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A posteriori data

Also known as “empirical” data, A Posteriori data makes predictions about future events based on the past.

A priori data

Data depends on deductive reasoning to make predictions about the future. It does not depend on trials and tests or even history to develop a probability. A priori is essentially an exercise in mathematical calculation based on known data (and all the factors must be known). A priori begins with objective thought, eases into reasoning and finally falls to conjecture. A priori calculations cannot guarantee the outcome, only that the outcome can be predicted with a reasonable amount of certainty.

A.M. Best Company

Organization that rates the financial stability of insurance companies doing business in the United States.

Abandonment condition

A condition often contained in property insurance policies that states that the insured cannot abandon damaged property to the insurer and demand to be reimbursed for its full value.

Abandonment of Employment

Engaging in an activity clearly not intended for the advancement of the employer nor directed by or anticipated by the employer. Includes any activity in direct contradiction to the rules, requests or expectations of the employer.

Absolute liability

Type of liability imposed by law on those participating in certain activities that are considered especially hazardous; a person involved in such operations may be held liable for the damages of another even though the individual was not negligent.

Accident

An unintended loss that occurs at a specific time and place.

Accounts receivable insurance

Filed commercial inland marine form that insures against loss the insured suffers because of an inability to collect from customers when accounts receivable records are damaged or destroyed.

Actual cash value (ACV)

The cost to replace an item of property at the time of loss, less an allowance for depreciation; often used to determine the amount of reimbursement for a loss.

Additional coverages

Supplemental insurance coverages that apply only in certain circumstances, have reduced or separate limits of liability, or require the insured to meet certain requirements before they are applicable; also called coverage extensions, other coverages, and extended coverages.

Additional insured

An individual or company, in addition to the insured, who is listed in the declarations; an example is a mortgage company that has an insurable interest in the property insured.

Additional insured-Lessor endorsement

commercial auto endorsement used to make leased vehicles considered owned vehicles for coverage purposes.

Adhesion contract

A contract where one party has more power than the other party in drafting the contract; an insurance policy is an adhesion contract-the insurer is the one with more power.

Admitted insurer

A fully licensed carrier approved to provide specific lines of insurance coverage in the state.

Adverse selection

The tendency of insureds with a greater-than-average chance of loss to purchase insurance.

Agency

Principles governing the authority of any agent that represents a principal.

Agent

An individual or organization that legally represents another; a state-licensed professional who represents the insurance company in the sale and servicing of insurance; the direct link between the insurance company and the policyholder.

Aggregate limit

Type of policy limit found in liability policies that limits coverage to a specified total amount for all losses occurring within the policy period.

Agreed Value condition

Condition found in some property insurance policies that stipulates a certain value that will meet the coinsurance requirement; if the policy limit equals or exceeds this amount, the insured will not be assessed a coinsurance penalty; also called stated amount condition.

Agreed Value condition

Condition found in some property insurance policies that stipulates a certain value that will meet the coinsurance requirement; if the policy limit equals or exceeds this amount, the insured will not be assessed a coinsurance penalty; also called stated amount condition.

Agreed value method

A method of valuing property in which the insurer and the insured agree, at the time the policy is being written, on the maximum amount that will be paid in the event of a total loss.

Aleatory contract

A contract that is contingent on an uncertain event (a loss); an insurance policy is an aleatory contract.

Alien company

An insurance company incorporated in a country other than the United States that is doing business in the United States.

All Normal Operating Expenses (ANOE)

Operating expenses that would have been incurred had no business-closing loss occurred.

Allocated Loss Adjustment Expense (ALAE)

Loss adjustment costs assignable to a particular loss and not attributable to the overall cost of providing loss adjusting services. The cost of outside investigation, appraisal and defense counsel are examples of ALAE.

Amount subject to loss

Maximum coinsurance percentage x 12 months business income calculation

Annual transit policy

Nonfiled commercial inland marine transportation form that insures a property owner’s incoming or outgoing shipments of goods during a year.

Apparent authority

Legal doctrine that states that an agent has whatever authority a reasonable person would assume she has.

Application

Questionnaire filled out by an agent and the prospect who is seeking insurance; the form contains information used to underwrite and rate the policy.

Appraisal condition

Policy condition that outlines a procedure for when the insured and insurer disagree on the amount of a loss-the insured and the insurer each select an appraiser; the two appraisers select an umpire; if the appraisers cannot agree on the amount of loss, the umpire is consulted; the amount agreed to by any two of the three parties is the amount paid for the loss.

Appurtenant structures

Buildings of lesser value that are on the same premises as the main building insured under a property policy; they are usually covered by the policy.

Arbitration condition

Policy condition that is similar to the appraisal condition; may be used to resolve other areas of disagreement besides those regarding the value of a loss.

