Strict liability is another term that is sometimes used.

Accelerated Death Benefit – A benefit offered as part of a life insurance policy which pays a portion of the policy’s death benefit before death to an insured person who has been diagnosed as terminally ill.

Accident - An unforeseen, unintended, and unexpected event, which occurs suddenly and at a definite place. See Occurrence.

Accidental Death Benefit - a lump sum payment upon the loss of life of an insured person due to the direct cause of an accident.

Accidental means - Appearing in some policies, the unexpected or undesigned cause of an accident. The “means” which caused the mishap must be accidental in order to claim policy benefits.

Accident frequency - The rate of occurrence of accidents. Along with accident severity, it is taken into account in ratemaking.

Accident severity – The measure of the seriousness of a claim, measured in, for example, dollars. Along with frequency, it is taken into account in ratemaking.

Accident year experience – Measures premiums and losses relating to accidents that occurred during a twelve-month period. Underwriting result based on earned premiums and ultimate losses from loss events falling within the same twelve month accounting period, regardless of when the losses are actually reported, booked, or paid. See Calendar Year Experience and Underwriting Year Experience.

Accommodation line – Normally unacceptable risks that are written as an accommodation to an agent or broker who has an overall profitable relationship with the insurer. For example: a personal auto risk with a teenage driver of a sports car might be written if the other lines of insurance that it carries for the customer were profitable; or if the agency has had a good and profitable relationship with the insurer.

Account current – A monthly statement provided by an insurer detailing an agent’s premiums, commissions, cancellations, and endorsements.

Account premium modification plan – A rating plan for fire, property damage and time element coverages. The maximum credit or surcharge is 25 percent, and it is available to risks that develop a three-year premium of at least $5,000.

Account selling – Trying to handle all of a client’s insurance needs, rather than providing for only a portion of those needs.

Accounts receivable coverage - Pays for the cost of reconstructing accounts receivable records that have been damaged or destroyed by a covered peril. Even more importantly, it covers any payments that cannot be collected because records cannot be reconstructed.

Accumulations – Increased policy benefits as a result of continuous policy renewal.

ACORD – An organization that develops insurance forms used as a standard by many within the insurance industry. The ACORD certificate, application, and loss form are common means of exchanging information. ACORD stands for Agency Company Operations Research and Development.

Acquisition cost – The expense undertaken to acquire new business. The concept applies to both agents and companies. The largest portion of an insurer’s acquisition cost is agent’s or sales representative’s commission or bonus.

Acre-foot - The amount of water needed to cover one acre of land in water 1 foot deep.

Act of God - Acts of nature – the term was once widely used to distinguish between manmade events, such as, fire, collision, and nature’s rampages in wind and flood.

Active malfunction – In products insurance, a defect or malfunction in a product that damages the property of the user.

Action over claim – In workers compensation, a demand by a third party in a subrogation action suing for damages from the employer.

Actual authority – Authority that an insurer intentionally gives to the agent. See express authority and implied authority.

Actual cash value (ACV) – A method for placing value on property as of the time of its loss or damage. ACV may be determined as replacement cost less depreciation. The market value of an item may be used to help determine actual cash value. Contrast with replacement cost.

Actual cash value appraisal – An appraisal to determine the actual cash value of a building and related personal property.

Actual loss sustained – A term used to distinguish from a valued form.

Actuary - A person highly trained in mathematics and statistics who calculates rates and dividends and provides other statistical information for an insurance company.

Acquisition cost – The charge made for the placing of a new policy on the books of a company (includes cost of clerical work, agent’s commissions, etc.).

Additional insured – One who qualifies as an insured under the terms of a policy even though not named as insured. Officers of a corporation may be included as insureds under the terms of a policy written in the name of the corporation.

Additional insured endorsement – An endorsement that conveys additional insured status on a party that otherwise is not insured on the policy.

Additional living expense coverage - This coverage, found in homeowners forms, provides payment for extra expenses made necessary by the insured’s inability to reside in the insured dwelling because of a covered loss—for example, restaurant meals and hotel bills. The amount payable is the difference between normal household expenses and the increase.

Additions and alterations – Coverage that protects any additions, alterations, and improvements a condo owner makes to his unit, for up to 10 percent of your contents limit. This coverage can be increased.

Adequate - a criterion of insurance rate regulation that stipulates that an insurer’s premium rates must be adequate to cover the insurer’s cost of doing business, claims payments, and a reasonable profit to the insurer.

Adhesion contract – A standardized set of agreements offered by one (usually the stronger) party to another on a take it or leave it basis. An insurance policy is an example of such a contract. The insurer offers a personal auto policy, for example, that an individual may adhere to (or not) but in any case the individual may not change any of its terms. Because it has the stronger position, the insurance company has the burden to spell out its terms precisely. Such contracts are interpreted strictly against the author of the contract. Not to be confused with aleatory contract.

Adjustable feature – A cost modification provision found in some reinsurance agreements. Parties agree to adjust final premium rate or final ceding commissions retrospectively, in accordance with the loss experience, by formulas set forth in the agreement.

Adjustable premium - The agreed right of a company to modify the insured person’s premium payments under certain specified conditions. Seen in health insurance.

Adjuster – A person who may act either on behalf of the insurance company or the insured in the settling of a claim. Employee adjusters work for an insurer, while independent adjusters represent the insurance company on a fee basis; and public adjusters represent the insured on a fee basis.

Adjustment - The process of arriving at an amount of settlement for a claim. It may consist of a series of computations to arrive at the amount of a loss, as in a complicated fire loss. It may involve discussions of liability, quantum, and other such matters as might be the case in a problem liability claim. It may contain both.

Adjustment bureau - Organization for adjusting insurance claims that is supported by insurers using the bureau’s services.

Administrative services only (ASO) agreement – Contract between an insurer (or its subsidiary) and a group employer, eligible group, trustee, or other party, in which the insurer provides certain administrative services. These services may include actuarial support, plan design, claims processing, data recovery and analysis, benefits communications, financial advice, medical care conversions, data preparation for governmental reports, and stop-loss coverage.

Administrator – A person legally vested with the right of administration of an estate.

Admiralty courts – Courts of law that deal with matters pertaining to the sea.

Admitted assets – Cash and investments that meet criteria for liquidity and safety set by the National Association of Insurance Commissioners (NAIC) and by individual state commissioners. Only admitted assets are used in measuring the capacity and soundness of an insurer. Nonadmitted assets, such as overdue receivables, are excluded from statutory assets and surplus.

Admitted company – An insurance company that is licensed (admitted) to conduct business within a given state.

Admitted market – The range of insurance available through admitted companies.

Admitted reinsurance – A company is admitted when it has been licensed and accepted by appropriate insurance governmental authorities of a state or country. In determining its financial condition a ceding insurer is allowed to take credit for the unearned premiums and unpaid claims on the risks reinsured if the reinsurance is placed in an admitted reinsurance company.

Advanced Driver Assistance Systems – ADAS – Systems in automobiles that assist, or in some cases manuever the vehicle without input from a driver. Cruise control, blind-spot warning, forward collision warning or braking, are advanced driver assistance systems. The combination of one or more of these systems leads to semi-autonomous or autonomous driving vehicles.

Advance premium – Also called deposit premium, an advance premium is a down payment on what will be the final premium, in policies where the final premium is subject to audit.

Adverse selection – The tendency of poorer than average risks to buy and maintain insurance. Adverse selection occurs when insureds select only those coverages that are most likely to have losses.

Adverse underwriting decision – Any decision made by an underwriter that is not favorable to the insured. Such decisions involve termination, declination, higher rates, or reduction in coverage. Another example is the placing of a risk in a residual market or with an unauthorized insurer.

Advertising injury - Claim arising out of slander, libel, copyright infringement, or misappropriation of advertising ideas. Coverage is provided as part of coverage B of the commercial general liability policy.

Advisory organization - A rating bureau or other body that may advise but not require its members to adhere to certain practices, in accordance with state insurance laws. Rating organizations or bureaus adopt file rules and rates in the various states, on behalf of their members.

Affinity marketing – Targeting marketing efforts toward one group or category of client. Examples include grocery stores, all the employees of one company, or employees in one industry. Group business is a type of affinity marketing.

Affreightment - A contract to carry merchandise.

After charge – A charge sometimes included in fire rates for commercial buildings. It is usually added for conditions that can be corrected by the insured, such as failure to have the proper types of fire extinguishers.

Age limits – Used in health insurance, these are set ages contained in a policy for the insuring of new applicants or for the renewal of the policy.

Agency company – An insurance company that produces business through an agency network. See Direct writer.

Agency contract - The legal agreement between an insurance agency and the insurer detailing the terms of representation.

Agency plant – The total force of agents representing an insurer.

Agent - One who solicits, negotiates or effects contracts of insurance on behalf of an insurer. His right to exercise various functions, his authority, and his obligations and the obligations of the insurer to the agent are subject to the terms of the agency contract with the insurer, to statutory law, and to common law.

Agent of record – The agent indicated on and for each insurance policy, binder, or acceptance. The agent on a particular policy or bond.

Agent’s appointment - The act by an insurer that grants an agent the authority to act as an agent for the insurer. In most states, agents must be licensed and appointed prior to being allowed to sell insurance.

Agent’s authority – The authority of an insurance agent to act on behalf of the insurer he or she represents. There are several types including express authority (authority to act on specific instructions only), implied authority (actions taken in accordance with prevailing custom), or apparent authority (actions based on appearances created by the agent and acquiesced to by the principal).

Agents errors and omissions insurance – Insurance obtained by the insurance agent to guard against loss caused by an unintentional failure to properly insure (or recommend insurance to) a client.

Agent’s license – A certificate of authority from the state that permits the agent to conduct business.

Aggregate deductible – A deductible provision in some property insurance contracts where all covered losses during a year are figured together and an insurer pays only when the aggregate deductible amount is exceeded.

Aggregate excess reinsurance – A type of excess reinsurance treaty that sometimes is called stop loss or excess of loss ratio reinsurance. The retention in this type of agreement is calculated based on all losses over the period of time that is stated in the treaty. The reinsurer is responsible for the amount of losses between the retention and the limit on the treaty.

Aggregate indemnity - A maximum dollar amount which may be collected for any disability, period of disability, or under the policy.

Aggregate limit – The maximum amount an insurer will pay under a policy in any one policy period.

Aggregate retention – An additional retention kept net by the cedant of losses otherwise recoverable from the reinsurer. There are two retentions in a program having an aggregate retention. The first retention applies to each risk or occurrence. The second, or aggregate retention, applies to amounts that would normally be recoverable from the reinsurer. Only after the aggregate retention is exceeded can the cedant recover from the reinsurer.

Agreed amount clause – An agreement between underwriter and insured whereby, in exchange for the purchase of coverage in an amount specified by the underwriter, the insured is protected from a coinsurance penalty.

Agreed value clause – Though rare, some policies cover for a value agreed upon at the time of writing; if the property is lost because of an insured peril, the amount stated in the policy will be paid. Fine arts insured under a personal articles floater or homeowners scheduled personal property endorsement are examples.

Aircraft coverages - Though aircraft have long been an important element in the lives of most Americans, insurance of aircraft exposures has remained outside the mainstream of property and liability insurance markets. Aircraft hull and liability insurance is the counterpart of personal or commercial auto policies coverage. Aircraft products insurance is the counterpart of products liability cover. Air cargo insurance is mirrored in motor truck cargo. Hangarkeepers liability is akin to garagekeepers coverage. As with any specialty line of insurance, the absence of standardized forms limits practice to specialists in the line.

Alcoholic beverage control (ABC) laws – See Dram shop laws.

ALE - Abbreviation for Additional Living Expenses, a coverage found in personal lines homeowners, condominium, and tenant policies.

Aleatory contract – A contract in which the number of dollars to be given up by each party is not equal. Insurance contracts are of this type, as the policyholder pays a premium and may collect nothing from the insurer or may collect a great deal more than the amount of the premium if a loss occurs. Not to be confused with contract of adhesion.

Alien reinsurer – A non-U.S. domiciled reinsurer writing reinsurance in the U.S.

Allied lines – Lines of insurance that cover for perils other than fire, that are usually sold with fire insurance, for example, fire and allied lines.

Allocated benefits – Payments in some health insurance policies for specified hospital services (x-rays, drugs, dressings, etc.) up to a maximum amount.

Allocation – Refers to the process of determining the amount of defense costs and any settlement or judgment that is properly attributable or allocated to covered claims against insureds, on the one hand, and uninsured claims against insureds and others, on the other hand. In essence, allocation simply refers to the process of determining the amount of insured loss when that loss is commingled with uninsured loss. The need for allocation arises most frequently under D&O insurance policies that cover claims against directors and officers but not claims against the company. Because directors and officers and the company are often both sued in the same claim, allocating loss between the directors and officers and the company can be difficult and sometime contentious. Several alternative D&O insurance policy provisions are now available to minimize allocation uncertainties and disputes. Some of those alternatives include:

A. Entity Coverage. This alternative grants coverage for Securities Claims (or perhaps employment claims) against the company whether or not directors and officers are codefendants.

B.  Co-Defendant Coverage. This alternative grants coverage for any claim against the company provided that the claim is also made against directors and officers.

C.  Pre-Determined Allocation. This alternative establishes in the insurance policy the specific allocation percentage applicable to securities claims (and perhaps other types of claims) regardless of the facts in each specific claim.

D. Methodology. This alternative identifies in the insurance policy the method by which the allocation issue will be determined in a particular case. This alternative does not eliminate the allocation issue, but identifies what criteria will be used by the parties in determining an appropriate allocation. Some of the methodologies contained in D&O policies include allocating based upon the relative legal exposures of the parties or “the relative legal and financial exposures of and relative benefits to” the parties. Other policies simply require that the parties commit their best efforts to agree on a fair and reasonable allocation under the circumstances of each claim.

Alien insurer – An insurance company formed under the laws of a country other than the one it is doing business in.

Alienated premises – Property that has been sold by an insured.

All risks – A property policy expression now out of fashion. It was used to designate contracts that promised coverage against all risks of direct physical loss in contrast to forms that covered for specific, named perils. The word all came to be perceived as open to broader interpretation than insurers intended and it was dropped in favor of the promise to cover risks of physical loss. See Named perils and Open perils.

Allocated loss adjustment expenses (ALAE) – Expenses directly attributable to specific claims. Includes payments for defense attorneys, medical evaluation of patients, expert medical reviews and witnesses, investigation, and record copying.

Alternative dispute resolution (ADR) – Methods other than lawsuits that are designed to resolve legal disputes. Examples are arbitration and mediation.

Alternative markets – Mechanisms used to fund self-insurance, including captives, which are insurers owned by one or more non-insurers to provide owners with coverage. Risk-retention groups, formed by members of similar professions or businesses to obtain liability insurance, are also a form of self-insurance.

Ambiguity – A standard policy provision that proves to be ambiguous may be interpreted in the light most favorable to the insured.

American Agency System – The system of selling insurance through agents who receive commissions in lieu of salary.

American Association of Insurance Services (AAIS) - An association of insurance companies providing filing and various technical services on behalf of its member companies.

Americans with Disabilities Act (ADA) - Passed by Congress in 1990, this act requires that reasonable accommodation be made in public accommodations, including the workplace, for those with physical or mental disability.

American College, The – An educational institute conferring the Chartered Life Underwriter (CLU) designation.

American Lloyds - Unincorporated associations of individual underwriters who assume specified portions of liability under each policy issued. There is no connection with Lloyd’s of London.

American Municipal Bond Assurance Corporation (AMBAC) - A corporation that offers insurance policies on new municipal bond offerings. An offering with such insurance can command a higher price upon issue, depending on the extent to which the insurance policy guarantees interest and principal.

Amount subject – The maximum amount that underwriters estimate can possibly be lost under the most unfavorable circumstances in any given loss, such as a fire or tornado. Contrast with Probable Maximum Loss.

Anniversary date – The anniversary of the original date of issue of a policy as shown in the declarations.

Annual aggregate deductible – A deductible applied annually to the total amount paid in claims during a policy period. Claims are generally subject to a per-occurrence deductible; the aggregate is the limit beyond which no further deductibles are applied.

Annual bid bond service – An arrangement whereby a contractor pays a premium once a year and in return gets all or a certain number of bid bonds and consents of surety free of charge.

Annual statement - Summary of an insurer’s or reinsurer’s financial operations for a particular year, including a balance sheet. It is filed with the state insurance department of each jurisdiction in which the company is licensed to conduct business.

Anti-coercion laws - Usually contained in a section of the state code entitled Unfair Trade Practices, these provisions define the use of coercion as an unfair practice and, hence, a violation of the state law.

Anti-concurrent causation - Common policy clause that excludes coverage from certain losses even if they occur when a covered loss occurs at the same time. Standard language is “Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.” This is commonly used with perils that cannot be covered, such as flood waters, earth movement, or war.

Anti-rebating laws – Laws that prohibit an agent’s refunding part of a commission to an applicant as an inducement for placing insurance through the agent.

Anti-theft devices – Any of several devices used by the insured to try to prevent the theft of a vehicle; includes The Club, alarms, kills switches, etc.

Anti-theft recovery system – These systems consist of an electronic device that’s installed in a concealed area of a car. If the car gets stolen, the device can be activated, and it will emit a signal that can be used to locate the car. Installation of an anti-theft recovery system may provide eligibility for an auto insurance discount. LoJack is one.

Anti-trust laws – Laws that prohibit companies from working as a group to set prices, restrict supplies or stop competition in the marketplace. The insurance industry is subject to state antitrust laws but has a limited exemption from federal antitrust laws. This exemption, set out in the McCarran-Ferguson Act, permits insurers to jointly develop common insurance forms and share loss data to help them price policies.

Apparent authority – The perceived ability of an agent to bind an insurance contract to an insurance company. If an agent or agency holds themselves out as representing a particular company it is reasonable for the public to assume that such authority is established contractually, even if it is not.

Application – A signed statement by a prospective insured person which becomes part of an insurance contract.

Apportionment - The method of dividing a loss among multiple insurers that cover the same loss.

Applicationa signed statement by a prospective insured person which becomes part of the  insurance contract.

Appraisal - A determination of the value of property for the purposes of determining the proper amount of insurance to be bought or in adjusting a loss. In event of a loss and the carrier and insured disagree on the amount of the loss, either may request an appraisal. Each party then selects an appraiser, and the appraisers select an umpire. An agreement between two of the three determines settlement.

Appraised value – Value of an object or location as determined by an independent appraiser. This value could be market value, replacement cost value, or utility value.

Appraiser - Someone who inspects property and determines the value of the property and the cost to repair or replace that property.

Approved roof – A roof made of fire resistive materials, such as tile or asphalt.

Appurtenant structure – Another structure on the same premises as the principal structure. A detached garage on a dwelling premises is appurtenant to the dwelling. Older homeowners forms refer to the other structures protected under the HO Coverage B as appurtenant structures.

Arbitration clause – The clause in an insurance policy that spells out how disagreements over a claim are settled. Generally, each party chooses an arbiter; the arbiters agree on an umpire; and these three agree on a resolution of the dispute. Under some clauses, an unsatisfied party may have the option to seek judicial relief following an arbitration finding.

Arson - The intentional setting a fire of property. The illegal burning of a building or other property, the crime of setting fire to something.

Assessability – A characteristic of some insurance policies in which policyholders are obliged to pay money, in addition to premiums, if the insurer experiences losses.

Assets - All funds, property, goods, securities, rights of action, or resources of any kind owned by an insurance company. Statutory accounting, however, excludes nonadmitted assets, such as deferred or overdue premiums, that would be considered assets under generally accepted accounting principles (GAAP).

Assigned risk – A risk not generally acceptable to any insurance company but for which the law says that insurance must be acquired. Personal auto liability is one such necessary coverage. Insurance companies doing personal auto business in a state can be required to accept assignment of a portion of the state’s unacceptable drivers as insureds.

Assigned risk plan – See Auto insurance plan.

Assignment - The transfer by a policyholder of the legal right or interest in a policy contract to a third party.

Association captive – A captive insurer owned by the members of a sponsoring organization or group, such as a trade association.

Association group – Group insurance provided to a trade or business association by which all members are protected under one master contract.

Assume – To take over a risk; the converse of cede.

Assumed liability - Liability assumed under contract or agreement. More commonly known as contractual liability.

Assumed premium – Consideration or payment an insurance company receives for providing reinsurance for another company.

Assumption of risk – When and individual participates in an activity or action that he understands has an element of danger or risk. The individual participates anyway, therefore assuming the risk he is exposed to.

Assumption of risk doctrine – Defense against a negligence claim that bars recovery for damages if a person understands and recognizes the danger inherent in a particular activity or occupation.

Assumption reinsurance – A form of reinsurance under which policy administration and the contractual relationship with the insured, as well as all liabilities, pass to the reinsurer; the novation of liability is evidenced by an assumption certificate issued to the insured who, in some jurisdictions, has the right to refuse the change in insurers. See Indemnity reinsurance and Coinsurance.

Assured – A party who is a potential beneficiary of an insurance contract. The synonym insured is more commonly used.

Atmospheric Lake or  Puddle – These storms were newly discovered December 2021. Similar to atmospheric rivers, these are slow-moving pools of  concentrated water vapor. The lakes or puddles start as rivers but then break off and become an isolated mass of concentrated water that can slowly move across the sky and even stop, depending on wind speed. They can hold enough water to create a puddle a few inches deep and 620 miles wide. So far they’ve been seen mostly near the equator.

Atmospheric River - A long, narrow river of condensed water vapor in the atmosphere that moves with the weather. They can be responsible for significant flooding as they carry large amounts of water.

Attachment - The legal process of taking possession of a defendant’s property when the property is in dispute.

Attachment basis – A provision in reinsurance agreements that determines whether, and in what manner, a reinsurance agreement covers a specific loss. See Claims made and Occurrence basis.

Attorney-in-fact - An individual who is given authority to execute legal documents, including bonds; or the manager of a reciprocal exchange, which is an insurance arrangement whereby risk is transferred to other members. The attorney-in-fact need not be a lawyer.

Attractive nuisance – Condition that can attract and injure children. The occupants of land on which such a condition exists are liable for injuries to children. Examples of attractive nuisances include swimming pools, earth moving equipment, and playground equipment.

Audit – Some policies (such as workers compensation) are written subject to an audit. Since workers compensation premium is based on the insured’s payroll, the insurer is entitled to audit the insured’s records at the end of the policy to verify that it has collected an adequate premium for the amount of payroll to which it was exposed.

Authorized insurer – An insurer granted permission by a state to sell specific lines of insurance within that state.

Auto insurance plan – Program set up by various states to ensure that everyone with a valid drivers license will be able to purchase auto insurance. All auto insurers operating within a state are assigned insureds in proportion to the amount of auto premium written.

Automobile liability coverage - Coverage in which the insurer agrees to pay all sums for which the insured is legally obligated because of bodily injury or property damage arising from the ownership, maintenance, or use of an auto. Generally part of a commercial or personal auto policy.

Automobile medical payments - Coverage applying to the medical, hospital, or funeral expenses of anyone injured while on or in an insured automobile. The coverage is not dependent on liability, being triggered simply by an accident. It may be included in either the Business Auto Policy or the Personal Auto Policy. See also Premises medical payments.

Auto physical damage coverage - Insurance coverage on the vehicle for physical damages to the vehicle itself. This coverage usually is broken down into collision and other than collision coverages, and is part of the commercial auto or personal auto policy.

Automobile reinsurance facility – One of several types of shared market mechanisms used to make automobile insurance available to persons who are unable to obtain such insurance in the regular market.

Automobile shared market – A program in which all automobile insurers in each state make coverage available to car owners who are unable to obtain auto insurance in the voluntary market.

Autonomous vehicle - A vehicle able to maneuver without instructions or actions by a driver. Passengers and the driver can be engaged in other activities while the vehicle maneuvers on its own. Projections are that there will be autonomous taxis operating without drivers that travel an area picking up passengers and delivering them to their desired locations.

Average - Marine insurance term for loss or damage. See also General average and Particular average.

Average adjuster – An adjuster of marine losses.

Avoidance of risk – Taking steps to remove a hazard, engage in an alternative activity, or otherwise end a specific exposure.


Back up – When water reverses directions and flows backwards through a sewer or drain.

Back up of sewers and drains – Condition in which water (possibly plus other materials) enters a premises through a drain or sewer because of blockage or super saturation. The water reverses direction and flows back towards the direction it came from.

Bad faith – Accusations by policyholders that insurers took steps to deliberately delay, underpay, or deny a claim.

Bail agent - A person who solicits, negotiates, and effects undertakings of bail on behalf of any surety insurer. All bail agents must meet specified bond requirements.

Bail permittee – A person who solicits, negotiates, issues, and delivers bail bonds. All bail permittees must meet specified bond requirements.

Bail solicitor – A person who transacts bail on behalf of, and as the employee of, the holder of a bail license. All bail solicitors must meet specified bond requirements.

Bailee - One who is charged with the care of the property of another. For example, a garage is the bailee of a customer’s (bailor’s) car (the bailment) and a jeweler is a bailee of customers’ jewelry while in its possession for repair or appraisal.

Bailees customers’ coverage - Insurance designed to reimburse a bailee’s customers for loss without regard to liability. Often found on a Commercial Inland Marine policy.

Bailees floater – An inland marine form that covers—on an open perils basis— a bailee’s interest in personal property of others.

Bailees liability coverage - Coverage designed for damage negligently caused by a bailee or employee to goods left in their care. Often found on a Commercial Inland Marine policy.

Bailment - The act of delivering property in trust to another for a limited time and specific purpose.

Bailor - The person delivering property to another in trust.

Balance - A reinsurance underwriter’s benchmark that measures premium volume against the limit exposed under a reinsurance agreement.

Bank – An informal, noncontractual multiyear summing up of the total premiums ceded to reinsurers less losses paid by reinsurers over the duration of a layer or program—usually a catastrophe program. For instance, cessions of $10,000 in premiums for each of five loss-free years would be said to constitute a $50,000 bank.

Bank depository bonds – Bonds guaranteeing the deposit of public funds.

Bankers blanket bond - A bond designed to indemnify for loss of money or securities caused by dishonesty of employees, robbery or theft from the premises, or robbery or theft while the insured property is in transit.

Bankruptcy trustee bonds - Bonds that provide a guarantee to the beneficiaries of the bankruptcy action that the bonded trustees, appointed in a bankruptcy proceeding, will perform their duties and handle the affairs according to the rulings of the court.

Bare - Without adequate insurance, especially for a business.

Bare walls – This term describes a property policy that insures just the common elements and provides no coverage for the interiors or contents of a unit.

Basic causes of loss – The perils of fire, lightning, and removal of property from premises endangered by those perils as shown in the standard 1943 New York fire policy.

Basic named perils – Covered perils in a property insurance contract: fire, lightning, windstorm, civil commotion, smoke, hail, aircraft, vehicles, explosion, and riot. The basic perils may vary by insurer.

Basis risk - Is the possibility that payouts may be higher or lower than actual losses. Payments may not fully cover the loss – an insured may still need an earthquake or flood policy, but the parametric policy can give them immediate cash. This is often seen in parametric insurance policies.

Beach plans – Sometimes known as windstorm plans or pools, these are plans devised by coastal states to insure the windstorm exposure of coastal properties. The plans operate in a manner similar to a joint underwriting association with participation by all insurers operating within a state.

Bench error – A mistake in the production process of a product that causes a loss. Such losses are usually covered.

Beneficiary – A person or entity designated to receive a specified cash payment of a policy upon the policyholder’s accidental death.

Best’s rating - A rating given to insurance companies by the A.M. Best Company, independent analysts of the insurance industry. The ratings range from A++ (Superior) down to D (below minimum standards). Also, ratings of E and F are given to companies under state supervision or in liquidation. The ratings reflect A.M. Best’s evaluation of an insurance company’s financial strength and operating performance relative to the norms of the property/casualty insurance industry.

Betterment – A term used to express the difference in the value of property before loss and after restoration. If a 20-year roof is damaged by an insured peril and it has to be replaced in its 15th year and the restoration renews the 20-year life expectancy, the owner has obtained a 15-year betterment in the roof. Without replacement cost insurance on the roof, the owner is expected to reimburse the insurance company for the betterment entailed in the restoration. Also see Improvements and betterments.

BI – A shorthand expression for bodily injury.

BI/PD exclusion – Found in D&O policies, refers to the exclusion eliminating coverage for claims for bodily injury or property damage, which is contained in virtually every D&O, EPL, Fiduciary and similar type of insurance policy. The purpose of this exclusion is to avoid the policy covering loss that is typically insured under a company’s comprehensive general liability (CGL) insurance policy.

Bid bond – Guarantees an owner, the obligee, that the accepted contractor will actually undertake the work and that the contractor will furnish performance, payment, and, perhaps, maintenance bonds—or that the contractor will pay the owner the difference between the amount of the contractor’s accepted bid and the bid of another contractor who has to be called in to complete the project.

Bill of lading – A document issued by a carrier that is a receipt for the merchandise or other property to be transported, and that outlines just what the carrier agrees to do and his responsibilities for the property.

Binder – An insurer’s agreement, by way of an agent, to provide nonlife insurance on the spot, pending issuance of the policy contract. In reinsurance, a preliminary contract signed by the accepting underwriter that summarizes terms and conditions of coverage, pending the issuance of a formal contract (which replaces the binder). See Slip and Cover Note.

Binding authority – The authority extended to an agent by an insurer to provide insurance, usually on a temporary basis, until a policy can be written.

Binding receipt – A receipt given by a company upon a policy applicant’s first premium payment. The policy, if approved as applied for, is effective from the date of receipt.

