Glossary

 

Annual Aggregate Deductibles - Professional Liability Insurance
Under the aggregate deductible option of a professional liability policy, deductibles are assessed on an annual aggregate, or cumulative basis, rather than on a per claim basis. The result is that, at a minimal additional cost, aggregate deductibles reduce out-of-pocket deductible expenses if a firm is faced with more than one claim in a policy period. For example, under the per claim deductible option, a firm with a $1,000 deductible that has two claims in a policy period would face a total deductible cost of $2,000. Under the aggregate deductible option, the same firm would pay only $1,000 in deductible costs for the entire policy period, regardless of the number of claims (up to the limit of liability).

Businessowners Policy (BOP)
This is commonly called a BOP policy. This term is used to describe business insurance coverages. It is a commercial package policy that provides Property and Liability insurance to certain types of small businesses. The Businessowners Policy prepackages a group of coverages desirable to small businesses. Usually coverage is provided for the following:
Property Coverage;
Business Income;
General Liability Coverage; and
Crime Protection

Business Income (See also: BOP)
Business Income includes Business Interruption coverage and/or Extra Expense Coverage. These coverages can be combined in one form or written separately.

Business Interruption (See also: Business Income, BOP)
Business Interruption covers lost profits and ongoing expenses during a business shutdown caused by a covered property loss. This coverage is critical because many businesses could lose their income for several months if their premises were seriously damaged. It can be written to include loss of rental income from damaged rental property. Salaries of "key" employees are normally covered, because these people are needed to get the firm back in operation. Coverage is available for "ordinary" payroll as well. Employees may seek other jobs if they are not kept on the payroll during an extensive plant shutdown, so the decision to include ordinary payroll can be important.

Claims Expenses Inside/Outside the Limit (CEIL/CEOL*) - Professional Liability Insurance
When a valid claim is made, certain costs, referred to as claim expenses, begin to accrue. Claim expenses include attorneys' fees, court costs, and all other charges incurred by the insurer in defending a claim. If your professional liability policy has claims expenses inside the limit (CEIL), all claim expenses are deducted first from the liability limit and the balance is available for settling a judgment. For example, if you have a $1 million liability limit and your claim expenses total $400,000, there is $600,000 available to pay damages. If you elect to have a CEOL endorsement on your policy. For a small additional fee, you are provided with a separate but equal limit of liability for claim expenses. Using the same example as above, on a $1 million liability limit, the full $1 million is available for payment of damages, and there is an additional $1 million available for expenses related to the claim. Purchasing the CEOL option when you arrange for your insurance results in additional protection if a claim is filed against you. * Certain states require mandatory CEOL coverage.

Claims-made Coverage - Professional Liability Insurance
Claims-made means the incident that led to the claim must have happened on or after the effective date of a policy (which could include a period of time prior to the policy inception date -- see "Prior Acts Coverage") and the claim must be first made and reported while the policy is in force. It is this second requirement, the making of claims while the policy is in force, that differentiates claims-made policies from other types of policies you may purchase. The requirement that a claim be made and reported during a period that the policy is in force necessitates the maintenance of continuous coverage once established. If a claims-made policy is not in force when a claim is made, no coverage will be available. By maintaining continuous coverage, you ensure that services performed under previous policies' periods will be covered should a claim be made and reported.

Crime Coverages (See also: Business Interruption, Business Income, BOP)

The loss of money is usually excluded under standard property policies. Losses involving employee dishonesty may also be restricted. Crime policies offer a package of coverages that are important to many organizations.

Declarations Page
This section personalizes the policy for an insured. It consists of the necessary information to identify the insured, the risk(s) to be covered, the coverage limits provided, the premium cost, the policy number, and the inception/expiration dates. The declaration page states certain acts concerning the parties to the contract.

