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Accident - An unintended and unforeseen event.

Act of God - An act occasioned exclusively by violence of nature and without the interference of any human agency. An occurrence of nature that cannot be foreseen or prevented. Not covered by common carriers or the usual bill of lading.

Additional insured - A person or entity other than the named insured, who is protected by the policy, often in regard to a specific interest.

Admitted company - An insurer licensed by the state or country in question. Many countries require local risks to be insured by local or admitted companies.

Aggregate - Cumulative. An aggregate limit of $1 million means that coverage ceases when the total of all claims for the year reaches $1 million.

All risk coverage - Insurance that protects against all risks except those specifically excluded. In an all-risk policy the burden of proof that the peril causing the loss was excluded falls to the insurer. In a named peril policy the burden of proof that damage was caused by an insured peril falls to the insured.

Application - A written statement by a prospective policyholder providing information on which the insurer relies. Misrepresentation will void most policies. In London called a proposal.

Assurance - Usually means the same as insurance.

Audit - An examination of the insured's books to determine actual exposure values to determine final premium. Used most often for workers compensation, product liability, manufacturers and contractors liability, etc. Figures subject to audit are usually payroll, sales, values, owned autos, or units handled or sold.


Basis rate - A manual or experience rate, to which credits or debits are applied.

Binder - A memorandum or agreement to issue an insurance policy. Because actual issuance of the policy often takes weeks or months, a binder gives evidence of essential elements of the policy.

Business income insurance - Pays for loss of profits and certain continuing expenses, if a covered peril interrupts the normal operation of a business.

Business interruption insurance - See Business income insurance.

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Certificate of insurance - Written statement from an insurance company that certain insurance is in force.

Claim - The amount of damage for which an insured seeks reimbursement from an insurance company. Once the amount has been determined, it becomes a loss. Claim and loss are often used interchangeably.

Claims-made coverage - Liability insurance that applies only to a claim which is made during the policy period. Opposed to "occurrence" policy.

Contingent liability - Liability incurred because of negligence of a person engaged by the insured to perform work. For example, a contractor's responsibility for work of a subcontractor.

Contractual liability - Liability of others assumed by agreement, and which would not otherwise exist.

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Declarations - A section of the insurance policy which shows specific information, such as the named insured, limits, deductible, premium, etc.

Deductible - The amount deducted from a loss before the insurer will pay.

Direct loss - A loss resulting directly from the peril insured. Opposed to consequential and time element losses.

Direct writers - Insurers who sell policies through salaried employees or exclusive agents rather than through independent agents or brokers.

Directors and Officers liability (D&O) - Liability incurred by directors or officers of an organization due to acts which result in financial loss to corporate stockholders or outside persons. It is not insured by conventional liability policies because such acts are not "occurrences" as defined in the policy and do not result in bodily injury or injury to tangible property.

Discovery period - Time given the insured after expiration of a policy to discover and make claim for a loss that occurred during the policy term.

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E&O - Errors and omissions, or professional liability. Professionals, public officials, directors, and officers all make decisions, on which others rely, becoming susceptible to lawsuits for errors or omissions. When applied to medical personnel, it is called malpractice.

Earned premium - The premium covering the time a policy has been in force.

Endorsement - A provision added to an insurance policy to modify it. An endorsement supersedes the printed policy text. If two endorsements contradict each other, the one with the latest date prevails.

ERISA - Employee Retirement Income Security Act of 1974. Imposes obligations on employers having employee benefit plans.

Ex Gratia payment - Payment made by an insurer for which it is not liable under policy terms. Sometimes made to avoid greater legal expense in defending a claim.

Exclusions - Circumstances for which there is no protection/coverage within the policy.

Exemplary damages - Punitive damages awarded in addition to compensatory damages to serve as punishment for wanton misconduct or as a deterrent to others. Many states do not allow insurance for such damages.

Extended reporting period - A provision of some claims-made policies to allow coverage for claims made after policy expiration. It may call for additional premium.

Extra expense insurance - Pays for extra costs incurred to maintain operations after a loss. Business income insurance covers only lost profits and expenses necessary to prevent further loss. Extra expense insurance maintains operations regardless of the relation to profits.

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Fiduciary - A person or entity entrusted to act for another. For example, the fiduciary of an estate is the executor or administrator.

Financial responsibility law - A law requiring persons involved in auto accidents to provide a certain minimum amount of money. Usually satisfied by insurance policies. All states have such a law.

First-party insurance - Insurance indemnifying the policyholder against loss to his own property.