Blanket bond – An employee dishonesty or fidelity bond covering all persons of a group or class, as opposed to bonds naming specific individuals (name schedule) or positions (position schedule).

Blanket coverage – A means of insuring various items of property under one limit of liability.

Blanket crime policy – An individual policy covering several crime perils on a single amount rather than on individual limits.

Blanket insurance – Insurance coverage that covers multiple items of property as a group. Covered property may be at one location or several.

Blanket medical expense – A policy provision for the payment of hospital and medical expenses up to a maximum amount.

Blanket policy – A health insurance contract which protects all members of a certain group against a specific hazard. In property and casualty insurance, a policy that covers a number of similar items under one endorsement. A collection of stamps or less expensive jewelry items, for example.

Blanket position bonds – Bonds that guarantee the honesty of each of the employees of an entity stated on the bond to the stated amount of the bond.

Blanket position public official bond – The blanket position public official bond covers each public employee of the public entity stated on the bond to the stated amount of the bond.

Blanket public official bond – Blanket public official bonds cover all public employees of the public entity stated on the bond to the stated amount of the bond.

Blended reinsurance – Reinsurance that integrates in a single contract traditional risk transfer and financial reinsurance or finite risk reinsurance coverage components. An example would be a contract that combines catastrophe coverage on a per occurrence basis with casualty coverage having an aggregate limit and aggregate retention.

Block policy – A block policy provides a form of inland marine insurance. It covers loss to the property of a merchant, wholesaler, or manufacturer including property of others in the insured’s care, custody, or control; property on consignment; and property sold but not delivered. A block policy covers loss caused by most perils (including transportation), subject to certain limitations as specified in the policy exclusions. Common block policies are jeweler’s block and furrier’s block policies.

Blue Cross – An independent, non-profit membership corporation providing protection against the cost of hospital care in a limited geographical area.

Blue Shield – An independent, non-profit membership corporation providing protection against the costs of surgery and other items of medical care in a limited geographical area.

Bobtailing – A trucking term that means the driving of the tractor portion of a semi after the trailer has been delivered and removed. A special trucking endorsement, Truckers Insurance for Nontrucking Use, may be necessary when bobtailing.

Bodily injury – A term that refers to physical injury, sickness, or disease, or death resulting therefrom. In some jurisdictions bodily injury includes emotional injury.

Bodily injury liability – Legal obligation that flows from the injury or death of another person. This insurance is commonly limited to bodily injury liability derived by way of negligence, but coverage of liability by way of contract (holding another harmless) is also possible.

Boiler & machinery coverage - Fired vessels, steam generators, mechanical and electrical objects and turbines, are all examples of objects that might be listed for coverage under a boiler and machinery policy. Coverage is for damage to covered property caused by an accident to an object identified in the policy’s schedule. Coverage includes extra expense, automatic ninety-day coverage at new locations, defense against liability claims, and supplementary payments like those provided under public liability policies. Insurance Services Office (ISO) has changed the name of its Boiler & Machinery program to Equipment Breakdown.

Bomb cyclone – A bomb cyclone is a storm that develops very quickly. When a storm drops in atmospheric pressure very quickly, the storm picks up more air and strength, becoming stronger faster. To be considered a bomb cyclone the pressure must drop 24 millibars in 24 hours. The process of this rapid drop in pressure is called bombogenesis. Remember, the lower the barometric pressure, the stronger the storm.

Bond – A document for expressing surety. A bond engages three entities: the surety (bonding company) sells the bond to the principal for the purpose of paying the amount the principal will owe to the obligee upon failure of the principal to perform some act or provide some service under agreed terms.

Bond, fidelity – A bond that guarantees the principal’s honesty.

Bond, surety – The financial assumption of responsibility by one or more persons for fulfilling another’s obligations.

Book of business – The accounts written by an agent or company. It can be expressed in a number of ways such as total book of business, book of auto business, or homeowners business.

BOP (Businessowners policy) – See Businessowners policy.

Bordereau – (plural Bordereaux) – A written schedule of insureds, premiums, and losses submitted to reinsurers under certain types of reinsurance agreements. See Facultative automatic.

Boston plan – This is a plan under which insurers agree that they will not reject property coverage on residential buildings in a run-down part of town. Instead, they will accept the coverage until there has been an inspection and the owner has had an opportunity to correct any faults. Boston was the first city to originate such a plan, and many other cities have followed, including New York, Oakland, Cleveland, and Buffalo.

Bottomry – When the master of a ship borrows money on the bottom of the ship, with the agreement that the ship will be forfeited to the creditor if the interest is not paid upon the ship’s return.

Boycott – Another practice defined as unfair under most states’ codes. Such a practice occurs when someone in the insurance business refuses to do business with someone else until that person complies with certain conditions or concessions.

Broad evidence rule - The determination of the actual cash value of any property should include all relevant evidence an expert would use to set the value of the property, including replacement cost less depreciation and fair market value (which takes into account location, obsolescence, present value of expected income from the property, and economic conditions at the time of the loss). The rule applies equally to real property and personal property, commercial property and personal lines property, fixed equipment, mobile equipment, and automobiles.

Broad-form exclusions – Used in D&O policies, refers to exclusions that use broad introductory or preamble language such as “based upon, arising out of or in any way related to.” This type of exclusion is in contrast to the narrower form of exclusion that uses the word “for” as the introductory or preamble language. The latter type exclusion is limited to claims that seek recovery for the injury or wrongdoing described in the exclusion. The former type exclusion, which is sometimes also referred to as an “absolute” exclusion, eliminates coverage not only “for” the referenced injury or wrongful act, but also for secondary-type claims (such as shareholder class action or derivative suits) that seek recovery from directors and officers for loss sustained by the company on account of the referenced injury or wrongdoing. For example, a “for” bodily injury exclusion eliminates coverage only with respect to claims against directors and officers by the persons who incur the bodily injury and who sue the directors and officers seeking recovery “for” their bodily injury. A shareholder suit against the directors and officers for loss to the shareholders or the company as a result of the bodily injury claim against the company would not be excluded under the narrower “for” type of exclusion because the shareholders are seeking recovery for financial loss to the company or the shareholders due to mismanagement or misrepresentations, not for bodily injury. However, the shareholder claim would be excluded under the broad form exclusion because the claim is “based upon, arising out of, or in any way related to” the bodily injury.

Broad form perils – A property insurance designation for coverage that extends beyond the basic named perils. This coverage can be found on both commercial and personal property policies. Broad form perils may include the basic perils as well as vandalism, malicious mischief, damage by burglars, falling objects, weight of ice, snow or sleet, accidental discharge of water or steam, sudden and accidental tearing arpt, freezing, sudden and accidental damage from artificially generate electrical current. The exact perils will vary by insurer.

Broad form property damage endorsement – A commercial general liability endorsement that removes the care, custody, or control exclusion relating to the property of others and replaces it with a less stringent one.

Broadcasters liability coverage – Covers the legal liabilities of broadcasters such as the use of incorrect news stories, libel and slander, invasion of privacy, copyright infringement, and unauthorized use of plot, characters, or music. Defense costs in contesting suits or claims are also covered. Employees are covered as insureds while acting within the scope of their duties as such.

Broker – One who represents the insured in arranging insurance. A broker may also serve as the agent of an insurance company. Typically, a broker does not have binding authority.

Brokerage market – Reinsurers who write business through reinsurance intermediaries. Reinsurers who do not generally accept such business are referred to as the direct market.

Broker of record letter – A way for an insured to change agents midterm. The letter terminates the insured’s relationship with agent A, and allows him to establish a new relationship with agent B. The letter gives agent B the authority to act on behalf of the insured, and terminates that ability with agent A. The commissions from the first account will transfer to the new agent after the date of change.

Brushing - An internet scam where people are sent unsolicited items from a seller who then post false customer reviews to increase sales. Foreign, third-party sellers can use a person’s address and Amazon information to generate a fake sale and phony review.

Builders risk insurance – A variation of property coverage specifically applicable to construction projects. It is commonly written in an amount to cover the value of the structure when completed. The premium charged takes into account that values at risk increase gradually over the term of the policy.

Building codes – See Building ordinance or law.

Building ordinance or law – This coverage pays for additional construction costs incurred as the result of local building laws. It contains three coverages that may be provided separately or together:

Demolition pays to demolish the parts of the building that were undamaged in the loss but that have to be torn down due to building codes. Similar coverage is provided as debris removal for those portions that are damaged by a covered cause of loss.

Increased cost of construction pays to bring a building element up to current codes. For example, this could pay to replace aluminum wiring with copper, to add sprinklers, or to upgrade fire rated doors.

Loss of value or contingent liability pays for the cost of replacing that part of the building that was not damaged by the loss but that must be torn down due to code requirements.

Bumbershoot – A form of coverage similar to an umbrella, having to do with ocean marine risks.

Burglary – Unlawful removal of property from premises involving visible forcible entry.

Burning cost ratio – Historical incurred losses (usually excluding IBNR [incurred but not reported]) to an existing or proposed reinsurance agreement, divided by subject premium. The burning cost ratio, adjusted for IBNR, other costs, and a profit factor is a tool used in making rates for excess of loss reinsurance.

Burning ratio – The ratio of losses to the amount insured.

Business auto policy (BAP) – A standardized contract for writing liability and property coverage on commercial autos.

Business income coverage – Insurance protecting the income derived from an insured’s business activities when curtailed by a covered peril. Coverage is often combined with extra expense insurance, which provides coverage for reasonable extra expense the insured undertakes to expedite return to business operations.

Business income, dependent properties – Covering loss to an insured when the operations of a key supplier, customer, or leader property on which the insured’s operations are dependent, are shut down by a covered peril. Also referred to as contingent business income.

Business judgment rule – Refers to one of the primary defenses to a claim against directors and officers for breach of fiduciary duty. The defense generally bars judicial inquiry into conduct of disinterested directors and officers who act on an informed basis, in good faith and in the honest belief that the action taken was in the best interest of the company. In essence, this defense provides that courts should not examine the quality of the directors’ business decisions, but only the procedures followed in reaching that decision.

Business personal property – A term relating to contents of a commercial enterprise. It may include furniture, fixtures, machinery and equipment as well as stock, all other chattels owned by the insured, and even use interest in building improvements and betterments.

Businessowners policy (BOP) – A package of property and liability insurance for small and medium size businesses, the BOP owes its origin to the success of the homeowners policy.

Business pursuits – Activities that involve at least two elements: continuity and a goal or expectation of monetary gain. Many personal lines policies exclude coverage for loss arising from business pursuits because the primary purpose of such forms is to insure against loss arising from personal activities.

Buy-back deductible – A deductible that may be eliminated for an additional premium in order to provide first-dollar coverage.

Byway – A law or ordinance dealing with matters of local or internal regulation made by a local authority or by a corporation or association.

Byway endorsement – An endorsement explaining how a particular insurance company deals with a claim that is affected by a local byway.


Calendar year experience – Underwriting result based on earned premiums and booked incurred losses for the same calendar year reporting period, regardless of the dates of the loss events. Booked incurred losses include paid losses, beginning of year to end of year changes in case reserves, and IBNR.

Cancellation; flat, pro rata, or short rate – In a flat cancellation the full premium is returned to the insured. A pro rata cancellation means the insurer has charged for the time the coverage was in force. Short rate cancellation entails a penalty in excess of pro rata for early termination. A cancellation is when the insurer cancels a policy mid-term for cause giving the insured ample notice to find coverage elsewhere as prescribed by the state insurance department.

Cancellation – in reinsurance – (a) Run-off basis means that the liability of the reinsurer under policies, which became effective under the treaty prior to the cancellation date of such treaty, shall continue until the expiration date of each policy; (b) Cut-off basis means that the liability of the reinsurer under policies, which became effective under the treaty prior to the cancellation date of such treaty, shall cease with respect to losses resulting from accidents taking place on and after said cancellation date. Usually the reinsurer will return to the company the unearned premium portfolio, unless the treaty is written on an earned premium basis.

Cannabis – The standard definition in use in the United States is any Cannabis sativa plant with greater than 0.3 of tetrahydrocannabinol, or THC.  This is different than Hemp.

Capacity – An insurer’s (or reinsurer’s) top limit on the amount of coverage it has available. The term may also refer to the total available in the respective insurance or reinsurance market. Capacity may apply to a single risk, a program, a line of business, or an entire book of business.

Capital and surplus – The sum of paid up capital, gross paid in and contributed surplus, and unassigned surplus.

Capital sum – A specified payment for accidental dismemberment or loss of sight.

Capitation – A risk arrangement in a managed care environment in which a health care provider is paid a fixed amount per month for each enrolled member in a health plan regardless of the actual number or nature of services provided to each person. The capitation contract may include a risk sharing arrangement, in which there is an allocation of financial results, both favorable and unfavorable, among the participants to the agreement.

Captive – An insurance or reinsurance subsidiary of an industrial company, trade association, or not-for-profit organization. Captives insure or reinsure parent-related business, non-parent business, or both. Though the number of domestic captives is increasing, most captives are still located in tax-advantaged offshore domiciles, such as Barbados, Bermuda, or the U.K.’s Channel Islands.

Captive agent – A representative of a single insurer. In the case of captive agents, the insurer owns and controls expiration dates and policy records. A captive agent is a member of what may be called an exclusive agency system.

Captive insurer – An enterprise with all the authority to perform as an insurance company but organized by a parent company for the express purpose of providing the parent company’s insurance.

Car-sharing – The process of using an online app to allow other parties to borrow your vehicle and pay you for the use of that vehicle.

Care, custody, or control – An expression common to liability insurance contracts. It refers to an exclusion in the policy eliminating coverage for damage to property of others that is in the insured’s care, custody, or control. The insured has a bailee relationship to the property, in other words, making the insured liable for the care of the property beyond damage caused by negligence. A bailees floater is often used to cover the insured’s obligation for the care of such property.

Cargo coverage - An inland marine or ocean marine policy covering cargo in the care, custody, or control of the carrier.

Cargo shippers’ agent – One who acts as an agent on behalf of cargo owners or shippers, or both, to procure cargo insurance only on behalf of a cargo owner or shipper for whom the agent is also arranging for the carriage of goods.

Carryover provision – A multiyear rating device found in some reinsurance agreements that provides that a loss to reinsurers in a given time period may be applied to the results of a previous period (loss carryback) or may be applied to a future period (loss carryforward).

Case reserve – Known also as outstanding loss reserves, case reserves are recorded estimates of outstanding unpaid liabilities associated with specific reported claims. Case reserves may pertain to losses, allocated loss adjustment expense (ALAE), or both. Case reserves are established by the cedant; if the reinsurer believes a case reserve is inadequate, it may establish an additional amount known as the additional case reserve (ACR).

Cash-flow underwriting – Name given to an insurer’s practice of non-selectively writing business in order to generate greater amounts of cash for investment purposes.

Casualty Actuarial Society (CAS) – A professional society for actuaries in areas of insurance work other than Life Insurance. This society grants the designation of Associate and Fellow of the Casualty Actuarial Society (ACAS and FCAS).

Casualty coverage - The type of insurance concerned with legal liability for losses caused by bodily injury to others or physical damage to property of others. Can be found in commercial liability policies, commercial auto policies, homeowner, dwelling and tenants policies, and umbrella policies.

CAT – Common abbreviation of catastrophe, or catastrophic storm, resulting in severe damage. CAT claims, CAT damage, CAT adjusters, CAT storm are common references to insurance activities responding to damage from catastrophic storms.

Catastrophe – A disaster involving multiple insureds and/or locations. Hurricanes, tornadoes, explosions, and earthquakes are the most common catastrophe examples. Catastrophe is also sometimes used to designate a single large loss—generally $5 million or more. Catastrophe reinsurance indemnifies the cedant for such losses, subject to an agreed retention and limit. Often referred to simply as cat or a cat loss.

Catastrophe (excess) cover – Another term for catastrophe reinsurance, wherein the ceding company is indemnified by the reinsurer after a specified loss amount is reached for losses caused by catastrophes.

Causes of loss forms – The reference is commonly to property insurance contracts and the form in question details those perils to which the coverage will respond. Though any property insurance contract must name the perils it intends to cover, for example, crop hail, earthquake, or perils of transit, the most commonly used general forms are the basic and broad named perils forms and the special form. In contrast to the named perils forms, that list specific perils for coverage, the special form contract covers simply risk of direct physical loss and relies on exclusions to delimit and define the coverage.

CBD - Cannabidiol is the nonpsychoactive chemical component of marijuana/cannabis thought to responsible for several beneficial physiological effects. CDB used for medical purposes is derived from hemp and does not provide the high that product from other cannabis plants does.

Cede – The transfer of all or part of a risk written by an insurer to a reinsurer.

Cedant – A ceding insurer or reinsurer. See Cede. A ceding insurer is an insurer that underwrites and issues an original, primary policy to an insured and contractually transfers (cedes) a portion of the risk to a reinsurer. A ceding reinsurer is a reinsurer that transfers (cedes) a portion of the underlying reinsurance to a retrocessionnaire.

Ceding commission – The cedant’s acquisition costs and overhead expenses, taxes, licenses and fees, plus a fee representing a share of expected profits, which often is expressed as a percentage of the gross reinsurance premium.

CERCLA - Also Superfund. The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) that was established in 1980 to create prohibitions and requirements regarding closed and abandoned hazardous waste sites, assign liability for such sites, and establish a trust fund when responsible parties cannot be located.

Certificate of insurance – A written description of insurance in effect as of the date and time of the certificate. The certificate does not ordinarily confer any rights on the holder, that is, the issuing insurer does not promise to inform the holder of change in or cancellation of coverage.

Certified copy – Reproduction of a document, that authority having custody of original signs and attests as a true, genuine, and authentic copy.

CFP – A designation – Certified Financial Planner. A title conveyed by the International Board of Standards and Practices for Certified Financial Planners. A Certified Financial Planner must pass a series of exams and enroll in ongoing education classes. Knowledge of estate planning, tax preparation, insurance, and investing is required.

CGL (Commercial General Liability) see Commercial general liability.

ChFC – A designation – Chartered Financial Consultant. A financial planning designation for the insurance industry awarded by the American College of Bryn Mawr. ChFCs must meet experience requirements and pass exams covering finance and investing. They must have at least three years of experience in the financial industry and have studied and passed an examination on the fundamentals of financial planning, including income tax, insurance, investment and estate planning.

CIC – A designation – Certified Insurance Counselor.

CLCS - A designation – Commercial Lines Coverage Specialist- conferred upon successful completion of five classes designed by the National Underwriter Company.

CLU – A designation – Chartered Life Underwriter – conferred upon successful completers of a series of studies of life insurance and related disciplines designed by the American College.

CPCU – A designation – Chartered Property Casualty Underwriter – conferred upon successful completion of a series of eight exams on insurance and related disciplines designed by the American Institute of Chartered Property Casualty Underwriters.

Chattel – Something that is tangible or moveable, not connected to real estate. Examples – cows, clothing, furniture, automobiles, and other items.

Civil authority – Any of various local governmental authorities with the ability to issue evacuation orders, restrict access to certain areas of town, and other actions for the protection of the citizenry.

Civil commotion – One of the extended coverage perils, paired with the peril riot, that refers to a less widespread or generalized event than riot might be thought to encompass.

Claim – Generally refers to a proceeding or demand against the insureds for monetary damages or other relief on account of alleged wrongdoing by the insureds. D&O, EPL, fiduciary, and similar insurance policies afford “claims made” coverage, which means that the policy responds only to claims that are first made during the policy period, even if the claim is for wrongful acts occurring before the policy period. Because coverage is dependent upon a claim being made during the policy period, the definition of “claim” is a very important issue. Most such insurance policies now define the term “claim.” Depending on the insurance policy form, a claim may include (i) a written demand, (ii) a civil, criminal, administrative or regulatory proceeding, or (iii) a formal investigation, against insureds for a wrongful act.

Claim expense – The expense of adjusting a claim, such as investigation and attorneys’ fees. It does not include the cost of the claim itself.

Claims-made basis – A form of insurance under which the date of the claim report is deemed to be the date of the loss event. Claims reported during the term of the insurance agreement are therefore covered, regardless of when they occurred. A claims made agreement is said to “cut off the tail” on liability business by not covering claims reported after the term of the insurance agreement—unless extended by special agreement. See Occurrence basis.

Claims-made coverage – A type of public liability insurance that responds only to claims for injury or damage that are brought (to the insurer) during the policy period (or during a designated extended reporting period beyond expiration). This development was in response to long tail claims, such as those related to asbestosis injury, carrying over many years and multiple layers of coverage limits. However, most public liability policies are written on an occurrence basis, covering injury or damage occurring during the policy period even if a claim is brought months or even years later.

Clash cover – A type of catastrophe reinsurance for casualty insurance. The retention is equal to the highest limit of any one insurance policy covered by the agreement. Clash cover is written to cover all losses from one source, such as a construction site. More than one insured may be involved in the same occurrence, known as a clash.

Class action lawsuit – a lawsuit filed by one or more individuals on behalf of themselves and a larger group of people who are in similar situations. The entire class shares in any recovery in the lawsuit, even though only a few members of the class were involved in prosecuting the lawsuit.

Class rates – When property or people share a certain number of characteristics relevant to the cost of providing them with insurance (such as a male driver under the age of 25 without an accident) underwriters can develop insurance rates that reflect the exposures represented by the class and offer insurance based on a class rate rather than by computing individual rates for each member.

Classification – The systematic arrangement of properties, persons, or business operations into groups or categories according to certain criteria. Such classification creates a basis for establishing statistical experience and determining rates, and to avoid unfair discrimination.

Classification code – The identifying number for an occupational classification. It is a four-digit numeric code – based on the nature of the business of the employer – assigned by NCCI or other workers compensation rating bureaus.

Clause – A provision or condition affecting the terms of a contract. Coinsurance, cancellation, and subrogation clauses are typical insurance contract clauses.

Clause A for A-side coverage – Refers to the coverage afforded under D&O insurance policies for loss that is not indemnified by the insured company. This coverage is typically contained in Insuring Clause A or Insuring Agreement A of the policy. If loss is indemnified by the insured company, the D&O insurance policy typically affords coverage for that indemnified loss through Insuring Clause B or Insuring Agreement B.

Clear space clause – A clause requiring that insured property, such as stacks of lumber, be stored at some particular distance from each other or from other property.

Clean-up costs – Generally, those costs associated with the clean-up of pollution.

Close or closely held corporation – A corporation that is owned by a small number of individuals who are related. A close corporation fills its own vacancies.

COBRA Continuation Coverage – A federally-mandated requirement that states that an employer-sponsored medical care plan must provide that if, as a result of a qualifying event, any employee (or in some cases the spouse or dependent children of an employee) would lose health insurance coverage under the plan, the employee must be entitled to elect to continue his or her coverage under the plan. Qualifying events include termination of employment, divorce, death, and a dependent child ceasing to be a dependent.

The name results from the fact that the program was created under the Consolidated Omnibus Reconciliation Act. The system is designed to prevent employees who are between jobs from experiencing a lapse in coverage.

Coercion – Another act defined by most states as an unfair trade practice. Coercion occurs when someone in the insurance business uses physical or mental force to persuade another to transact insurance.

Coinsurance clause – Coinsurance refers to the bargain between commercial property owners and the insurance industry. This clause in property policies encourages the property owner to gauge coverage needs by possible, not probable, maximum loss. With $1 million at risk but a probable maximum loss of $100,000, for example, the property owner would probably buy $100,000 insurance and bank on avoiding the larger disaster. The bargain offered by the insurance industry is a reduced rate per $100 of coverage if the owner agrees to buy coverage at a specified relation (80 percent commonly) to value (to possible maximum loss in other words). If the insured accepts the bargain but events prove the amount of insurance is inadequate to the stated coinsurance percentage, the insured becomes coinsurer in the same ratio as the amount of insurance bears to the amount that should have been carried. In major medical insurance, a provision by which both the insured person and insurance company in a specific ratio share the hospital and medical expenses resulting from an illness or injury.

Coded excess – A form of excess of loss reinsurance under which different premium rates are applied to successive bands of primary coverage limits. Coded excess is considered more accurately to measure exposure than averaging methods.

Coinsurance – property insurance – a portion of the loss the insured pays when the property was not insured to eighty percent of value. The amount of coverage the insured had on the property, divided by the amount he should have had on the property, multiplied by the amount of the loss, provides the amount of actual settlement by the carrier. Because the insured did not have the property correctly insured, settlement is less than the amount of the loss. For example, a property is worth $200,000 and the insured is required to be insured 100 percent of value. The insured carries coverage for $150,000. The $150,000 is divided by $200,000 resulting in seventy-five percent. The loss is $50,000. The settlement will be for seventy-five percent of $50,000 or $37,500. The formula is often phrased as “had over should times the amount of the loss” for easy memorization.

Coinsurance – reinsurance – Indemnity life reinsurance under which the reserves as well as the risk are transferred to the reinsurer; the cedant retains its liability to and contractual relationship with the insured. See Modified coinsurance and Assumption reinsurance.

Collapse – A property insurance peril, subject to its own specific agreement in property policies, that otherwise insure on an open perils basis.

Collision damage waiver – When paired with an auto rental agreement, the rental car company agrees to waive the renter’s responsibility for any physical damage to the rental car in exchange for an additional payment. Sometimes called a loss damage waiver. Abbreveiated as CDW or LDW.

Collision coverage - A type of physical damage insurance available for automobiles. Coverage is triggered when damage is caused by striking against another object. Defined as an impact with an object. Can be found on commercial auto, personal auto, and other policies providing coverage for vehicles.

Collusion – A secret agreement between persons to defraud another, e.g., an insured driver of an automobile and his passenger may misrepresent the facts of an accident in order to have monies paid to the passenger under the insured’s automobile insurance policy.

Combined ratio – The sum of an insurance company’s loss ratio and expense ratio; used as an indicator of profitability for insurance companies. Used in both insurance and reinsurance, a combined ratio below 100 percent is indicative of an underwriting profit.

Combined single limit (CSL) – Liability policies commonly offer separate limits that apply to bodily injury claims and to claims for property damage. 50/100/25 is shorthand under such a policy for $50,000 per person/$100,000 per accident for bodily injury claims and $25,000 for property damage. A combined single limits policy might cover for $100,000 per covered occurrence whether bodily injury or property damage, one person or many.

Commercial blanket bond – A bond that covers the named insured against employee dishonesty. A single coverage amount applies to any one loss, regardless of the number of employees involved.

Commercial general liability (CGL) – The CGL policy is an ISO form, widely used to provide commercial enterprises with premises and operations liability coverage, products and completed operations insurance and personal injury coverage. Premises medical payments coverage is often included as well.

Commercial lines – A distinction marking property and liability coverage written for business or entrepreneurial interests as opposed to personal lines.

Commercial property policy – An alternative title for the Building and Personal Property Coverage Form.

Commissioner of insurance – The official in a state (or territory) responsible for administering insurance regulation; sometimes called the superintendent or director of insurance.

Common area – The part of a building or premises either owned by or used by all tenants or tenant-owners of the building (e.g., the swimming pool at a condominium).

Common carrier – A carrier (such as a shipping company or railroad) who offers his vessel or other mode of transportation to the public for the purpose of transporting merchandise.

Commutation – The termination of all obligations between the parties to a reinsurance agreement, normally accompanied by a final cash settlement. Commutation may be required by the reinsurance agreement or may be effected by mutual agreement.

CoModCo – A combination of coinsurance and modified coinsurance under which some part of the reserves, for example, deficiency reserves, are a liability of the reinsurer (“co” portion) while some are returned to the cedant (“modco” portion).

Comparative negligence – A variation of contributory negligence, in which the comparative degree of negligence for each party to an accident is taken into account when awarding damages.

Compensatory damages – The award, usually monetary, that is intended to compensate the claimant for injury sustained.

Competitive state fund – A facility established by a state to sell workers compensation in competition with private insurers.

Completed operations – See Products and completed operations.

Completed operations coverage - See Products and completed operations.

Completion bond – A bond that guarantees a lending institution or other mortgagee that a building or other construction that they have lent money on will be completed on time so it can used as collateral on the loan.

Comprehensive Loss Underwriting Exchange – Commonly referred to as a CLUE report, this provides accident or loss history of individuals including claim payments and coverages. Used by agents and carriers to determine eligibility and premiums for coverage. Carriers contribute data to the exchange in order to be able to access the loss information for underwriting purposes.

Comprehensive Major Medical Insurance - a policy designed to give the protection offered by both a basic and major medical health insurance policy. It is characterized by a low “deductible” amount, coinsurance feature, and comparatively high maximum benefits.

Comprehensive personal liability coverage - Provides individuals and family members with protection from legal liability for most accidents caused by them in their personal lives. Note that any legal liability claims submitted while in the course of business activities are not covered. Typically part

Comprehensive physical damage (automobile) – Traditional name for physical damage coverage for losses by fire, theft, vandalism, falling objects, and various other perils. On personal auto policies, this is now called other than collision coverage. On commercial forms, it continues to be called comprehensive coverage.

Compulsory auto insurance – The minimum amount of auto liability insurance that meets a state law. Financial responsibility laws in every state require all automobile drivers to show proof, after an accident, of their ability to pay damages up to the state minimum. In compulsory liability states this proof, which is usually in the form of an insurance policy, is required before you can legally drive a car.

Computer fraud coverage – Covers loss if money, securities, or other property is stolen or transferred through computer fraud.

Computer coverage – Covers computer equipment and peripherals beyond the normal coverage provided in homeowner’s insurance policies, typically between $1,000 and $3,000. Some policies are also designed to cover damage and/or theft of portable equipment, such as laptop computers, and even the costs of data recovery. In commercial lines, there may be separate policies to provide coverage for exposure to the computers themselves or liability from computer or cyber incidents. Also could be called cyber coverage, and could be a policy added to a property or liability policy, or a separate policy itself.