Arising out of

A causal connection between the furtherance of the employer’s business and the injury. If the employer benefits in some way from the activity, then the injury or illness suffered in the pursuit of that activity is considered to “arise out of” the employment.

Assault

No actual bodily contact, only the threat of bodily injury by force. Such threat is intentional and unlawfully directed towards another person such that the other party as a reasonable fear that injury is likely to occur. The apparent ability to carry out such a threat must also exist.

Assessment mutual company

Mutual insurance company that charges members a pro-rata share of losses at the end of each policy period.

Assignment condition

Condition in insurance policies that specifies that the policy cannot be transferred to another unless the company consents to the transfer in writing.

Assumption of risk

Defense against liability based on the common law principle that a person who knowingly exposes himself to danger or injury assumes the risk of loss and cannot hold another person responsible for the loss.

Authorized insurer

Company that meets a state insurance department’s standards and is authorized to do business in that state; also called an admitted insurer.

Automatic increase

In Insurance Endorsement Dwelling policy endorsement that provides an annual increase in the Coverage A amount of 4%, 6%, or 8%.

Automobile insurance plan

A state-sponsored plan that provides automobile insurance to those who are uninsurable under standard auto insurance policies.

Aviation hull insurance

Insurance that provides coverage for physical damage to aircraft.

Aviation liability insurance

Insurance provided for owners of aircraft that covers liability for bodily injury, injury to passengers, and property damage; also provides medical payments coverage.

Avoidance

A risk control technique that involves ceasing or never undertaking an activity so that the possibility of a future loss occurring from that activity is eliminated.

Bailee

A person or organization that has temporary possession of someone else’s personal property.

Bailee’s customer policy

Nonfiled commercial inland marine form obtained by a bailee to cover loss or damage to customers’ property in the bailee’s custody without regard to liability.

Bailment

Delivery of property by the owner to someone else to be held for some special purpose and then returned to the owner.

Bailor

The individual or entity granting possession of their personal property to another party for care, service, or keeping.

Bare walls

Used in relation to condominium associations and their insurance coverage. Associational insurance requirements are limited to common elements and limited common elements.

Barratry

Illegal acts committed willfully by a ship’s master or crew for the purpose of damaging the ship or cargo-includes hijacking, abandonment and embezzlement; this peril is covered in ocean marine insurance.

Basement

Any area of the building, including any sunken room or sunken portion of a room, having its floor below ground level (subgrade) on all sides.

Basic named Peril

Relates specifically to property coverage and named causes of loss. Basic named peril policies cover 11 specific perils: fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism or malicious mischief, sprinkler leakage, sinkhole collapse, and volcanic action.

Batch clause

A batch clause limits the amount of coverage to the per occurrence limits for all defective products that come from a single run or batch. If a manufacturer with a $1 million per occurrence products liability policy produces 10,000 defective products in one batch, all the claims from that arise out of that defective run are considered one occurrence. These “batch” clauses are generally found only in proprietary or manuscript forms.

Battery

Actual physical contact with another individual resulting in physical injury. This is not limited to physical beating, can also refer to physical restraint of a person. Battery can exist without assault (i.e. grabbing another person and beating them without provocation or warning).

Best’s

Organization that rates the financial stability of insurance companies doing business in the United States.

Bid bond

Type of surety bond that guarantees that if a contractor’s bid is accepted, the contractor will enter into a contract and provide the required performance bond.

Bill of lading

Standardized contract of carriage issued by common carriers to the business for which it is shipping goods.

Binder

Oral or written statement that provides immediate insurance protection for a specified period; designed to provide temporary coverage until a policy is issued or denied.

Blanket insurance

Type of insurance policy that covers more than one item of property at a single location or one or more items of property at multiple locations.

Blanket position bond

Fidelity bond that covers losses arising from the dishonesty of one or more employees acting separately or in collusion; provides a single limit of liability applicable to each employee involved in a loss.

Bodily injury (BI)

Defined in most policies to include injury, sickness, disease, and death resulting from any of these at any time.

Boiler and machinery insurance

Insurance that covers the insured for losses arising out of the use of steam boilers or other machinery or equipment; may be included in the commercial package policy.

Breakaway walls

Non-structural walls perpendicular to the flow of water (takes the direct hit) designed to fail under certain wave force conditions. The failure of these walls should cause NO damage to the structural supports, the foundation or any part of the building above the walls.

Broad evidence rule

A court ruling explicitly requiring that all relevant factors be considered in determining actual cash value.

Broad named perils

Relates specifically to property coverage. Broad named peril forms add three named perils to the causes of loss found under basic named perils: falling objects; weight of snow, ice or sleet; and water damage (limited).

Broad theft coverage endorsement

Dwelling policy endorsement that covers theft, attempted theft and vandalism, and malicious mischief resulting from theft; property is covered while it is on or off the premises.