Deductibles (See also: Property Insurance, BOP)
Property policies require that you pay a certain amount of all losses. The purpose is to eliminate the numerous small claims that routinely occur, and to encourage loss prevention. Only that portion of the loss, in excess of the deductible, will be paid by your insurer. You may wish to solicit quotes for various deductible levels to determine what cost savings are possible.

Electronic Data Processing Equipment (See also: Business Interruption, Business Income, BOP)
This endorsement adds coverage for mechanical breakdown of computer equipment. It can also include costs to restore damaged media, Business Interruption and Extra Expense.

Endorsement
A written or printed form attached to the policy, which alters provisions of the contract. Attachment or addendum to an insurance policy; an endorsement changes the contract's original terms.

Extended Claim Reporting Period (ECRP) Endorsement - Professional Liability Insurance
This special provision added to a professional liability claims-made policy addresses work performed during the policy period which gives rise to a claim after the policy has expired. This type of endorsement extends the period of time after policy expiration in which a claim can be made, or filed, and still be covered. Typical options are one-, three-, and five-year claim reporting periods.

Extra Expense (See also: Business Interruption, Business Income, BOP)
Extra Expense covers extra expenses (over normal operating costs) incurred to remain in operation following a covered property loss. Typical examples include the costs of setting up temporary quarters elsewhere and subcontracting work that would normally be done at the damaged premises. This coverage is particularly important to businesses that must remain in operation or risk losing customers. Coverage is often subject to a monthly limitation. For example, 40% of the limit is available in the first 30 days after a loss, 80% if the period of restoration exceeds 30 days, and 100% if the period exceeds 60 days.

Fine Arts (See also: Property Insurance, BOP)
Frequently coverage is specifically endorsed for valuable paintings, statuary and other art objects. An appraisal may be required to establish an object's value.

General Liability (See also: BOP)
General Liability is the most common business liability. As the name implies, it covers "general" liability. More specific types of liability such as automobile liability, aircraft liability, directors and officers liability and professional malpractice liability are covered under specialized liability policies. General Liability generally covers the legal liability of your firm for bodily injury to others and for damage to the property of others.

Insurable Risk (See also: BOP)
The conditions that make a risk insurable are: (a) the peril insured against must produce a definite loss not under the control of the insured, (b) there must be a large number of homogenous exposures subject to the same perils, (c) the loss must be calculable and the cost of insuring it must be economically feasible, (d) the peril must be unlikely to affect all insureds simultaneously, (e) the loss produced by a risk must be definite and have a potential to be financially serious.

Insuring Clause
The clause which sets forth the type of loss being covered by the policy and the parties to the insurance contract.

Key Person Insurance
A form of business insurance covering the life of a particularly important employee.

Legal Reserve
The minimum reserve that a company must keep to meet future claims and obligations as they are calculated under the state of insurance code.

Mode of Premium Payments
The frequency of paying premiums: monthly, quarterly, semi-annually, or yearly.

Modification Factors
Policies are subject to an "experience modification factor." This factor increases or decreases your premium based upon your company's loss experience. Companies with adverse loss experience will pay a higher rate than a company with good loss experience.

Peril (See also: BOP)
The cause of loss or damage.

Prior Acts Coverage
Most professional liability claims-made policies offer optional coverage for services performed prior to the effective date of the policy. This is called prior acts coverage. Prior acts coverage is typically extended to the effective date of a firm's first claims-made policy (when claims-made coverage has been maintained continuously) or to some date that your firm and the insurance company agree upon for pricing or underwriting reasons. The date established is called the prior acts date or retroactive date. Generally, the date remains the same with each subsequent renewal. If an act, error or omission happened before the prior acts date, it will not be eligible for coverage. With prior acts coverage, you can move your coverage from one insurance company to another without losing protection for covered services you performed in the past.

Property Excluded (See also: Property Insurance, BOP)
A few types of property are either excluded from coverage or subject to limitations in many policies, such as: accounts receivables, bills, money, deeds, evidence of debt, fine arts, jewelry, precious stones. precious metals, animals, land, crops and plants. If your organization has significant amounts of such property, be sure to discuss this with your Account Consultant.