Concurrency – Coordination of the coverage, terms, and conditions of a reinsurance agreement with those of a contract reinsured or between reinsurance agreements. Reinsurance agreements are said to be concurrent when there are no gaps or overlaps.

Concurrent causation – When two perils contribute concurrently to a property loss, one excluded and the other not, the effect of the exclusion tends to be voided in a policy covering on an open perils basis. A concurrent causation exclusion is found in current forms.

Condition – One of the obligations of either the insured or the insurer imposed in the insurance contract.

Conditional sales floater – Covers a store’s property purchased on installment.

Condominium – Type of dwelling where the structure is owned jointly while spaces within the structure are owned individually. Special property and liability forms cover the interests of the condominium association and of unit owners.

Condominium association coverage – A policy that provides coverage for the building, elements of the building, and liability needs for those who collectively own a piece of property.

Condominium unit owners form – A policy that provides coverage for the personal property, owned elements of a unit, and liability for the individual unit owner.

Consequential loss – An indirect consequence of direct loss to property. Business income may be lost when a store burns down, or frozen goods may spoil when windstorm causes an interruption of power. Consequential or indirect loss is not generally insured by policies covering direct damage (i.e., by fire or wind as in these examples), but insurance is readily obtainable separately for most such consequential exposures—business income coverage being among the most common coverage.

Consideration clause – Stipulation that states the basis on which an insurer issues an insurance contract.

Continuity – Refers to a continuation of certain representations and warranties given by the insureds in the insurance application submitted to a prior insurer. When insureds first purchase a type of claims-made insurance from an insurer, the insurance company frequently requires the insureds to disclose all known facts or circumstances that may reasonably give rise to a future claim. Under some circumstances, the insurance company may agree not to require that disclosure from the insureds, but instead rely upon the disclosure by the insureds to the insurance company that previously issued a similar type insurance policy to the insureds. Continuity merely refers to a continuation of these representations and warranties from one insurer to the other, and does not mean there is a continuation of the same scope of coverage as was afforded under the prior insurance policy.

Contributing excess – Where there is more than one reinsurer sharing a line of insurance on a risk in excess of a specified retention, each such reinsurer shall contribute towards any excess loss in proportion to his original participation in such risk. Example: Retention $100,000, Reinsurer A accepts one-half contributing share part of $1,000,000 in excess of said $100,000. Reinsurer B accepts remaining one-half contribution share part of $1,000,000.

Construction bond – A bond that guarantees the owner of a building under construction that it will be completed. If the contractor cannot finish the work, the insurer is obligated to see that the work is performed.

Constructive total loss – This condition is said to exist when the cost of repairs exceeds the actual cash value of damaged property.

Contingent business income (interruption) – See Business income, dependent properties.

Contingent liability – Liability imposed on a business entity (individual, partnership, or corporation) for acts of a third party for which the business entity is responsible.

Contract of adhesion – See Adhesion contract.

Contract bonds – A type of bond designed to guarantee the performance of obligations under a contract. These bonds guarantee the obligee that the principal will perform according to the terms of a written contract. Construction contracts constitute most of these bonds. Contract bonds protect a project owner by guaranteeing a contractor’s performance and payment for labor and materials. Because the contractor must meet the surety company’s pre-qualification standards, construction lenders are also indirectly assured that the project will proceed in accordance with the terms of the contract.

Contractors equipment floater – Coverage designed for the special needs of contractors to insure their machinery and other equipment.

Contractual liability – Liability that does not arise by way of negligence but by assumption under contract. For example, in certain leases, a tenant may assume a landlord’s liability to others for unsafe conditions on the premises. Some such assumptions are covered automatically under the Commercial General Liability form.

Contributing location – A location upon which the insured depends as a source of materials or services. One of the four types of dependent properties for which business income coverage may be written.

Contributory negligence – A defense to a negligence action in which it is asserted that the claimant failed to meet the standard required for his or her own protection, which contributed to the loss.

Controlled business – The amount of insurance countersigned, issued, or sold by a producer covering that producer’s interests, immediate family, or employees. Many states limit the amount of controlled business that may be written by placing a maximum percentage of all business that may be controlled.

Convention (or statement) blank – The uniform annual financial statement that must be filed by all insurers as prescribed by the National Association of Insurance Commissioners. The convention blank must be filed annually in an insurer’s home state and every state in which it is licensed to do business.

Coordination of benefits – When an individual has major medical coverage through both  an employer and a spouse’s employer, coordination of benefits between the two insurance carriers is required to eliminate duplication of benefits. Regulations strictly interpret duplicity of coverage where multiple carriers may cover the same accident or illness.

Copayment – A fixed fee the insured pays for services in addition to what the insurance company will pay.

Corporation – A business whose articles of incorporation have been approved in some state. For insurance purposes, the type of business structure helps to determine who is insured on the policy.

Cost sharing – Refers to various ways in which an insurer passes costs on to the insured. This includes most types of out-of-pocket expenses such as deductibles, copayments, and coinsurance.

Counterfeit airbags – Instead of repairing airbags correctly, a shop will replace an airbag with garbage or a cheap knockoff without telling the insured. The carrier pays for the repair, and the shop pockets the funds.

Countersignature – An authorized signature of agent or company representative on an insurance policy. Usually pertains to policies sold by an agent of the insurer located in another state.

Court bonds – See Judicial bonds.

Cover note – Confirmation by the intermediary to the cedant of terms and conditions and percentage placed with each reinsurer. In effect, a cover note is a receipt for slips or binders received by the intermediary from underwriters on behalf of the cedant.

Coverage trigger – In liability insurance, the trigger is the event that brings coverage into play. It may be either an occurrence of bodily injury or property damage; or, in a form with a claims-made trigger, the formal making of a claim.

Covered loss – An accident, including accidental damage by forces of nature, that brings a contract of insurance into play.

Credibility – A statistical measure of the reliability of experience data, based on the size of the sample.

Credit card forgery – A criminal act involving the illegitimate use of credit cards to obtain goods or money. Limited coverage for such losses is automatically provided in most homeowners policies.

Credit insurance – Optional coverage that pays off the balance of an outstanding loan in the event the insured becomes disabled, unemployed, or dies. Exact coverage depends on the particular policy. Variations include credit life (pays if the insured dies), credit health or disability (pays if the insured gets sick or becomes disabled) and credit unemployment insurance (pays if the insured involuntarily loses his job). Usually offered with credit cards, auto loans, and mortgages.

Credit score – The number produced by an analysis of an individual’s credit history. Studies have shown that credit history provides an indicator of the likelihood of an auto insurance loss. Some companies use credit scores as an insurance underwriting and rating tool.

Crime insurance – A broad category covering loss of property through criminal activity — from employee dishonesty to burglary and robbery, computer fraud, and forgery.

Crop insurance – Insurance covering growing crops against hail, wind, and fire. Protection against a broader range of perils can often be arranged as well. Crop insurance can be provided by private insurance companies or the Federal government through the Federal Crop Insurance Corporation (FCIC) which is administered by the Risk Management Agency (RMA).

Cross liability coverage – In the event of a claim by one insured for which another insured covered by the same policy may be held liable, this endorsement covers the insured against whom the claim is made in the same manner as if separate policies had been issued. However, it does not operate to increase the insurance company’s overall limit of liability.

Cross liability exclusion – Excludes coverage for claims by one insured against another insured covered on the same insurance policy.

Cut through endorsement – An endorsement to a reinsurance agreement that requires that, in the event of the cedant’s insolvency, any loss covered under the reinsurance agreement be paid by the reinsurer directly to the insured (or a third party beneficiary). Also called assumption endorsement or assumption of liability endorsement (ALE).

Cyber-liability insurance – Insurance that covers losses due to network security breaches, media liability—for example, advertising injury resulting from online activities, privacy liability, and errors and omissions in the performance of the insured’s services.


Daily – The document—now more commonly found in electronic than in paper form — that provides insurer and agent with a quick reference to all pertinent information relative to a contract of insurance such as insured’s identification, location, coverage, term, or premium. Sometimes referred to as a daily report.

Dark Stores – Retail stores, such as grocery stores, clothing stores, and home good stores, that have been boarded up and closed to customers, turning the locations into fulfillment centers,  providing for local delivery and pickup of goods.

Data processing insurance coverage - Coverage for electronic media, computers, and other electronic data processing equipment. Is generally a component of cyber or computer policies.

Deadheading – A trucking term that means the driving of a tractor-trailer that is empty, usually on the return trip from delivering goods. A special trucking endorsement, Truckers Insurance for Nontrucking Use, may be necessary when deadheading.

Dean schedule – A schedule rating system for property insurance on commercial buildings. It is named for its author, Alfred F. Dean. This system is currently being replaced by a rating plan developed by the Insurance Services Office.

Debris removal clause – A consequential coverage commonly included in direct loss policies. For example, fire policies provide limited recovery for the insured’s cost of removing the debris after a covered fire. Not to be confused with removal.

Declarations page – That part of a property or liability insurance policy that discloses information pertinent to the coverage promised including names, addresses, limits, locations, term, premium, and forms. The who, what, where, and when of the policy. Often referred to as the dec page.

Deductible – The part of the loss that is to be borne by the insured.

Defense expenses – Reasonable costs, charges and fees (including attorneys fees and expert witness fees) incurred by insureds in defending or investigating covered claims, including the premium for any appeal, attachment or similar bond. D&O, EPL, Fiduciary and similar insurance policies usually define this phrase. Those definitions typically exclude coverage for compensation or benefits paid to directors, officers or employees of the insured company and other overhead expenses of the insured company.

Defensible space -  A buffer space around a building between the building itself and trees, shrubs, grass, or any wildland area nearby. This area is designed to help prevent or slow the spread of wildfires and prevent buildings from catching fire. See Cal Fire Defensible Space.

Definitions – Section of an insurance policy where terms with specific meanings relative to coverage are defined.

Demolition coverage - When a building is damaged beyond a certain point, local building codes may direct that the structure be razed. Insurance to cover this exposure (and the lost value of the undamaged but newly razed part) can and clearly should be arranged whenever it exists. Part of property policies.

Demutualization – The conversion of an insurance company from a mutual insurance company to a stock insurance company.

Dental expense insurance – Insurance against the expense of treatment and care of dental disease and injury to teeth.

Dependent properties – See Business income, dependent properties.

Deposit premium – When the price of insurance is tied to fluctuating values or costs that cannot be known until the end of the policy period, inventory or payroll being two common examples, a deposit or provisional premium or estimated premium may be charged at the outset of a policy with final adjustment to come at the end of the term.

Depositor’s forgery coverage- Coverage against loss due to forged instruments. Limited coverage is automatically included in homeowners contracts. Commercial establishments can purchase crime coverage with this feature.

Depreciation – As property ages and becomes worn it often loses value. That loss of value must be taken into account in any adjustment of property insurance that covers loss of actual cash value.

Derivative suit – A lawsuit brought by one or more shareholders on behalf of the corporation and seeks to enforce a right of action belonging to the corporation. Any recovery in a derivative suit is paid to the corporation and the individual shareholders who prosecute the derivative suit are benefited only indirectly by reason of the corporation benefiting. The claims asserted by the plaintiff and the defenses available to the defendants in a derivative suit are generally the same as if the corporation itself was prosecuting the claim.

Detached signs – Signs located away from the designated premises. They may or may not be part of the covered property.

DICE – An acronym for the parts of an insurance policy – stands for Declarations, Insuring agreement, Conditions, and Exclusions.

Difference in conditions (DIC) – Property insurance obtained through the excess and surplus lines market to supplement and expand on the property coverage available through admitted markets. DIC has been called the property umbrella policy.

Diminution of value – The idea that a vehicle loses value after it has been damaged in an accident and repaired.

Direct billing – A system for the collection of premiums whereby the insurance company directly bills the insured for the premium in lieu of the conventional collection of premiums by the agent or broker. The insurer sends a statement to the agent, usually monthly, recording the premiums collected directly, and credits the agent with the commission on those items.

Direct damage – Physical damage caused to property by a peril such as fire or lightning. The peril, fire, directly causes damage to the property without any intervening cause of damage.

Direct loss – The immediate consequence of the action of an insured peril. A fire damaged structure is a direct loss by fire. In contrast – See Consequential loss.

Direct market – Reinsurers that deal with the cedant through their account executives, rather than through intermediaries. See Brokerage market.

Direct premiums – Premiums collected from policyholders before premiums for reinsurance are paid.

Direct writer – An insurer that sells coverage directly via its own employees. Contrast with Independent agent.

Directors and officers liability insurance (D&O) – A form of errors and omissions insurance covering the directors and officers of corporations against suits alleging they committed wrongful act(s).

Disability – A physical condition which makes an insured person incapable of doing one or more duties of his occupation.

Disappearing deductible – Deductible in an insurance contract that provides for a decreasing deductible amount as the size of the loss increases, so that small claims are not paid but large losses are paid in full. Some carriers have used this term for personal lines policies where the deductible decreases each year the insured remains claim free until no deductible applies.

Discharge - Something that discharges or releases; a flowing or issuing out, such as a discharge of spores. A broken pipe discharges water from the break.

Disclosure – The duty of an applicant and his broker to tell the underwriter every material circumstance before acceptance of risk.

Discovery period – The period of time, commonly one year, after the termination of a surety bond during which covered loss may be discovered, reported, and covered. Also refers to the optional extension of coverage that may be purchased by insureds under certain circumstances following expiration of the policy. If this coverage extension is purchased, claims made against insureds during the extension period are covered if the claims are for wrongful acts (for a D&O policy) occurring before the expiration of the original policy period. Depending upon the terms of the particular insurance policy, this optional extension of coverage may be available only if the insurance company cancels (other than for non-payment of premium) or refuses to renew the policy, or alternatively, may also be available if the insureds cancel or refuse to renew the policy. If the coverage extension is available under both of those situations, the extension is referred to as bilateral discovery or ERP. Coverage during this extension period is subject to the same limit of liability as applies to the original policy period.

Dishonesty, disappearance, and destruction (3-D) policy – The name once applied to a form used for comprehensive crime coverage.

Dismemberment – The accidental loss of limb or sight.

Dividend – A refund of part of the premium on a participating policy; a share of policyholder surplus funds apportioned for distribution.

Divisible contract clause – A clause providing that a violation of the conditions of the policy at one insured location will not void the coverage at other locations.

Dollar threshold – In no-fault auto insurance states with the dollar threshold, the threshold prevents individuals from suing in tort to recover for pain and suffering unless their medical expenses exceed a certain dollar amount.

Domiciled – Refers to the state in which an insurance company receives a license to operate. The company is then regulated by that state’s department of insurance.

Domestic insurance company – Term used by a state to refer to any company incorporated there.

Double indemnity – A policy provision which doubles payment of designated benefits when certain types of accidents occur.

Dram shop laws – State laws pertaining to selling and serving alcoholic beverages and the public liability these activities may entail. Also called alcoholic beverage control (ABC) laws.

Dram shop liability insurance – See Liquor liability insurance.

Drive down – When someone waves a person on only to collide with her once she starts to proceed, and the waver denies having motioned for the driver that the way was clear.

Drive other car (DOC) endorsement – A business auto or garage policy endorsement providing coverage for named individuals while driving nonowned autos in situations unrelated to the business of the insured.

Driver training credit – To encourage driver education courses at schools and colleges, many insurers grant premium rebates to applicants for private passenger automobile insurance who have successfully completed an approved training program.

Drone – An aircraft, robot or other flying craft operated by remote control or onboard computers. Also referred to as Unmanned Aircraft Systems (UAS). Can carry small packages or cameras. Often used by realtors, claims adjusters, videographers, emergency services, and many other professions.

Druggists liability insurance – A form of professional liability insurance for druggists.

Duty to defend – Part of the insuring agreement of many policies. The insurer has the duty to defend the insured in event of a covered loss.

Dwelling forms/Dwelling fire – Forms for coverage of dwellings and personal property that are not eligible for homeowners coverage. Tenant occupied rental properties are commonly insured under these forms.


e-business – The transaction of business by way of electronic media, such as the Internet. This generally is broader than e-commerce although some may view e-business and e-commerce as interchangeable terms.

e-commerce – The buying and selling of goods by way of electronic media, such as the Internet.

Early warning system – A system of measuring insurers’ financial stability set up by insurance industry regulators. An example is the Insurance Regulatory Information System (IRIS), which uses financial ratios to identify insurers in need of regulatory attention.

Earned premium – Portion of a premium for which protection has already been provided by the insurer.

Earnings insurance coverage – A simplified form of insurance covering business income loss, limited to a set percentage of the policy’s total amount for recovery of proved loss for each 30-day period.

Earth movement – Subject to an exclusion in property policies, this peril includes earthquake, landslide, and mudflow.

Easement – An interest in land owned by another that entitles its holder to specific uses.

Economic damages – Out-of-pocket damages, such as incurred medical expenses or lost wages.

EDP – An abbreviation for electronic data processing.

Effective date – The date shown in the declarations of a policy upon which coverage is to take effect. Policies are generally effective at 12:01 a.m.

Electronic Scooter – A scooter charged and operated by electricity that has grown in popularity as company’s are renting them en mass in various cities throughout the country. They raise certain liability and safety concerns.

Elective benefits – Lump sum payments for certain injuries which a policyholder can choose instead of receiving loss-of-income benefits.

Elements of a negligent act – Four elements an injured person must show to prove negligence: existence of a legal duty to use reasonable care, failure to perform that duty, damages or injury to the claimant, and proximate cause relationship between the negligent act and the infliction of damages.

Elevator collision – Coverage for damage caused by the collision of an elevator, regardless of fault. The damaged property may be personal property, building, or the elevator itself.

Elimination period – The duration of time between the beginning of an insured person’s disability and the start of a policy’s benefits. Also called waiting period.

Embezzlement – The fraudulent use of money or property that has been entrusted to one’s care.

Employee benefits plan liability coverage – protects the insured employer against claims by employees or former employees resulting from negligent acts or omissions in the administration of the insured’s employee benefits programs.

Employee dishonesty coverage – Insurance protecting employers from loss due to theft by their employees.

Employee Retirement Income Security Act of 1974 (ERISA) – Federal law that affects pension and profit-sharing plans. Among other provisions, this law specifies a published summary plan must be distributed to participants within 120 days after adoption of the plan and within ninety days after an employee becomes a participant. The law requires that a summary plan description be issued every five years.

Employers liability coverage - A feature of standard workers compensation policies, this coverage applies to liability that may be imposed on an employer outside the provisions of a workers compensation law.

Employers nonownership liability – Employers who buy commercial auto coverage on a basis other than any auto have this exposure whenever an employee uses his or her own auto on the employer’s behalf.

Employment practices liability insurance – Coverage against allegations of illegal or discriminatory hiring and firing practices, sexual harassment of employees, and so on. A form of commercial liability policy.

Encumbrance – Mortgage, lien, or other charge against a property.

Endorsement – An amendment to a policy form. Endorsements can either add or remove coverage in a policy.

Ensuing loss – A subsequential loss following the cause of initial damage. A fire breaks out in an upstairs bedroom; damage from debris falling into the lower room and damage from water used to put out the fire are ensuing losses. Ensuing losses may be covered even from excluded losses, for example fire that results from earth movement. The earth movement is excluded, but the fire loss is covered.

Enterprise-wide risk management – An effort to categorize, measure, and treat all types of risk that may adversely affect a business. It includes both traditional hazard risks and other business risks, such as risks posed by competitors, by economic developments, by natural conditions the business cannot control, and by general operations.

Environmental impairment liability insurance – See Pollution liability insurance.

EPL – An acronym for employment practices liability. Although that term is not a commonly used phrase under employment statutes or case law, it has become an insurance term of art, referring to insurance coverage specifically designed to insure employment-related liability.

Equipment breakdown insurance – Covers breakdown to covered equipment due to electrical or mechanical failure or failure of pressure or vacuum equipment. See Boiler and machinery insurance.

Equipment floater – See Floater.

ERISA – An acronym standing for the 1974 Employee Retirement Income Security Act, which regulates certain employee benefit plans.

Errors and omissions clause – A provision in reinsurance agreements that is intended to neutralize any change in liability or benefits as a result of an inadvertent error by either party.

Errors and omissions coverage (E&O) – A type of professional liability insurance protecting the insured against claims alleging bodily injury or property damage caused by the professional or technical incompetence of the insured.

Ejusdem generis – Of the same kind or nature. Where a class of things is followed by general wording that is not itself expansive, the general wording is seen as things of the same type as the listed items. For example, if damage from rodents, insects, or birds is listed as excluded, then damage from bears is not excluded as they are not a rodent, insect or bird.

Estimated premium – See Deposit premium.

Estoppel – The legal doctrine that a party may be precluded from denying that certain rights exist if, by behavior or implication that such rights did, in fact, exist, another party has acted upon this information to his or her detriment. It prevents someone from going back on what was promised or provided previously to someone else and causing damage to that other party who had relied on the earlier promise. For example, if an insured continually makes payments to the insurer after the due date, and the insurer continually accepts those payments and keeps the policy in force, if the insurer suddenly cancels the policy because of a late payment the insurer may be estopped from that action since the insured relied on the company’s earlier acceptance of the late payments.

Evidence of insurability – Any statement or proof of a person’s physical condition, occupation, etc., affecting his acceptance for insurance.

Excess of loss – A form of reinsurance under which recoveries are available when a given loss exceeds the cedant’s retention defined in the agreement.

Ex gratia payment – A payment by an insurer to an insured for which there is no contractual liability. Such payments are sometimes made as a goodwill gesture if there is the possibility of a misunderstanding or a mistake.

Examination under oath – Found in the conditions section of many insurance policies, the insurer’s right to examine an insured under oath following a loss. It is taken from an insured under oath and in the presence of a court reporter. The carrier asks questions pertinent to the claim involved, and the examination helps a carrier determine what happened in the loss and whether or not there is a claim that needs to be paid. Often referred to as EUO.

Excess insurance – Coverage that applies on top of underlying insurance that is primary—insurance that pays until its coverage limit is exhausted at which point the excess coverage takes over. Also see Umbrella liability insurance.

Excess or surplus lines market – The range of insurance available through nonadmitted insurers—insurance companies that are not licensed in a particular state or territory. Specific provisions of state or territorial law control placements. The surplus lines market often provides coverage for risks the standard market is not willing to cover.

Excluded driver endorsement – An endorsement to an automobile policy offered by a carrier for a driver with violations on his driving record. Some states require carriers to offer such exclusion upon renewal for any new violations. Some carriers allow a voluntary exclusion, where an insured can request an individual to be excluded from the policy. Once an individual is excluded from a policy, there is no coverage of any sort if the individual drives the vehicle and has an accident.

Exclusion – The part of a policy that removes or restricts coverage. Common exclusions to most policies include war, intentional loss, governmental action, etc. All policies contain exclusions, as policies cannot provide coverage for everything; in many situations the premiums for coverage would be prohibitively expensive, and some events are rare enough that there is no way to determine the odds of the occurrence happening or how to develop sound rates.

Exclusive agency system – See Captive agent.

Exclusive Provider Organization (EPO) – A plan that requires some or all services to be provided by a very limited number of medical care providers. It is similar to but more restrictive in its provider network than the HMO.

Expediting expenses – In business interruption and boiler & machinery policies, expenses to speed up repair or replacement.

Expense incurred policy – A category of supplemental insurance coverage that pays a percentage of all expenses up to the policy’s maximum dollar limit.

Expense ratio – The dollar amount that represents acquisition and service costs, expressed as a percentage of written premium.

Experience – A record of losses.

Experience modification – The raising or lowering of premiums under terms of an experience rating plan.

Experience rating – A method of rating that uses past experience to establish current rates.

Experience refund – Under a reinsurance agreement, that part of the profits that is returned to the cedant after recognition of contingency reserves, loss carryforward, and loss carryback provisions. See Carryover provision.

Expiration date – The date shown in the declarations page of a policy upon which coverage terminates; usually at 12:01 a.m.

Explosion – An extended coverage peril and currently a covered peril in nearly every policy of property insurance. The peril remains distinct from steam boiler explosion, which is covered by boiler & machinery insurance.

Exposure – Degree of hazard threatening a risk because of external or internal physical conditions.

Express authority – Authority that is distinctly, plainly expressed, orally or in writing. The express authority of an insurance agent is given to the agent by the insurer in the contract they each sign. See Actual authority and Implied authority.

Extended coverage – An early and indivisible package of property insurance perils said to have been devised to make possible the spread of windstorm insurance beyond the highly exposed coastal and plains states. For those whose exposure to windstorm was less, extended coverage also encompassed smoke damage, hail, riot and civil commotion, aircraft and vehicle damage, and explosion insurance. Included here for historic purposes only since the term, extended coverage, is no longer in general use.

Extended nonowner liability – A personal auto policy endorsement that provides broader liability coverage for specifically named individuals. When attached, it covers nonowned autos furnished for the regular use of an insured, use of vehicles to carry persons or property for a fee, broader coverage for business use of vehicles.

Extended period of indemnity – A time for recovery of proved business income loss after physical property is restored and business reopened. The 30-day extension included in many business income forms may be extended by endorsement.

Extended recovery period – See Extended period of indemnity.

Extended reporting period – See Claims-made coverage.

Extra contractual obligations (ECO) – A generic term that, when used in reinsurance agreements, refers to damages awarded by a court against an insurer that are outside the provisions of the insurance policy, due to the insurer’s bad faith, fraud, or gross negligence in the handling of a claim. Examples are punitive damages and losses in excess of policy limits.

Extra expense insurance coverage– Coverage that may be purchased as a supplement to business income insurance, applying to expediting expenses that aid in quickly restoring the insured’s operations after a covered loss, or it can be the primary coverage sustaining the extra cost of continuing doing business for those insureds who would find it extremely damaging to fail to meet customer commitments, such as newspapers and dairies.


Face of policy – The front of the policy on which normally the name of the insurance company, the name of the insured, the amount of insurance, and the type of insurance appear among many other items.

Facility – A pooling mechanism for insureds not able to obtain insurance in the voluntary market. Insurers write and issue policies but cede premium and losses on those policies to a central pool in which all insurers share.

Factory mutual – A mutual insurance company insuring only properties that meet high underwriting standards. The typical risk is fire-resistive construction with a central station alarm.

Facultative automatic – A form of property and casualty reinsurance that is a hybrid between facultative and treaty. A bordereau of risks ceded is submitted to the reinsurer that has limited rights to decline individual risks.

Facultative reinsurance – A separate reinsurance agreement that is negotiated for a particular risk or insurance policy. The cedant has the option (faculty) of submitting and the reinsurer has the option of accepting or declining individual risks.

Fair Credit Reporting Act – Public Law 91-508 requires that an insurer tell an applicant if a consumer report may be requested. The applicant must also be told the scope of the possible investigation. Should the application be declined because of information contained in that report, the applicant must be given the name and address of the reporting agency. The insurer may not reveal the contents of the report. Only the agency that compiled the report may release its contents.

Fair market value – Price at which a buyer and seller, under no compulsion to buy or sell, will trade.

FAIR plan – An acronym for Fair Access to Insurance Requirements, these plans have been established in many states to make fire and extended coverage (and homeowners in some states) available in areas otherwise not addressed by the voluntary market.

Fair rental value – An amount payable to an insured homeowner for loss of rental income due to damage that makes the premises uninhabitable.

Faked theft – this often happens to vehicles when an insured can no longer pay the loan; they either ditch a vehicle or hire someone to steal it, only to later report the vehicle as stolen and file a claim.

False swearing – If the insured lies under oath the policy is void whether the lie is in a proof of loss or at an examination under oath. The lie could be on the proof of loss statement, statements made to the carrier about the claim, statements made in the examination under oath, statements made on the application that the insured knows to be false. The difference between fraud and false swearing is that since false swearing involves a false statement made under oath, it is harder for the person to back off from the false statements when confronted.

Family expense policy – A policy which insures both the policyholder and his immediate dependents (usually spouse and children).

Farmowners-ranchowners policy – A homeowners type package policy adapted to include farm and ranch exposures.

Faulty workmanship exclusions – An alternative name for the business risk exclusions, namely damage to your work and damage to your product in the commercial general liability coverage form.

Federal crime insurance – Insurance against burglary, larceny, and robbery losses offered by the federal government where the Federal Insurance Administration has determined that such insurance is not otherwise readily available.

Federal crop insurance – A comprehensive coverage at rates subsidized by the federal government for unavoidable crop losses. Information can be found here.

Federal Emergency Management Agency – Provides disaster relief in disasters such as floods or earthquakes. See FEMA.

Fee simple basis – A form of ownership in which the owner has full rights to dispose of the property held. Common within homeowner associations.

Fellow employee coverage – Extends bodily injury coverage to one employee when caused by another.

FEMA – Federal Emergency Management Agency. This agency administers the National Flood Insurance Program.

Fidelity bond – See Employee dishonesty coverage.

Fiduciary – A generic term for persons or legal entities such as executors, trustees, and guardians appointed by the court, under a will, or by a trust to manage, control, or dispose of the property of others.

Fiduciary bonds – Bonds that guarantee an honest accounting and faithful performance of duties by administrators, trustees, guardians, executors, and other fiduciaries. Fiduciary bonds, in some cases referred to as probate bonds, are required by statutes, courts, or legal documents for the protection of those on whose behalf a fiduciary acts. They are needed under a variety of circumstances, including the administration of an estate and the management of affairs of a trust or a ward. See Judicial bonds.

Fiduciary liability insurance coverage – This insurance covers claims arising from a breach of the responsibilities or duties imposed on a benefit plan administrator; or a negligent act, error, or omission of the administrator. Coverage is often found in a commercial crime policy.