Broad transfer

Provides the greatest scope of contractual risk transfer and requires the transferee to indemnify and hold harmless the transferor from all liability arising out of an incident, even if the act is committed solely by the transferor. This may qualify as an exculpatory contract and is illegal in some jurisdictions because the wording is considered “unconscionable.”

Broker

Individual who represents the prospect, instead of the insurance company, in the insurance transaction.

Buffer layer

A level of excess insurance coverage between a primary layer and an umbrella policy.

Builders risk coverage form

One of the commercial property coverage forms; covers commercial, residential, or farm buildings that are under construction.

Builders risk reporting form

Optional form used with the commercial property builders risk coverage form; allows insured to purchase a smaller amount of insurance that gradually increases as the value of the building under construction increases.

Building and personal property coverage form

Commercial property coverage form that covers buildings, the insured’s business personal property, and the personal property of others located at the business premises.

Burglary

As defined in crime insurance forms, the taking of property by a person unlawfully entering or leaving the premises as evidenced by visible signs of forced entry or exit.

Business auto coverage form

One of the commercial auto coverage forms; covers a business’s owned, nonowned, and hired autos against liability and physical damage losses.

Business auto physical damage coverage form

One of the commercial auto coverage forms; covers a business’s owned or hired business autos for physical damage only.

Business income

Net profit or loss that would have been earned plus continuing normal operating expenses.

Business income coverage forms

Commercial property coverage forms that pay for loss of income that the insured sustains due to a direct physical loss from a covered peril that forces the insured to suspend operations until the property can be repaired, rebuilt, or replaced with reasonable speed; available with or without extra expense coverage.

Business income from dependent properties

Broad form commercial property coverage form designed for insureds whose business income is dependent on the ongoing operations of other businesses they do not own.

Business liability

Liability that arises out of the conduct of a business.

Business pursuits endorsement

Homeowners policy endorsement that provides liability coverage for a business conducted away from the residence premises.

Businessowners policy (BOP)

Package policy designed to provide broad property and liability coverage for small businesses; eligibility requirements are more strict than the CPP’s.

Camera and musical instruments dealers coverage form

Filed commercial inland marine form written to cover camera and musical instruments dealers; covers the insured’s stock in trade as well as customer property in the insured’s care, custody, or control.

Cancellation

Termination of an insurance policy by the insured or the insurance company during the policy period.

Capital

The accumulated, permanent resources a company gets from owners and customers; the value of the portion of assets that a company owns and that are not restricted by obligations to creditors.

Captive agent

Independent contractors contractually restricted to representing one admitted insurance carrier or carrier group. The carrier not the agent owns the rights to the business produced.

Captive insurer

A subsidiary formed to insure the loss exposures of its parent company and the parent’s affiliates.

Cargo insurance

Type of ocean marine insurance that covers goods while they are in transit over water.

Casual labor

The people hired are not performing duties that would normally be done by any employee (they are doing work outside the normal operational requirements).

Casualty insurance

Line of insurance that includes a wide variety of unrelated coverages, including liability, auto, workers’ compensation, aviation, crime, and surety bonds.

Causal nexus

A legal term that in Latin means “to bind.” Legally it means to link a cause and effect. A causal nexus exists if the result is a natural and reasonable outcome or consequence of the activity.

Cause in fact

Without the actions of the supposed at-fault party there would be no injury or damage. If the wrongdoer’s act or omission is removed, would the injury or damage have occurred anyway?

Causes of loss form

Separate form used with the commercial property coverage part of the commercial package policy that lists covered perils and exclusions; several different versions provide increasingly broader coverage from basic to broad to special; a causes of loss form takes the place of the policy’s perils insured against provisions.

Certificate of insurance

Written form that verifies a policy has been written; provides a summary of the coverage provided under the policy.

Chattel

Movable or immovable personal property. Chattel does not include real estate or structures attached to the real estate.

Claim adjuster

Person employed by or acting on behalf of an insurance company to evaluate and settle insurance claims; the adjuster must determine the cause of loss, whether the loss is covered by the policy, the value of the loss, and the amount of loss payable by the policy.

Claims-made form

Commercial general liability coverage form that pays for BI or PD losses for which a claim was first made against the insured during the policy period.

Class rates

Rates developed and “ready to use” before the individual risk is even presented to the insurance carrier.

Clawback provisions

Clawback provisions allow boards of directors to demand repayment of performance-based bonuses made to CEO’s and CFO’s if such bonuses were paid based on fraud or misstatements in financial information.

Coinsurance clause

Policy condition that requires an insured to pay part of a loss if the amount of insurance carried on property is less than a specified percentage of the value of the property at the time of loss.

Coinsurance penalty

The amount not paid by the insurance company because the insured failed to comply with the coinsurance condition.

Collateral estoppel

A judgment of fact found in one case prevents a party from trying to deny that fact in another case.