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Collateral source rule

Damages assessed against the tortfeasor are not to be reduced by any other sources of recovery available to the injured party.

Collision coverage

In auto insurance, a type of physical damage coverage that covers loss that occurs when the insured auto strikes another object or vehicle; may also include upset or overturn of the insured auto.

Combined ratio

The sum of the loss ratio and the expense ratio; a ratio of 100% is the breakeven point; a ratio below 100% indicates an underwriting profit; a ratio above 100% indicates a loss; see Loss ratio and expense ratio.

Combustible liquids

Liquids having a closed cup flash point equal to or greater than 100 degrees Fahrenheit.

Coming and going rule

Injury suffered traveling to or home from work or even while going to and returning from lunch is generally not compensable.

Commercial articles coverage form

Filed commercial inland marine form that covers photographic equipment or musical instruments used commercially.

Commercial auto coverage

A part of the commercial package policy that provides liability and physical damage coverage for a business’s autos, including garage, trucking, and motor carrier businesses.

Commercial blanket bond

Type of fidelity bond that covers loss arising from the dishonesty of one or more employees acting separately or in collusion; the limit of liability applies separately to each loss, regardless of the number of employees involved.

Commercial crime coverage

A part of the commercial package policy that covers various crime exposures of businesses.

Commercial general liability (CGL) coverage

A part of the commercial package policy that provides liability coverage for businesses.

Commercial lines

Insurance designed for businesses, institutions, or organizations.

Commercial package policy (CPP)

The insurance services office (ISO) commercial lines policy that contains two or more lines of insurance or two or more coverage parts; it will include some forms and/or endorsements that are common to all lines of insurance or coverage parts, as well as the individual forms and endorsements required for the individual coverages selected; the CPP can include almost any commercial coverage the insured might need, with the exception of ocean marine, aviation, and workers’ compensation insurance; most commercial risks are eligible for the CPP.

Commercial property coverage

A part of the commercial package policy that provides insurance for a business’s real and business personal property.

Commercial property floater risks

Category of the nationwide definition that includes a number of commercial inland marine forms, such as Bailee’s customer forms, equipment forms, business floaters, and dealers policies.

Common policy conditions

Form that must be included in the commercial package policy; it contains conditions that apply to all coverages issued under the CPP.

Common policy declarations

Form that must be included in the commercial package policy; contains information about the insured that applies to all coverages issued under the CPP.

Comparative negligence

Law that allows an injured party to collect from another party for a loss, even when the injured party contributed to her own loss. Damages are reduced to the extent of the injured party’s negligence.

Compensable business income

The actual amount of business income paid during the period of restoration

Compensatory damages

Damages that reimburse an injured party for losses that were actually sustained.

Competent parties

One of the requirements of a legal contract; states that for a contract to be valid, it must be made between parties who are considered competent under the law.

Competitive state fund

Method of providing workers’ compensation coverage in some states; employers may either purchase insurance from a private insurance company or from a state fund.

Completion bond

Type of surety bond that guarantees that when contractors borrow money to fund construction projects, the project will be carried out and the work will be delivered free and clear of liens or encumbrances.

Comprehensive coverage

In auto insurance, a broad physical damage coverage that covers all property losses except collision and those perils or property that are specifically excluded; also called other than collision coverage (OTC).

Concealment

The withholding of a material fact involved in the contract on which the insurer relies.

Concurrent causation

A situation where two or more perils act concurrently (at the same time or in sequence) to cause a loss; some courts ruled that losses from concurrent causation are covered even when one of the perils that contributed to the loss is excluded under the policy; these rulings led property insurers to revise policy language to clarify the intent of the policy.

Conditional contract

A contract that contains a number of conditions that both parties must comply with; an insurance policy is a conditional contract.

Conditions

Portion of an insurance policy that describes the rights and duties of the insured and the insurance company under the policy.

Conditions precedent

Conditions that must be fulfilled to initially activate the insurance contract.

Conditions subsequent

Acts or duties that must be accomplished after the loss in order to receive the benefits promised by the policy.

Condominium association coverage form

Commercial property coverage form that covers the buildings in a condominium complex; does not cover the condominium owner’s personal property.

Condominium commercial unit-owners coverage form

Commercial property coverage form that may only be purchased by owners of commercial condominiums; covers the condominium’s contents, including business personal property and the personal property of others.

Consideration

A characteristic of a legal contract; the thing of value exchanged for the performance promised in the contract; with insurance contracts, the consideration that the insured gives is the premium payment; the consideration that the insurer gives is the promise to pay for certain losses suffered by the insured.