File and use rating laws – State laws that permit the use of new rates by an insurance company without first obtaining the approval of that state’s insurance department.

Financial guaranty – Insurance that indemnifies an insured claimant, obligee, or indemnitee for financial loss resulting from:

1. default or insolvency;

2. changes in interest rate levels;

3. changes in currency exchange rates;

4. restrictions imposed by foreign governments; or

5. changes in the value of specific assets or commodities.

Financial quota share – A form of reinsurance that enables a cedant to increase its statutory surplus by the amount of the ceding commission in the reinsured unearned premium reserve. Surplus relief arises because statutory accounting requires insurers and reinsurers to charge immediately all acquisition costs to the accounting period in which the business is written, even when the premium is unearned at the end of the period. Referred to as pre-paid acquisition costs in the unearned premium reserve, or the equity in the unearned premium reserve.

Financial reinsurance – A form of reinsurance that considers the time value of money and has loss containment provisions. One of its objectives is the enhancement of the cedant’s financial statements or operating ratios, e.g., the combined ratio; loss portfolio transfers; and financial quota shares.

Financial responsibility clause – The clause in an auto policy stating that, when the policy is certified as future proof of financial responsibility, the policy will comply with the financial responsibility laws to the extent required.

Financial responsibility law – When applied to automobile operations, this term signifies the minimum statutory limits of an operator’s responsibility for bodily injury and property damage caused by negligent operation of the vehicle.

Fine arts floater – See Floater.

Finite risk reinsurance – A form of retrospectively rated reinsurance in which the reinsurer’s ultimate liability over the term of the contract is typically limited to no more than 300 percent of the premium ceded. Its primary objectives are to stabilize earnings and reduce reinsurance costs.

Fire – Combustion evidenced by a flame or glow. Insurance distinguishes between a hostile fire (one out of bounds) and friendly fire (such as that contained within the fire box of a stove).

Fire department service charge – A fee that may be imposed by a fire department for responding to a call. Most fire coverage agreements include indemnification provisions for such eventualities.

Fire legal liability – Public liability policies routinely exclude coverage for damage to property in an insured’s care, custody, or control. This leaves a big gap in a tenant’s coverage, a gap partially filled by an exception in the commercial general liability policy that restores limited coverage for fire damage to the landlord’s building. Perhaps the best benefit of the exception is to call attention to the exposure so arrangements can be made for broader coverage at appropriate limits. Sometimes referred to as fire damage legal liability.

Fire mark – An insignia, attached to the outside of a house that represented the insurer of the house. There were used commonly in the eighteenth and nineteenth centuries to indicate which properties were insured. Property owners would pay fire fighting companies in advance and in return receive a fire mark in order to identify the property as having purchased coverage.

Fire resistive construction – A building that has exterior walls, floors, and roof constructed of masonry or other fire-resistive materials.

Fire wall – A structure (wall) that is designed to prevent fires from spreading within a building. For example townhouses should have a firewall between each unit to prevent the entire row from burning. Regarding computer terminology, a fire wall is hardware or software designed to prevent unauthorized access to data from outside users.

First diagnosis (or occurrence) policy – A policy that pays a lump on the first diagnosis of a specific disease, such as cancer, heart attack, or Alzheimer’s.

First named insured – An insurance policy may have more than one party named as insured. In such cases, the first named insured attends to policy housekeeping, that is, pays premiums, initiates (or receives notice of) cancellation, or calls for interim changes in the contract. This is spelled out in commercial policies in the common policy conditions.

First notice of loss – The first report the carrier receives from the insured that a loss has occurred. This begins the claims process.

Fixtures – Generally, something tangible that is fixed or attached, as to a building, so that it becomes an appendage or structural part.

Flash drought – A rapid onset and intensification of a drought. The combination of abnormally high temperatures (heat waves) combined with increased wind speeds,  greater solar radiation, and lower-than-normal rates of precipitation can rapidly affect the local climate. It is often tied to La Nina events and typically occurs during the warm season in the central U.S. Economic damages can be significant.


Flat cancellation – See Cancellation.

Flat rate – In reinsurance, a percentage rate applied to a ceding company’s premium writings for the classes of business reinsured to determine the reinsurance premiums to be paid the reinsurer.

Fleet policy – Written for a risk that has five or more vehicles.

Flesch test – A method to determine the degree of ease or difficulty for reading material. It counts not only the number of words in a sentence, but also the number of syllables in each word. Some states require that insurance contracts be written so that they have a certain readability level (often, 8th grade).

Flexible Spending Arrangement (FSA) -An account that is often funded through a voluntary salary reduction agreement and allows the account holder and dependents to pay or be reimbursed for qualified out-of-pocket medical expenses with pre-tax dollars. FSAs allow $500 each year to be rolled over into an FSA for use in the following year. Beyond that limit FSA dollars are “use-it-or-lose-it” benefits, meaning that they are forfeited if not used for qualified expenses during the year.

Floater – An inland marine form covering movable property wherever located within territorial limits.

Flood – As defined in the National Flood Insurance Program Dwelling Form, a general and temporary condition of partial or complete inundation of two or more acres of normally dry land or two or more properties (one of which is the insured’s) caused by the overflow of the natural boundaries of a body of water or the unusual and rapid accumulation of surface water runoff, or mudflow. Some insurance policies that include flood as a covered peril only insure against damage caused by overflow of the natural boundaries of a body of water, but other policies also may insure against surface water losses.

Flood insurance – Flood insurance, like earthquake coverage, is usually only of interest to those relatively few whose property is exposed. Consequently, losses among this small group will be high and premiums can be prohibitive. However, in 1968 the federal government stepped in to help property owners in designated flood plains with the National Flood Insurance Act of 1968. Coverage is not only available, but may even be required to obtain financing for exposed properties. Some private carriers are beginning to provide flood insurance.

Flood Insurance Rate Map (FIRM) – Provided by FEMA (Federal Emergency Management Agency), this map delineates base flood elevations and flood risk zones, and is used for rating purposes for flood insurance.

Floodplain – Any land area susceptible to being inundated by flood waters from any source.

Floorplan coverage - A form of insurance covering merchandise held for sale by a retailer that has been used as collateral for a loan. The lending institution, in effect, is insuring its collateral, which is the merchandise “on the floor” of the retailer.

Following form – A term for a fire or other form written exactly under the same terms and coverages as other insurance on the same property.

Follow the fortunes – A provision in reinsurance agreements, not always specifically identified as such, in which it is agreed that the reinsurer is bound to the same fate as the cedant with respect to risks covered.

Forced place insurance – Insurance purchased by a bank or creditor on an uninsured debtor’s behalf so if the property is damaged, funding is available to repair it. A form of property insurance.

Force majeure - From the French, literally translates as superior force. It applies to things that cannot be controlled such as war, extreme weather, labor stoppages, and other things that are uncontrollable and make it difficult or impossible to carry out normal business. Force majeure clauses are often used in contracts to absolve the company from liability in the event it cannot fulfill the terms of the contract for reasons beyond its control. For example, a contractor may not be able to complete renovations on a building because of shutdowns due to a global pandemic.

In simple terms, a force majeure is basically an unforeseen event that prevents a party to a contract from fulfilling his part of the bargain. So if a builder said he’s going to build a house but there is a nail shortage so the builder can’t get his hands on nails so he can’t build the house, that’s force majeure.

Foreign insurance company – Name given to an insurance company based in one state by the other states in which it does business.

Foreign reinsurer – A reinsurer chartered (domiciled) in one state writing business in another state is considered to be foreign in the non-domiciliary state. In its own state, the reinsurer is considered to be domestic.

Forgery or alteration coverage – This type of insurance covers loss sustained through forgery or alteration of outgoing negotiable instruments made or drawn by the insured; drawn on the insured’s account(s), or made or drawn by someone acting as the insured’s agent. This includes loss caused by any of the following: checks or drafts made or drawn in the insured’s name, payable to a fictitious entity; checks or drafts, including payroll checks, executed through forged endorsements; and alteration of the amount of a check or draft.

Form – The central document or documents of an insurance contract. Forms may be altered by endorsement.

Formulary –A list of drugs that are covered by a particular insurance plan. Formularies often contain different tiers of coverage between which levels of coverage and out-of-pocket expenses can vary considerably.

Forward-looking statement safeharbor – Refers to a provision in the PSLRA that protects corporations and their directors and officers when making written or oral forward-looking statements. Pursuant to this safeharbor, no liability exists with respect to a forward-looking statement that, when made, is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. Alternatively, the statute also provides that a person making a written or oral forward-looking statement will not be liable for that statement unless a plaintiff proves that the person made the statement with actual knowledge that it was false or misleading. The safeharbors do not apply to various types of forward-looking statements, including such statements in GAAP financial statements, in an IPO registration statement, in connection with a tender offer or a partnership, in certain change-in-control disclosure statements, in a going private transaction, or by a non-SEC reporting company.

Four corners of an instrument – A term that refers to studying an entire document for its meaning without reference to information outside of the document, such as negotiations prior to its writing. Often called four corners rule.

Fracking - The pumping of water and chemicals underground at high pressure to shatter rock formations and release gas; the practice generates a considerable amount of waste liquid, which is often disposed of by injecting it into deep rock formations where it can lubricate faults. The disposal of this liquid has been blamed for causing earthquakes to the extent that the United States Geological Service tracks earthquakes and studies those quakes thought to be created by fracking.

Franchise deductible – Deductible in which the insurer has no liability if the loss is under a certain amount, but once this amount is exceeded, the entire loss is paid in full.

Franchise insurance – Uniform individual health insurance protection provided to groups of persons, usually in the same occupation or profession.

Fraternal Insurance – A cooperative-type of insurance provided by social organizations for their members.

Fraud – The intentional perversion of the truth in order to mislead someone into parting with something of value. Black’s Law Dictionary, 6th Edition, defines “fraud” as an intentional perversion of the truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right; a false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury.

Free on board (F.O.B.) – When goods are shipped F.O.B., the shipper is responsible only until the goods have been placed on board the vessel or freight car or truck or other means of transport. After that the risk belongs to the consignee.

Freight – The income of the ship owner from carrying cargo or earned by the employment of his ship.

Freight Forwarder – A specialist in handling overseas shipping details of exports and imports.

Friendly fire – See Fire.

Fronting – The practice, in reinsurance, of the ceding company retaining only a small portion of a risk and ceding the remainder to a reinsurer.

Full coverage – A misleading term no longer in use by the industry, generally used to mean that an insured has physical damage, liability, towing, and rental on their personal auto policy.

Full reporting clause – Under this clause, an insured is required to report values periodically. The clause provides for a penalty to the insured if true values are not reported.

Functional replacement cost – The cost to repair or replace damaged property with materials that are functionally the equivalent of the damaged or destroyed property, for example, replacing a solid mahogany banister with a pine banister.

Funds withheld – Assets that would normally be paid over to a reinsurer but are withheld by the cedant to permit statutory credit for non-admitted reinsurance, to reduce a potential credit risk or to retain control over investments.

Fur floater – See Floater.

Furriers customers insurance – See Bailees floater.


GAAP accounting – Generally Accepted Accounting Principles as promulgated by the Financial Accounting Standards Board (FASB). See Statutory accounting principles.

GAP coverage – Guaranteed Auto Protection. Insurance for a lessee designed to cover the difference in selling price between a vehicle’s actual cash value and the payout left on a lease. This coverage is often available for loan situations as well.

Garage policy – One of the early package policies, it is written for automobile dealers and may include liability insurance for garage operations, automobile operations, physical damage coverage on garage owned autos, bailees coverage on customers cars, and auto and premises medical payments coverage.

Garaging location – The postal code where a vehicle is parked or garaged when not in use. This is usually the insured’s primary residence. The garaging location is often used in determining premiums.

Garagekeepers liability – A bailee coverage applying to automobiles. Commonly included in garage policies, it may be written to provide coverage for limited perils or for comprehensive physical damage, with or without collision damage coverage. Coverage may be expressed as covering the legal liability of the garagekeeper or amended to cover on a direct basis, as primary insurance or excess.

General average – A principle of maritime law according to which the owners of ship and cargo share in a loss incurred voluntarily to save the whole in an emergency. For example, cargo may be jettisoned in order to save the ship and remaining cargo during a storm. All participants share in the loss for the good of the whole.  See also Average and Particular average.

General average contribution – The proportionate shares of the vessel owner and each of the cargo owners in order to make up the expenditure or sacrifice incurred for the common good.

General average sacrifice – The voluntary destruction of part of the vessel or the cargo, or the deliberate expenditure of funds in time of grave peril, which is successful in avoiding total disaster.

General Data Provider Regulation (GDPR) - European Union (EU) regulation on Internet data privacy.

General liability insurance – See Commercial general liability.

General partners’ liability coverage – A general partner’s management and fiduciary responsibilities to a limited partnership closely parallel the director’s or officer’s to a corporation. Exposure occurs when general partners become the financial managers of a limited partnership. The directors and officers of corporate general partners share this type of exposure.

Gigafire - A wildfire that burns one million acres. The size of the fire does not always correlate to the amount of insured losses.

Gig economy – Temporary, flexible jobs with no set hours; workers can set their own hours and sometimes their rates for the work provided. Ride-sharing, car-sharing and home-sharing are all parts of the gig economy.

Good faith – Most ordinary contracts are good faith contracts. Insurance contracts are agreements made in the utmost good faith. This implies a standard of honesty greater than that usually required in most ordinary commercial contracts.

Good Samaritan laws -  Laws that provide legal protection to those offering aid to those who are or are assumed to be ill, injured, or otherwise in peril.

Good student discount – The reduction of an automobile premium for a young driver who ranks in the upper percent of his class or maintains a grade point average above a certain level.

Grace period – A period after the premium due date during which an overdue premium may be paid without penalty. The policy remains in force throughout this period.

Grading schedule for cities and towns – A schedule prepared by the National Board of Fire Underwriters for the purpose of determining which of ten grades to assign to a city for fire rating purposes, based on such factors of fire protection as water supply.

Graduated driver licenses – Licenses for younger drivers that allow them to improve their skills. Regulations vary by state, but often restrict night time driving. Young drivers receive a learner’s permit, followed by a provisional license, before they can receive a standard drivers license.

Gramm-Leach-Bliley Act – Financial services legislation, passed by Congress in 1999, that removed Depression-era prohibitions against the combination of commercial banking and investment-banking activities. It allows insurance companies, banks, and securities firms to engage in each others’ activities and own one another.

Gross earnings coverage – An outdated term for business income coverage.

Gross line – The maximum limit an insurer or reinsurer is willing to accept before taking credit for reinsurance coverage. Such limits are usually expressed per insured, per line of business, and the like. See Net line.

Gross negligence – The degree of negligence somewhat greater than ordinary negligence. It may be a reckless wanton and willful misconduct causing bodily injury and/or property damage.

Ground up loss – The entire amount of an insurance loss, including deductibles, before application of any retention or reinsurance. The original loss to the insured, after recognizing known salvage and subrogation.

Group insurance – Policy protecting a group of persons—usually employees of a firm.

Guaranteed cost reinsurance – A form of reinsurance that has no adjustable features. The final premium rate for the coverage is exactly as set forth ab initio in the contract.

Guaranty funds – State mandated funds collected from licensed insurers and maintained as backup protection for policyholders of bankrupt insurers. When an insurer becomes insolvent, the state will pay claims for that insurer out of the guaranty fund.

Guaranteed Renewable Policya policy which the insured has the right to continue in force by the timely payment of premiums to a specified age, during which period the insurer has no right to make unilaterally any change in any provision of the policy while the policy is in force, but may change premium rates by policyholder class.

Guaranteed replacement cost – A form of property coverage in which the insurance company agrees to replace damaged property even if the cost to do so exceeds the limit stated in the policy or the underlying rating basis on which the premium is calculated. This extension may be conditional on an approved appraisal and reporting of improvements to the building(s).

Guiding principles – Suggested procedures for establishing primacy of coverage in situations involving loss under a variety of coverage forms and, perhaps, more than one interested party. Last promulgated in the 1960s, the spirit of the principles survives because insurers apparently find that the prescribed procedures commonly lead to equitable settlements for all parties.


HPR – See Highly protected risk.

Hacker – Someone that accesses computers without authorization of use of approved logins and passwords to access data; the hacker may steal funds, information, or install disruptive code that corrupts the data stored on the computer.

Hacker insurance coverage- A coverage that protects businesses engaged in electronic commerce from losses caused by hackers. See computer or cyber insurance.

Hail insurance coverage – Form of property insurance that protects against loss of crops from hail. Generally a form of farm/crop insurance.

Hangarkeepers legal liability – A bailee coverage for those charged with the care of aircraft owned by their customers.

Hard fraud – The deliberate faking of an accident, injury, theft, or intentionally committed arson or some other loss in order to collect money wrongly from insurance companies. Hard fraud involves criminal activities such as staging a car accident, injury, arson, loss, break-in, or someone writing false bills to Medicare to illegally receive money from insurance companies.

Hard market – A condition of the insurance marketplace in which insurance is difficult to obtain and relatively expensive. In a hard market underwriting is strict; carriers are looking for the best risks. A hard market often appears after catastrophes or a period where the industy has had significant losses.

Hazard – Generally, a condition that increases the possibility of loss.

Hazardous waste – Term generally used to refer to pollutants or contaminants that result from industrial processing and must be disposed.

Health insurance – Protection against the costs of lost income and hospital and medical care arising from illness or injury, also accidental loss of life, limb, or sight. Also called accident and sickness, accident and health, sickness and accident, or disability insurance.

Health insurance exchange – A type of marketplace established by the Affordable Care Act through which individuals and businesses can purchase health insurance that meets ACA requirements.

Health Maintenance Organization (HMO) – An alternative system to the one traditionally used to provide health care, an HMO is a group of doctors and other health care providers that offers a full range of health care services on a prepaid basis.

Health Reimbursement Account (HRA) – HRAs are similar to FSAs in that they allow account holders and their dependents to pay for qualified out-of-pocket medical expenses with pre-tax dollars that are provided by an employer. Unlike FSAs, and at the end of the year unused funds remain in the account for later use.

Health Savings Account (HSA) – HSAs are similar to FSAs and HRAs in that they allow account holders and their dependents to pay for qualified out-of-pocket medical expenses with pre-tax dollars that are either provided by an employer or through a voluntary salary reduction agreement. Unlike FSAs, and at the end of the year unused funds remain in the account for later use. To be eligible to contribute to an HSA, a person must be enrolled in a high deductible Health Plan (HDHP)

Heat Dome – An area of sweltering heat caused by strong, high-pressure atmospheric conditions that combine with influences from La Nina. Vast areas of extreme heat get trapped under this high-pressure dome. Heat domes are caused by strong changes in ocean temperatures from west to east in the tropical Pacific during the preceding winter. Winds move the hot are from west to east, and the jet stream traps the air and moves it towards land where it sinks and results in extreme heat waves.

Hemp – Any Cannabis sativa plant with less than 0.3 percent of THC. Under parts of U.S. law refers to the sterilized seeds, stems, stalks and roots of the cannabis plant.

High Deductible Health Plan (HDHP) – A health insurance plan that carries deductibles and out-of-pocket expense limits that are higher than certain IRS-mandated limits.

Highly protected risk (HPR) – A building meeting certain standards of fire protection, which is therefore eligible for a reduced rate.

Highway traffic act – The body or system of laws that govern the obligations of the provincial governments and users of roads. A breach or conviction of any of these laws may be an offense but does not of itself impose legal liability, but it may be relied upon in any proceeding to establish or negate any liability.

Hired auto – A nonowned auto that may be borrowed as well as rented or leased by the insured. Personal auto policy insureds are covered automatically for hired autos, but business auto policy insureds may not be.

Hold back – When a replacement cost policy is triggered due to a loss, most policies pay the actual cash value of the lost or damaged articles immediately and then the full replacement cost once the repair or replacement is done. The differences between these two limits is called a hold back.

Hold harmless agreement – A contractual assumption by one party of the liability exposure of another. Lease agreements, for example, commonly require the tenant to hold the landlord harmless for bodily injury or property damage experienced by others on the premises.

Hole-in-one insurance – Coverage designed for amateur golf tournaments in which there is a substantial cash prize for anyone making a hole-in-one.

Holistic risk management – See Enterprise-wide risk management.

Homeowners insurance – An early and hugely successful example of packaged property and liability insurance. A mid-twentieth century insurance development was the introduction of the so-called multiline era in which insurers became empowered to write both property and liability forms of insurance, making way for the first packaging of these coverages within a single policy. Coverage is provided for the dwelling and contents of the listed property.

Home-sharing – The process of using an app (Airbnb) to rent an room or a house to someone on a very temporary (fews days or a week) basis.

Honorable undertaking – A phrase in some reinsurance agreements, usually in the following context: “This agreement is considered by the parties hereto as an honorable undertaking, the purpose of which is not to be defeated by a strict or narrow interpretation of the language thereof.”

Hospital benefits – Benefits provided under a policy for hospital charges incurred by an insured person because of an illness or injury.

Hospital expense insurance – Health insurance protection against the costs of hospital care resulting from the illness or injury of an insured person.

Host liquor liability – Part of the commercial general liability policy, covers the incidental serving of alcohol by an insured who is not in the business of serving alcohol.

Hostile fire – See Fire.

Housekeeping – A generalized term that refers to the overall care, cleanliness, and maintenance of an insured’s property.

Hull insurance – Ocean marine insurance covering physical damage to the ship or vessel insured. Usually written on an all-risks basis.


Ice Phishing – Used in blockchains when someone steals a user’s private keys through manipulation or trickery by deceiving the user (victim) into signing a transation that delegates approval of the user’s tokens to the scammer. In essence, it gives the scammer control over a user’s crypto assets. This can happen over a period of time of multiple ice phishing attacks allowing the scammer to accumulate approvals to the point of draining the user’s entire wallet.

Identity theft – The act of assuming another person’s identity in order to gain access to a person’s bank accounts or other personal financial information. The thief often obtains a person’s identifying information such as social security number, date of birth, account numbers and other such information to commit fraud or other crimes.

Impaired property – A liability exclusion relating to the insured’s faulty products or work that results in an impairment to the property to which it is attached assuming the insured can salvage the situation by replacing the property or redoing the work.

Implied authority – Authority granted to an agent, even though not stated, that lets the agent perform tasks usual and necessary to exercise the agent’s express authority. See Actual authority and Express authority.

Implied warranty – A warranty is a representation by the policyholder that certain conditions exist or will be met. Even if the warranty is not in writing, it may exist as an “implied” warranty, for example, that a building is not on fire when insured, or that a vessel is seaworthy.

Improvements and betterments – Anything that adds to the value of property. Commonly used to describe a tenant’s use interest in fixtures added to the landlord’s building. May also refer to permanent changes made by a condominium unit owner to his or her unit, such as the addition of new kitchen cabinets.

Imputed negligence – Case in which responsibility for damage can be transferred from the negligent party to another person, such as an employer.

Incendiary – Malicious setting on fire or preparing, providing, and setting the means for fire to start.

Inchmaree clause – Covers losses resulting from latent defect in hull and machinery of vessel and losses resulting from errors in navigation or management of the vessel by master or crew.

Incidental medical malpractice – A portion of the commercial general liability policy that is triggered if a covered party or the association were to be sued because they tried to provide Good Samaritan help or other medical first aid type care and were not professionals in the medical field.

Increased cost of construction – A damaged building may have to be upgraded to be repaired under building codes in force at the time of reconstruction. Building owners in such situations need guidance in buying insurance to cover this added exposure.

Increased hazard – Property insurance policies provide that coverage shall be suspended when the hazard in a risk is increased beyond that contemplated when the insurance was written. If a dwelling owner commences manufacturing dynamite in his home, the hazard is extremely increased, and coverage could be denied by the insurer if there were a loss.

Incurred losses – The value of claim payments plus reserves.

Incurred but not reported losses / IBNR – Losses that are not reported to the insurer or reinsurer until years after the policy is sold. Liability claims may be filed long after the event that caused the injury to occur. The exposure to the chemical that causes cancer may have occurred in 2005, but the injured employee did not report cancer until it manifested itself years later. Asbestos-related diseases, for example, do not show up until decades after the exposure. Also, estimates made about claims already reported but where the full extent of the injury or property damage is not yet known. Insurance companies regularly adjust reserves for such losses as new information becomes available.

Indemnity – A fundamental concept governing insurance: compensation for loss or injury sustained, or in health insurance, a benefit for injury or sickness which is payable as provided in a health insurance policy. The principle of indemnity states that the insured should be returned to preloss conditions. The insured had a matching roof before the tree crashed onto it, the insured should have a matching roof after the tree is removed and the roof repaired.

Indemnity reinsurance – A form of reinsurance under which the risk but not the administration is passed to the reinsurer that indemnifies the cedant for losses covered by the reinsurance agreement or treaty. The cedant retains its liability to and its contractual relationship with the insured.

Independent adjuster – An individual or member of a firm who contracts with insurers to investigate claims and suggest appropriate settlements. Contrast with Public adjuster.

Independent agent – A retailer of insurance who, by contractual arrangement with a number of insurance companies, sells and services property and liability insurance. The independent agent owns the policy information and expiration dates of his client’s coverage and thus controls renewals and their placement.

Independent Insurance Agents of America (IIAA) – An association of insurance agents who are independent contractors and represent one or more insurers. Sometimes referred to as the Big I.

Indexing, Indexation – The adjustment of a cedant’s retention and the reinsurance limit by a measure of inflation, such as the Consumer Price Index. Under indexation, the cedant’s original retention and the reinsurance limit are multiplied by the result of dividing the index on the settlement date by the index as of the effective date of the reinsurance agreement.

Indirect damage – Sometimes referred to as indirect loss, this is loss resulting from a peril but not directly caused by that peril. An example is fire damaging a freezer (direct damage), with resultant food spoilage (indirect damage).

Individual insurance coverage – Policies which provide protection to the policyholder and his family (as distinguished from group and blanket insurance). Sometimes called “personal” insurance.

Inflation guard endorsement – An endorsement attached to an insurance policy whereby the limits of liability on a piece of property are increased on a regular basis by a certain percentage in order to offset increasing building costs associated with inflation.

Inherent explosion – A natural explosion like dust in a grain elevator.

Inherent vice – A flaw in an item of property that will, in time, reveal itself and show the property as damaged. Property insurance does not normally cover such damage.

IPO – The initial public offering of securities by a company. For a variety of reasons, an IPO transaction presents increased liability exposure to the company’s directors and officers.

Injury independent of all other means – An injury resulting from an accident that is not the result of an illness.

Inland marine insurance – Property insurance signaling broad coverage of properties exposed to the transportation peril and those subject to being used or kept at a location other than the insured’s customary premises. Eligible property is identified in the Nationwide Definition of Marine Insurance. Also refers to personal property of significant rarity or value that the owner may want separate coverage.

Innkeepers legal liability – A bailee coverage purchased by innkeepers to cover the property of their guests.

Insider trading – Occurs when directors, officers and other corporate insiders trading in the company’s stock while in possession of material, nonpublic information about the company. Insiders may be personally liable for insider trading under a variety of statutes and judicial theories.

Insolvency – Insurer’s inability to pay debts. Insurance insolvency standards and the regulatory actions taken vary from state to state, but the last resort in the case of insolvency is liquidation.

Insolvency clause – A provision in reinsurance agreements that provides for the continuance of payments of the obligations of the reinsurer as though no insolvency had occurred, with appropriate recognition of additional expenses of the reinsurer caused by the insolvency. Required in New York and in certain other states.

Insolvency fund – See Guaranty funds.

Inspection report – A report prepared for an insurer by an outside organization. It provides information about an applicant’s or insured’s financial and moral attributes and condition of physical property to be insured.

Institutional property – Schools, churches, and many nonprofit operations are covered under special policies more cheaply if they qualify.

Insurable interest – The potential for financial loss associated with damage or destruction of property. It is the principle of insurance interest that keeps insurance from becoming gambling. Most carriers require an insured to have insurable interest in the property before agreeing to provide coverage.

Insurable risk – The exposure to significant, measurable accidental loss from identifiable perils. The exposure, while not catastrophic, must be shared by a sufficient number of potential insureds so that the cost of loss for one can be measured and affordably shared throughout the market.

Insurance – A mechanism whereby risk of financial loss is transferred from an individual, company, organization, or other entity to an insurance company.

Insurance contract – A legal document defining circumstances under which the insurer will pay, and the amount to be paid. Also see Insurance policy.

Insurance examiner – The representative of a state insurance department assigned to participate in the official audit and examination of the affairs of an insurance company.

Insurance exchange – See Reciprocal exchange.

Insurance Bureau of Canada (IBC) – The trade association of the property/casualty insurance industry in Canada. It concerns itself with such matters as public relations, collection of statistics, and promulgation of forms. It has a substantial permanent staff but also many committees made up of volunteers from the senior ranks of insurance companies.

Insurance Crime Prevention Bureau (I.C.P.B.) – An organization supported by property and casualty insurers that investigates fraudulent insurance claims and provides a deterrent to such losses. Loss prevention information is maintained by the Bureau for use by member insurers, independent claims adjusters, and government authorities across the country.

Insurance exchange – Term used to describe a facility that exists in a few states to provide a market for reinsurance and for the insurance of large and unusual domestic and foreign risks that are difficult to insure in the normal markets. Examples are the New York Insurance Exchange, the Insurance Exchange of the Americas, and the Illinois Insurance Exchange.

Insurance fraud – When someone deceives an insurance company in order to collect money to which they are not entitled. Insurance fraud is an enormous problem for the industry as a whole.

Insurance Institute of America (IIA) – An institution offering a variety of insurance diplomas after the successful completion of certain examinations.

