ACT OF GOD – An unpreventable accident or event that is the result of natural causes such as flood, storm or earthquake.

AGGREGATE LIMIT – The maximum amount an insurer will pay under a policy in respect of all accumulated claims arising within a specified period of insurance.

ALL RISKS – Term used to describe insurance against loss of or damage to property arising from any fortuitous cause except those that are specifically excluded.

AVERAGE – A clause in non-marine insurance policies whereby in the event of under insurance the claim paid out by the insurer is restricted to the same proportion of the loss as the sum insured under the policy bears to the total value at risk.

BUSINESS INTERRUPTION – An insurance class that protects companies following a material damage loss, against loss of profit, revenue or income. This can also be established to protect Increased Costs of Working and other Additional Expenditure. This cover will pay out over a set time period termed the Indemnity Period.

CERTIFICATE OF INSURANCE – A document prepared by or signed by an underwriter to provide evidence of insurance. Some are required by law as in Motor and Employers’ Liability covers, others such as Marine Insurance certificates are intended to replace the policy in some circumstances.

CLAIMS MADE – This can apply to Liability, Professional Indemnity or Directors & Officers Liability policies. If a claim is made during the time period when a policy is in effect, the insurance company is responsible for its payment, up to the limits of the policy, regardless of when the act or event causing the claim occurred, provided that the date is within the Retroactive Date on the policy. N.B. When a claims made policy expires all cover ceases unless Run-Off cover is arranged or a new claims made policy is established with a suitable retroactive date.

CLAIMS OCCURRING – If a claim arises out of an occurrence during the period when a policy is in force, the insurance company is responsible for its payment, up to the limits of the policy, regardless of when the claim is brought by the Third Party. Note that local laws often impose time limits on when claims can be brought. For example, 3 years for Third Party Personal Injury or 6 years for Third Party Property Damage in the UK. Time runs from date of knowledge of the injury or damage, hence the problem of “long tail” claims such as asbestosis when the time between inhalation of the fibres and manifestation of the disease can take many years.

CONDITIONS – All insurance policies have conditions. It is important that these are reviewed and compliance against them assessed and confirmed. Failure to do so whilst not as serious as non compliance with a Warranty could result in the claim being declined where a condition has been breached.

COST OF RISK – Various definitions are available. For example, the cost of insurance or other transferred risk plus the cost of claims arising from risk retained plus the internal cost of administering claims and the risk programme overall.

DEDUCTIBLE – the specified amount a loss must exceed before a claim is payable. Only the amount, which is excess of the deductible, is recoverable from insurers.

DIFFERENCE IN CONDITIONS – This cover is provided by global insurance arrangements to uplift local insurance covers to the level of cover provided under the global. It is not automatically available unless the same insurer is used at a local level. See also Difference in Limits.

DIFFERENCE IN LIMITS – This cover is provided by global insurance arrangements to uplift local insurance limits to the level provided under the global. It is not automatically available unless the same insurer is used at a local level. See also Difference in Conditions.

DUTY OF DISCLOSURE – A common law duty on the part of a proposer for insurance to disclose to the insurer any material fact that would influence the insurer in accepting or declining a risk or in fixing the premium or terms and conditions of the contract. This duty rests with insurers as well and they must not withhold information from the proposer.

EPL – Employment Practices Liability (EPL) covers the entity, all employees, Directors and Officers for claims brought by past, present or prospective employees for Sexual Harassment, Wrongful Termination and Discrimination.

EXCESS OF LOSS – A form of insurance where the insurer only becomes involved where a claim exceeds the amount of such loss retained by the primary insurer on the underlying policy.

EXCLUSIONS – A term in an insurance or reinsurance contract that excludes the insurer or reinsurer from liability for specified types of loss. An exclusion may apply throughout a policy or it may be limited to specific sections of it. In certain circumstances an exclusion may be limited or removed altogether following the payment of an additional premium.

FIRST LOSS COVERS – A type of partial insurance which covers less than the full value of the property at risk where the insurer agrees that the principle of “average” will not apply.

IBNR (INCURRED BUT NOT REPORTED) – Losses which have occurred during a stated period, usually a calendar or policy year, but have not yet been reported to the insurer as of the date under consideration. For instance, insurance company statements prepared after the end of the calendar year would have to include an estimate of losses that occurred during that year and also prior years which have not yet been reported. Note that it can take many years for liability claims to be brought and for the true result on a liability account to emerge hence it is often referred to as “long tail” business.

INCREASED COST OF WORKING – Under a business interruption policy some cover is provided for additional expenditure incurred by the insured solely for the purpose of reducing the shortage in production following an insured event.

INDEMNITY – A principle whereby the insurer seeks to place the insured in the same position after a loss as he was in immediately before the loss (as far as possible). The principle does not apply to life assurance.

INDEMNITY PERIOD – Under a business interruption insurance the period during which cover is provided for disruption to the business following the occurrence of an insured peril.

