FAQ & Glossary
Accountants Professional Liability Insurance
Provides coverage for financial loss from the delivery of professional accounting services. The policies typically exclude coverage for fraud, intentional acts, criminal acts, bodily injury (BI), and property damage (PD). Coverage for higher-risk activities, such as investment services and Securities and Exchange Commission (SEC) work, is available by endorsement.
A person or organization not automatically included as an insured under an insurance policy who is included or added as an insured under the policy at the request of the named insured. A named insured’s impetus for providing additional insured status to others may be a desire to protect the other party because of a close relationship with that party (e.g., wanting to protect church members performing services for the insured church) or to comply with a contractual agreement requiring the named insured to do so (e.g., project owners, customers, or owners of property leased by the named insured). In liability insurance, additional insured status is commonly used in conjunction with an indemnity agreement between the named insured (the indemnitor) and the party requesting additional insured status (the indemnitee). Having the rights of an insured under its indemnitor’s commercial general liability (CGL) policy is viewed by most indemnitees as a way of backing up the promise of indemnification. If the indemnity agreement proves unenforceable for some reason, the indemnitee may still be able to obtain coverage for its liability by making a claim directly as an additional insured under the indemnitor’s CGL policy. In property insurance, additional insured status is most often used in conjunction with a premises lease agreement between the named insured as the lessee and the owner of the leased building, in which the insured tenant is required to purchase insurance on the leased building and name the building owner as an additional insured on the insurance policy with respect to the leased building.
Additional Insured Endorsement
Policy endorsement used to add coverage for additional insureds by name–for example, mortgage holders or lessors. There are a number of different forms intended to address various situations, some of which afford very restrictive coverage to additional insureds. (Rather than naming each additional insured, a blanket additional insured endorsement sometimes is available.)
Additional Named Insured
(1) A person or organization, other than the first named insured, identified as an insured in the policy declarations or an addendum to the policy declarations. (2) A person or organization added to a policy after the policy is written with the status of named insured. This entity would have the same rights and responsibilities as an entity named as an insured in the policy declarations (other than those rights and responsibilities reserved to the first named insured). In this sense, the term can be contrasted with additional insured, a person or organization added to a policy as an insured but not as a named insured. The term has not acquired a uniformly agreed upon meaning within the insurance industry, and use of the term in the two different senses defined above often produces confusion in requests for additional insured status between contracting parties.
A company licensed or authorized to sell insurance to the general public. In the United States, admitted companies are licensed on a state-by-state basis and differentiated from surplus lines insurers, which are authorized to sell insurance in a state on a nonadmitted basis.
Advancement of Defense Costs Provision
A provision in directors and officers (D&O) liability policies obligating the insurer to pay defense and indemnity costs as incurred. Such provisions eliminate the need for insured directors and officers or the corporate organization to pay such costs prior to receiving reimbursement from the insurer. This is an important aspect of D&O coverage because both defense and indemnity expenses associated with claims against directors and officers are considerable.
Agent of Record
The individual or company authorized to represent an insured in the purchase, servicing, and maintenance of insurance coverage with a designated insurer. Most insurance companies will not disclose any information or discuss an insured’s account with any agent other than the agent of record. An insured wishing to change insurance agents must submit a revised agent of record letter to the insurer authorizing them to release the insured’s information and to discuss the insured’s coverage with the new agent.
Agents Errors and Omissions
Liability coverage for any act or omission of the insured (or of any other person for whose acts or omissions the insured is legally responsible), arising out of the performance of professional services for others in the insured’s capacity as an insurance agent or insurance broker.
The maximum amount the insured can pay as deductibles over a specified period, typically 1 year. Offers protection to the insured from a high frequency of losses; sometimes called “annual aggregate deductible.”
Aggregate Limit of Liability
An insurance contract provision limiting the maximum liability of an insurer for a series of losses in a given time period–for example, a year or for the entire period of the contract. Sometimes called “annual aggregate limit.”
Allied Healthcare Professional Liability Insurance
Professional liability insurance designed to cover nonphysician healthcare professionals including nurses, dentists, physical therapists, technicians, and a variety of other persons providing medical services. Allied healthcare professional liability policy forms are similar to those used to cover physicians. The policies are often mass marketed to insureds through professional associations, which allows for reasonable pricing.
