Definitions to Insurance Terms

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A B C D E F H I L M N O P R S T

- A -

Accident
A fortuitous event which takes place without one's foresight or expectation or design.

Actual cash value
The value of property as figured by determining what it would cost to replace the property and then adjusting this replacement cost by subtracting an amount that reflects depreciation of the damaged property.

Actuary
A person who uses complex mathematical methods, usually with the aid of computers, to analyze loss data and other statistics and develop systems for determining future premiums.

Adjusting
The process of investigating an alleged loss and determining whether a claim should be paid.

"All-risks"
"All-risks" property policies, also called "special" or "open-perils" policies, cover any loss unless it is caused by an excluded peril described in the policy. All losses are covered unless the insurer can prove that the loss was caused by an excluded peril. HARRP's property coverage is on an "all-risks" basis.

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- B -

Bind, bind coverage, binder
An insurance agent is usually authorized by the insurance company to bind coverage, stating that certain specified coverage is in force with a specific insurance company as of a particular date and time (or immediately). A binder is a statement that coverage is in force. Its purpose is to provide temporary coverage until an actual insurance policy can be issued.

Boiler and machinery insurance
A specialized insurance policy covering loss arising from the operation of such items as refrigeration units, engines, motors, pressurized systems, and other machinery. The risk in these areas are generally excluded from other property coverage policies because engineering and technical knowledge is needed to assess risks, reduce exposures, and design insurance.

Builder's risk form
A standardized property form designed for a building under construction, where the value changes each day as improvements are added. Coverage is written for the completed value of the building, storage and transportation of material to be used during construction with a premium set just above 50 percent of the amount that would be charged for the completed value. The coverage terminates when the building is completed and occupied. (also called course of construction).

Building and contents insurance
Property insurance providing coverage for buildings, personal property, or both at the location or locations described in the policy.

Building ordinance endorsement
A provision attached to a property insurance policy that provides additional payments if local building codes increase the cost of repairing or replacing the building after a loss.

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- C -

Claim
A statement that a loss has occurred and a demand for the payment of benefits under a coverage agreement. (see notice of claim or incident.) Under HARRP coverage, a claim must be a lawsuit filed in a court of competent jurisdiction or the submission of a written claim in compliance with the applicable state tort claim act.

Claimant
Anyone presenting a claim for indemnification. For a liability loss, the claimant is a person or business that has suffered a loss and seeks to collect for that loss from the HARRP member. For a property insurance loss, the claimant is the member who wants HARRP to pay for repairing or replacing the damaged property.

Claims-Made form
A liability coverage that obligates that insurer to cover only those losses that arise from claims filed during either the policy period or the extended reporting period. HARRP's errors and omissions and fidelity coverages are based upon a claims made form.

Class action lawsuit
A court action filed on behalf of a group of individuals injured by a common cause. HARRP coverage does not apply to class action lawsuits.

Collision
One vehicle running into or being struck by another vehicle or object. This coverage must be specifically requested and requires the member to pay a deductible.

Commercial general liability (CGL) coverage
Covers an individual or organization from exposures that can result in lawsuits alleging negligence that causes injury or property damage as a result of the member's premises, products, or the completed operations or actions of its employees.

Comparative Negligence
Under the law, a situation where responsibility for an injury may be apportioned to different parties (including the claimant) on the basis of the degree of negligence, usually by a percentage, attributed to each.

Completed operations liability coverage
Pays when the insured is liable for bodily injury or property damage caused by work that the insured has completed - such as repair work to customers' property.

Comprehensive (an auto insurance coverage)
Also called "other than collision," covers auto physical damage losses by nonexcluded perils other than collision. This coverage must be specifically requested and requires the member to pay a deductible.

Conditions
In a coverage agreement, provisions that explain the duties, rights, and obligations of HARRP and the member. They often prescribe the scope of coverage and may actually negate coverage if the condition does not occur.

Contractual Risk Transfer
The act of allocating the risk of claims and their related damages to the contracting party who controls the circumstances that might lead to the claim.

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- D -

Damage
Loss or harm resulting from injury to a person, to property, or to someone's reputation.

Deductible
A portion of a covered loss that is not paid by HARRP. The deductible is paid by the member and subtracted from the amount HARRP would otherwise be obligated to pay.

Depreciation
Loss in value of both real and personal property that develops as items age, wear out, or become obsolete. In a sense, depreciation reflects value of the property that has already been used up.

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- E -

Employee dishonesty coverage
Coverage for the loss of money and other property through theft or other dishonesty of one or more employees. Also called fidelity coverage and fidelity bond.

Endorsement
A document used to expand, reduce or otherwise modify the coverage in a coverage agreement or insurance policy.

Errors and omissions coverage
A special form of liability coverage that covers certain professions for their improper performance of or failure to perform a duty owed to a client or the public. It is purchased by lawyers, accountants, insurance adjusters, engineers, government officials and similar professions. Claims are based on allegations that the defendant acted improperly in the performance of his/her official duties. HARRP's errors and omissions coverage includes Employment Practices Liability.

Exclusions
Coverage provisions that restrict the broad terms of the insuring agreement by stating some exceptions to coverage - certain activities, loss causes, property, persons, and places - for which the agreement does not provide coverage. It is important for you to be aware of the exclusions because they create uninsured risks for your agency.

Exposures
Exposures, or loss exposures, are situations that could lead to an accidental loss.

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- F -

Flood insurance
A program administered in the United States under the guidelines of the federal government to provide flood insurance. HARRP Agency Insurance Services, Inc. can obtain this coverage for HARRP members.

