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Appurtenant Structures

Other structures or real property of lesser value that are located on the same premises as the main building insured under a property insurance policy. Common examples are small metal service buildings or storage sheds.

Allied Lines

Those coverages that are frequently written with fire insurance (e.g., sprinkler leakage, earthquake and water damage).

All-Risk Policy

A policy that covers loss caused by any cause of loss which is not excluded, as contrasted to “named peril” policies which protect against certain perils named in the policies. Usual to certain types of property and marine insurance contracts, the term “all risk” frequently appears in quotes, since such coverage includes ” almost” all risks (i.e., all but those excluded).

Aggregate Limit

In a policy providing such an aggregate limit, the maximum amount the insurer will pay during the policy period, irrespective of the policy’s limit of liability.

Admitted Company

A foreign or alien company which has been licensed by the insurance department of the state in question and which, thereby, is authorized to conduct business within that state to the extent licensed. Also called an admitted market or admitted insurer.

Adjustable Premium

Policies issued by an insurer that do not guarantee the premium upon renewal. At each subsequent renewal policy may be re-rated and bear premiums that may or may not be substantially different than the previous period premium.

Adjustable Policy

A policy in which the exposure basis is a variable (such as sales or payroll), which can be determined only at the end of the policy term.

Additional Named Insured

A party, other than the first named insured, that has been shown as an insured in the policy Declarations or in an addendum to the policy Declarations or by endorsement once the policy has been issued. This party has the status of named insured.

Additional Insured

A person, other than the named insured, who is protected by the terms of the policy. Usually a specified individual such as a spouse or a member of the insured’s family but sometimes, as in automobile insurance, any person, provided that person is driving the insured vehicle with the insured’s permission.

Actual Cash Value

The basis of loss settlement in property insurance policies, which takes into consideration factors such as replacement value less depreciation, market value, rental value, the use of the building, the area in which it is located, obsolescence, assessed valuation, and any other factor that would have an effect upon the value. A working rule-of-thumb definition, however, is “replacement cost new at the time of loss, less depreciation.”

Account Current

A monthly report between an agent and the insurer, which includes policy numbers, premiums, and applicable commissions on business produced by that agent.


Verification of books or accounts to determine their accuracy. Certain policies written on a reporting or adjustable form give the insurer the privilege of auditing the policyholder’s records to verify the accuracy of the premiums paid.

Business Owners Policy (BOP)

Similar to the commercial package policy (CPP), it provides broad property and liability protection in a single contract and is designed for small and medium-sized mercantile, service, office or apartment risks.

Business Income Insurance

A time element coverage which pays for loss of earnings or income when business operations are interrupted, curtailed or suspended due to property loss as a result of an insured cause of loss. Also covered are loss of rents and rental value. Extra expenses incurred to continue operations at another location are included as long as they reduce the total amount of loss.


Theft by forcible and illegal entry, evidenced by visible signs made by tools, explosives, electricity, or chemicals.

Builders Risk

A building or a ship in the course of construction.

Broad Cause of Loss

Property coverage providing protection for loss from a specified group of causes including all of those provided in the basic cause of loss form (fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicle damage, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action) plus additions which include breakage of glass, falling objects, weight of ice, sleet or snow, water damage, and collapse as defined in the cause of loss form.

Brick Veneer

A building where the outer walls are made of wood faced with a single course of brick. In other words, it is a frame building with a brick outside covering, as distinguished from a brick building in which the supporting walls are brick.

Brick Building

A type of construction in which the outer walls are at least the thickness of two bricks in width.

Bodily Injury Liability Insurance

A form of “third-party” protection covering the insured’s legal liability for bodily injury to others caused by the insured’s negligence.

Bobtail Coverage

Sometimes called ” deadheading,” this is an auto coverage for the liability exposure of a trucking operation, which covers tractor-trailer rigs returning empty from a trip and, therefore, not protected by the policy of the client contracting with the trucker.


An oral or written agreement to provide insurance which serves as evidence of coverage prior to the issuance of a policy. It is often considered to be a temporary insurance policy to provide coverage until a permanent policy has been issued.

Basic Cause of Loss

Property insurance covering only those causes of loss (perils) specified as covered. The types of losses insured are fire, lightning, explosion, wind storm or hail, smoke, aircraft or vehicle damage, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action.

