Dictionary of Insurance Terms

Audit
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.

Credit Insurance
Protection against loss caused by the insolvency of a firm's customers in excess of its normal credit losses; written by a few specialty casualty insurers.

Cyberspace (Internet) Liability
The fastest changing area of liability today is cyberspace liability. The rapid explosion of persons getting on the Internet in the past few years has spurned the interest of businesses who are interested in promoting and marketing their products and services over the Internet. Cyberspace refers to the digital world represented by computer technology but more particularly to the access to the vast flow of information available on the Internet. Only a few years ago only 12 million persons were accessing the Internet but now this number is over 60 million and growing at geometrical rates. Many companies are establishing home pages and communicate with others by means of e-mail, chat lines and bulletin boards. Some companies have started to promote and market products and services on the Internet. Liability rules that applied to advertising injury, libel, slander, infringement of copyright and trade marks will have to be reformed to comply with changing conditions of online communication. A few insurers are offering a package of coverages designed to protect the business that is providing online services to customers and subscribers. General liability policies provide advertising and personal injury coverages. Miscellaneous E&O insurance provides coverage for damages because of an error or omission for service provided to third parties. Media liability policies also provide coverage for defined named causes of loss and defense costs arising out of online transactions. Insurers are planning to package all of these coverages together to protect businesses communicating online. Limits of up to $5 million or higher are available.

Deductible
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.

Directors and Officers Liability
Insures corporate directors and officers against claims, usually by stockholders, alleging loss arising from mismanagement. Claims may also be made by other than stockholders against the corporation for mismanagement, which would also be covered. Outside Directorship Liability Policy Form is available, as supplementary protection, to assure sufficient limits for the exposure created when a company's director, officer or employee serves in an outside director position at its request. The coverage is not standard and may vary significantly between carriers, as well as by type of business - i.e. for profit, not for profit, closely held or publicly traded.
Any association with outside directors will need this coverage or risk losing the outside directors.

Employment-Related Practices Liability (ERPL) or (EPL) or (EPLI)
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.

Fiduciary Liability Insurance
Pays, on behalf of the insured, legal liability arising from claims for alleged failure to prudently act within the meaning of the Pension Reform Act of 1974. 'Insured' is variously defined as a trust or employee benefit plan, any trustee, officer or employee of the trust or employee benefit plan, employer who is sole sponsor of a plan and any other individual or organization designated as a fiduciary. Coverage is provided using nonstandard forms. The important information to be obtained in any form is that it conforms to current pension law.
Associations that have pension plans and trustees to administer the plan should purchase this coverage.

Financed Premium
Insurance premiums that are financed, either by an outside financial institution or, in some cases, through a financing agreement arranged with the insurer, which involves interest and collateral. This is not the same as an installment premium whereby the insurer allows the insured to pay the earned premium as it becomes due on an installment basis.

Flood
Overflow of water from its natural boundaries. More specifically defined by the National Flood Act of 1968 as "a general and temporary condition of partial or complete inundation of normally dry land areas from the overflow of inland or tidal waters, or the unusual and rapid accumulation or runoff of surface waters from any source."


Nonadmitted Insurer
If an insurer is not licensed to write insurance in a specific state, then the insurer is a nonadmitted insurer for that state.

Professional Liability
Professional liability coverage is designed to protect the professional from actions that stem from their professional capacity and training. The coverage is called "professional" for some and "errors and omissions" for others depending on the particular coverage form and the company issuing the coverage. Most is written on nonstandard forms and often on non-admitted paper. Important comparisons of coverage include whether the employees are covered in addition to the institution, exclusions, retroactive dates, limitations to location or place of service, renewal conditions limits and deductibles.

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.

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

Surplus Lines Tax
The tax levied on a surplus lines placement, payable by the licensed surplus lines producer placing the risk under the law of a particular state, and charged to the insured. Not to be confused with the direct placement tax, which is applicable in approximately half the states in taxing the insured directly for placement of insurance with a nonadmitted insurer where no surplus lines tax is paid.