Insurance Institute of Canada (I.I.C.) – The educational body of the general insurance industry. It consists of an association of provincial institutes. Among other things, it conducts correspondence courses, holds annual examinations, and grants diplomas.

Insurance Institute for Highway Safety – A nonprofit research organization, well-known for its auto crash tests.

Insurance policy – The document containing the contract between the insured and the insurer that defines the rights and duties of the contracting parties.

Insurance pool – A group of insurance companies that pool assets, enabling them to provide an amount of insurance substantially more than can be provided by individual companies to ensure large risks such as nuclear power stations. Pools may be formed voluntarily or mandated by the state to cover risks that cannot obtain coverage in the voluntary market such as coastal properties subject to hurricanes. (See Beach and windstorm plans; Fair access to insurance requirements plans/FAIR plans; Joint underwriting association/JUA).

Insurance Services Office (ISO) – An organization providing statistical information, actuarial analyses, policy language, and related services for the insurance industry.

Insurance to value – The concept of purchasing sufficient insurance coverage so as to closely approximate the value of the property being insured.

Insured – The party or parties whose interests are covered in a nonlife insurance contract. The less common term “assured” is sometimes used synonymously.

Insured capacity – Refers to the capacity in which a person is covered under the insurance policy. Typically, directors, officers and employees are covered only for wrongdoing that they commit in their capacity as a director, officer or employee of the company. Alleged wrongdoing in any other capacity, including as a shareholder, is not covered. This insured capacity concept is set forth in the definition of Wrongful Act in most policies.

Insured v. Insured or i vs. i or I v. I – Refers to the exclusion in all D&O insurance policies that eliminates coverage for claims by or on behalf of one insured against another insured. Because the company is insured under D&O policies to the extent the company indemnifies loss incurred by directors and officers, this exclusion not only eliminates coverage for claims by directors and officers, but also claims by or on behalf of the company. Most D&O insurance policies contain several exceptions to this exclusion (i.e., grant coverage for certain types of claims by or on behalf of insureds). Depending upon the specific policy, the following types of claims may be excepted from the exclusion (i.e., covered):

1. a shareholder derivative claim on behalf of the company if the shareholder prosecutes the claim without the assistance of any insured;

2. employment-related claims by directors or officers;

3. a claim by a director or officer for contribution or indemnity if the claim directly results from another claim covered under the insurance policy;

4. a claim by a trustee or receiver in the insured company’s bankruptcy or insolvency proceeding.

Insuring agreement – In an insurance contract, the insurer’s promise to pay.

Insuring to value – A requirement of property insurance policies that the property be insured to the value to replace the property in event of a loss. The cost to rebuild or replace a property is not the same as the market value of the property.

Integrated or basket policy – An insurance policy that affords coverage for several different types of liability exposure, including for example directors and officers liability, employment practices liability, ERISA fiduciary liability, professional errors and omissions liability, crime, kidnap and ransom, and perhaps other lines of coverage. These types of multiple-line policies frequently have a term of several years and may have a single aggregate limit of liability applicable to all lines of coverage, combined (except the D&O Clause A coverage, which typically has its own separate limit in order to assure protection to directors and officers for nonindemnified loss).

Integrated risk financing – A type of risk financing designed to provide integrated protection against catastrophic losses. It may incorporate both traditional and nontraditional types of exposures, or it may include only traditional property and casualty risks.

Interline endorsements – Commercial endorsements that apply, or could apply, to more than one coverage part of a package policy.

Intermediary – A third party in the design, negotiation, and administration of a reinsurance agreement. Intermediaries recommend to cedants the type and amount of reinsurance to be purchased and negotiate the placement of coverage with reinsurers. At Lloyd’s of London, called a broker. See Brokerage market and Direct market.

Intermediary clause – A provision in reinsurance agreements that identifies the intermediary negotiating the agreement. Most intermediary clauses shift all credit risk to reinsurers by providing that:

1. the cedant’s payments to the intermediary are deemed payments to the reinsurer; and

2. the reinsurer’s payments to the intermediary are not payments to the cedant until actually received by the cedant.

This clause is mandatory in some states.

Internet liability insurance – Coverage designed to protect businesses from liabilities that arise from the conducting of business over the Internet, including copyright infringement, defamation, and violation of privacy.

Interstate Commerce Commission endorsement – Issued to trucks that travel from state to state. It guarantees payment of transit losses. Truckers must repay the company for losses not actually covered by the policy.

Investigation cost coverage – Refers to a supplemental type of insurance coverage available from some D&O insurers pursuant to which costs incurred by the insured company in investigating a demand by shareholders that the board of directors bring a claim on behalf of the insured company against certain directors and officers for alleged wrongdoing. Shareholders who wish to bring a derivative lawsuit on behalf of the company against directors and officers generally must first demand the board of directors to bring the claim against the directors and officers. Once that demand is made, the board on behalf of the company is required to thoroughly investigate the merits of the shareholders’ allegations and determine whether it is in the best interests of the company that the proposed claim be prosecuted against those directors and officers. Because that investigation is for the benefit of the company as a potential plaintiff, and not for the benefit of the target directors and officers as potential defendants, costs incurred in that investigation are not covered under a standard D&O insurance policy. If the insureds purchase the supplemental investigation cost coverage, the expenses incurred in investigating this shareholder derivative demand would be covered.

Investment income – Income generated by the investment of assets. Insurers have two sources of income, underwriting (premiums less claims and expenses) and investment income. The latter can offset underwriting operations, which are frequently unprofitable.


Jacket – The cover of an insurance policy; it usually contains information such as the name and address of the insurer.

Jackware -  Malware that can take over control of a piece of equipment – for example a blast furnace, train, or other vehicle. Once taken over, the hacker can operate the equipment so that the blast furnace over heats and burns down the building or the autonomous vehicle drives itself to the dock where it is loaded into a shipping container.

Jettison – Act of throwing overboard part of a vessel’s cargo or hull in hopes of saving a ship from sinking.

Jewelers block insurance – A policy especially designed for jewelers, it offers a combination of coverages protecting against risks of physical loss to property at the jeweler’s premises, property in transit, or customers’ property in the insured’s care.

Jewelry floater – See Floater.

Joint and several liability – A legal doctrine whereby a creditor or claimant may demand payment or sue one or more of the parties separately, or all of them together.

Joint loss agreement – An endorsement that speeds up payment of insurance proceeds when there are two different carriers for the property and the boiler and machinery coverage, and there is a disagreement as to the amount of loss to be paid by each carrier.

Joint tenancy – Ownership of property shared equally by two or more parties under which the survivor assumes complete ownership. This is different from a tenancy in common where the heirs of a deceased party to the tenancy inherit his or her share.

Joint underwriting association (JUA) – Insurance pools representing all insurers in a state, usually designed to handle higher risk insureds. A few servicing carriers act on behalf of all the insurers, issuing policies, receiving fees, and handling claims. They are reimbursed for losses and receive fees from the JUA to cover operating costs.

Joint venture – A venture in which two businesses join together to share risk or expertise on a specific project or group of projects.

Jones Act – The federal act through which maritime workers are provided workers compensation coverage (which ordinarily responds to the mandates of particular states).

Judgment rating – Rate-making method for which each exposure is individually evaluated, and the rate is determined largely by the underwriter’s judgment.

Judicial bonds – Two types of bonds available to guarantee faithful performance of court appointed duties. Fiduciary bonds guarantee the faithful performance of persons entrusted by the courts in the management, conservation, and disposition of property. Litigation bonds (or court bonds) are required in court actions. Bail bonds and appeals bonds are litigation bonds where the bond amount is forfeited if the bonded person disappears or the appeal is lost.

Jumbo risk – A policy of insurance written with exceptionally high limits.


Keeton-O’Connell – See No fault auto insurance.

Key employee insurance – Life insurance written on the life of an organization’s officers or other key employees, the loss of whom would cause the organization financial hardship.

Key-person health insurance – A policy which provides reimbursement to a business against the work time lost by a key employee who is disabled.

Kidnap-ransom insurance – A specialty coverage offered in the surplus and excess lines markets that responds to ransom demands for recovery of kidnap victims.


Lapse – A lapse is a gap in coverage, either because a policy expired and an insured did not renew the policy or the insured failed to make a premium payment and coverage was terminated. If other coverage is not obtained to immediately take effect, there is a gap in coverage during which there is no insurance for any losses. In automobile insurance, this may result in the insured being penalized by the Department of Motor Vehicles for having no insurance coverage, even if the lapse is for only one day.

Larceny – The unlawful taking of personal property of another.

Latent defect – A hidden flaw that will, in time, cause property damage that is uninsurable. Such damage is uninsurable because the element of chance is no longer present. The property was flawed from the beginning, so the breakdown and damage was inevitable, and not accidental.

Layer – A horizontal segment of the liability insured, e.g., the second $100,000 of a $500,000 liability is the first layer if the cedant retains $100,000, but a higher layer if it retains a lesser amount. See Pro rata.

Law of large numbers – An underlying principle of insurance; the larger the number of participants in a given arrangement, the more accurate the rate is to the exposure. For example; in a group of ten male drivers between ages 21 and 30, the driving history of one driver does not adequately predict future losses for the other nine drivers. In a group of 5,000 such drivers, 500 losses among those drivers makes predictions of losses among the next 5,000 drivers more accurate.

Lead reinsurer – The reinsurer who negotiates the terms, conditions, and premium rates and first signs on to the slip; reinsurers who subsequently sign on to the slip under those terms and conditions are considered following reinsurers.

Leader location – A location that attracts customers to the insured’s business. One of the four types of dependent properties for which business income coverage may be written.

Leased worker – A worker leased from another organization on a long-term basis.

Leasehold interest coverage - The insurable interest is that of a tenant who has some years remaining under a favorable lease that is subject to termination upon significant damage to the leased property.

Legal expense coverage - Insurance to reimburse policyholders for legal fees incurred for defense from lawsuits involving areas of civil law not covered by standard liability insurance, such as discrimination, wrongful discharge, contract disputes, and patient disputes.

Legal liability – Liability imposed by law, including liability based on negligence, strict liability, or contractual liability.

Lessee – The person to whom a lease is granted, commonly called the tenant.

Lessor – The person granting a lease, also known as the landlord.

Letter of credit – A document issued by the buyer’s bank, through its foreign correspondent bank, establishing a credit against which the seller may draw after complying with specific instructions. In reinsurance, typically used to permit reserve credit to be taken with respect to non-admitted reinsurance; an alternative to funds withheld and modified coinsurance.

Level premium – In health insurance, a premium which remains unchanged throughout the life of a policy.

Leverage, or capitalization – Measures the exposure of a company’s surplus to various operating and financial practices. A highly leveraged, or poorly capitalized, company can show a high return on surplus, but may be exposed to a high risk of instability.

Libel – Written defamation of another’s reputation.

Liberalization clause – A feature of property policies that promises that any future change in the company’s form that would broaden coverage with no change in premium will automatically apply under the policy currently in force.

License and permit bonds – Suretyship guaranteeing that the principal will abide by the rules and obligations imposed by licensing laws or ordinances. For example, an electrician may have to post such a bond guaranteeing compliance with building codes before being licensed by a municipality.

Lien – A charge upon real or personal property as security for some debt or duty. Also, the security interest created by a mortgage or automobile loan. The conditions of an insurance policy require the disclosure to the insurer of any existing lien on the insured property.

Lifetime disability benefit – A payment to help replace income lost by an insured person for as long as he is totally disabled, even for lifetime.

Like kind and quality – Refers to replacement of damaged, destroyed or lost property with used property of similar type and condition.

Limited common element – A portion of the common elements of a condominium association that is restricted to the use of one or several unit owners. Normally such elements become the maintenance responsibility of the unit owner and may become the owner’s insurance responsibility too.

Limited partnership – A form of partnership that consists of one or more general partners, who actively engage in the business, and one of more special partners, who are not liable for the debts of the partnership beyond their initial financial contribution. Commercial insurance policies usually differentiate in the Who Is Insured section among corporations, partnerships, and other business models. Therefore, the type of model being insured is important.

Limited policies – Contracts which cover only certain specified diseases or accidents.

Limit reinstatement – Refers to the reinstatement of the limit of liability under an insurance policy that is in effect for two or more years and that contains a single aggregate limit of liability for the entire policy period. Under this provision, insureds may purchase during the policy period an additional limit of liability for future claims, thus allowing additional protection for insureds who believe that prior claims during the policy period may erode the original limit of liability to an unacceptable level. A limit reinstatement provision grants to the insureds the absolute right to purchase the additional limit of liability (upon payment of a specified additional premium), and the insurer has no underwriting discretion at the time the option is exercised by the insureds. If the insureds maintain several layers of insurance coverage within their insurance program, the limit reinstatement provision frequently provides that the additional or reinstated limit of liability affords coverage excess of all other coverage in force at the time the reinstatement option is elected. This type of excess limit reinstatement provision is commonly referred to as an around the clock provision.

Line – A term used to describe a type or class or kind of insurance in relation to the line of insurance appearing in the annual statement (e.g., inland marine, auto liability, fidelity).

Liquor liability coverage - Liability coverage for owners and operators of establishments selling or serving alcoholic beverages.

Litigation bonds – See Judicial bonds.

Livery use – An exclusion in automobile liability policies applying to the use of autos to carry persons for hire as in a taxi service. A share-the-ride car pool is not livery use.

Livestock coverage - Life insurance on livestock covering death by named perils. Generally found in farm policies.

Lloyd’s of London – An association of individuals, called names, or groups of individuals who write insurance for their own accounts. Lloyd’s had its beginning in 17th century London in Edward Lloyd’s coffeehouse.

Lloyds Register – A catalogue of ships describing each ship— dimensions, age, place of construction, registry, and ownership. A necessary tool for the ocean marine underwriter. Similar information is published by the American Bureau of Shipping.

Lloyds Syndicate – A group of underwriters at London Lloyds who entrust the underwriting of their business to one underwriter.

Loading and unloading exclusion – A feature of commercial general liability (CGL) policies intended to separate that coverage from the automobile exposure. The CGL coverage ends at the point where an item is picked up for loading onto an auto and resumes at the point where the item is deposited upon unloading.

Longshore and Harbor Worker’s Act – A federal law that specifies compensation amounts for injured longshore and harbor workers. Formerly referred to as the Longshoremen’s and Harbor Workers Act.

Long tail – Refers to liability under policies written on an occurrence basis. Claims stemming from injury or damage occurring years earlier can be presented for coverage long after the policy has expired. Contrast with Claims-made.

Long-term care insurance – A policy which provides payment for a portion or all of the cost of certain long-term care facilities such as skilled or intermediate nursing homes.

Loss – An unintentional decline or disappearance in value arising from an event.

Loss adjustment expenses – All expenditures of an insurer associated with its adjustment, recording, and settlement of claims, other than the claim payment itself. The term encompasses both allocated loss adjustment expenses (ALAE) that are loss adjustment expenses identified by a claim file in the insurer’s records, such as attorney’s fees; and unallocated loss adjustment expenses (ULAE), which are operating expenses not identified by claim file, but functionally associated with settling losses, such as salaries of claims department.

Loss assessment coverage – Insurance responding to property or liability losses of a property owners association that are not covered by the association’s master policy. Assessments are made to unit owners, and loss assessment coverage provides coverage for those expenses.

Loss avoidance – A risk management technique whereby a situation or activity that may result in a loss for a firm is avoided or abandoned.

Loss control – Actions to reduce the frequency or severity of losses. Installing locks, burglar or fire alarms, and sprinkler systems are loss control techniques.

Loss control representative – Insurance company employees who perform loss control surveys or inspections and prepare written loss control reports outlining their findings. Also referred to as safety engineers.

Loss costs – Loss data that has been modified by insurance advisory organizations by necessary loss development, trending, and credibility processes in order to arrive at the statistical cost of losses to be used in establishing a premium rate.

Loss development – An actuarial method to detect and correct for consistent errors in estimating the amount of future loss payments or the procedure for adjusting incurred losses to reflect their future development and ultimate value. Loss development factors are developed actuarially and applied to current losses in order to predict what the ultimate cost of losses will be when the claims are closed.

Loss event – Any trigger for recovery under an insurance or reinsurance agreement. Examples include occurrence, claims made, death, or disability.

Loss expectancy – The underwriter’s calculation of probable maximum loss.

Loss experience – What the loss history has been on a particular line or book of business.

Loss exposure – A set of circumstances presenting the possibility of loss, whether or not the loss actually occurs.

Loss frequency – How often a loss occurs over a given space of time.

Loss history – The historical record of losses for a specific entity or group of entities.

Losses in excess of policy limits – A term that, when used in reinsurance agreements, refers to damages awarded by a court against an insurer in favor of the insured, due to the insurer’s having failed to settle a third party claim against the insured within the policy limits by reason of bad faith, fraud, or gross negligence. See Extra contractual obligations and Punitive damages.

Loss limit – Commonly used in financial institution bonds, a loss limit is the aggregate amount that will be paid out under the coverage during the policy term. Loss limits also may be used when insuring large property risks where the exposures are spread out geographically. In this type of situation, it is unlikely that all property would be damaged by a single occurrence. Therefore, the amount of insurance may be set at a loss limit per each covered occurrence.

Loss-of-income benefits – Payments made to the insured person to help replace income lost through disability.

Loss-of-income coverage - Policies which provide benefits to help replace an insured person’s income stopped by an illness or accident.

Loss of maintenance fees coverage – This coverage protects a condominium association against the loss of maintenance fees when occupancies have been interrupted or impaired by the occurrence of any insured peril. This is a form of business interruption insurance for the association. It assures continuous income while the building is untenantable.

Loss of use coverage - See Additional living expense coverage.

Loss payable clause – A property policy provision that, at the request of the named insured, stipulates that claims tied to losses of certain property will be paid to both the named insured and the party named in the subject clause.

Loss payout pattern – Losses often are paid over a period of years, especially in casualty lines of insurance. The payout pattern illustrates the way that claims are paid out from the time they are filed until they are closed.

Loss portfolio transfer – A form of financial reinsurance involving the transfer of loss obligations already incurred that, when ultimately paid, will exceed the consideration paid to the reinsurer for undertaking such obligations. The amount by which the transferred obligations exceed the consideration paid is the resultant increase to the cedant’s statutory surplus.

Loss prevention – Refers to engineering or inspection activities carried out to prevent losses in the workplace.

Loss ratio – The ratio of incurred losses including loss adjustment expenses to earned premiums. Loss ratios can be calculated on an accident year, calendar year, or underwriting year basis.

Loss ratio coverage—A form of stop loss reinsurance under which the reinsurer pays a portion of the claims represented by a loss ratio in excess of a specified loss ratio. For example, “20 percent in excess of 110 percent” will result in claims between 110 percent and 130 percent of premium being paid by the reinsurer.

Loss reserves – The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer’s balance sheet.

Loss runs – A company produced statement of what losses have been filed for a particular insurance policy during a particular time period. Such information may or may not include information on reserves and loss adjustment costs. Typically provision of such information is mandated by state law.

Loss severity – The cost of the loss; often combined with loss frequency. Some losses occur frequently and are less severe, while some losses occur rarely but are more severe. Fender benders have high frequency and low severity, while 9.0 magnitude earthquakes have low frequency but high severity.

Loss trending – A method to modify developed losses for changes that will occur in the future. Trend factors are used by rate makers to adjust past losses to more accurately reflect the loss experience expected to develop while the rates are being used.

Loss triangle – Used to show how losses develop, a loss triangle is a chart that lists losses by line and by year. It shows the value of each set of annual losses at the end of subsequent 12-month periods.

Lost policy release – A means whereby an insured may cancel a policy by signing a statement to the effect that, since his or her policy has been lost, he cannot return it to the insurer to effect cancellation, but still wishes to cancel the policy.


M&A – Mergers and acquisitions. Because directors are intimately involved in decisions relating to merger and acquisition transactions and because directors have to some extent an inherent conflict of interest in these transactions since their continuing position with the company may be jeopardized in the event the company is taken over, courts have imposed higher standards of care upon directors in M&A transactions than in other corporate contexts.

MCS-90 – This is the Endorsement for Motor Carrier Policies of Insurance for Public Liability under Sections 29 and 30 of the Motor Carrier Act of 1980. The endorsement assures that the trucker carries insurance to comply with the financial responsibility requirements of the act.

Maintenance bond – Guarantees that faulty work or defective materials charged to the bond principals will be corrected or replaced. A maintenance bond may be included among the terms of a performance bond.

Major Medical Expense Insurance – Policies especially designed to help offset the heavy medical expenses resulting from catastrophic or prolonged illness or injury. They provide benefit payments for 75-80 percent of all types of medical treatment by a physician above a certain amount first paid by the insured person and up to the maximum amount provided by the policy.

Malicious mischief – See Vandalism.

Malpractice – See Professional liability.

Managed Care – Systems designed to integrate the delivery and financing of health care of the highest possible quality at the lowest possible cost. In contrast to traditional fee for service arrangements, under managed care, health providers:

1. agree to negotiated payment levels for specified services to defined patient populations;

2. agree to more aggressive utilization and quality assurance review; and

3. assume financial risk leading to more severe restriction on patient choice to obtain services outside the network.

Managed Care Plans – A plan in which the insurer has contract with certain healthcare providers to provide care a reduced cost. Includes HMO and PPO plans.

Managing general agent (MGA) – An agent standing between an insurer and other agents. The MGA sells to retail agents, who then sell to the consumer. MGAs often are said to have the pen because they are given the authority to accept, underwrite, and price submissions received from retail agents.

Manual rate – The cost of insurance protection as quoted in the rating manual—the rate listed on the state rate pages in the Basic Manual for a given class code. These rates are usually determined on the basis of per $100 of payroll. The term may also refer to rates developed by the application of a recognized rating plan.

Manufacturers and contractors liability (M&C) – The premises and operations liability exposures of manufacturers and contractors covering third parties for bodily injury or property damage negligently inflicted in the course of daily activities.

Manufacturers output policy (MOP) – Policy originally designed to cover property of a manufacturer being processed at another company; it covers personal property away from the premises on an open perils basis.

Manufacturers selling price clause – Clause stating that finished goods are valued for insurance purposes at their selling price rather than their cost of manufacture.

Manuscript policy – An insurance policy covering property or liability exposures (or both) that is uniquely assembled from standard or specially created forms to suit the needs of an insured. Endorsements may be manuscripted as well.

Marijuana – Any Cannabis sativa plant with more than 0.3 percent of THC. Under some U.S. laws refers to the viable seeds, leaves and flowers of the cannabis plant. Marijuana is often used as a generic name for any parts of the cannabis plant.

Marine insurance – Insurance coverage primarily concerned with transportation exposures and property that is commonly moved around from place to place. In the United States, the field is divided between inland marine and ocean marine.

Marine syndicates – Groups of companies acting in common to insure certain ocean marine classes. Also, a term used to describe groups that make inspections and surveys and institute standards for the construction of vessels.

Maritime coverage – Crew members of vessels are subject to admiralty law and may sue their employers for work-related injuries because state workers compensation laws do not apply to them. Therefore, special coverage must be purchased for this exposure.

Market cycles – Market-wide fluctuations in the prevailing level of insurance and reinsurance premiums. A soft market, characterized by increased competition in which prices are depressed, is usually attributed to excess capacity (more sellers than buyers) and/or high interest rates. A hard market following a soft market is often triggered by a major catastrophe loss and/or a protracted period of operating losses.

Market value – The price at which insured property could have been sold just prior to its loss or damage. Along with cost new minus use deprecation, market value is but another gauge used to determine the loss settlement to which an insured is entitled. The insured may choose the gauge that produces the most favorable outcome.

Market value appraisal – An appraisal to determine the market value of a building and related personal property.

Mass merchandising – Plan for insuring individual members of a group, such as employees of firms or members of labor unions, under a single program of insurance at reduced premiums. Property and liability insurance is sold to individual members using group insurance marketing methods.

Matching – Ensuring that damaged property, once repaired, matches the property that was not damaged in the loss.

Material circumstances – Any circumstances that would influence the judgment of a prudent underwriter in determining whether to accept a risk and the amount of premium to change.

Material misrepresentation – Actions of an insured to provide false or misleading statements to the agent or insurer before coverage is placed. The discovery of material misrepresentation allows the carrier to void coverage if the carrier would not have provided coverage had the truth been told.

Material representation – A statement made to the underwriter before acceptance of risk that is material to the decision in accepting and rating the risk.

Maximum foreseeable loss (MFL) – A property underwriter’s estimate of the cost in the event of a total loss where all loss control systems (e.g., sprinklers and firewalls) fail. See Probable maximum loss (PML).

McCarran-Ferguson Act – Passed by Congress in 1945, this act states that regulation and taxation of insurance by the states is in the public interest and that congressional silence should not be construed as a barrier to state regulation.

Medical Expense Reimbursement Plana plan under which an employer reimburses employees for certain medical expenses; may be used in conjunction with other types of health insurance plans or policies.

Medical malpractice – Type of insurance protecting physicians, surgeons, nurses, and other medical practitioners against claims alleging failure to perform.

Medical payments coverage - A coverage found in auto and liability policies that pays medical expenses to injured persons without regard to liability.

Medicare – Is available for people age sixty-five or older, younger people with disabilities, and people with end-stage renal disease. Medicare has three primary parts. Part A is a hospital insurance plan. Part B is a voluntary medical insurance plan with a monthly premium. Part D is a prescription drug benefit.

Medigap – Private insurance that offers a standardized insurance policy with a range of supplemental coverage for those on Medicare.

Megafire – A wildfire that exceed 100,000 acres. This does not necessarily correlate to insured losses, however.

Mercantile risk – A term most often used in Property Insurance meaning a retail or wholesale risk as contrasted with a service risk, a manufacturing risk, or a habitational risk.

Merit rating – A form of auto rating in which an insured’s past experience as well as anticipated experience is taken into account when arriving at a rate.

Messenger robbery – Taking money or property from an employee away from the premises.

Mine subsidence coverage – An endorsement to a homeowners insurance policy, available in some states, for losses to a home caused by the land under a house sinking into a mine shaft. Excluded from standard homeowners policies, as are other forms of earth movement.

Minimum premium – An insurer’s lowest charge for an insurance policy.

Miscellaneous expenses – In connection with hospital insurance, hospital charges other than room and board; i.e., x-rays, drugs, laboratory fees, etc.

Misrepresentation – Generally, misstatement of facts made on an application for insurance. May also be misstatement of coverage made by an agent to an insured.

Mobile equipment – Included for coverage under the commercial general liability form, this term relates to land vehicles used in ways that take them out of an explicit automobile liability exposure (e.g., vehicles used only on the insured premises, to carry certain permanently attached equipment, that are not required to be registered, or are designed for solely for off-road use).

ModCo reserve adjustment – The net of two modified coinsurance items: the interest on reserves (payable by the cedant to the reinsurer) less the increase in reserves (payable to the cedant by the reinsurer).

Model bill – A bill drawn up for insurance regulatory purposes by the National Association of Insurance Commissioners with the recommendation that it be implemented by the states.

Modified coinsurance – Indemnity life reinsurance that differs from coinsurance only in that the reserves are returned to the cedant while the risk remains with the reinsurer; the cedant is required to pay interest to replace that which would have been earned by the reinsurer if it had held the assets corresponding to the reserves in its own investment portfolio. Originally devised to permit reserve credit to be taken with respect to a nonadmitted reinsurer, now also used to secure credit and retain control of investments. See Funds withheld, Coinsurance, and Assumption.

Money and securities (broad form) rider – A broad form of policy protecting against loss of money or securities. There is no coverage for losses caused by, among other things, employee infidelity.

Monitoring or coverage counsel – The legal counsel retained by the insurance company to represent the insurer’s interest in connection with a claim. Coverage or monitoring counsel are in addition to defense counsel selected by the insureds with the consent of the insurer. Among other things, coverage and monitoring counsel will assist the insurer in evaluating any coverage issues, monitoring developments in the claim, analyzing liability and damage exposures of the insureds, providing input to defense counsel where appropriate, and negotiating any settlement in the claim.

Monoline policy – An insurance policy covering one subject of insurance, as opposed to a combination or multiline policy.

Monopolistic state fund – Some states have their own system for providing reparations to injured employees eligible under the state’s workers compensation act. Private insurance companies may not compete. The states are North Dakota, Ohio, Washington, and Wyoming.

Moral hazard – As physical hazard relates to susceptibility to fire or wind, the term moral hazard relates to susceptibility to loss through moral lapse of the owner (e.g., burn the house down and collect from the insurance company before losing it in a foreclosure to the finance company).

Morale hazard – Addresses the issue of an apathetic insured (e.g., it’s insured, let it burn). Includes failure of an insured to maintain property in good condition; procrastinating roof repairs until a leak occurs, etc.

Morbidity – Term used for sickness. A morbidity table shows the average number of illnesses befalling a large group of persons.

Mortgageholders clause – A standard property policy provision that creates elements of a separate contract between a mortgage company and an insurance company. Any loss to building or structures will be paid to the mortgage company and insured jointly and any act of the insured voiding coverage will not affect the mortgage holder without it first being given an opportunity to comply with the insurer’s needs.

Moratorium – A moratorium is when carriers will put a stop on writing a certain type of business for a limited period of time, generally to avoid adverse selection. It is common when hurricanes approach; carriers will put a moratorium on writing new property coverages when a storm is named lasting until the storm passes and is downgraded. The carrier avoids a sudden influx of policies that are exposed to the approaching hazard that are likely to cancel the insurance after the hazard passes.

Motion for summary judgment – A motion filed by defendants that seeks a judgment in favor of the defendants based upon undisputed facts in the lawsuit. Motions for summary judgment are typically filed after the close of fact discovery. Because plaintiffs frequently can identify material facts that are in dispute, courts infrequently grant motions for summary judgment.