Contractual Liability Insurance

Insurance coverage to provide protection for the additional liability exposure an insured has assumed in a contract. Only specified contractual liability exposures are covered in standard liability policies for items such as leases and related types of contracts because the assumption of such liability in a contract is not only voluntary, but may be extensive. When contractual liability insurance is purchased, the contracts covered must be individually evaluated for the type and amount of exposure posed.

Contractual Liability

A legal obligation voluntarily assumed under the terms of a contract, as distinguished from liability imposed by the law (legal liability).

Completed Operations Coverage

Protection for a business which sells service instead of products against liability claims arising out of work completed away from the business premises. Differs from products liability coverage, which protects against products liability claims.

Compensatory Damages

Not to be confused with punitive damages, which are additional damages requested by an injured party to punish the party responsible for the loss. Compensatory damages are normally monetary damages alleged by the claimant to compensate for actual injuries or expenses sustained. These may include all types of medical expenses, as well as other expenses such as lost wages, legal fees, pain and suffering, mental anguish, loss if consortium, etc.

Commercial General Liability Policy (CGL)

The commercial general liability policy provides comprehensive general liability coverage for commercial risks covering all liability exposures for all locations and causes of loss except those specifically excluded or limited either within the coverage form or by endorsement. Protection may be provided on either an occurrence type of policy or on a claims-made basis.

Collision Insurance

Coverage for the loss resulting from the striking of another object by a moving vehicle.

Coinsurance Clause

In property insurance, a clause requiring the insured to maintain insurance at least equal to stipulated percentage of value in order to collect partial losses in full. If the insurance is less than the minimum required, that proportion of the loss will be paid which the amount of insurance carried bears to the amount which should have been carried. Symbolically: Insurance carried x loss = payment (subject to policy limit)


The provision in insurance coverages in which the insured and the insurer agree to share in the covered losses in the proportion specified in policy terms and conditions.


A liability insurance method covering losses from claims asserted against the insured during the policy period, regardless of whether the liability-imposing causes occurred during or prior to the policy period. (However, many underwriters may not cover liability-imposing causes occurring prior to the policy period.) The coverage trigger is based on the retroactive date stated in the Declarations.


One who presents a claim, or one who has suffered a collectible loss.


The formal request by a policyholder or a claimant for payment of loss under an insurance policy.

Certificate of Insurance

A short-form documentation of an insurance policy.

Cause of Loss

Previously called “perils,” this is the actual type of event that causes the loss. Examples are: theft, collision, earthquake, flood, fire or mischief.

Casualty Insurance

Insurance concerned with legal liability for personal injuries or damage to property of others, including many other types of insurance, such as workers compensation, plate glass, burglary, boiler and machinery, aviation, etc. “Casualty” is generally accepted to cover all classes outside the definition of “property insurance,” so that a property and casualty company would tend to handle all forms of insurance other than life.

Cancellation Notice

The notice issued by one party of the policy to the other, informing of the intent and request to cancel. The policy provisions must be followed during the notification process with respect to how the notice must be given (normally with writing), the number of days that must be allowed, and how the notice must be delivered (registered mail, delivery, etc.).


The termination of a contract. Usually applied to the termination of a policy before its natural expiration, but may be used to describe the ending of any contract during its natural life, such as an agent’s contract.

Directors and Officers Liability Insurance

Protects officers and directors of a corporation against damages from claims resulting from negligent or wrongful acts in the course of their duties. Also covers the corporation (and even the officers and directors in some cases) for expenses incurred in defending lawsuits arising from alleged wrongful acts of officers or directors. These policies always require to retain part of the risk uninsured.

Difference in Conditions Insurance (DIC)

A property policy insuring “all risks” of physical loss or damage, excluding fire and extended coverage perils. Any cause of loss that would result in the property’s being left in a condition different from what it was prior to the occurrence of the loss event, except those causes of loss specifically excluded. Such unnamed losses would included collapse, water damage, theft, and (optionally) flood and earthquake. Often, this coverage is provided on an inland marine basis.

Deposit Premium

A tentative charge made at the beginning of certain policies and reinsurance agreements, to be adjusted when the actual earned charge has been later determined. Also known as initial premium.