Constructive total loss

The property can be repaired, but the cost to repair the damaged property is greater than the value of the property after it is repaired (it would cost more to repair it than it would be worth when done).

Consultant

Insurance professional who, for a fee, offers advice on the benefits, advantages, and disadvantages of various insurance policies; sells advice, not insurance.

Contingent capital arrangement

An agreement entered into before any losses occur, that enables an organization to raise cash by selling stock or issuing debt at prearranged terms after a loss occurs that exceeds a certain threshold.

Continuing operating expenses

Normal operating expenditures that continue during the time the operations are discontinued due to a direct property loss.

Contract

A legal agreement between two competent parties that promises a certain performance in exchange for a certain consideration.

Contract bonds

Category of surety bonds that guarantee the fulfillment of contractual obligations; includes bid bonds, labor and materials bonds, performance bonds, payment bonds, supply bonds, and completion bonds.

Contract of adhesion

Any contract in which one party must either accept the agreement as written by the other party or reject it.

Contract of hire

States approach the issue of extraterritorial jurisdiction and when to name a state from the employment contract standpoint. The state of hire is essentially the deciding factor.

Contract of indemnity

A contract in which the insurer agreed, in the event of a covered loss, to pay an amount directly related to the amount of the loss.

Contractors equipment floater

Nonfiled commercial inland marine form that covers the heavy machinery, equipment, and tools a contractor uses in business.

Contractual risk transfer

A formal agreement between two parties whereby one agrees to indemnify and hold another party harmless for specified acts.

Contributing location

A dependent property location that supplies the insured with the parts, materials or services necessary to manufacture its product or provide its service.

Contribution by equal shares

Type of other insurance condition found in liability policies; it calls for all insurers to contribute equally up to the limit of the policy having the smallest limit, whereupon that company stops paying; the other companies share in the remainder of the loss until the loss is paid in full or all policy limits are exhausted.

Contributory negligence

Common law defense against negligence that states that if an individual contributes to her own loss in any way, then someone else cannot be held liable for the loss.

COPE

Construction, Occupancy, Protection and Exposures

Cost of insurance and freight

A shipping term in which the buyer is responsible for insuring the property from its point of origin.

Cost of risk

The total cost of managing an individual’s, family’s, or organization’s risk.

Countersignature

Signature of a licensed agent that, in most states, must appear on the policy to validate the contract.

Court bond

Type of surety bond used to settle legal arguments that do not involve monetary damages.

Coverage form

Document that contains insuring agreements, coverages, exclusions, and conditions; must be attached to a policy jacket to make a complete policy; also called a policy form.

Coverage part

Combination of forms and endorsements used to provide a particular commercial coverage; the forms and endorsements available under each coverage part can be used to issue a policy covering a single line of insurance or combined to provide a commercial package policy.

Coverage trigger

Event that activates (triggers) coverage under a commercial general liability coverage form Under the occurrence form, the coverage trigger is bodily injury or property damage that occurs during the policy period; under the claims-made form, the trigger is BI or PD that occurs on or after the retroactive date, if any, for which a claim is first made against an insured during the policy period.

Credit Risk

The risk customers or other creditors will fail to make promised payments as they come due.

Crime

The individual makes a decision to ignore the law.

Crumbling skull

A legal theory sometimes used as a defense to or argument against application of the “Eggshell Skull” rule. The principle behind this defense is that the result would have been the same whether or not the accused wrongdoer was involved.

Custodian

As defined in crime insurance forms, an insured, partner, or employee who has care and custody of insured property within the premises; does not apply to watchpersons or janitors.

Cut-through Endorsement

An endorsement regarding payment of reinsurance proceeds attached to either the primary insurance contract or the reinsurance contract activated by the insolvency of the primary insurer.

Damages

Monetary compensation awarded by a court to an injured party.

De facto employee

Employers may call a de facto employee an independent contractor when they are “in fact” an employee.

De jure employee

An employee is an employee created by an act of law.

Declarations (dec page)

Section of an insurance contract that shows who is insured, what property or risk is covered, when and where the coverage is effective, and how much coverage applies.

Deductible

Dollar amount the insured must pay on each loss to which the deductible applies; the insurance company pays the remainder of each covered loss, up to the policy limits.

Defense costs

Legal expenses incurred by the insurer to defend suits brought against insureds; defense costs are paid in addition to payments for BI or PD claims.