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- H -

Hold-harmless agreement
A written contract whereby one party accepts legal liability for damages alleged to be caused by the other party. A common example involves construction. An injured party on a construction site may sue the owner or the contractor. Under a hold-harmless agreement, the contractor generally agrees to pay for damages alleged to have occurred on the site during construction activities, since the contractor normally controls the site and the activities during the process of construction.

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- I -

Indemnity
A reimbursement that compensates exactly for a loss. It is, in effect, the payment of an amount of money that restores an individual or organization to the same position as existed prior to the loss.

Insurance
A system by which a risk is transferred by a person, business, or organization to an insurance company (insurer), which reimburses the insured for covered losses and provides for sharing the costs of losses among all insureds by the collection of premiums from them.

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- L -

Liability (legal concept)
As a legal concept, liability means that a person, organization, or group of people is legally responsible, or liable, for the injury or damage suffered by another person, or organization, or group of people, usually resulting from negligence; the failure to exercise a proper degree of care in a particular situation.

Liability coverage (auto)
Auto liability coverage will apply if a member or its employee is responsible for hurting someone else or damaging someone else's auto or other property as a result of an auto accident.

Limits/limits of coverage
Limits or limits of coverage, indicate the maximum amount HARRP will be responsible for paying for a covered claim.

Litigation
The process of carrying on a lawsuit.

Loss control
Any activities that reduce, prevent, or minimize the economic, morale or social losses from accidents.

Loss ratio
The percent of premiums that goes to pay claims. HARRP Members with loss ratios exceeding 49% become subject to paying a Supplemental Underwriting Assessment.

Loss reserve
HARRP's best current estimate of the total dollar amount that will be paid in the future for an accident that has already occurred. Loss reserves, plus actual paid losses are included in calculating a loss ratio.

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- M -

Misrepresentation
A statement that is false with respect to a fact. If it is intentional and deals with a material fact, it can provide the basis for HARRP to void the coverage and deny responsibility for paying a claim.

Motor vehicle record, motor vehicle report
Also known as an MVR, lists the moving violations (such as speeding) and serious accidents that a driver has had in the past several years. Based upon MVR's, HARRP may determine that a particular driver is an unacceptable risk and refuse to cover claims resulting from that driver's accidents. Participants in HARRP's auto liability program are required to obtain MVR's at least annually, and inform HARRP of these which might indicate an employee is an unacceptable risk.

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- N -

Negligence
The failure of a person or organization to exercise a proper degree of care in a given situation. Alternatively, it is the failure to behave as a reasonably prudent individual would behave when faced with certain circumstances.

Notice of claim or incident
A form used to record key information about an accident, event or claim.

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- O -

Occurrence form
A liability coverage that obligates an insurer to cover losses from events that take place during the policy period, even if the claim is made after the policy expired. HARRP's general liability coverage is based upon an occurrence form.

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- P -

Peril
A cause of property losses. Fire, wind, hail are examples of a peril.

Personal Property
Everything except land and buildings and other structures attached to the land. Examples include merchandise, furniture, supplies, stock, and inventory. Sometimes called contents, although the HARRP coverage agreement covers not only property contained in a building but also property near the building.

Physical damage coverage (auto)
Auto physical damage coverage, also known as "damage to your auto" coverage, covers loss resulting from damage to an auto owned or operated by the member, and it also provides coverage if the car is stolen. Auto physical damage coverage is property insurance and consists of collision and comprehensive coverages.

Property insurance
Covers accidental losses resulting from damage to property of the member.

Punitive damages
Dollar awards to a plaintiff as a result of intentional outrageous misconduct by the defendant. They are designed to deter such behavior by punishing wrongdoers. They are not covered under the HARRP Coverage Agreement and most liability insurance policies.

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- R -

Rate
The price of HARRP coverage for each unit of exposure. The rate is multiplied by the number of exposure units to arrive at a premium.

Real Property
Land and buildings and other structures attached to the land.

Reinsurance
A situation where HARRP buys insurance to cover a portion of the risk it faces under the terms of the coverage agreement with the members.

Replacement cost, replacement cost value
The current replacement cost of a building is the amount it would cost to construct the building today using materials of the same kind and quality, with no deduction for depreciation of the existing buildings. The replacement cost of a house does not include the value of the land because the land itself will not be damaged by most perils.

Retention
Retention, also called self-insurance, involves paying losses with one's own funds rather than purchasing insurance. HARRP has a self-insured retention of $300,000 per claim and $100,000 for auto liability claims.

Risk management
A systematic approach to dealing with insurable and non-insurable risks facing an organization. An alternate definition is that risk management is a decision-making process that identifies exposures and creates programs to deal with them.

Risk management program
A systematic effort to manage the loss exposures facing an organization. It seeks to deal with the adverse effects of potential losses by identifying and measuring pure risks facing the organization. Then, it involves the development of a comprehensive approach to reducing the impact of personnel, property, and liability losses. HARRP develops risk management programs for implementation by the members in order to reduce the frequency and severity of the members' claims.

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- S -

Self-insurance
A deliberate plan to meet certain and unplanned losses without insurance or other transfer mechanisms. HARRP offers a program of self insurance and reinsurance to cover its member's claims.

Specified perils
Specified perils property policies cover any loss that is caused by one or more of the covered perils that is named (specified) in the policy. To prove that a loss is covered, the insured must prove that it was caused by one of the perils described (specified). Compare the burden of proof between "all-risks" and "specified perils" coverages.

Subrogation
The right of HARRP to be reimbursed for payments when a loss is caused by a third party and that party has assets to pay for the loss. HARRP's members are benefited by having their loss ratios reduced when HARRP obtains subrogation from responsible parties.

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- T -

Transfer
The shifting of pure risk from one individual or organization to another, either through the purchase of insurance or contractual transfer. HARRP's members are required to practice effective contractual risk transfer; and thereby benefit by lower rates resulting from fewer claims.