Property Insurance (See also: BOP)
Property insurance covers damage to property that you own, and can be amended to cover damage to the property of others in your possession. Policies also can be endorsed to cover the consequences of such damage, such as lost profits or extra expenses. There are numerous additional modifications and supplemental coverages available. The most common type of property insurance covers direct physical damage to a building and to the furniture, equipment and other contents inside that building. If you are renting or leasing your premises, the policy probably covers only furniture, equipment and other contents. Renters can modify their policies to cover damage to the internal improvements and betterments they have made (new walls, shelves, etc.).

Special Risk Insurance
Coverage for risks or hazards of a special or unusual nature.

Split Limits of Liability - Professional Liability Insurance
Extended as an option to professional liability coverage under the Professional Liability Program, split limits provide professional liability coverage with a per claim limit of liability as well as a higher annual aggregate, or cumulative, limit. Split limits offer insured firms an affordable means to increase coverage and extend protection against multiple claims in the same policy year. With split limits of $250,000/$500,000, the policy will cover a single claim up to $250,000 and the cumulative amount of $500,000 for multiple claims.

Step-Rating - Professional Liability Insurance
Typically, professional liability claims are made a number of years after the act or omission that caused the claim. The amount of time between when services are rendered and when a claim arises varies, depends upon the type of services provided. Consequently, with each successive year of claims-made coverage, the likelihood of experiencing a covered claim increases. To reflect this likelihood, insurance companies offer significantly lower policy premiums in the first year of coverage, and then gradually "step" the premium rate through yearly increases. The percentage of these increases and the number of years "stepped" varies among insurance carriers and policies. Once a claims made policy is considered "mature", that is, the premium no longer reflects a reduced risk because the incremental exposure resulting from additional years of coverage is assumed to be negligible (generally in the third through eighth years of continually maintained coverage), the insurance company will rate the policy at a steady level. It is important to note that step rating is not the only consideration in determining a firm's premium. Areas of practice, annual billings or revenues, the number of professionals, quality control procedures, claim history, as well as other factors are taken into consideration when assessing the risk and determining the appropriate premium

Unearned Premium
That portion of the paid premium applying to the unexpired portion of the policy term; or that portion of the paid premium for which protection has not been received.

Umbrella and Excess Liability
Umbrella policies provide additional amounts of insurance over other insurance policies. Typically, umbrella policies go over your Automobile Liability, General Liability and Employer's Liability (part of a Workers' Compensation policy) coverages. Umbrella insurers may agree to provide coverage over additional underlying coverages, such as Non-Owned Aircraft Liability.

Valuable Papers (See also: Property Insurance, BOP)
The valuable papers endorsement provides coverage for the additional costs to research or restore damaged documents, drawings or records. It is an important consideration for groups that could lose valuable documents in a property loss.

Workers Compensation
Workers' Compensation policies include two basic coverages. The first coverage provides benefits for employees injured on the job. These benefits are determined by state law. The second coverage is Employer's Liability. This section covers suits by employees against their employers for job-related accidents. Suits can also come from family members of employees. Workers' Compensation laws often limit the liability of employers to employee suits, but suits are still possible.

WC Rating (See also: Workers Compensation)
At the beginning of the policy year, the employer provides an estimate of the payroll for the upcoming year. At the end of the policy year, the insurer audits the actual payroll, and adjusts the estimated premium up or down accordingly. Payroll is reported by state and also by job category. Rates vary considerably among job categories, so the apportionment of payroll should be carefully reviewed. Higher limits of Employer's Liability coverage are available for a moderate increase in premium.

This information should not be construed as legal advice or a legal opinion on any factual situation. This summary is for illustrative purposes and is not a contract. It is intended to provide a general overview, at the time first posted, of the topics described. Only the insurance policy can give actual terms, conditions and exclusions.