Motion to dismiss – A motion filed by defendants in a lawsuit that seeks dismissal of the lawsuit because the allegations in the complaint, even if true, would not support a claim upon which relief may be granted. A motion to dismiss is filed shortly after the lawsuit commences and the court looks only at the allegations in the complaint, not extraneous facts, to determine if a proper cause of action has been stated.

Motor Carrier Act of 1980 – A federal law that deregulated the United States trucking industry and transferred the enforcement of financial responsibility requirements for truckers to the Bureau of Motor Carrier Safety, U.S. Department of Transportation. Insurance is one method of complying with the financial responsibility requirements.

Motor truck cargo policy – Two forms of inland marine coverage are associated with this title, one for carriers and one for owners. As a carrier, the insured is protected for legal liability relating to property of others in the course of transport. As an owner, the insured is protected for in-transit damage to its own property.

Motor vehicle record (MVR) – An official record of a driver’s accidents and traffic violations kept by the licensing state(s). Often used to determine eligibility and/or premiums for auto insurance.

MSO – Mutual Service Office – Originally developed for small and mid-sized companies, a national service provider for mutual and stock companies. Provides statistical reports, product development, and support for modifying forms and rules.

Multiline era – During the first half of the twentieth century, insurers were licensed to write property insurance or liability insurance but not both. Two insurers were needed to write automobile liability and physical damage insurance, for example, in a contrivance called a combination policy. Not long after World War II, states began licensing insurers to write both forms of insurance introducing what was then called the multiline era.

Municipal bond insurance – Coverage that guarantees bondholders timely payment of interest and principal even if the issuer of the bonds defaults. Offered by insurance companies with high credit ratings, the coverage raises the credit rating of a municipality offering the bond to that of the insurance company. It allows a municipality to raise money at lower interest rates. A form of financial guarantee insurance. See Financial guarantee insurance.

Municipal Bond Insurance Association (MBIA) – A group of insurance companies that insure payment of principal and interest on certain bonds.

Mutual insurance company – A cooperative insurance company organized and owned by its insureds.

Mysterious disappearance – A named peril in some forms. Either theft or unexplained disappearance of covered property from a known location may activate coverage.


NOC – Underwriter’s shorthand derived from general liability and workers compensation rating tables that stands for not otherwise classified meaning no more specific classification is available—as in Clerical Office Employees NOC.

Name schedule bonds – A type of public official or fidelity bond that lists the specific names and amounts of each named individual bonded. Name schedule bonds use one bond but attach a schedule of individual names of the bonded public officials. Each name will list a specific dollar amount for which that individual is being bonded. These may be used to bond a panel of city council members or similar body of officials.

Named insured – The party or parties specifically named as insured in the insurance contract. Others may have claim on the coverage of a policy by way of internal provisions but any such right is by way of the agreement between the named insured and the insurance company.

Named nonowner policy – Issued to someone who does not own an automobile but who drives borrowed or rented autos.

Named perils – A formal and specific listing of perils covered in a policy providing property insurance. A policy covering for damage by fire is said to cover for the named peril of fire. If the peril is not named, there is no coverage.

Named schedule bond – A fidelity bond that covers persons listed or scheduled on the bond.

National Association of Independent Insurers (NAII) – An advisory organization and statistical agent for insurers with a membership including hundreds of casualty and surety companies of all types throughout the U.S.

National Association of Insurance Commissioners (NAIC) – An association of insurance commissioners and superintendents formed to share information and develop common laws and procedures for insurance regulatory purposes.

National Association of Insurance Women (NAIW) – An international association of women (and men) in the insurance industry. NAIW offers the designations of Certified Professional Insurance Woman (CPIW) or Man (CPIM).

National Association of Professional Surplus Lines Offices (NAPSLO) – Trade association of and providing services to surplus and excess lines agents and brokers. Merged with the American Association of Managing General Agents (AAMGA) to become the Wholesale & Specialty Insurance Association (WSIA) in August of 2017.

National Council on Compensation Insurance (NCCI) – National association that collects, tabulates, and provides data used in formulating rates for workers compensation insurance.

National Flood Insurance Program (NFIP) – A federal program through which persons with property located in predefined flood plains can obtain flood coverage. See Flood insurance.

National Insurance Crime Bureau (NICB) – Non-profit organization dedicated to investigating insurance fraud and crime. Works with insurance carriers, law enforcement agencies and representatives of the public to prevent and fight insurance fraud and crime.

Nationwide Definition of Marine Insurance – A document published by the National Association of Insurance Commissioners that was rooted in an older (1933) definition of Insuring Powers of Marine and Transportation Underwriters. In general, the definition specifies property that may be insured under marine contracts such as property in inland transport and property regularly or routinely in transit, for example, contractors equipment.

Negligence – Action or failure to act that is outside the realm of what would be considered appropriate by ordinary, reasonably prudent persons.

Net income – The total after-tax earnings generated from operations and realized capital gains as reported in the company’s NAIC annual statement page.

Net line – The maximum limit an insurer or reinsurer is willing to accept after taking credit for reinsurance coverage. Such limits are usually expressed per insured, per line of insurance, etc. See Gross line.

Net loss – The amount of a loss, after deductions for salvage, other insurance, and any subrogation, that an insurer is responsible for.

Net premium – Premium less expense, such as commission.

New York Standard Fire Policy – Once the benchmark of property policies, it was adopted for use in all but a handful of states. The familiar provisions of its 165-numbered-lines survive in Insurance Service Office property policies as well as in independently produced forms.

Newly constructed or acquired property – An extension of coverage within a multiperil policy to new property purchased or added by the Named Insured. Normally such an extension has a value limit and a time period during which the Named Insured is expected to report the additional property and pay the appropriate premium.

No benefit to bailee – A clause in inland marine forms that prevents a person in the possession of property of others from benefiting from any insurance the owner has on the property.

No-fault auto insurance – A few states have laws that partially exempt drivers from legal liability for auto accidents. In these no fault states car owners buy insurance to protect themselves and their passengers from the economic and medical effects of auto accidents in addition to liability insurance at whatever limit the statute decrees. Professors Robert Keeton and Jeffrey O’Connell gave the no fault notion impetus with the 1967 publication of their study “After Cars Crash.”

No loss letter – A letter signed by the insured stating that there have been no losses between the time the policy expired/was cancelled and the date of the reinstatement of the policy. Required by carriers before a reinstatement of a cancelled policy will be considered.

Nonadmitted assets – Assets that are not included on the balance sheet, including furniture, fixtures, past-due accounts receivable, and agents’ debt balances. See Assets.

Nonadmitted insurers – See Excess or surplus lines market.

Non-cancelable or non-cancelable and guaranteed renewable policy – A policy which the insured has the right to continue in force by the timely payment of premiums set forth in the policy to a specified age, during which period the insurer has no right to make unilaterally any change in any provision of the policy while the policy is in force.

Nonconcurrency – The situation that exists when a number of insurance policies intended to cover the same property against the same hazards are not identical as to the extent of coverage. Nonconcurrency usually results in an insured not being fully covered for a loss. Modern forms have minimized the problem of nonconcurrency.

Non-disabling injury – An injury which does not hamper the insured person from performing his occupational duties.

Noneconomic damages – Pain, suffering, inconvenience, loss of consortium, physical impairment, disfigurement, and other nonpecuniary damages.

Non-occupational policy – A contract which insures a person against off-the-job accident or sickness.

Nonowned auto – This term signifies an auto that is neither owned, hired, nor borrowed by the insured under a commercial auto policy. Employees’ cars used in company business are commonly classified this way. In a personal auto policy under the physical damage section, a nonowned auto is a private passenger auto, pickup, van or trailer not owned by or furnished or available for the regular use of the insured or family members, or any auto or trailer used as a temporary substitute for the covered auto that is out of use due to breakdown, repair, servicing, loss or destruction.

Non-profit insurers – Corporations organized under special state laws to provide hospital, medical, or dental insurance on a non-profit basis.

Nonrenewal clause – Provision in a policy that states the circumstances under which an insurer may elect not to renew someone’s policy.

Nonresident agent – An agent who does not reside in the state in which he or she is licensed.

Non-standard – An insurer or policy designed for less desirable risks; premiums are generally higher and fewer coverages are offered.

Nonwaiver – An agreement between an insured and an insurer that a claim defense is being undertaken but without agreement that coverage is due. Usually the insured gives up some rights in exchange for the insurer undertaking the defense.

Normal course of transit – The orderly transit of merchandise from the point of origin to the final destination without interruptions or delays resulting from the action or inaction of any party at interest.

Nose coverage – This is the opposite of tail coverage, although it fulfills the same need. Nose coverage most commonly provides prior acts coverage for insureds who are moving from a claims-made coverage form to an occurrence coverage form. It is provided by the replacement policy.

Notice of circumstances – A notice by the insureds to the insurer of facts or circumstances that may reasonably give rise to a future claim. D&O, EPL, fiduciary and similar insurance policies typically provide that if the insureds give such notice to the insurer during the policy period with sufficient detail regarding the facts, circumstances and potential claim, then any future claim arising out of the matters described within that notice will be treated for coverage purposes as a claim made during the policy period and therefore subject to the coverage afforded by that policy.

Notice of loss – Notice the insured provides to the insurer that a loss has occurred.

Nuclear energy insurance pools – Any of the insurance pools designed to provide property and/or liability coverage for organizations that handle substantial quantities of nuclear material.

Nuisance value – The amount for which an insurance company will settle a claim—not because it is a valid claim but because the company considers it worth that amount to dispose of it.

Nullification – The act of declaring an insurance contract invalid from its inception so that, from a legal standpoint, the insurance contract never existed.


Object – See Boiler & machinery insurance.

Obligee – A term used in surety bonds to refer to the individual or firm that is to benefit from the bond’s protection. A performance bond, for example, provides the obligee property owner with recourse if the bonded contractor, the principal, fails to perform.

Obligor – A term used in surety bonds to refer to the individual or firm bound by an obligation. Also known as the principal.

Obsolescence – When something is no longer useful or has any value.

Occupancy – In general, a condition affecting the desirability of property policies. Properties that are unoccupied are more susceptible to theft, vandalism, and other losses. A property that is unoccupied has furnishings, appliances etc., just no human occupants.

Occupational Safety and Health Act (OSHA) - Passed in 1970, this law promulgated strict work-safety regulations, and set up the mechanism to enforce these rules through fines for violations and closure of unsafe plants.

Occurrence – In general, an event that triggers coverage under any policy; generally unexpected and unintended. Specifically, an event that triggers coverage under an occurrence-based liability policy. Such a policy covers injury or damage that occurs during the policy period even if claim is brought months or even years after the policy has expired. See Claims-made for the alternate arrangement. Also see Accident. Often defined in policy language as an accident, including continuous or repeated exposure to the same general harmful conditions that result in bodily injury or property damage.

Occurrence basis – A form of reinsurance under which the date of the loss event is deemed to be the date of the occurrence, regardless of when reported. See Claims-made basis.

Occurrence coverage – Same as occurrence basis; refers to a type of insurance coverage that insures occurrences taking place during the policy period, regardless when the claim arising out of the occurrence is first made. This coverage is in contrast to claims made coverage, which insures claims first made during the policy period, regardless when the alleged wrongdoing occurred.

Ocean marine – Insurance coverage for vessels and property in ocean shipping. River marine is the term referring to coverage for inland shipments on water. Motor truck cargo refers to coverage for property transported over highways.

Off premises cover – Commercial property policies commonly establish a small coverage limit that applies to property temporarily away from the insured’s place of business.

Offset clause – A provision in reinsurance agreements that permits each party to net amounts due against those payable before making payment; especially important in the event of insolvency of one party that ceases to remit amounts due to the other. This clause is often challenged by state insurance departments, creditors, and others interested in maximizing the assets of the insolvent party.

Older age or senior citizen policies – Contracts which are issued beyond the normal insuring age of sixty or over.

Omnibus clause – An agreement in most automobile liability policies and some others that extends the definition to include others without needing to name them. An example would be a policy that covers the named insured and those residing with him.

Open perils – Property coverage that applies to risks of loss on a general basis, in contrast with policies that cover for specifically identified perils. See Named perils. The old term for open perils was all risks. In an open perils policy, unless the peril/cause of loss is specifically excluded, coverage exits.

Open rating – A state rating system that allows the insurer to use rates without prior approval. Also referred to as open competition.

Operating ratio – The sum of the combined ratio plus investment income.

Optionally-renewable policies – Health insurance policies which are renewable at the option of the company.

Order of payments – Refers to a provision that may be included in a D&O policy affording coverage for securities claims against the insured company. Under that type of policy, directors and officers may be concerned that their coverage will be diluted or exhausted by coverage for claims against the company, thereby leaving the directors and officers under-insured or uninsured. An order of payments provision generally states that directors and officers will have first priority to the insurance policy proceeds and the insurance company will, at the request of the insured company, postpone any payment of loss incurred by the entity until after all loss incurred by directors and officers has been paid.

Ordinance or law coverage – This insurance responds to property loss or damage necessitating repair, demolition, or rebuilding in accordance with current building codes.

Ordinary payroll – Payroll allotted to employees whose services could be curtailed in event of a long term shutdown of a business without a harmful effect on reopening. This figure is important in calculating business income insurance exposures.

Other than collision insurance (automobile) – See Comprehensive physical damage (automobile). Covers losses such as lightning, animals, fire, theft, etc.

Other insurance clause – When two or more policies cover the same interests for the same exposures, each policy is said to represent other insurance to the other. Most insurance policies contain clauses that specify how or if claims will be paid if other insurance exists for the same exposures.

Other structure – A building that is not a dwelling that is on the dwelling property. Other structures includes swimming pools, swing sets, barbecue pits, gazebos, and other structures. A structure is something that is built, and does not necessarily have four walls and a roof.

Outer Continental Shelf Lands Act – This act makes the Longshore and Harbor Workers Compensation Act apply to work involving the development of the natural resources of the outer continental shelf. A special endorsement, the Outer Continental Shelf Lands Act Coverage Endorsement, amends workers compensation policies to provide coverage for this exposure.

Outside Positions or Outside Directorship or ODL Coverage – An extension of coverage available from most D&O insurers for claims against directors and officers in their capacity as a director, officer or employee of another organization if the director or officer is serving in that outside position at the request of the insured company. Depending upon the specific provision purchased, this extension of coverage may apply to any outside position held by any insured director or officer, to only outside positions in non-profit entities, or to only outside positions in specifically scheduled outside entities. Outside position coverage typically applies only to the extent the director’s or officer’s loss is in excess of any insurance and indemnification available from the outside entity (i.e., double excess). Depending upon the ODL provision, the coverage may also be in excess of any indemnification available from the insured company (i.e., triple excess).

Overflow – When water exceeds the boundaries of where it is being held, such as a tub, a basin, a lake.

Overhead and profit – Costs involved in doing business such as office staff, rent, supplies, equipment; job-related overhead is building permits, fees, inspections, utility hook-up charges, blueprints, surveys, and other such tasks. Profit is positive return on investment. Overhead and profit become an issue in replacement cost settlement of property losses.

Overline – An inadvertent reinsurance acceptance that results in a reinsurer committing more capacity on a single risk than its intended exposure.

Owners and contractors protective (OCP) liability coverage form – Provides coverage for the liability of an owner of land on which a building is being constructed for the acts of the contractor handling the construction.

Owners, landlords, and tenants legal liability (OL&T) – See Premises and operations liability.

Ownership of expirations – Refers to the ability of an independent agent to place a risk with any of the companies that he or she represents. Unless that customer goes to another agent, the current agent owns the policy and the right to place it as he or she sees fit.


PD – A shorthand expression for property damage.

P&P litigation exclusion (pending or prior) – The exclusion in most D&O, EPL, fiduciary and similar insurance policies that eliminates coverage for any claim made during the policy period, which relates to any claim pending on or prior to the inception of the policy (or some other designated date) or the facts, circumstances, or situations underlying or alleged in any such prior litigation. This pending and prior or P&P litigation exclusion may, depending upon the specific policy language, apply only to prior litigation against the insureds or to prior litigation against anyone. Similarly, the exclusion may apply only to prior litigation or also to prior proceedings and demands.

Package policy – Any combination of insuring agreements that combines property and casualty coverages. Homeowners, businessowners, and garage policies are examples.

Padding – Padding is found when injuries or damages are exaggerated to increase a claim’s value. It is what has been called “an insidious type of fraud difficult to detect and often considered harmless by insureds, claimants, police, and prosecutors.”

Paid losses – The losses that have been paid for a claim.

Pair and set clause – Clause that stipulates that partial loss to a pair or set of items will be valued in terms of the lost item, not on the basis of reduced value of the pair or set.

Pandemic - An outbreak of disease that occurs over a broad area of the world; it is not limited to one city, town, or even country. It is widespread and affects affects an exceptionally high proportion of the population.

Paper property – When property exists only on paper, either due to the property being returned to the store or the documentation being faked from the beginning.

Parametric insurance – Also referred to as index based insurance. This type of coverage pays out a set amount upon the occurrence of a triggering event. It is often used for hurricanes, earthquakes and similar catastrophic losses. It avoids lengthy claims procedures since once an event is triggered the set amount is paid, and there are no disputes.

Partial disability – An illness or injury which prevents an insured person from performing one or more of his occupational duties.

Partial loss – A property loss that is less than a total loss. See Constructive total loss.

Participating or pro rata reinsurance – Includes quota share, first surplus, second surplus, and all other sharing forms of reinsurance under which the reinsurer participates pro rata in all losses and in all premiums.

Particular average – A loss that falls on the particular property insured, as opposed to a general average, which is a loss for the account of all interests. See also Average and General average.

Partnership – A business model in which two or more individuals join together to conduct business and share profit and losses. Commercial insurance policies usually differentiate in the Who Is Insured section among corporations, partnerships, and other business models. Therefore, the type of model being insured is important.

Past posting - When person attempts to acquire insurance after an incident has happened, and then making it look like they had insurance at the time of the incident. This is often seen in auto accidents, where an uninsured driver will apply for a policy online immediately after an accident, and when reporting the accident to the insurer they change the date/time of the incident to be after they acquired the policy.

Pay-at-the-pump – A device for making sure all motorists are insured; the theory being that premiums for basic liability coverage could be collected through taxes at the gasoline pump in a relatively painless manner, thus eliminating the uninsured motorist.

Payment bond – Sometimes also called a labor and materials bond, this bond guarantees that bills owed by the contractor will be paid as they come due. The agreement may be incorporated into the performance bond.

Payroll audit – An examination of the insured’s payroll records by a representative of the insurer to determine the premium due on a policy for which payroll is the basis.

Peak season endorsement – Instead of buying insurance amounts reflecting values at the height of inventory, some enterprises are able to forecast times when values will be at their peak and use this endorsement to increase the amount of insurance during that specific interval.

Pen, The – See Managing general agent (MGA).

Per diem business interruption – A type of business interruption policy that provides a stated amount to be paid for each day that the business is interrupted due to an insured peril.

Per occurrence/per loss excess reinsurance treaty – An agreement under which losses above a certain dollar amount are ceded to the reinsurer, who is responsible for all losses from any one exposure above this amount up to the reinsurance limit. The retention is expressed as an amount incurred per occurrence. An occurrence may be one hurricane, one flood, or one accident that results in injuries to multiple people.

Per risk excess reinsurance treaty – Similar to a per occurrence/per loss excess treaty except in the matter of the retention. Retention and amount of reinsurance apply “per risk” rather than on a per accident or event or aggregate basis.

Performance bond – A bond that guarantees the property owner (the obligee) that the contractor with the winning bid on a job will perform as promised and on time.

Peril – A potential cause of loss.

Perils of the sea – Somewhat akin to open perils on land, the term refers to any potential cause of loss derived from shipment on a seagoing vessel.

Period of restoration – The period of time following a loss that is necessary to restore a business or organization to a preloss condition.

Permit bond – A bond that guarantees a person who has been issued a permit will comply with any laws and ordinances in which the permit was issued.

Personal articles floater – Before the advent of packaged forms and broad coverages, households commonly had fire insurance on dwelling and personal property with the possible addition of extended coverage. The personal articles floater is an inland marine form that was used by the affluent for scheduling open perils coverage for various articles and classes of valuable personal property. A homeowners endorsement accomplishes the same thing today and the personal articles floater is no longer widely written.

Personal auto policy – The form currently promulgated by Insurance Services Office (ISO) for coverage of personal auto liability and physical damage exposures.

Personal effects – The property of an individual covered by the policy in question. Normally refers to items such as clothing, furniture, and jewelry.

Personal injury – Distinguished from bodily injury, this term relates to injury inflicted by way of false arrest, invasion of privacy, malicious prosecution, and so on. It is written as Coverage B of the commercial general liability forms and as homeowners Coverage E.

Personal injury protection (PIP) – The section of an auto policy in a no-fault state that responds to the injuries of the insured such as physical injury or loss of income of the insured regardless of fault.

Personal liability insurance coverage – Insurance for individuals or members of a household offering protection against claims by third parties (outsiders) alleging bodily injury or property damage due to negligence. See also Premises medical payments. Generally party of the homeowners, tenants or unit owners policy.

Personal lines – Insurance covering the liability and property damage exposures of private individuals and their households. Contrast with Commercial lines.

Personal property – Term used in insurance to distinguish chattels from real property.

Personal property floater – A broad policy covering all personal property worldwide, including insured’s domicile.

Per risk excess reinsurance – Retention and amount of reinsurance apply “per risk” rather than on a per accident or event or aggregate basis.

Phantom driver – When an insured hits an object but reports it to the carrier as a hit and run by a phantom vehicle; the insured has little description of the vehicle and there are never any witnesses.

Phishing – The fraudulent practice of sending emails purporting to be from reputable companies in order to induce individuals to reveal personal information, such as passwords and credit card numbers.

Physical damage – Damage to or loss of the auto resulting from collision, fire, theft, or other perils.

Physical hazard – A hazard that arises from the material, structural, or operational features of the risk itself apart from the persons owning or managing it.

Physicians and surgeons professional liability insurance – See Professional liability.

Pilferage – Petty theft, especially theft of articles in less than package lots.

Plate glass coverage – Provides special protection, except for the perils of war, nuclear reaction, and fire. This coverage is for full replacement cost and covers the expense of repairing frames, installing temporary plates, or boarding up openings.

Policy expense allowance – An amount payable to the cedant by the reinsurer in lieu of actual commissions and expenses incurred by the cedant.

Policy year – Unique to the insurance business, this is a means of cost accumulation in which the aggregate transactions of all policies becoming effective in a given year determine the financial performance of those policies.

Policyholder – See Insured.

Policyholders’ surplus – The amount of money available to an insurer to meet its obligations to its policyholders, after subtracting liabilities.

Political risk insurance – Coverage for businesses operating abroad against loss due to political upheaval such as war, revolution, or confiscation of property.

Pollutant cleanup and removal – An aggregate first party coverage that applies to the insured’s expense in extracting pollutants from land or water at the insured’s location if the release of the pollutants is caused by or results from a covered loss.

Pollution exclusion – Standard general liability policies include an exclusion for loss arising out of pollution. For certain exposures this exclusion may be modified, e.g., sudden and accidental pollution arising from a fire.

Pollution liability insurance – Coverage for bodily injury or property damage caused by a pollution incident. Insurance Services Office has two forms, one limited to on-site cleanup of pollution spills.

Pool – An organization in which insurers cover certain types of risks as a group and share premiums, expenses, and losses. Pools are often used to underwrite larger risks.

Portfolio – All of an insurer’s in-force policies and outstanding losses, respecting described segments of its business.

Portfolio reinsurance – In transactions of reinsurance, it refers to all the risks of the reinsurance transaction. For example, if one company reinsures all of another’s outstanding automobile business, the reinsuring company is said to assume the portfolio of automobile business and it is paid the total of the unearned premium on all the risks so reinsured (less some agreed commission).

Portfolio runoff – A form of reinsurance under which the in-force business is reinsured to the subsequent anniversaries of the underlying policies, often accomplished by ceding the unearned premium reserve on such business.

Position schedule bonds – A type of fidelity or public official bond, which lists specific positions and their corresponding penalty amounts. Position schedule bonds use one bond but attach a schedule of positions to be bonded. Each name will list a specific dollar amount for which that individual is being bonded. This type of bond may be used to bond certain positions that have a high amount of turnover. Using a position instead of a name will reduce the paperwork involved year-to-year.

Positional risk doctrine – A legal theory related to workers compensation statutory provisions. It infers that an employee’s injury arose out of his employment if the injury would not have occurred but for the fact that the employment placed the employee in a position to be injured by a neutral force, even though the force may not have been distinctly associated with the employment.

Power-of-attorney – Commonly used in bonding, this document conveys authority for the individual(s) named on it to execute bonds and other legal documents.

Pre-existing condition – A physical condition of an insured person which existed prior to the issuance of his policy.

Preferred Provider Organization (PPO) – An organization of health care providers and/or facilities that offers a discount on services to members of the PPO.

Premises – Generally, a piece of land with a building or buildings upon it.

Premises and operations liability – Once known as owners, landlords, and tenants legal liability, or as manufacturers and contractors liability, depending on the business’s activity, the term refers to the liability exposure of business entities to third parties (customers, guests, and passers by) who may become injured or have property damaged through the negligent acts of the business persons, their agents, or employees. Coverage of this exposure is by way of the commercial general liability policy. Contrast with Products and completed operations liability.

Premises and operations medical payments – Bodily injury rather than liability is the trigger for this coverage. Sometimes referred to as customer good will insurance, it is a relatively inexpensive addition to the commercial general liability policy and an automatic feature of personal liability protection. Since it responds to injury of customers or guests without regard to fault, it is sometimes effective in heading off a potentially much more serious liability claim against the owner or tenant of the business premises or private residence.

Premium – The amount of money the insured pays the insurer to purchase insurance.

Premium (written/unearned/earned) – Written premium is premium registered on the books of an insurer or reinsurer at the time a policy is issued and paid for. Premium for a future exposure period is said to be unearned premium. For an individual policy, written premium minus unearned premium equals earned premium. Earned premium is income for the accounting period, while unearned premium will be income in a future accounting period.

Premium auditor – A person who examines a liability insurance policyholder’s insurance records (e.g. sales or payroll) at the end of the policy term to determine if the basis for the premium charge has either increased or decreased.

Premium and dispersion credit – A method of allowing certain credits to large commercial property risks with two or more locations. These credits are based on the fact that there are several locations that are dispersed and, therefore, represent a reduced hazard. Efficiency of management in loss prevention, plus expense savings in handling large amounts of insurance under one policy are also considered.

Premium tax – A tax, imposed by each state, on the premium income of insurers doing business in the state.

Premium to surplus ratio – An insurance company’s surplus, the equivalent of capital and retained earnings or net worth for a manufacturing company, is the amount by which assets exceed liabilities. It provides a cushion for absorbing above-average losses. The premium to surplus ratio is designed to measure the adequacy of this cushion or the company’s financial strength. The ratio is computed by dividing net premiums written by the surplus. A company that has $2 in net premiums written for every $1 of surplus has a 2-to-1 premium to surplus ratio. The lower the ratio, the greater the company’s financial strength. State regulators have established as a guideline a premium to surplus ratio no higher than 3 to 1.

Pressure vessel – In boiler and machinery insurance, a type of container designed to hold liquids or gasses under pressure. Types are categorized as fired (such as a boiler) and unfired (such as an oxygen or hydrogen tank).

Presumptive indemnification – A provision in most D&O insurance policies that applies the deductible under Insuring Agreement B (i.e., coverage for the company to the extent the company indemnifies directors and officers) to any loss for which the company is legally permitted and financially able to indemnify, regardless whether the company actually grants the indemnification. Absent this type of provision, the insured company could simply fail or refuse to indemnify directors and officers (even though the company is legally permitted and financially able to provide the indemnification), thereby causing the loss to be covered under Insuring Agreement A, which typically has a zero deductible. In order to prevent the insured company from avoiding payment of the much larger deductible applicable to Insuring Agreement B, this provision applies the larger deductible if the company can indemnify, whether or not it actually does indemnify. Thus, in order to avoid the directors and officers having to personally fund the large Insuring Agreement B deductible, the insured company must indemnify the directors and officers when it can. If an EPL, fiduciary, or similar policy has different deductibles for indemnifiable and nonindemnifiable loss, those policies may also have a presumptive indemnification provision.

Price-Anderson Act of 1957 – Federal law that requires evidence of financial responsibility for all privately owned nuclear reactors, spent fuel reprocessing plants, and for fuel fabrication plants licensed to process five or more kilograms of plutonium.

Primary insurance – The first policy or coverage to apply. Contrast with Excess insurance.

Principal – Used in suretyship, it refers to the individual whose performance is guaranteed.

Principal sum – A lump sum payment under a policy upon the insured person’s accidental death, dismemberment, or loss of sight.

Prior approval – Indicates that an insurer must have rate or form changes formally approved by the state insurance department before it can use them.

Private passenger automobile – A four wheeled motor vehicle, subject to state registration laws, designed to carry passengers (such as a car, station wagon, SUV, or van) on public roads.

Pro rata cancellation – See Cancellation.

Proration – The modification of policy benefits because of a change in the insured person’s occupation or the existence of other insurance.

Probable maximum loss – The maximum amount of loss that one would expect under ordinary circumstances, such as fire departments responding or sprinklers working. Used in underwriting and in determining reinsurance limits.

Producer – A term identifying the insurance agent, field rep, or other employee who sells insurance.

Product recall coverage - Coverage for the costs of recalling a product known, or suspected to be, defective. Often added to or in conjunction with CGL policies.