Definitions

Section of an insurance policy that clarifies the meaning of certain terms used in the policy.

Degree of care

Extent of legal duty owed by one person to another; also called standard of care.

Deposit premium

Premium paid at the beginning of the policy period that is based on an estimate of what the final premium will be; this premium is adjusted based on reports submitted by the insured to the insurer; also called an estimated premium.

Derivative suit

A derivative suit is one brought by one or several shareholders on behalf of a publicly held corporation.

Difference in conditions insurance (DIC)

Type of commercial property policy that covers most insurable perils but excludes basic fire and extended coverage perils.

Diminution of value

An actual or perceived loss of an auto’s resale or market value that results from a direct, accidental loss.

Direct loss

Financial loss resulting directly from a loss to property.

Direct response system

Insurance company that sells insurance through the mail or over the phone; no agents are involved.

Direct writer

Insurance marketing system where the company’s agents are also employees of the company.

Direct writing agents

Employees of the insurance carrier who generally receive a salary, benefits, and some type of commissions or bonuses

Directors and officers liability insurance (D&O)

Type of errors and omissions policy written for directors and officers of corporations who may be sued as individuals by stockholders.

Disability insurance

Line of insurance that protects the insured against loss of income resulting from injury or sickness.

Disaster recovery plan

A plan for backup procedures emergency response and post-disaster recovery to ensure that the critical resources are available to facilitate the continuity of operation in an emergency situation.

Discovery form

Commercial crime form that covers losses that are sustained at any time and discovered either during the policy period or up to 60 days after the policy expires; the discovery period for losses related to employee benefit plans extends for up to one year after policy expiration.

Discretionary payroll

Payroll expenses of specified individuals or classes of employees whose services are not necessary to resume operations

Diversifiable risk

A risk that affects only some individuals, businesses or small groups.

Diversification

A risk control technique that spreads the loss exposures over numerous projects, products, projects, markets or regions.

Doctrine of reasonable expectations

Legal principle that provides that an insurance policy includes coverages that an average person would reasonably expect it to include, regardless of what the policy actually provides.

Dollar trading

An insurance premium and loss exchange in which the insured pays the insurer premiums for low value losses and the insure pays the same dollars back tot he insured, after subtracting expenses.

Domestic company

Insurance company doing business in the state in which it is incorporated.

Domestic shipments

Category of the nationwide definition that includes coverage for cargo in transit over land.

Drive other car (DOC)-Broadened Coverage For Named Individuals Endorsement

Commercial auto endorsement that extends the definition of a covered auto to include autos the named insured does not own, hire, or borrow while being used by the person named in the endorsement.

Dual purpose operation

Operations that receive income from both manufacturing and non-manufacturing operations which are not directly relatable to the manufacturing process.

Duplication

A risk control technique that uses backups, spares or copied of critical property, information or capabilities and keeps them in reserve.

Duties following loss

Condition found in property-casualty policies that explains the insured’s responsibilities after a loss occurs.

Dwelling policy

Policy that provides property coverage to individuals and families; covers dwellings, other structures, personal property, and fair rental value; some versions also cover additional living expense; the unendorsed policy does not provide liability coverage.

Dwelling under construction endorsement

Dwelling policy endorsement used to provide provisional limits of liability for dwellings under construction; the limits of liability increase as construction of the building progresses.

Earned premium

Premium an insurance company has actually earned by providing insurance protection for the designated period of time.

Earthquake insurance

Insurance that covers damage to a structure, its contents, or both as the result of an earthquake; available as a separate policy and as an endorsement to the dwelling, homeowners, and commercial property policies.

Economic perils

Consumer preferences, market conditions, etc.

Eggshell skull

A legal term based in tort and criminal law that states that tortfeasors take the injured party as they find them. Also known as the “thin skull” rule.

Electronic data processing equipment floater

Nonfiled commercial inland marine policy that provides open peril coverage for computer hardware, computer software, and data that is owned by the insured or in the insured’s care, custody, or control. Breakdown coverage, extra expense, and business interruption coverage may also be included.

Elevated building

A non-basement building with its lowest elevated floor raised above ground level by foundation walls, shear walls, posts, piers, pilings, or columns.

Empirical data

Depends on data gathered from past events; it is trying to predict the future based on what has happened in the past.

Employee

A person hired to perform certain services or tasks for particular wages or salary under the control of another (the employer); or a worker hired to perform a specific job usual and customary to the employer’s business operation in exchange for money or other remuneration.