In a policy providing a deductible clause, the amount which must first be subtracted from the total damage incurred before determining the insurance company’s liability. Of several types used, the straight deductible establishes the insurer’s liability above the deductible but not below it; the franchise deductible establishes the insurer’s liability for the entire amount of damage once the deductible amount is exceeded in a loss; and the disappearing deductible establishes the insurer’s liability for an increasing proportion of the loss, as the total damage rises above the deductible, until the deductible finally “disappears.” Then the insurer is liable for the entire amount. The deductible may be in the form of an amount of dollars, a percent of the loss, a percent of the value of the insured property, or a period of time, as in health insurance.

Extended Coverage Insurance

Protection against loss or damage caused by windstorm, hail, smoke, explosion, riot, civil commotion, vehicles, and aircraft. Written in conjunction with a fire policy either as part of the basic contract or by endorsement.

Experience Rating

A form of individual risk rating which takes into consideration the loss experience of the particular risk as a credit or a debit to the manual rate for the insured’s classification. As the size and number of exposure units increase (e.g., a multiple location risk), more credibility is given to the insured’s own experience.


The peril, hazard, condition or circumstance that is not covered by the insurance and is so stated in the policy. A clause in an insurance policy which specifies what is excluded from the policy’s coverage.

Excess Line

A line of insurance provided by insurers not licensed in the states where the risks are located and placed under the surplus lines laws of the various states. Before such placements can be made through specially licensed surplus lines agents and brokers, state laws generally require evidence that placements could not readily be made in licensed insurers-or broadly referred to as being all lines of insurance placed with non admitted insurers.

Excess Liability Insurance

Liability insurance designed to provide an extra layer of coverage above the primary layer. The excess insurance does not respond, however, until the limits of liability in the primary layer have been exhausted. Because of the method of response, it is often much less costly than the primary layer, per $1,000,000 of coverage. The excess layer provides not only higher limits, but catastrophic protection for very large losses.

Errors and Omissions Insurance

A form of professional liability insurance which provides coverage for mistakes made by a person or persons in a profession not involved with the human body, such as lawyers, architects, engineers, or for mistakes made in a service business, such as insurance, real estate, and others.


A document with language attached to and becoming part of a basic policy for the purpose of modifying the policy, either at inception or mid-term. The term endorsement is usually associated with property and casualty policies while the term rider is normally used with life, accident and health contracts.

Employment Practices Liability Insurance (EPLI) or Employment-Related Practices Liability (ERPL)

Impetus for this coverage started with public interest in the allegations made by Anita Hill during the confirmation hearings of Supreme Court Justice Clarence Thomas. Changes in federal and state laws, such as the Americans with Disabilities Act and the Civil Rights Act of 1991, resulted in increased consumer awareness of sexual harassment and discrimination in the workplace. Coverage is available for legal costs to defend claims involving sexual harassment, wrongful termination and discrimination including legal liability for such acts. The coverage is known by various titles. Employment-related practices liability, management risk protection, employers E & O and Americans with Disabilities Act insurance are basically the same coverage. Most policies provide limits ranging from as low as $25,000 per claim up to $1 million. Policies may cover employees as additional insureds.

Employer’s Liability Insurance

Coverage against the common law liability of an employer for injuries sustained by employees, as distinguished from liability imposed by a workers compensation law.

Earned Premium

The portion of the policy premium allocated to the expired or used portion of the policy term. This also includes any short-rate charge made on policy cancellation.

Functional Replacement Cost

An endorsement available for property policies which provides for replacement of the operation or function portion of a building or property, even if the replacement is for a building of less size or the more modern equipment is of less value. To illustrate, an insured owns an aged, four-story building in which only two floors are currently used. The remaining floors have been closed and are unused. Should the building suffer a total loss, functional replacement cost would provide for the rebuild of the square footage of the two functional floors.

Frame Building

A type of construction in which the outer walls are made of lumber.

Flat Cancellation

The cancellation of a policy as of the time it attached, with all of the premium refunded to the policyholder.

First Named Insured

The party named first in the Declarations of an insurance policy. The first named insured has become significant in commercial insurance because the terms and conditions of the policy itself detail that many of the duties and obligations to the contract must be performed by, or are the responsibility of, the first named insured versus any or all named insureds. Additionally, the insurer has obligations, such as proper notice of cancellation or non-renewal and return premium refund, that need go only to the first named insured.

Fire Resistive

The construction of a building with steel and concrete or other noncombustible materials designed to prevent the frequency of fire or to reduce its effect once started. A better term than fireproof, since few materials are not subject to damage or destruction by fire.