Products liability – The liability for bodily injury or property damage incurred by a merchant or manufacturer as a consequence of some defect in the product sold or manufactured or the liability incurred by a contractor after he has completed a job as a result of improperly performed work. The latter described part of products liability is called completed operations.

Products and completed operations liability – The liability exposure of the manufacturer whose malfunctioning products may cause injury or property damage or of the contractor whose failed structures or projects may do the same. Coverage of the exposure is a feature of the commercial general liability policy. The insurance does not in any way constitute a guarantee of either the insured’s product or work. Contrast with Premises and operations liability.

Professional Insurance Agents (PIA) – Trade association of insurance agents.

Professional liability – A form of errors and omissions insurance, (sometimes called malpractice coverage for errors alleged against those in the healing and legal professions). Arbitrarily it seems, errors and omissions is the term applied most often to insurance covering liability for mistakes in matters affecting property, for example, coverage for insurance agents E&O, architects E&O—while professional liability is used in reference to coverages such as druggists professional liability, physicians and surgeons professional liability, and lawyers professional liability.

Professional reinsurer – A term used to designate a company whose business is confined solely to reinsurance and the peripheral services offered by a reinsurer to its customers as opposed to primary insurers who exchange reinsurance or operate reinsurance departments as adjuncts to their basic business of primary insurance. The majority of professional reinsurers provide complete reinsurance and service at one source directly to the ceding company.

Profit commission – A provision found in some reinsurance agreements that provides for profit sharing. Parties agree to a formula for calculating profit, an allowance for the reinsurer’s expenses, and the cedant’s share of such profit after expenses. See Adjustable Features, Risk Charge, and Experience Refund.

Promulgate – To develop, file, publish, and put into effect insurance rates or forms.

Proof of loss – Following a loss, a formal statement given by an insured to the insurer that includes details of the loss such as the original cost of damaged or destroyed property.

Proof of mailing – Often required by states for cancellation or nonrenewal notices. It could be a manifest from the post office or certified mailing receipts.

Property damage coverage – An insurance policy that pays for damage caused to the property of others, including cars, as a result of a motor vehicle accident. Property damage coverage is often mandatory.

Property insurance loss register (PILR) – A computerized record of all fire losses over $500 established by the American Insurance Association (AIA). The PILR enables companies to determine undisclosed duplicate insurance coverage and patterns of losses on submitted risks.

Pro rata or proportional reinsurance – A certain portion of every risk is ceded under a proportional agreement. The insurer and reinsurer agree to share a portion of all insurance, premium, and losses in the same amount. The insurer is paid a commission for ceding the risk portion and premium to the reinsurer.

Prospect – A potential buyer of an insurance policy or program. One such reinsurance agreement is quota share, in which the same percentage applies to all policies reinsured. Another is surplus share, in which the percentage may vary from policy to policy and usually increases as policy limits increase.

Prospectus – The disclosure document prepared and distributed by a company in connection with its offer to sell securities. The 1933 Act broadly defines the term to include any notice, circular, advertisement, letter or communication, whether written or by radio or television, which offers any security for sale. The prospectus may not contain any false or misleading information regarding the securities or the offering. In private placements of securities (i.e., securities offerings that are exempt from registration with the SEC), this disclosure document is frequently referred to as an “offering memorandum” or “offering circular.”

Protection and indemnity (P&I) insurance – The nautical equivalent of bodily injury and property damage liability.

Protection class – The grading of fire protection, developed by ISO  for a given area. The protection class ranges from 1 to 10, with 1 having the greatest fire protection and 10 having no fire protection.

Provider excess of loss – Reinsurance for providers of health care services under capitation contracts, e.g., coverage limiting financial risk of health care providers for individual patients if the cost of care exceeds a predetermined limit.

PSLRA – The Private Securities Litigation Reform Act of 1995. The statute, which applies to securities class actions filed after December 22, 1995, sought to reduce abusive litigation practices by plaintiff lawyers, creates a defensive “safeharbor” for forward-looking statements, and seeks to encourage early dismissal by courts of meritless lawsuits by standardizing the pleading requirements and staying discovery until after a ruling on a motion to dismiss. Initial experiences since enactment of the legislation ironically suggests that the frequency and severity of federal securities class action lawsuits have increased under the PSLRA.

Proximate cause – That event that, in an unbroken sequence, results in direct physical loss under an insurance policy. For example, wind is the proximate cause of loss when a windstorm blows out a window that in turn topples a lit candle that sets fire to a structure and burns it down.

Public adjuster – An individual or member of a firm who contracts with private parties to aid with the preparation of loss statements and presentation to insurers. Contrast with Independent adjuster.

Public liability insurance – Any liability coverage for claims brought against the insured by a third party or member of the public.

Public official bond – A performance bond for holders of public office.

Punitive damages – An award for damages above and beyond the requirements for compensating third parties for injury or damage. As the word implies, the award is meant to punish the offender. Most states and territories do not permit punitive damages awards to be covered by liability insurance. When the award is against an insurer, it is usually related to the conduct of the insurer in the handling of a claim, and can arise in both first party and third party coverage situations.

Purchasing group – An entity that offers insurance to groups of similar businesses with similar exposures to risk.

Pure risk – The only consideration is the possibility of loss or no loss but not making a profit. Contrast with Speculative risk.

Pyrocumulonimbus event- Thunderstorms generated by intense wildfires that inject aerosols into the atmosphere on par with volcanic eruptions. The impact the particles may have on weather, atmosphere and the ozone level is unclear. PyroCb clouds require both very large and intensely hot fires and thunderstorm-enabling conditions, including moisture, several kilometers up in the atmosphere. (


Qualifying event – An event that allows an insured to change the terms of his or her coverage outside of the normal open enrollment period. Examples include the birth of child, a marriage, or a divorce.

Quota share reinsurance – A type of pro rata or proportional reinsurance agreement under which the insurer and reinsurer agree to share a predetermined portion of all insurance, premium, and losses. The primary insurer’s retention in a quota share agreement is expressed as a percentage of the amount insured.

Quote – An estimate of the cost of insurance based on information supplied to the insurance company by the applicant.


Railroad protective liability – Liability coverage designed to protect a railroad from liability claims arising out of the operations of others on or adjacent to railroad property.

Rain insurance coverage- A weather coverage that indemnifies a promoter or organizer against loss of income because of the cancellation of an outdoor event due to rainfall that exceeds a specified amount during a specified time period. Also considered as events coverage.

Ransomware – A type of malware that encrypts the data of the victim so that it is inaccessible until the victim pays a ransom to the hacker.

Rate – The premium rate is the amount of premium charged per exposure unit, e.g., per $1,000.

Rate evasion – The practice of claiming to live in an area with lower rates in order to avoid paying the higher rates in the area the insured actually lives in. Any attempt to avoid paying the correct, higher rates for coverage. Also known as rate jumping.

Rate filing – Documentation filed by an insurer with the state requesting a change in the existing rates.

Rate on line – A percentage arrived at by dividing reinsurance premium by reinsurance limit; the inverse is known as the payback or amortization period. For example, a $10 million catastrophe cover with a premium of $2 million would have a rate on line of 20 percent and a payback period of five years.

Rate regulation – The process by which states monitor insurance companies’ rate changes, done either through prior approval or open competition models.

Rating bureau – A private organization that classifies and promulgates manual rates (or loss costs).

Ratemaking – The statistical process by which insurers determine risks and pricing for the basic classes of insurance.

Real property – Land, buildings, and other structures (such as a swimming pool or tool shed).

Reasonably prudent person standard – Standard that compares one’s actions to what a reasonable prudent person would do in a similar situation. For example, a reasonably prudent employer would ensure that the premises was safe and free from unsafe working conditions, or a reasonably prudent person would mop up spilled water on the floor.

Rebate – In insurance, a portion of an agent’s commission returned to a customer as an inducement to place the insurance through the agent. This practice is illegal in most jurisdictions as against public policy.

Recapture – The process by which the cedant recovers the liabilities transferred to a reinsurer.

Receiving room coverage – As described under bailee’s coverage and bailee, this is a form of coverage to protect the insured against claims alleging loss or damage to property belonging to others but temporarily in custody of the insured. Within associations this may be dry cleaning left in a receiving room or a package left with a doorman.

Recipient location – A location that accepts the insured’s products or services. One of the four types of dependent properties for which business income coverage may be written.

Reciprocal exchange – A type of insurance managed by an attorney-in-fact in which members pay premiums and share in losses equally. Membership is required for insurance.

Reckless disregard – Reckless disregard can be defined as stating something as a fact that the insured has no reliable knowledge about. The insured may state the sofa was worth $2,000 with having any true knowledge of its value. Reckless disregard ignores any potential consequences of stating a falsehood. If, on the other hand, the insured makes an innocent overestimate, the policy will not be void.

Reclamation bonds – A bond that guarantees that an institution will restore land that it has mined or otherwise altered, to its original condition.

Recurring Clause – A period of time during which the recurrence of a condition is considered as being a continuation of a prior period of disability or hospital confinement.

Redlining – Unfair discrimination based not on the risk’s characteristics but on its location. The term is commonly associated with an insurer’s refusal to consider insuring any home or business within a specific area marked by a line drawn on a map.

Refund reinsurance – A form of reinsurance, typically yearly renewable term, under which the premium rates are subject to an experience refund as opposed to being fixed (nonrefund).

Registration statement – The requisite filing by a company with the SEC of information in connection with the registration of securities prior to a company publicly offering those securities for sale. The registration statement includes a copy of the draft prospectus that will be used by the company in offering securities for sale. In approving a registration, the SEC focuses on the adequacy of the disclosures, and does not rule upon the fairness or quality of the securities as an investment.

Regular medical expense coverage - Policies which provide benefits toward doctor fees for non-surgical care, commonly in the hospital, but also at home, or at the physician’s office. These benefits are sometimes in hospital and surgical expense policies.

Reinstatement – The resumption of a policy which has lapsed.

Reinstatement premium – An additional premium paid to replenish (reinstate) the limit consumed in the event of a loss.

Reinsurance – The business of insuring insurance companies. By ceding a portion of its business to a reinsurance company, an insurer spreads the risk of exposure to catastrophic loss. Reinsurance enables an insurance company to do the following:

1. expand its capacity;

2. stabilize its underwriting results;

3. finance its expanding volume;

4. secure catastrophe protection against shock losses;

5. withdraw from a class or line of business, or a geographical area, within a specified period of time.

Reinsurance broker – An organization that places (brokers) reinsurance through a reinsurance underwriter—not to be confused with insurance broker.

Reinsurance facility – An alternative mechanism to service those insureds that cannot obtain insurance in the voluntary market. Premiums and losses for the business that is ceded to the facility are pooled and all insurers share according to their proportion of the voluntary market.

Reinsurance pool – A multi-reinsurer agreement under which each reinsurer in the group or pool assumes a specified portion of each risk ceded to the pool. Contrast with Reinsurance wheel.

Reinsurance wheel – A procedure for retroceding individual life insurance risks in excess of a reinsurer’s own retention to a group of retrocessionnaire (up to their subscribed limits) in rotation, the order being determined by their positions as spokes on an imaginary wheel. The spokes need not be of the same length, i.e. limit, and a company may have more than one spoke. Contrast with Reinsurance pool.

Reinsurer – See Reinsurance.

Remand – What happens when an appellate court sends a case back to the lower courts. When an appellate court finds an issue with the decision of a lower court, the appellate court may send the case back to the lower courts with instructions to consider or not consider certain evidence, or with instructions to make a decision consistent with the appellate court’s findings. When a case is remanded, it isn’t the end of the matter. The lower court must adjudicate the case according to the instructions or orders of the higher court. The matter is resolved once a final ruling has been issued that is either not appealed nor granted an appeal.

Removal – A provision of the New York Standard Fire Policy in which the insurer agreed to cover the cost of removing covered property from the path of a fire. Presently, property policies express the agreement in terms of preservation of property from imminent danger of damage from any covered peril. Not to be confused with debris removal.

Renewal – The extension of the term of coverage of an expired policy, commonly by replacement with another policy effective on the date of expiration of the previous policy.

Rent-a-captive – A specialized form of captive insurance company operation designed for businesses that do not want to own a captive but want to obtain some of the advantages offered by captives. A rent-a-captive is formed by a group of investors and operated as an income-producing business. Insureds who wish to participate rent space in the captive instead of setting up and capitalizing their own captive insurance company.

Rent insurance coverage – A form of business income insurance for a landlord. It protects building owners against loss of income when the building cannot be rented because of damage from any of the insured perils. It provides income while an insured’s building is untenantable.

Rental value insurance coverage – Refers to protection of either a landlord’s rental income or an owner-occupant’s economic stake in use of the subject structure. Either interested party can obtain coverage by way of an Insurance Services Office business income form.

Rental reimbursement coverage – On a personal auto policy, coverage for the insured to rent a vehicle while his vehicle is under repairs or for 30 days after a theft of the vehicle or until the vehicle is found, whichever is first.

Renters insurance – Term for insurance for the nonowner occupant of a dwelling or apartment. Also known as tenants insurance.

Replacement cost – The cost of replacing property without deduction for depreciation. Often referred to as new for old, because the insured’s old property is replaced with new property. Under replacement cost, an insured’s ten year old sofa will be replaced with a new sofa. See Actual cash value.

Replacement cost appraisal – An appraisal that determines the amount required to replace an existing structure and related personal property.

Replacement cost coverage - Covers property—both building and contents—on the basis of full replacement cost without deduction for depreciation on any loss sustained, subject to the terms of the co-insurance clause.

Reporting form – A device for insuring values subject to extensive fluctuation that keeps the premium in line with the actual exposure. A maximum limit is set at policy inception and the insured is charged a deposit premium. Actual values are then reported, usually on a monthly basis, and earned premium is figured on the basis of those reports and laid off against the deposit premium.

Representation – The acceptance or rejection of an insurance risk and the amount of premium that would be required, is determined by information submitted by the person applying for such insurance. Statements that would normally lead the company to decline the acceptance of a risk, or to charge a much higher rate, are material to the risk and are commonly considered warranties. All other statements, such as the insured’s address, are referred to as mere representations to distinguish them from the more important statements considered to be warranties. The penalty for false information on material facts or warranties may be voiding of the policy.

Reservation of rights – An arrangement in which an insurer agrees to proceed with the defense of a case without commitment to provide coverage, in the event that the facts disclosed during the trial reveal that the occurrence is not covered.

Reserve – A sum set aside by a company to fulfill future claims.

Reserve adjustment interest rate – In modified coinsurance, the interest rate used to calculate the amount payable by the cedant in consideration of the reserves being transferred back by the reinsurer. See ModCo.

Reserves or reserved losses – The value of losses that have been estimated and set up for future payment.

Residence premises – In homeowners insurance, the dwelling, other structures and grounds, or that part of any other building where the named insured lives.

Resident agent – A licensed agent who resides in and is licensed in the state in which business is being written.

Resident relative – A person related to the insured by blood or marriage living in the household. Being engaged or living together long-term does not make one a relative.

Residual markets – Insurance markets established outside the normal insurance marketing channels to cover unusually large or poor risks. Such markets include assigned risk plans, aircraft pools, nuclear pools, and certain government insurance programs.

Respondeat superior – A legal term referring to the fact that, under specific circumstances, an employer (or principal) is legally liable for the actions of his or her employees while in the course of their employment.

Retention – Usually used in reinsurance, this is the amount of liability retained by an insurer and not ceded to a reinsurer. The point at which the retention is used up is said to be the attachment point for the reinsurer.

Retroactive date – The date that defines the extent of coverage in time under claims-made liability policies. Claims resulting from occurrences prior to the policy’s stated retroactive date are excluded.

Retrocession – A reinsurance of reinsurance. Example: Company “B” has accepted reinsurance from Company “A”, and then obtains for itself, on such business assumed, reinsurance from Company “C”. This secondary reinsurance is called a Retrocession. The transaction whereby a reinsurer cedes to another reinsurer all or part of the reinsurance it has previously assumed.

Retrocessionnaire – A retrocessionnaire is a reinsurer that contractually accepts from another reinsurer a portion of the cedant’s underlying reinsurance risk.

Retrospective rating – A rating arrangement in which the final premium for insurance coverage is not determined until all claims are closed. The final premium is determined by the insured’s actual loss experience during the policy period. Such adjustments include additional premiums, experience refunds, and for multiple year contracts, early termination penalties, or changes to coverage in subsequent years.

Reunderwriting – The process by which the company reevaluates policyholders and, as necessary, imposes surcharges, deductibles, or nonrenewal in cases where the policyholder’s claims history or other experience presents a consistent pattern that creates an undue liability risk. The process of reunderwriting may include property inspections, pulling new motor vehicle, or other reports providing current information on the insured.

Ride-sharing – The process of using an online application (Uber, Lyft) to connect with people looking for rides to various locations. The driver then picks up the rider and takes them to their desired destination charging a fee. Because the driver is holding himself and his vehicle out to the public to provide a service, this conflicts with portions of the personal auto policy.

Rider – Another term for an endorsement attached to a policy that modifies the coverage.

Riot – One of the extended coverage perils, related to, but broader than, civil commotion.

Risk – Uncertainty concerning loss. Sometimes also used to refer to a piece of business or a submission to an insurer.

Risk (Impaired or Substandard) - regarding health insurance - an insurance applicant whose physical condition does not meet the standards for normal health.

Risk and Insurance Management Society, Inc. (RIMS) – Trade association of risk managers and insurance buyers.

Risk-based capital – The need for insurance companies to be capitalized according to the inherent riskiness of the type of insurance they sell. Higher-risk types of insurance, liability as opposed to property business, generally necessitate higher levels of capital.

Risk charge – An amount identified in some reinsurance agreements as specifically to be retained by the reinsurer for assuming the risk under the policies reinsured; a share of the profits in excess of the risk charge is returned to the cedant as an experience refund.

Risk management – The process of handling pure risk by way of reduction, elimination, or transfer of risk, with the latter commonly achieved through insurance.

Risk manager – The individual in an organization responsible for evaluation of the organization’s exposures and controlling those exposures through such means as avoidance or transference, as to an insurance company.

Risk purchasing group (RPG) – A group of similarly situated persons or entities that are permitted under federal law to organize across state lines to buy insurance. The carrier that sells insurance to the group must be licensed in at least one state but need not be licensed in every state where a member of the group resides.

Risk retention group (RRG) – An insurance company chartered under the laws of a state or other U.S. jurisdiction, composed of members whose business activities are similar, and controlled by its members.

Robbery – The felonious taking, either by force or by fear of force, of the personal property of another, commonly known as a hold-up.

Rolling store – A vehicle out of which goods are sold. An example would be a mobile snack bar at a construction site. Insurance policies may contain wording that may restrict or define available coverage for this type of operation.

Running down clause – Additional coverage that can be added to an ocean marine hull policy to provide protection for damage to another ship caused by collision.

Run-Off policy – A claims-made insurance policy that affords coverage for claims made during the policy period only if the claims are for wrongful acts committed prior to the policy period. A run-off policy is most frequently purchased following the acquisition of the insured company. Because the directors and officers of the acquired company may be replaced or removed following the acquisition, those directors and officers typically purchase prior to the acquisition a prepaid, noncancellable multiyear run-off insurance policy that cannot be amended or affected in any way by the acquiring company or subsequent management. That policy covers future claims arising out of conduct by the directors and officers prior to the acquisition.


SEC – The Securities and Exchange Commission that is the primary federal regulatory agency overseeing enforcement of the federal securities laws.

SIG – A self-insured group. A SIG is a group of risks, usually sharing common characteristics or exposures, that join together in order to generate enough premium volume to justify self-insuring themselves. Members of a SIG often are jointly and severally liable for the losses of one another.

Safe depository coverage – Covers property in a safe deposit box on either a legal liability basis or direct basis, regardless of liability.

Safe driver plan – Merit rating of automobile insurance. In most states drivers are charged with points for traffic violations and auto accidents. These points translate to surcharges on the drivers’ insurance rates.

Satoshi – One hundred millionth of a bitcoin.

Salvage – When an insurer makes a payment for lost or damaged property, the insurer is entitled to the salvage of that property.

Schedule – List of items on a policy declaration, sometimes also showing descriptions and values. Schedules will generally require a description of the property, including numbers and values as well as an appraisal for items such as jewelry, furs, and other valuables.

Schedule rating – A debit and credit plan that recognizes variations in the hazard-causing features of an individual risk.

Scheduled property floater – An inland marine form of policy specifically insuring various individual items. Articles of unusual value, provided they are movable, may normally be written this way and insured against many hazards, often against all risks.

Scienter – The requisite state of mind or degree of culpability that must exist for a defendant to be liable under various statutes. Most notably, for purposes of Section 10(b) of the Securities Exchange Act of 1934, most courts have ruled that the requisite scienter is established if plaintiffs prove the defendants acted either with intent to defraud or with recklessness.

Seasonal risk – A risk that is present only during certain parts of the year. For example seasonal dwellings such as cottages used for vacations.

Securities Act of 1933 – Focuses on the initial offering and sale of securities by companies. The Act, among other things, requires registration of the securities and full, honest disclosure of all material information about the securities before the securities can be offered or sold. Violators may be subject to civil liability and criminal penalties.

Securities Act of 1933 Section 10(b) and Rule 10b-5 – Refer to the catchall antifraud provisions under the Securities Exchange Act of 1934. The vast majority of private class action securities lawsuits brought against directors and officers for open market misrepresentations are brought under these provisions, which prohibit any person from using an instrumentality of interstate commerce to engage in any manipulative, deceptive or fraudulent conduct in connection with the purchase or sale of any security (including not only publicly traded securities, but also securities in a privately-held company). “Securities” are defined broadly to include not only shares of stock, but certain notes, bonds, debentures, investment contracts and other investment instruments.

Securities Act of 1933 Sections 11 and 12 – Provisions of the act that prohibit persons from making false or misleading statements in either a registration statement filed with the SEC or in a prospectus used in the offer or sale of securities. These statutes are the general bases for securities class action lawsuits against directors and officers in connection with a company’s offer or sale of its own securities.

Securities Act of 1933 Section 16(b) – Imposes liability on a director or officer who personally purchases and sells, or sells and purchases, the company’s securities within a six month period. The statute, which is intended to prevent the misuse of inside information by company insiders, requires the insider to disgorge to the company any profit realized from the short swing transactions, regardless of whether the insider in fact knew of any material, nonpublic information at the time of the transactions.

Securities Act of 1934 Act – The Securities Exchange Act of 1934, which focuses on the secondary trading of securities after the securities have been sold by the issuing company. Among other things, the statute creates the Securities and Exchange Commission (SEC) and establishes a system of minimum standards governing open market transactions in securities. Violators may be subject to civil liability and criminal penalties.

Securitization of insurance risk – The transfer or sale, in the form of an investment security, of the underwriting and timing risks associated with one or more insurance policies. It is similar in concept to asset securitization that involves turning illiquid assets into liquid instruments that can be traded freely on the open market (e.g., mortgage backed securities).

Seigeware - Where a building’s systems such as security, lights, elevators, HVAC, and other systems are accessed by hackers who take control of the systems and then demand a ransom. The hackers may shut down the systems, lock down the building and restrict access until the ransom is paid.

Self-insurance – An insurance-like strategy for handling one’s own exposures to loss supported by the financial wherewithal to meet expected losses. Not to be confused with a decision to forego insurance.

Self-insured retention (SIR) – That portion of pure risk an insured undertakes to handle on his or her own. A deductible is a form of self-insured retention.

Selling price clause – Applicable to the value of goods that have been damaged or destroyed by an insured peril. This clause insures the profit that would have been earned if the goods had been sold. It sets the insurable value of the property that has been sold, but not delivered, at the amount at which it was sold, less any charges not incurred.

Service benefit – A contract benefit which is paid directly to the provider of hospital or medical care for services rendered.

Severability – A provision that insurance applies separately to each insured under the policy. Also, that facts relating to or knowledge possessed by one insured person will not be imputed to any other insured person either for purposes of applying the exclusions in the policy or invoking a coverage defense based upon misrepresentations in the application. As a result of this type of provision, the policy is treated as “severable” or a separate policy issued to each insured person and the conduct or knowledge of one insured person will not jeopardize coverage afforded to other insured persons. Typically, different severability provisions apply with respect to policy exclusions, on the one hand, and application representations, on the other. Absent severability provisions, the knowledge or conduct of one insured person may result in loss of coverage to all other insured persons, including “innocent” insured persons who had no involvement in or knowledge of the conduct that gave rise to the application misrepresentations or excluded conduct.

Sewer back-up coverage – An optional part of homeowners insurance that covers damage done by sewer back-up.

Sexting – The action of sending or receiving sexually explicit or suggestive images or video via a cell phone.

Shock loss – Name given to any large loss that impacts an otherwise profitable book of business.

Short rate cancellation – See Cancellation.

Short tail – Additional coverage that may be purchased under a claims-made policy that responds to losses that may have occurred during a policy period but are not reported until after the end of the policy period. Usually available for no longer than a year.

Sidetrack agreement – The contract between a business and a railroad wherein a railroad builds a track onto the business’s property to facilitate shipping, and the business agrees to release the railroad from liability.

Sine qua non rule – A legal rule stating that a person’s conduct cannot be held to be the cause of a loss if the loss would have occurred anyway.

Single interest policy – A policy that insures the interest of only one party in property where there are a number of parties having an insurable interest.

Sinkhole peril – Risk of loss by collapse of a sinkhole.

Sistership exclusion – An exclusion in products insurance that eliminates coverage for the withdrawal or recall of products.

Slander – The oral utterance or spreading of falsehood harmful to another’s reputation. Libel is written; slander is spoken.

Sliding scale commission – A ceding commission that varies inversely with the loss ratio under the reinsurance agreement. The scales are not always one to one: for example, as the loss ratio decreases by 1 percent, the ceding commission might increase only .5 percent.

Sliding scale dividend plan – Often used with workers compensation insurance, dividend plans are established as a means of returning a portion of the premium to the policyholder if losses are better than expected and the insurance company board of directors declares a dividend. In a sliding scale plan, the amount of the potential dividend slides up or down according to the loss experience. Dividends cannot be guaranteed; they are paid upon declaration by the insurer’s board of directors.

Slip – A binder often including more than one reinsurer. At Lloyd’s of London, the slip is carried from underwriter to underwriter for initialing and subscribing to a specific share of the risk. See Binder and Cover note.

Smishing – The fraudulent practice of sending text messages purporting to be from reputable companies in order to induce individuals to reveal personal information, such as passwords or credit card numbers.

Smoke damage – An extended coverage peril. See Extended coverage peril.

Snowpack -  The amount of snow that stays on the ground until warmer weather arrives.

Society of Chartered Property & Casualty Underwriters – Professional society of those having attained the CPCU designation. See CPCU.

Soft costs and rents – Related to builders risk insurance, these are the necessary expenses that are incurred because a building project is delayed as the result of a covered property loss. Included are expenses such as increases in architectural fees, loss of rents because the project completion date is later than planned, or increased interest expense.

Soft fraud – is considered an opportunistic fraud. Soft fraud occurs when a policyholder exaggerates an otherwise legitimate claim or when an individual applies for an insurance policy and lies about certain conditions or circumstances to lower the policy’s premium. For example the padding of a legitimate claim with items that weren’t really damaged or injuries that were not sustained.

Soft market – A term given to a condition in which insurance is relatively inexpensive and easy to obtain. Underwriting is looser and rates are competitive.

Soft tissue injuries – injuries to soft tissues in the body such as muscles, ligaments and tendons. They often occur from a blow to the area or a strain or sprain, but do not show up well on x-rays and other imaging tests.

Solicitor – An employee of an insurance agent or agency who is empowered to sell insurance on behalf of a licensed agent, generally using only those insurers that the agency represents. A solicitor usually does not have binding authority, and the business that is generated by a solicitor usually is owned by the agent, not the solicitor.

Solvency – Insurers must have sufficient assets (capital, surplus, reserves) in order to satisfy statutory financial requirements (investments, annual reports, examinations) and to meet liabilities.

Special acceptance – A risk that is not otherwise covered—due, for example, to underwriting class or limit—but is endorsed into the reinsurance agreement by specific written agreement with underwriters. Used in treaties and facultative automatics.

Special agent – An insurer’s representative in a territory who serves as a liaison between the insurer and the agent. The special agent is responsible for the volume and quality of the business written in that territory. Some states require a special license of special agents.

Special form – In contrast to the named perils forms in property insurance, those forms that list specific perils for coverage, the special form contract covers simply risk of direct physical loss, relying on exclusions to limit and define the protection intended. See Open perils.

Special Investigative Unit (SIU) – A department in an insurance company or insurance department dedicated to investigating insurance fraud.

Special risk insurance – Coverage for risks or hazards of a special or unusual nature.

Specific excess reinsurance – Another term for per occurrence/per loss excess reinsurance.

Specific insurance coverage – An insurance policy that covers only property specifically described in the policy, as opposed to blanket insurance that usually covers all property at specified locations.

Specific rate – A rate applying to an individual piece of property.

Specified disease coverage - Insurance which provides stated benefits, usually large amounts, for expenses of the treatment of the disease or diseases named in the policy. May also be called a critical illness policy.

Specimen policy forms – Forms that are often requested when nonstandard coverage forms are being used. The specimen form may be reviewed to determine the actual policy provisions before coverage is bound.

Speculative risk – Risk that entails a chance of gain as well as a chance of loss. Contrast with Pure risk.