INSURABLE INTEREST – A monetary interest in life, property or an event legally entitling a person or business to insure it. Unless the insured will suffer financially in the event of a loss, he does not have an insurable interest and is not legally entitled to insure that particular risk.

JURISDICTION CLAUSE – A policy clause that specifies what country’s courts shall have jurisdiction in the event of a dispute under the policy. See also Territorial Limits.

LOSS ADJUSTER – Independent qualified loss adjusters are used by insurers for their experience and expertise necessary to carry out detailed and in some instances prolonged investigations of complex and large losses.

MATERIAL DAMAGE – An insurance cover that protects physical assets. Also known as Property Damage. See also ALL RISKS above as the most common form of perils covered by this insurance.

MATERIAL DAMAGE WARRANTY – A warranty in a business interruption policy stipulating that for the interruption insurance to be effective there must be a policy in force in respect of the material damage section and a claim paid or admitted thereunder for such damage caused by an insured peril.

MATERIAL DAMAGE WAIVER – A special and relatively common clause that reduces the impact of the Material Damage Warranty.

MATERIAL FACT – Any fact which would influence the insurer in accepting or declining a risk or in fixing the premium or terms and conditions of the contract is material and must be disclosed by the proposer.

NEGLIGENCE – Perhaps the most common form of tort. It has been defined in English case law as ‘the omission to do something which a reasonable man guided by those considerations which ordinarily regulate the conduct of human affairs would do, or doing something which a reasonable and prudent man would not do’. This gives rise to a civil liability.

OCCURRENCE WORDINGS – An occurrence wording insures losses within the year that they occur as opposed to when the claim is lodged with insurers. This type of wording normally applies to Employers’ Liability and also most Public Liability policies. This gives the best protection against long tail losses without needing to be concerned with run-off cover as is the case under “claims made” liability wordings.

PROFESSIONAL INDEMNITY INSURANCE – This policy protects a professional firm against liability towards third parties for financial injury, loss or damage, arising from professional negligence of the firm or its employees.

PROXIMATE CAUSE – Proximate cause has been defined in English law ‘the active efficient cause that sets in motion a train of events which brings about a result, without the intervention of any force started and working actively from a new and independent source. ‘All claims are assessed against the proximate cause being insured under the policy.

PUBLIC LIABILITY INSURANCE – The insurance of liability for accidental bodily injury or damage to the property of third parties, designed to cover businesses from the risk of being sued by a member of the public.

REINSTATEMENT OF LIMIT – This occurs where claims have eroded the Limit of cover provided. Some policies contain automatic reinstatement provisions but others require payment of additional premium.

REINSTATEMENT VALUE – A basis of settlement of a property damage policy. The payment made by insurers will not be reduced to reflect wear and tear or depreciation. It is important that the sum insured fully reflects the cost of reinstatement.

RETENTION – Assuming all or part of a risk instead of purchasing insurance or otherwise transferring the risk.

RETROACTIVE DATE – This is the date on a claims-made policy which triggers the beginning period of coverage prior to the effective date. If a policy has such a date, any claim made during the policy period on a loss that occurred before the retroactive date will not be covered.

RUN OFF COVER – When a “claims made” based policy is terminated due to a legal change in status (e.g. the firm is acquired or liquidated) it is possible to continue to protect past liabilities through a run-off policy. The cost of the run-off policy will gradually reduce as the years go by as liability arising from past activities diminishes.

SUBROGATION – In a contract of indemnity, the right of an insurer to stand in the place of the insured and exercise all rights of and remedies available to the insured, whether already enforced or not.

SUM INSURED – This refers to the values shown in the policy which should normally be the policyholder’s calculation of the total value at risk and upon which the insurer calculates the premium. Clauses can be added to protect against the effect of inflation.

TERRITORIAL LIMITS – Some liability/casualty policies will state that the territorial limit is restricted to the insured’s country of domicile, others extend to worldwide and others may give worldwide excluding USA/Canada. It is important to ensure that, if a third party claim can be brought against an insured in a foreign court, that the territorial limits expressed in the policy are wide enough to protect the insured. See also Jurisdiction.

THIRD PARTY – A person claiming against an insured. In insurance terminology the first party is the insurer and the second party is the insured.

THIRD PARTY LIABILITY – Liability of the insured to persons who are not parties to the contract of insurance and are not employees of the insured.

UBERRIMA FIDES – See Utmost Good Faith.

UTMOST GOOD FAITH – Insurance contracts are contracts of utmost good faith (uberrimafides) which means that both parties to the contract have a duty to disclose, clearly and accurately, all material facts relating to the proposed insurance. Any breach of this duty by the proposer may entitle the insurer to repudiate liability in the event of a loss.

WARRANTY – A very strict condition in a policy imposed by an insurer. A breach entitles the insurer to deny liability or all claims, not simply those directly affected by breach of the warranty. For this reason imposition of warranties by insurers should be strongly resisted.

Please note this list is not exhaustive.

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