Fire Protection Class

A 10-category ranking or schedule of public fire protection of cities and towns established in 1916. The grading is currently maintained by the Insurance Services Office for use in making fire insurance rates and to encourage local governments to maintain better fire fighting equipment and personal. A city or town is ranked in one of the categories by receiving deficiency points for failing to meet established standards under each of these major headings: water supply, fire department, fire service communications, fire safety control, climate, and divergence between fire department and water supply. Fire protection class 1 is the best class (a city or town having fewer than 501points), and Fire protection class 10 is the worst (more than 4,500 points). Also known as Town class or Town grading.

Fire Insurance

Covers losses caused by fire, lightning and removal of insured property from the premises to avoid further loss. All resultant damage such as that done by water and smoke is also covered. Usually supplemented by extended coverage. Currently, this insurance is referred to as property insurance.


Combustion manifested in light, flame and heat for useful purposes (known as friendly fire) or for destructive purposes (called hostile fire). Insurance covers loss only from the latter.

Guaranty Fund

An amount of money assessed certain insurers in a given state to reimburse policyholders and claimants of an insolvent insurer in that state. The fund may be created before an insolvency occurs (pre-assessment, as in New York) or afterward (post-assessment) and virtually all states now have such protection.

General Aggregate Limit

The sum or total amount that will be paid in any one policy period, regardless of how many claims, losses, suits, or insureds may be involved. Some policies allow the aggregate limit to be reinstated after it has been exhausted, by endorsement and for additional premium.

General Agent

An independent agent who represents one or more insurers with the authority to appoint subagents who report their business through the general agent, who receives an overriding commission for services provided. In some territories a general agent also sells insurance, while functioning in others solely as a manager.

Garage Policy

Protects garage or service station operators, vehicle rental agencies, car washes, auto or vehicle dealers, and trailer or RV dealers for claims alleging bodily injury or property damage caused by the operator’s negligence in business operations and the sale or use of automobiles.

Host Liquor Liability Insurance

A form of liquor liability coverage where the basis for legal liability is a dram shop, liquor control, or alcohol beverage law. The laws vary, but most provide that the owner of an establishment which serves alcoholic beverages is liable for injury or damage caused by an intoxicated person if it can be established that the liquor licensee caused or contributed to the intoxication of the person.

Host Liquor Liability

A form of liquor directed at hosts of business or social functions where liquor or alcohol is served, with or without a charge. The basis for legal liability is a dram shop, liquor control or alcoholic beverage law. The laws vary by state, but most provide that the owner, operator or host serving or selling alcoholic beverages is liable for injury or damage caused by or to an intoxicated person if it can be established that the owner, operator or host caused or contributed to the intoxication of the person through the sale or serving of alcoholic beverages.

Hole-In-One Insurance

A specialty insurance designed to provide coverage or indemnification for large prize giveaways, specifically related to golf events and based upon the odds faced by the contestants of shooting a hole-in-one.


A condition which may lead to a loss, such as oily rags leading to a fire.

Hard Market

In the property and liability insurance business, underwriting philosophies fluctuate between periods called the hard market and the soft market. The hard market is the period during which underwriting standards are very tight and the rates are high. Normally the hard market closely follows a soft market period during which the underwriting standards had been soft and the price or rates are very low, resulting in substantial underwriting losses. The cycle swings back and forth between the two cycles and bounces between soft underwriting with low rates and heavy losses, to the hard market with subsequent tightening of standards and dramatic increases in price.


The person(s) or party (is) protected by an insurance policy, synonymous with assured. Some property-liability policies distinguish between the named insured and other insureds.

Insurance Contract

The written contract or insurance policy between the insured and the insurer detailing the coverage provided, exclusions and limitations, conditions in case of loss, and other details pertinent to the terms of the agreement.


The transfer of risk, or chance of loss, from one party (the insured) to another party (the insurer), in which the insurer promises, usually specified in a written contract, to pay the insured, or others on the insured’s behalf, an amount of money, services, or both, for economic losses sustained from an unexpected (accidental) event, during a period of time for which the insured makes a premium payment to the insurer.

Insurable Interest

A potential for financial loss from a certain event which a person must have before acquiring insurance against that event. The event may be illustrated by the following: the destruction of property owned (in fire insurance), the incurring of legal liability for negligence in causing loss to others (in liability insurance), the compliance with law (in workers compensation insurance), the loss or impairment of human life value (in life insurance, disability insurance, and annuities), or expenses fortuitously incurred (in hospitalization insurance). In life insurance, the applicant of the policy must suffer a financial loss, or the loss of love and affection, by the death of the insured.