Split Exclusions – Refers to an exclusion format in some D&O insurance policies pursuant to which some exclusions apply to both Insuring Agreement A (i.e., coverage for non-indemnified loss) and Insuring Agreement B (i.e., coverage for indemnified loss), and other exclusions apply only to Insuring Agreement A. The exclusions that typically apply only to Insuring Agreement A under a split exclusion format are the fraud/willful violation of statute, illegal personal profit and the Section 16(b) exclusions. Unlike other standard exclusions in the D&O insurance policy, these exclusions are generally included within the policy because the conduct described in the exclusions is generally considered to be conduct for which the directors and officers should not be protected by insurance. However, if the company is permitted to indemnify the directors and officers for such conduct, then the D&O insurer arguably should reimburse the company for that indemnification obligation and thus the exclusions arguably should not apply to Insuring Agreement B, but only Insuring Agreement A. Only some D&O insurance policies contain this split exclusion format. The remaining policies apply all exclusions to both Insuring Agreements and therefore all exclusions apply regardless whether the company is permitted to indemnify for the loss.

Split limits – As in auto insurance, where rather than one liability amount applying on a per-accident basis, separate amounts apply to bodily injury and property damage liability.

Spousal liability or marital extension – Refers to coverage afforded under most D&O, EPL, fiduciary, and similar insurance policies for claims against the spouse of an insured person if the claim against the spouse is solely by reason of the spouse’s legal status as a spouse of the insured person or because of the spouse’s ownership interest in property that the claimant seeks as recovery for alleged wrongdoing by the insured person. This coverage extension does not apply to the extent the claim against the spouse alleges wrongdoing by the spouse.

Spread loss – A form of reinsurance under which premiums are paid during good years to build up a fund from which losses are recovered in bad years. This reinsurance has the effect of stabilizing a cedant’s loss ratio over an extended period of time.

Spread of risk – The selling of insurance in multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same time. Companies are more likely to insure perils that offer a good spread of risk. Flood insurance is an example of a poor spread of risk because the people most likely to buy it are the people close to rivers and other bodies of water that flood. See Adverse selection.

Sprinkler leakage coverage - Insurance that covers damage due to the accidental discharge from an automatic sprinkler system.

Sprinklered risk – Property protected against fire by a system of overhead pipes with regularly spaced heads designed to melt at the heat of a fire, thus releasing water for extinguishment.

SR-22 – A form from the motor vehicle department that shows a driver holds auto insurance. Many states require it for high-risk drivers or before a suspended or revoked license can be reinstated.

Stacking of limits – The application of the limits of one or more insurance policies to a claim or loss.

Standard fire policy – See New York Standard Fire Policy.

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

State fund – A fund set up by a state government to provide a specific line or lines of insurance, such as workers compensation.

State insurance department – An administrative agency that licenses insurers to do business in that state, licenses insurance agents, implements state insurance laws, and supervises (within the scope of these laws) the activities of insurers operating within the state.

Stated amount – Amends the valuation clause on a policy to include an amount that is stated as the value of the item(s) being insured. Usually, these policies pay the lesser of the actual cash value of the damaged property, the cost of repairing or replacing the property, or the stated amount.

Statement of values – The information required when a single rate is to cover more than one item or building. To determine a correct average, the rating bureau requires the policyholder to give the value of each separate risk and its contents.

Statutory accounting principles (SAP) – Statutorily mandated accounting principles and practices that must be followed when an insurance company submits its annual financial statement to the department of insurance. The principal objective of statutory accounting is to provide a framework for a conservative measurement of an insurer’s surplus. In contrast to Generally Accepted Accounting Principles (GAAP), which are followed by most other businesses. See GAAP accounting.

Steam boiler explosion – See Boiler & machinery insurance.

Stock – Merchandise held in storage or for sale, raw materials, and in-process or finished goods, including supplies used in their packing or shipping.

Stock insurance company – An insurance company owned by its stockholders who share in profits through earnings distributions and increases in stock value.

Stop loss – A provision in an insurance policy that cuts off an insurer’s losses at a given point. In effect, a stop loss agreement guarantees the loss ratio of the insurer. In reinsurance, the reinsurer pays some or all of a cedant’s aggregate retained losses in excess of a predetermined dollar amount or in excess of a percentage of premium. See Loss ratio coverage.

Stopgap endorsement – Provides employer liability coverage for work-related injury arising out of incidental operations or exposure in the states that have monopolistic state funds.

Stretched aggregate – Refers to extending an insurance policy’s aggregate limit of liability over two or more policy periods. A stretched aggregate is typically used in one of two different contexts. First, a multiyear policy may be subject to a single aggregate limit of liability for the entire multiyear policy period (perhaps subject to a limit of liability reinstatement provision). Second, if upon expiration of a single year policy period the insurer is uncomfortable for underwriting reasons with renewing the policy with a new fresh limit of liability, the insurer may agree to renew the policy without a new aggregate limit of liability and merely extend or stretch the preexisting aggregate limit of liability to the new policy period as well. In either case, the stretched aggregate constitutes the insurer’s maximum liability for all loss on account of all claims first made during the extended or multiyear policy period.

Strict liability – Liability ascribed to a manufacturer or seller of a defective or dangerous product regardless of any fault or negligence.

Strike lawyers – A relatively small group of plaintiff lawyers who specialize in prosecuting shareholder class action and derivative lawsuits. These lawyers have become extremely competent and effective in creating the potential for potentially catastrophic liability exposure to the defendant corporation and their directors and officers, thus resulting in. large settlement payments by the defendants.

Subject business – A shorthand way of saying “business of the class, size, and limitations” covered under a reinsurance agreement.

Subject premium – A cedant’s premiums (written or earned) to which the reinsurance premium rate is applied to calculate the reinsurance premium. Often, subject premium is gross/net written premium income (GNWPI) or gross/net earned premium income (GNEPI), where the term “gross/net” means gross before deducting reinsurance premiums for the reinsurance agreement under consideration, but net after all other adjustments, e.g.,  cancellations, refunds, or other reinsurance. Normally, subject premium refers to premium on subject business. Also know as base premium.

Subrogation – The right of one party who has paid for the loss of a second party to obtain recompense from the third party who is responsible for the loss. For example, an insurance company becomes subrogated to the rights of its insured to the extent of the insurer’s payment for collision damage caused by the negligence of the other driver. Often explained as stepping into the shoes of another; the insurer steps into the shoes of the insured and collects what they had paid to the insured from the at fault party.

Subsidence – A form of earth movement, excluded in most property policies.

Substandard health insurance coverage – Insurance issued to persons who cannot meet normal health requirements for issuance of standard health insurance policies. Protection is provided in consideration of additional premium for benefits which are sometimes provided under a special qualified impairment policy.

Substandard risk – A risk falling outside normal underwriting standards. If written at all, it is usually with a substantial premium Congress in 1980. Under this law, parties found responsible for polluting a site must clean up the contamination or reimburse the EPA for doing so. Liability is strict, retroactive, joint and several.

Sudden and accidental – A phrase often within the industry to specify that a cause of loss must be both sudden and accidental. Policy language however seldom refers to this phrase when discussing covered causes of loss. See Sudden and Accidental, Is it Really a Thing? 

Summary judgment – When one party to a lawsuit requests that the judge enter a judgment without a trial because there is no genuine issue of material fact to be decided by a jury, because the evidence of the case is legally insufficient for a reasonable juror to find for the party that is not moving for summary judgment. For example: An insured sues her homeowner’s insurer for denying a claim. The insured presents her evidence on why the insurer was wrong to deny the claim; the insurer presents evidence on why it should not have to pay the claim. The insurer moves for “summary judgment.” Now, the judge has to decide whether, considering all of the evidence that has been presented, a jury could reasonably decide that the insured was right and give a verdict in the insured’s favor. If the answer is no, then the insurer’s motion will be granted and the trial is over. If the answer is yes, then the insurer’s motion will be denied and the trial will continue.

Superfund – The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) that allows the EPA to step in and either force the company that caused the spill or accumulation of toxic waste to clean up the site, or for the EPA to clean it up and pay for those costs. Further information may be found here. See CERCLA.

Superintendent of insurance – In some states the commissioner of insurance is known as the superintendent.

Superseded suretyship – The acceptance, in a bond, of liability for claims that cannot be recovered from the prior bond because its discovery period has ended. The discovery period is normally one year.

Supplemental extended reporting period – An optional reporting period that allows coverage for liability claims made after the policy period.

Supply bonds – Bonds that guarantee performance of a contract to furnish supplies or materials. In the event of a default by the supplier, the surety indemnifies the purchaser of the supplies against the resulting loss.

Surety – See Bond.

Surety Association of America (SAA) – A voluntary, nonprofit, unincorporated association that is licensed as a rating or advisory organization for surety and fidelity insurance in all states, D.C., and Puerto Rico. The SAA handles statistical information, filings, publications, and surety and fidelity bonds.

Surety bond – A three-party agreement guaranteeing that a principal will carry out the contractual obligations the principal has agreed to perform or, alternatively, to compensate the other parties to the contract for losses resulting from the principal’s failure to perform. Under many surety bonds, the principal is a contractor.

Surface water – Commonly known as water on the surface of the ground usually created by rain or snow that is of a casual or vagrant character, following no definite course and having no substantial or permanent existence. Also described as water that meanders along the surface of the ground. Some insurance policies may include surface water as a covered peril but exclude flood when defined as the overflowing of water from its natural boundaries, such as a lake or river. Once outside of its natural boundaries, water becomes surface water.

Surgical expense insurance coverage- Insurance benefits that pay the cost of operations.

Surgical schedule – A list of cash allowances to a maximum amount according to the severity of the operation.

Surplus – The amount by which an insurer’s assets exceed its liabilities. Statutory surplus is an insurer’s or reinsurer’s capital as determined under statutory accounting rules. Surplus determines an insurer’s or reinsurer’s capacity to write business.

Surplus lines – See Excess & surplus lines market.

Surplus relief – An increase in the cedant’s surplus through financial reinsurance. Cedants are able to use the increase in surplus to write more business while retaining reasonable operating ratios, e.g., the combined ratio and the ratio of written premium to surplus.

Surplus share reinsurance – A type of pro rata or proportional reinsurance agreement under which the insurer and reinsurer agree to share a predetermined portion of all insurance, premium, and losses. The primary insurer’s retention in a surplus share agreement is stated as a dollar amount of the amount insured.

Survey – In cargo insurance, an examination of damaged property to determine the cause, extent, and value. In hull insurance, an inspection of the ship to help determine its insurability or, after a loss, the cause, and extent of damage.

Swoop and squat – A manner of auto fraud. A driver pulls in front of the insured and slams on his brakes; the insured doesn’t have time to stop and rear ends the fraudster. The fraudster may also stop suddenly in busy traffic, or at an intersection or an on-ramp. Many times the fraudster also claims to have neck and back pain, creating both a collision and injury claim against the insured.

Syndicate – An association of insurers that work together to insure an especially large or hazardous risk. Also see Pool.


TPA – A third party administrator. A TPA is a contractor who adjusts and administers insurance claims.

Tail coverage – Coverage for claims made after a claims-made liability policy has terminated; the extended reporting or discovery period. See Nose coverage.

Target risk – In personal lines casualty insurance, a phrase that refers to celebrities and wealthy individuals. At one time, the Target Risk Exclusion Clause in reinsurance listed major bridges, tunnels, and art collections, but that clause has been replaced by the total insured value (TIV) exclusion clause.

Temporary worker – An employee hired on a short term, often seasonal, basis.

Tenancy in common – The form of property ownership in which each owner owns an undivided interest in real property. In a condominium, all owners have tenancy in common interest in common areas.

Tenants improvements and betterments – See Improvements and betterments.

Tenant’s policy – A package policy specially designed to meet the normal insurance requirements of a private tenant covering personal belongings and liabilities. Used by those living in apartments or other rented dwellings.

Termination – The formal ending of a reinsurance agreement by its natural expiry, cancellation, or commutation by the parties. Terminations can be either on a cutoff or runoff basis. Under cutoff provisions, the parties’ obligations are fixed as of the agreed cutoff date. Otherwise, obligations incurred while the agreement was in force are run-off to their natural extinction.

Territory – Location where the policy coverage applies. May be restricted to the United States, its territories and possessions or could be worldwide. It depends on what exactly is being insured.

Territorial rating – A method of classifying risks by geographic location to set a fair price for coverage. The location of the insured may have a considerable impact on the cost of losses. The chance of an accident or theft is much higher in an urban area than in a rural one, for example.

Terrorism Risk Insurance Act (and extension) (TRIA) – A federal law that sets up a temporary program to allow the insurance industry and federal government to share losses according to a specified formula in the event of a major terrorist attack.

Testing exclusion – In boiler and machinery insurance, a provision that excludes coverage for any object while it is being tested.

THC -  Tetrahydrocannabinol is the chemical component of marijuana/cannabis responsible for most of the psychoactive effects. including the “high”,  of marijuana/cannabis.

Theft – Any act of stealing. Theft includes larceny, burglary, and robbery.

Third-party – An outsider; a business or personal invitee or a party with absolutely no connection to an insured who may become a claimant under a form of public liability coverage because of injury or property damage alleged to have been caused by the negligence of the insured.

Three Trades Rule – Theory that when three trades are likely to be required to repair the damaged property, a general contractor is presumed to be required to coordinate, supervise, and oversee the repairs and, therefore, a 20 percent contractor’s overhead and profit payment should be included in the ACV settlement.

Threshold level – The point at which an injured person may bring tort action under a modified no-fault auto plan. Many no-fault plans allow only tort action for pain and suffering after medical bills exceed some figure, like $1,000, or if disfigurement or death occurs.

Tight market – See Hard market.

Time element coverage – Insurance in which the element of time has heavy bearing on the extent of loss. Business income insurance covers loss of income for the unknown duration of the insured’s business interruption.

Time limit – That period of time in which a notice of claim or proof of a loss must be filed.

Time value of money – Relationship determined by the math of compound interest between monetary values at one point in time and their values at other points in time. Implicit in any consideration of time value of money are the rate of interest and the period of compounding.

Title insurance – Insurance that indemnifies the owner of real estate in the event that someone challenges his or her ownership of property, due to the discovery of faults in the title.

Tort – A wrong for which a civil (as opposed to criminal) action can be brought. Many tort claims arise from negligence.

Total disability – An illness or injury which prevents an insured person from performing any duty of his occupation or any other profitable work.

Total insured value (TIV) – A provision in reinsurance agreements that excludes coverage of individual properties in cases where total insured values across all property lines equal or exceed a certain level, e.g., $200 million. This clause is used to prevent multiple exposures to reinsurers on large single risks.

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

Trailer interchange agreement – An arrangement among truckers whereby trailers may be moved along by the tractors of one or more parties to the agreement.

Transfer of risk – A basic underlying principle of insurance, whereby the risk of financial loss is transferred from one party to another.

Transit coverage – Coverage of the insured’s property while in transit over land from one location to another. Property insurance policies typically provide coverage only at locations identified in the policy.

Travel accident policies – Limited contracts covering only accidents while an insured person is traveling.

Treaty reinsurance – An agreement in which the ceding company agrees in advance to cede certain classes of business or types of insurance to a reinsurance company. The reinsurer agrees to accept all risks or losses that fall within the terms of the agreement. A treaty contains common contract terms along with a specific risk definition, data on limit and retention, and provisions for premium and duration.

Trend – A factor applied to indemnity (medical) loss ratio to adjust for future inflation relative to exposure.

Trip transit – Covers goods in transit in a specified way, such as rail or truck.

Trust agreement – An agreement under which certain assets are deposited by one party (the grantor), for the sole benefit of another party (the beneficiary), into an account managed by a third party (the trustee). In reinsurance, such an agreement is typically established to permit a licensed cedant to take credit for non-admitted reinsurance up to the value of the assets in trust.

Tuition fees insurance coverage – Covers school for loss of tuition fees from fire or other peril.

Twisting – The practice of inducing by misrepresentation, or inaccurate or incomplete comparison, a policyholder in one company to lapse, forfeit, or surrender his insurance for the purpose of taking out a policy in another company.


Uberrimae fidei – “Utmost good faith.” A provision sometimes found in insurance agreements and considered descriptive of the insurance relationship.

Ultimate net loss (UNL) – The loss amount, including covered loss adjustment expenses (LAE), against which the retention and the reinsurance limits apply.

Umbrella liability insurance - A liability contract with high limits covering over top of primary liability coverages and, subject to a self-insured retention (deductible), covering exposures otherwise uninsured. Generally called an umbrella policy.

Unallocated benefit – A policy provision providing reimbursement up to a maximum amount for the costs of extra hospital services but not specifying the exact amount to be paid for each charge.

Unallocated loss adjustment expenses (ULAE) – Claims expenses of a general nature not directly attributable to specific claims. They include the salaries of claims personnel and the other costs of maintaining a claims department.

Unbundled services - Term that describes commercial insurance with no administrative services attached, or alternatively, administrative services from an insurer without insurance coverage. Unbundled services are frequently the domain of third party providers done on a contractual basis.

Underground storage tank (UST) – Tanks sunk in the ground that are used to store or dispose of gasoline or other fuels, hazardous chemicals, or other pollutants or contaminants.

Underinsured motorists coverage – Coverage for the insured and passengers whenever the at-fault driver in an accident has auto liability insurance with lesser limits than the insured’s. This coverage lies atop uninsured motorists coverage or atop the at-fault driver’s low limit automobile liability insurance and provides the insured and passengers with protection equal (usually) to the insured’s own automobile liability cover.

Underlying insurance policy – The policy providing initial coverage for a claim until its limit of liability is reached and an umbrella or excess policy’s coverage is triggered.

Underlying limits – The limits of liability of the policy (ies) underlying an umbrella or excess policy.

Underwriter – One who researches and then accepts, rejects, or limits prospective risks for an insurance company. The underwriter reviews and accepts or rejects applications as well as determining when a policy will be nonrenewed or cancelled.

Underwriters Laboratories, Inc. (UL) – Originally begun as a cooperative of western fire insurers to test materials, the UL is now an independent organization testing virtually every fabricated device and material. Items are permitted to bear the UL seal of approval only after they have passed stringent testing for safety.

Underwriting income – The insurer’s profit on the insurance sale after all expenses and losses have been paid. When premiums aren’t sufficient to cover claims and expenses, the result is an underwriting loss.

Underwriting year experience – Underwriting result based on written premiums and ultimate losses from loss events falling within the same accounting period, where the accounting period is the period covered by the insurance policy or reinsurance agreement, regardless of when the premiums and losses are actually reported, booked, or paid. See Accident year experience and Calendar year experience. Underwriting losses are typically offset by investment income.

Unearned premium – That portion of an insurance premium that would have to be returned to the insured if the policy were canceled.

Unearned premium reserve – A reserve equal to an amount of net premium written but not yet earned.

Unilateral contract – A contract such as an insurance policy in which only one party to the contract, the insurer, makes any enforceable promise. The insured does not make a promise but pays a premium, which constitutes his part of the consideration.

Uninsurable risk – An uninsurable risk is one that is literally uninsurable because loss is certain rather than possible.

Uninsured motorists coverage – Coverage for the insured and passengers whenever the at-fault driver in an accident has no auto liability insurance. Coverage is usually to the extent of limits required by state auto financial responsibility laws.

Unit owners excess coverage – This type of insurance expands a condo unit owner’s insurance coverage to include damage or loss to alterations, fixtures, and improvements within individual units owned by the unit owner, caused by the insured perils. This includes damage to air conditioners, clothes washers, clothes dryers, cooking ovens, cooking ranges, dishwashers, floor coverings, countertops, kitchen cabinets, refrigerators, and freezers. This coverage applies only as excess insurance over any other valid and collectible insurance that would apply in the absence of this policy.

United States Longshore and Harbor Workers Compensation Act (USL&H) – A compulsory law administered by the Department of Labor that covers injuries to employees on vessels or dry docks.

Unlimited liability – Requirement that the owner or owners assume full responsibility for all losses or debts of a business.

Unoccupied – Where the premises contain contents but no human beings, such persons being temporarily away from the premises, on vacation for example, the premises are said to be unoccupied. This is distinguishable from vacant in that in vacancy, the contents have been moved out leaving nothing but the building.

Unprotected – A property located in an area not regularly serviced by a fire department.

Unsatisfied judgment fund (UJF) – In some states a person who is injured in an automobile accident and who cannot collect from the person responsible may collect from a special fund.

Unusual expenses – In life reinsurance, non-routine expenses of the cedant for claims investigation, legal defense or rescission actions. The reinsurer typically agrees to pay such expenses as distinct from punitive, exemplary or other non contractual expenses that it does not agree to pay.

Utmost good faith – A basic principle of insurance. Mutual trust in negotiating an insurance contract. The insured and the broker must disclose and truly represent every material circumstance to the underwriter before acceptance of the risk. A breach of good faith entitles the underwriter to avoid the contract.


Vacant property – Once defined as devoid of occupants or contents, a stricter definition is being applied as more and more communities find older buildings of three and four stories that are only one quarter occupied. Property policies impose limitations on coverage of vacant buildings so the (changing) definition of vacant property is quite important. A single dwelling may be considered vacant when there is insufficient furniture and appliances to make the property habitable.

Valuable papers coverage – Provides all risk coverage on valuable papers, such as written, printed, or otherwise inscribed documents and records, including books, maps, films, drawings, abstracts, deeds, mortgages, and manuscripts. It covers the cost of research to reconstruct damaged records, as well as the cost of new paper and transcription.

Valuation – To estimate the value of a piece of property usually by considering its replacement cost or its actual cash value. Factored into the estimate is any depreciation or wear and tear.

Value reporting form – Commercial form designed for businesses that have fluctuating merchandise values during the year. As values are reported (monthly, quarterly, or annually), the amount of insurance is adjusted. Reporting forms help eliminate problems of over-insurance and under-insurance, as well as the need to continually endorse a policy.

Valued policy – See Agreed amount clause.

Valued policy laws – Laws existing in some states that apply primarily to buildings. The laws differ but, in general, they state that in case of a total loss the amount of insurance is the agreed amount of loss.

Vandalism and malicious mischief – Once treated as a separate peril to be added to a property policy or not, current property forms routinely include the protection. While not defined in the policy, vandalism is generally seen to require some intent to cause damage or harm, while malicious mischief requires some level of malice. Children may toilet paper a house intentionally but with no malice; an ex-lover may set fire to the bushes with malicious intent.

Verbal threshold – Term in no-fault auto insurance, applicable in some states, that says that victims are allowed to sue in tort only if their injuries meet certain verbal descriptions of the types of injuries that render one eligible to recover for pain and suffering.

Vested commissions – Commissions on renewal business that are paid to the agent whether or not he or she still works for the insurance company with which the business is placed.

Vicarious liability – The condition arising where one person is responsible for the actions of another, as a parent is often held responsible for the vandalism damage a minor child does to a school.

VIN – The vehicle identification number (VIN) on a vehicle. This number is usually found on the dashboard of the vehicle on the driver’s side and is usually listed on the vehicle registration and title. The VIN is a combination of letters and numbers seventeen characters in length that can be used to identify the make, model, and year of a car.

Violent Acts Expense coverage – Coverage designed for organzations that may be exposed to violent acts that injury multiple parties, such as schools, and churches. Coverages are geared towards the victims of mass violent acts such medical expenses on the scene and follow up, counseling, funeral costs, group trauma counseling, extra transportation costs, substitute teachers, and other costs related to or caused by the violent act that occurred.

Vishing – The fraudulent practice of making phone calls or leaving voice messages purporting to be from reputable companies in order to induce individuals to reveal personal information, such as bank details and credit card numbers. Aka Robocalls.


Waiting period – The duration of time between the beginning of an insured person’s disability and the start of the policy’s benefits. Also called elimination period.

Waiver – An agreement attached to a policy which exempts from coverage certain disabilities normally covered by the policy.

Waiver of premium – A provision included in some policies which exempts the insured person from paying premiums under loss-of-income policies while the insured is collecting loss-of-income benefits or during a period of total disability, and under some hospital and surgical expense policies while the insured (or spouse) is totally disabled.

Waiver of subrogation – An insurer has the right of subrogation; however, it may waive that right through this method.

War risk – Special coverage on cargo in overseas ships against the risk of being confiscated by a government in wartime. It is excluded from standard ocean marine insurance and can be purchased separately. It often excludes cargo awaiting shipment on a wharf or on ships after fifteen days of arrival in port.

Warehouse to warehouse – Coverage from a shipment’s point of origin to its destination, even if these points are inland.

Warranty – Generally refers to a question typically contained in an original claims-made insurance application that requires the insureds to disclose any known fact or circumstance that could reasonably give rise to a claim in the future. By signing the application, the insureds “warrant” or represent that they have disclosed all such known facts or circumstances. This warranty is typically not included in a renewal application since the insurer is already at risk for such potential claims if the insureds elect to give a notice of circumstances or notice of potential claim to the insurer as provided in the policy.

Watchman warranty clause – A provision often found in a burglary or fire policy providing for a reduced premium if there is a watchman on duty.

Wear and tear exclusion – A common heading for an all risks exclusion relating to a group of events that do not represent risk at all. Property will become worn out and torn; it will rust, settle, become rotted, infested, marred, or scratched. It is easy to distinguish however between the marring that occurs over time (excluded) and marring that occurs when a concrete block is dropped onto a fine wooden table.

Weather insurance coverage – A type of business interruption insurance that compensates for financial losses caused by adverse weather conditions.

Weather whiplash -  An abrupt shift from one weather pattern to another; when conditions shift abruptly between extreme weather patterns. For example going from extreme drought to flash flooding, cold spells to unseasonable warmth.

Wet-bulb temperature - A meteorological term used to assess heat stress in direct sunlight. It takes into considerate air temperature, humidity, wind speed, sun angle and cloud cover. It combines dry air with humidity. A wet cloth is placed over the bulb of the thermometer – this lowers the temperature reading on the thermometer. When humidity is high, the wet-bulb temperature is closer to the dry-bulb temperature. It’s used to determine when outside conditions are dangerous for people to stay out in. When the air is dry sweat evaporates; when the air is wet, it’s harder for sweat to evaporate, making it more dangerous to stay outside for prolonged periods of time. The wet-bulb temperature gives an indication as to whether people will be able to cool themselves by sweating. A wet-bulb calculator can be found here.

Whole dollar premium – The practice of many insurers to round premiums to the nearest dollar, rather than carrying them out to the nearest cent. An amount of 51 cents or more is usually rounded up to the next dollar, and any cents amount less than that is dropped.

Workers compensation insurance – Coverage that conforms to the workers compensation laws of the states in which it written. See also Employers liability insurance.

Workers compensation self-insurers bond – Workers compensation laws, at the state and federal level, require employers to compensate employees injured on the job. An employer may comply with these laws by purchasing insurance or self insuring by posting a workers compensation bond to guarantee payment of benefits to employees. This is a hazardous class of commercial surety bond because of its long-tail exposure and potential cumulative liability.

Working layer – The first layer above the cedant’s retention wherein moderate to heavy loss activity is expected by the cedant and reinsurer. Working layer reinsurance agreements often include adjustable features to reflect actual underwriting results.

Wrap up – A liability coverage specialty focused on contracting risks, attempting to manage in a single contract the broad interplay of exposures and interests among owners, general contractors, and subcontractors.

Write Your Own (WYO) Program – A cooperative undertaking of the insurance industry and the Federal Insurance and Mitigation Administration begun in October 1983. The WYO Program operates within the context of the NFIP and involves private insurance carriers who issue and service National Flood Insurance Program policies.

Written premiums – The entire amount in premiums due in a year for all policies issued by an insurance company.

Wrongful acts – This is the basic covered injury or damage in a directors and officers policy. Such acts include unintentional negligent acts, omissions or breaches of duty, or errors relating to the operation of the community association. They are typically defined in D&O insurance policies to mean any act, error, omission, misstatement, misleading statement, neglect or breach of duty actually or allegedly committed or attempted by insured directors and officers in their capacity as such, or any other matter claimed against insured directors and officers solely by reason of their serving in such capacity. D&O policies only cover claims against directors and officers for such a wrongful act. In EPL policies, “wrongful act” is defined to include numerous types of wrongful employment practices, such as wrongful termination, discrimination, sexual harassment, etc. In fiduciary policies, “wrongful act” is typically defined as breach of a fiduciary duty imposed by ERISA or negligent administration of an employee benefit plan. What is a wrongful act varies from policy to policy. Some D&O policies add advertising injury and personal injury to wrongful act coverage.

WSIA – The Wholesale & Specialty Insurance Association which was formed on August 1, 2017 after members of  the American Association of Managing General Agents (AAMGA) and the National Association of Professional Surplus Lines Offices (NAPSLO) voted to merge the two associations and create the Wholesale & Specialty Insurance Association. WSIA is a  member services organization that serves the entirety of the wholesale, specialty and surplus lines industry.


XCU – Short for explosion, collapse, and underground, this acronym is used to denote that certain construction projects carry this hazard.

Y2K – An abbreviation for Year 2000. The Y2K problem resulted from the use of two-digit year fields in computer software codes and silicon chip technology. Because of this, the software or chip cannot recognize 00 as the year 2000 instead of 1900 or doesn’t recognize it at all.

Yearly renewable term – A form of life reinsurance under which the risks, but not the permanent plan reserves, are transferred to the reinsurer for a premium that varies each year with the amount at risk and the ages of the insureds; may be subject to an experience refund.

Zombie fire -  A fire that burns slowly and spreads laterally, and can spread deep into the ground. Doing so they are hard to find and extinguish, and because of the low temperatures at which they burn they tend to produce more smoke. They can exist over the winter lasting for months or even years. They often occur in the Arctic and in areas farther north with large amounts of peat.

Zone system – Developed by the NAIC for the triennial examination of insurers. Under the system, teams of examiners are formed from the staffs of several states in each of the geographical zones. The results of their examinations are then accepted by all states in which an insurer is licensed without the necessity of each state having to conduct its own examinations.