Flat cancellation - Cancellation of a policy as of its effective date, requiring full return of any premium paid.

Fortuitous - Accidental.

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Guest statute - State legislation limiting rights of action of an injured guest passenger against the driver of an automobile. Willful and wanton negligence is usually necessary to prove a driver guilty.

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Hazard - A condition that increases the chance of loss from a given peril; poor housekeeping, for example. It differs from "peril," which is a cause of loss.

Hold Harmless agreement - A clause found in contracts and leases, which shifts (or attempts to shift) liability for loss from one party to another.

Improvements and betterments - Improvements paid for by the tenant which add value to leased premises.

Incurred loss - Total amount of a loss, including amounts paid and reserved.

Indemnify - To reimburse an insured for loss sustained. With an indemnification policy, no claim need be paid until the insured has actually suffered a loss.

Insurance - A contract whereby the insurer, for a consideration (the premium) agrees to indemnify the insured for loss from specified perils and under certain conditions.

Insured - The person who has purchased an insurance policy and is protected by it; sometimes also referred to as the assured.

Insurer - Insurance company.

Insuring clause - The part of a policy or bond that recites the insurer's obligation to protect the insured against some sort of loss or damage. This is the heart of the policy.

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Lapse - Termination of a policy for non-payment of premium.

Latent defect - A defect not immediately apparent.

Leasehold - The right to occupy premises as set forth in a lease.

Lessee - A tenant who has signed a lease.

Lessor - An owner of property who rents it to others under the terms of a lease.

Liability - A legally enforceable obligation.

Libel - A written defamatory statement about another.

Lien - A charge upon real or personal property to satisfy a debt.

Limit - The maximum amount the insured can collect under the terms of a policy.

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Named insured - The entity named in an insurance policy. See "Additional insured."

Negligence - Failure to use the care of a reasonably prudent person under similar circumstances. Non-admitted company. See "Admitted company."

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Occurrence - One basic definition is: "An accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." The definition may vary from policy to policy.

OSHA - Occupational Safety and Health Act, a federal law establishing safety and health work standards on a nationwide basis.

Other insurance clause - A clause found in almost every policy stating how it will respond when other policies also cover.

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Peril - A cause of loss, such as fire, earthquake, and flood.

Personal Property - Chattel or property that is not real property. Real property is land and attached buildings.

Pro-rata cancellation - Cancellation of a policy with full return of the proportionate part due for the unexpired term; usual when the insurer cancels.

Proof of loss - A written statement or affidavit of a claim containing all pertinent facts. Required for most property claims.

Property damage - In liability policies, physical injury to or destruction of tangible property, including loss of use or loss of use of non- injured property arising from an occurrence as defined.

Provisional premium - A deposit premium.

Punitive damages - See "Exemplary damages."

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Real property - Land and buildings attached to it.

Replacement value - The cost to replace something with like kind, quality and capacity.

Representation - An oral or written statement by an insured of facts or conditions which would induce the insurer to write a policy. May or may not be treated as a warranty.

Reservation of rights - Act of an insurer to notify an insured it retains the right to affirm or deny its liability when coverage for a claim appears questionable.

Reserve - A fund set aside to meet some future obligation, a loss fund for example. More specifically, with insurance, it is the amount of a loss which has not yet been paid.

Retroactive date - The date stipulating the period for which coverage was respond to claims made prior to the policy's effective date.

Rider - Endorsement.

Risk - A term of many meanings. Two of the principal meanings are (1) uncertainty; (2) a subject of insurance, as a house.

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Short-rate cancellation - A policy cancellation where less than a proportionate part of the unearned premium is returned. Usually results when policy is canceled by the insured.

Statutory law - Written law created by legislature, as opposed to common law derived from custom and judicial opinions.

Statute of limitations - The time limit allowed by law to bring legal action.

Subrogation - The insurer's right to proceed against a third person if that third person was responsible for a claim paid by the insurer.

Surplus lines - Insurance not usually available from admitted carriers, so written in non-admitted companies.

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Term - The length of time for which a policy or bond is written.

Third party - Someone other than the insurer or insured.

Tort - A legal wrong arising from a duty owed to people generally rather than specifically as by contract.

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Uberrimae fidei - Utmost good faith. The basis for insurance contracts, that all parties to the contract are to exercise good faith and fully disclose all material information.

Underwriter - (1) A person who accepts or rejects risks on behalf of an insurance company. (2) An insurer.

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Warranty - A statement made by the insured on which the insurer bases the contract of insurance. A breach of warranty usually voids the policy.

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