Inland Marine

The insurance of property (generally on an “all-risk” basis) which is in the course of transportation or is of such a nature that it may easily be transported. Also includes some risks at fixed locations considered “instruments of transportation or communication,” such as bridges, tunnels, neon signs, and street clocks, etc., which were accepted as inland marine by custom.


Indemnity is when the person or party suffering a loss is paid or reimbursed for that loss, the purpose being to restore that party to the condition that was present prior to the loss. In a life insurance contract, the payment made to a beneficiary is called indemnity.


To pay for loss suffered, or to reimburse.

Jewelry Floater

An inland marine policy insuring jewelry wherever it may be.

Jewelers Block Insurance

Broad policies insuring jewelers against all loss to their stock in trade. Generally considered to be a type of inland marine insurance.

Lost Policy Release (LPR)

An agreement signed by the policyholder relieving the insurer from liability under an insurance contract, which has been lost, misplaced, or is otherwise unavailable. The lost policy release form is used to fulfill the requirement that a policy be returned when the insured requests that coverage be canceled.

Losses Paid

The sum of losses for which money has been disbursed, as opposed to losses incurred, which includes loss outstanding but still unpaid.

Losses Incurred

Events which have happened and which will cause claims to be made to insured.

Loss Reserve

An estimate of the amount an insurer expects to pay for reported and estimated claims. May include amounts for loss adjustment expenses.

Loss Report

A written statement made by an agent, an insured, a claimant, or a beneficiary containing details of the claim made under an insurance policy.

Loss Ratio

Losses incurred expressed as a percentage of premiums, most commonly earned premiums, although written premiums are sometimes used.

Loss Experience

The loss history for an account, a line of business, a book of business, or some other defining category. Loss experience may include the date of loss, type of loss, amount of loss, whether the loss is open or closed, and a summary of the details of the loss.


The amount the insurer is required to pay because of a happening against which it has insured.


A colloquialism referring to the lengthy period of time between the occurrence of an event giving rise to a third-party claim and the claim itself. While this lengthy period is common to all kinds of third-party claims, as opposed to direct damage claims, it is most pronounced in professional liability insurance written on an “occurrence” basis, as opposed to a “claims-made” basis.

Lloyds of London

A collection of individuals who assume policy obligations as the individual obligations of each. The formal name is Underwriters of Lloyds, London. Also, Lloyds of London is a service organization which provides a central marketplace and ancillary services (such as policywriting, accounting, inspections, and adjusting) for its underwriting members and its brokers.

Liquor Liability Insurance

Coverage where the basis for legal liability is a dram shop, liquor control, or alcoholic beverage law. The laws vary, but most provide that the owner of an establishment which serves alcoholic beverages is liable for injury or damage caused by an intoxicated person if it can be established that the liquor licensee caused or contributed to the intoxication of the person.

Limit or Limit of Liability

According to the terms of a given policy, the most an insurer will pay for any one loss.


The person or entity that possesses a legal claim on the property of another. In insurance, it generally refers to a lender on real or personal property.

Liability Insurance

Protection which pays sums that an insured is legally obligated to pay, or that the insurer has agreed to pay, as damages to others as a result of the insured’s negligence. Usually provides coverage for bodily injury or damage to property of others.

Lawyers Professional Liability Insurance

Protects an attorney or law firm against claims for negligent acts, errors or omissions in the performance of professional legal services.

Multi-Peril Insurance

A contract that insures more than one peril or cause of loss within the policy. For example, an “all-risk” property policy is multi-peril. Not the same as multi-line, which is coverage for more than one line of insurance, such as property and liability.

Motor Truck Cargo (Carriers Form)

This inland marine form indemnifies an owner or operator of a motor truck, on which is carried property of others, against what the owner operator may become liable to pay to the owners of the property carried as the result of loss or damage occurring while transporting the property. The Interstate Commerce Commission (as well as the laws of many states) requires a common carrier to have such insurance before being licensed.

Mortgage (or Mortgagee) Clause

Language attachable to an insurance policy covering mortgaged property which affords the mortgagee certain rights (e.g., that loss payments shall be payable to mortgagor and mortgage as their interests may appear, that the mortgagee’s right to recovery from the insurer shall not be adversely affected by any act or failure to act by the mortgagee, etc.)

Morale Hazard

The condition which exists when an insured becomes lax in matters of safety and fire prevention because insurance is in force to pay for a loss which may occur.

Moral Hazard

A condition or characteristic by which an insured intends to profit from an insured loss.

Mobile Home Insurance

A special policy has been designed to meet the needs of mobile home owners or occupants, covering physical damage to the home, contents and personal liability while the home is used as a permanent residence.

Minimum Premium

The lowest flat or earned policy charge for which a policy will be issued or for which coverage will be provided.

Maximum Possible Loss (MPL)

The largest percentage of the insured property which could possibly be destroyed by the insured perils. Normally this amount would be all the property within the four walls of a structure, plus loss to adjacent property due to its proximity. An MPL estimate is invariably the ultimate in pessimism, but it is a most important concept in underwriting large risks in order to compute rates and to understand the need for capacity, as well as to appreciate all exposures. Two other expressions used from time to time, amount subject and maximum foreseeable loss (MFL), have substantially the same meaning as MPL.

Market, Tight

Scarcity of insurance.

Manufacturers and Contractors Liability Insurance (M&C)

Liability insurance arising from business operations, including ownership and maintenance of premises. Applicable primarily to persons or corporations engaged in manufacturing, construction and installation work. Policies always exclude automobile liability. This coverage is now included in the Simplified CGL.

Managing General Agent (MGA)

An individual or organization granted authority to act as an insurer or re-insurer in performing certain functions for it, such as, underwriting, inspection or adjusting. Functions may include the appointment of sales agents or intermediaries. Most MGAs also operate as wholesale excess and surplus lines brokers.


Improper actions or failure to exercise proper skill by a professional or others involved with the care of the human body, such as a physician, dentist, blood bank, etc. Malpractice insurance is a form of liability coverage against such mistakes.

Notice of Loss

The notice submitted be an insured to the insurer regarding the occurrence of a loss. Policy conditions specify how long the insured has to notify the insurer of the loss, in what format, and the information the loss notice must contain.


When an insurer chooses not to offer renewal coverage on a policy for cause such as higher that expected hazards or losses, lack of compliance with safety recommendations, or because the insurer is withdrawing for a territory or from offering a type of coverage. When an insurer non-renews coverage, it must be done within the applicable state law as far as the reasons permitted, type of notice that is sent to the insured and the amount of time the insurer must give the insured prior to policy expiration.

Non-admitted Insurer

If an insurer is not licensed to write insurance in a specific state, then the insurer is a non-admitted insurer for that state.

Named Perils Policy

One which specifies the exact causes of loss for which the insurer will pay, as contrasted with a policy which insures against “all risk” and then lists only exclusions, modifications, and conditions.

Named Insured

The person designated in the policy as the insured, as opposed to someone who may have an interest in a policy who is not shown by name.

Owners, Landlords and Tenants Liability Insurance (OLT)

Insurance of the liability arising from the ownership, occupancy, operation, or maintenance of premises.

Officers and Directors Liability Insurance

Protects officers and directors of a corporation against damages for claims resulting from negligent or wrongful acts in the course of their duties. Also covers the corporation (and even the officers and directors in some cases) for expenses incurred in defending lawsuits arising from alleged wrongful acts of officers or directors. These policies always require the insured to retain part of the risk uninsured.

Occurrence Policy

The traditional occurrence liability insurance method provides coverage for losses from liability-imposing causes which occurred during the policy period, regardless of when the claim is asserted. Once the policy period is over in a claims-made form, the approximate extent of the underwriter’s liability is known. With the traditional occurrence liability coverage method, the underwriter may not discover the extent of liability for years to come from losses claimed to have occurred within the policy period.

Punitive Damages

Damages awarded separately and in addition to compensatory damages, usually on account of malicious or wanton misconduct, to serve as a punishment for the wrongdoer and, possibly, as a deterrent to others. Sometimes referred to as ” exemplary damages” when intended to “make an example” of the wrongdoer.

Protection Class

A 10-category ranking or schedule of public fire protection of cities and towns established in 1916. The grading is currently maintained by the Insurance Services Office for use in making fire insurance rates and to encourage local governments to maintain better fire equipment and personnel. A city or town is ranked in one of the categories by receiving deficiency points for failing to meet established standards under each of these major headings: water supply, fire department, fire service communications, fire safety control, climate, and divergence between fire department and water supply. Protection class I is the best class (a city or town having fewer than 501 points), and Protection class 10 is the worst (more than 4,500 points). Also known as Fire Protection Class or Town Class.

Property Insurance

“First-party” insurance of real and personal property against physical loss or damage, not to be confused with property damage liability insurance.

Property Damage Liability Insurance

A form of “third-party” protection covering the insured’s legal liability for damage to property of others caused by the insured’s negligence.

Prohibited Risk

A risk which a company will not insure.

Products Liability

The liability which a merchant or a manufacturer may incur as a result of some defect in the product sold or manufactured.

Product-Completed Operations Insurance

Coverage designed to protect against the liability for injury, loss, or damage which a merchant or a manufacturer may incur as the result of some defect in the product sold or manufactured.

Probable Maximum Loss (PML)

The anticipated maximum property fire loss that could result, given the normal functioning of protective features (firewalls, sprinklers, and a responsive fire department, among others), as opposed to maximum foreseeable loss which is a similar valuation, but on a worst-case basis with respect to the functioning of the protective features. Underwriting decisions would typically be influenced by PML evaluations, and the amount of reinsurance ceded on a risk would normally be predicated on the PML valuation.

Pro Rata Cancellation

Termination of a policy by the insurer, for which the return premium due the policyholder is the full proportion for the unexpired term base upon the calculation of the number of days of coverage provided to the premium charge per day. In other words, the pro rata refund is not a “short-rate” return.

Prize Indemnification Insurance

A specialty insurance designed to provide coverage or indemnification for large prize giveaways, based on the odds faced by the insured.

Primary Insurance

The insurance policy providing the first layer of coverage that will respond first to any loss exceeding the deductible.


The amount of money an insurance company charges to provide coverage.


The building or section of a building, insured or containing the insured property. Depending on policy conditions, it may also include an adjacent area. Premises liability insurance- Insurance protection for the liability exposure that develops from the normal ownership, maintenance, and use of a premises and from the conduct of the risk’s business operations, not including products or completed operations liability which is treated separately.


The party to whom a policy is issued and who pays a premium to an insurer in consideration of the latter’s promise to provide insurance protection.

Physical Damage

As used in property or liability insurance, physical injury to tangible property.

Personal Property Floater (PPF)

A broad form of inland marine policy issued to householders, insuring all furniture and household effects wherever they may be, on an “all-risk” basis.

Personal Injury Protection (PIP)

Also known as no-fault insurance, PIP provides insurance for medical costs, loss of earnings, additional living expenses and funeral costs for occupants of the insured automobile and pedestrians other than those insured under other policies.

Personal Injury

Injury, other than bodily injury, resulting from false arrest, false detention, false imprisonment, malicious prosecution, wrongful eviction, wrongful entry, or the invasion of privacy of a premises. It also includes injury caused by oral or written material that slanders a person, goods, products, service, or which violates the right of privacy.


The cause of loss, for example, fire, wind, vandalism, or accident.

Payroll Audit

An examination and verification of an insured’s records for the amount of payroll for classes of employees which is used in determining the premium for certain lines of insurance, such as workers compensation. The company sends out auditors to determine the accuracy of the figures provided by the insured.

Package Policy

A combination of property-liability coverages of two or more separate policies in one contract with one premium. The development of package policies is a move toward economy and efficiency in giving the policyholder one document instead of several.


Defined variously as uncertainty of loss, chance of loss, or the variance of actual from expected results. However defined, its existence is the reason people buy insurance.

Return Premium

That part of a premium returned to an insured upon cancellation or partial cancellation of a policy, when rate adjustments are necessary, or when an advance premium is in excess of the actual premium.

Retroactive Date

The earliest date for which coverage is afforded under a claims-made form. Usually the effective date of the first year of such policy form provided to the insured.

Reporting Policy (or Form)

A policy in which the policyholder is required to report values of a property insured to the company at certain intervals. A provisional premium is charged initially, and the final premium is determined by applying the rate to the average of the values reported.

Replacement Cost Insurance

Protection which pays the cost to restore or replace damaged or destroyed property without deduction of depreciation. Automatically included in homeowners forms.


The transaction whereby an insurance company (the reinsurer), for a consideration, agrees to indemnify another insurance company known as the ceding company (the reinsured) against all or part of a loss which the latter may sustain under a policy or policies it has issued.


Restoration of the amount of insurance depleted from a policy by payment of loss. Most fire policies contain an automatic reinstatement clause.

Rain Insurance

Insurance against loss due to the fall of rain, which may result in reduced profits or earnings. Also available to vacationers, paying the insured amount if rain occurs on specific days.

Surplus Lines Insurance

Insurance written by insurer not licensed in the states where the risks are located and placed with such insurers under the surplus lines laws of the various states. Before such replacements can be made through specially licensed surplus line agents and brokers, state laws generally require evidence reported before some predetermined future date (“sunset”).


In insurance, the substitution of one party (insurer) for another party (insured) to pursue any rights the insured may have against a third party liable for a loss paid by the insurer.

Split Limits

A limits concept used in general liability and automobile liability policies whereby separate limits are set for each coverage. The most common example is one limit for bodily injury and another for physical damage, with still another for medical payments.

Special Multi-Peril Package (SMP)

A package policy for commercial accounts containing four principal sections of coverage: property, liability, crime and boiler and machinery. The basic policy contains declarations, general provisions and definitions applicable to these sections, and then the specific coverage requirements for each section are handled by separate forms. The types of accounts eligible for this policy can be grouped in eight categories: motel/hotel, apartment house, office, mercantile, service, industrial and processing, institution, and contractors. This policy is rarely used. It has been replaced in most jurisdictions by the commercial package policy (CPP).

Special Form

A property coverage form protecting insureds from all causes of physical damage loss unless otherwise limited or excluded.

Soft Market

The capacity and availability of insurance is said to progress in cycles of hard market and soft market. The soft market period is the portion of the cycle in which capacity is high, and coverage is readily available at affordable, competitive and even artificially low prices.

Short Rate Cancellation

Termination of a policy by the policyholder before its stated expiration, with the insurer refunding to the policyholder a return premium an amount less than the pro rata part that is still unearned to compensate the insurer for expenses incurred to that point, since the termination is at the request of the policyholder.

Self-Insured Retention

The portion of each loss that an insured retains by setting aside funds or by possibly using alternative type of financing to meet losses. It acts very similar to a deductible although normally, on a much larger scale. It is also considered to be a form of self-insurance.

Truckers Liability

Auto liability exposures experienced by owners and operators of businesses designed to transport the goods of others by land motor vehicles for a fee. Subject to regulations by the Department of Transportation (DOT). The Insurance Services Office (ISO) has designed a special business automobile insurance for this purpose, called the truckers liability coverage form. Also available is the motor truck carriers liability coverage form.

Unoccupied Building

A building whose occupant(s) is temporarily absent, but in which the occupant’s furniture and personal effects remain, as opposed to a vacant building, which has neither occupants nor contents.

Uninsured Motorists Coverage

Under an auto policy, protection for the insured against bodily injury or property damage (in some states) caused by the negligence of an uninsured or underinsured motorist.

Umbrella Liability Insurance

A form of liability insurance protecting policyholders for claims in excess of the limits of their primary automobile, general liability and workers compensation policies, and for some (few) claims excluded by their primary policies which are subject to a deductible, which may range from $250 for a personal umbrella to a minimum of $10,000 for a commercial umbrella.


Damage done maliciously, included in the extended coverage endorsement. Also called “malicious mischief.”

Valued Policy Law

In certain states, a law which requires that in the event a building is totally destroyed by fire, the company insuring it must pay the face amount of its policy irrespective of the actual value of the building destroyed.

Vacant Building

A building with nothing in it. If the furniture is in the building and the owner intends to return, the building is unoccupied.

Weather Insurance

A specialty insurance that provides coverage for loss of income and/or expenses when an outdoor special event must be canceled or postponed due to weather conditions. Usually written on a per-event basis.


A statement by the insured about the literal truth on which the insurance contract depends. Warranties may relate to matters existing at or before the issuance of the policy (affirmative warranties) or may be undertakings by the insured that something be done or omitted after the policy takes effect and during its continuance (promissory warranties). Many states have restricted by statute the common law rule that “any breach of warranty avoids an insurance policy”; for example, under the New York law, a breach of warranty to avoid the policy must have “materially increased the risk of loss, damage or injury within the coverage of the contract.”


A term used in commercial general liability insurance to designate that three hazards exist for the classification under review. Those three hazards are explosion, collapse, and underground. The current CGL includes those coverages automatically in the basic form, but they may be deleted by the endorsement.