(1) The assignment to individual policies of the obligation to defend or indemnify an insured when injury or damage has occurred during a succession of policy periods. (2) The determination of which elements of defense costs must be paid by the insurer and which elements may be subject to reimbursement by the insured, depending on covered and noncovered elements of the suit or claim brought against the insured. Some courts have ruled that an insurer is not obligated to pay the cost of defending noncovered elements of a claim.
Alternative Dispute Resolution Provision
A clause found within professional liability policies stating that disputes regarding the application of coverage under the policy will be resolved by alternative dispute resolution (ADR) approaches (generally arbitration), rather than through the traditional court system. Some policies contain mandatory arbitration provisions, stating that disputes must be settled in this manner. In contrast, other ADR provisions afford the insured the option–but not the obligation–to submit such disputes to arbitration. The latter version of this provision is more advantageous for the insured.
A.M. Best Rating
An evaluation published by A.M. Best Company of all life, property, and casualty insurers domiciled in the United States and U.S. branches of foreign property insurer groups active in the United States. The ratings are often used to determine the claims-paying ability, suitability, service record, and financial stability of insurance companies. Other rating agencies include Standard & Poor’s, Conning & Company, Fitch, and Moody’s.
Architects and Engineers (A&E) Liability Coverage
A form of liability insurance that insures design professionals against errors and omissions in their work. The policies normally exclude coverage for faulty construction work associated with projects.
Bankers Professional Liability (BPL) Insurance (BPLI)
A type of errors and omissions (E&O) coverage written for banks and financial institutions. The policies cover economic losses resulting from mistakes committed in providing financial services that include, but are not limited to, acting as a wire transfer or escrow agent; consumer financial, tax, or estate planner; trustee under a bond indenture; and providing electronic data processing services. Although the term “bankers professional liability insurance” (BPLI) is often used interchangeably with “trust department errors and omissions liability insurance,” the latter is actually a subset of BPLI. This is because coverage for liability arising from a bank’s trust department is only one of the many kinds of insurance provided under BPLI forms.
A common insurance policy condition that prevents an insurer from being relieved of its obligations in the event of bankruptcy or insolvency of the insured or the insured’s estate.
Bilateral Extended Reporting Period Provision
An extended reporting provision found in a claims-made policy that allows the insured to purchase an extended reporting period (ERP) if either the insured or the insurer decides to cancel or nonrenew the policy. (This is also known as a “two-way” extended reporting provision.)
Bodily Injury (BI)
Liability insurance term that includes bodily harm, sickness, or disease, including resulting death.
Legal liability to which radio and television broadcasters are subject. Defamation, invasion of privacy, and errors and omissions (E&O) are among the types of claims alleged against broadcasters. Coverage for this exposure is available under media liability policies.
Business Income Coverage
Commercial property insurance covering loss of income suffered by a business when damage to its premises by a covered cause of loss causes a slowdown or suspension of its operations. Coverage applies to loss suffered during the time required to repair or replace the damaged property. It may also be extended to apply to loss suffered after completion of repairs for a specified number of days. There are two Insurance Services Office, Inc. (ISO), business income coverage forms: the business income and extra expense coverage form (CP 00 30) and the business income coverage form without extra expense (CP 00 32). Business income coverage (BIC) is also referred to as business interruption coverage.
The termination of an insurance policy or bond, before its expiration, by either the insured or the insurer. Insurance policy cancellation provisions require insurers to notify insureds in advance (usually 30 days) of canceling a policy and stipulate the manner in which any unearned premium will be returned.
Certificate of Insurance
A document providing evidence that certain general types of insurance coverages and limits have been purchased by the party required to furnish the certificate.
Certified Act of Terrorism
A terrorist act that is eligible for coverage under the Terrorism Risk Insurance Act (TRIA). Such acts are certified by the Secretary of the Treasury, applying criteria spelled out in TRIA. To qualify as a certified act of terrorism, the incident must: (1) be a violent act or an act that is dangerous to human life, property, or infrastructure; (2) cause damage within the United States or other area of U.S. sovereignty (e.g., an U.S. embassy, airplane, ship); (3) be committed by someone as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the U.S. government by coercion; and (4) produce property-casualty (P&C) insurance losses in excess of $5 million. Insurers paying claims in response to certified acts of terrorism qualify for federal reimbursement.
Expenses of adjusting claims–for example, allocated claim expenses; court costs, fees, and expenses of independent adjusters, lawyers, witnesses, and other expenses that can be charged to specific claims; and unallocated claim expenses that represent salaries and other overhead expenses that are incurred in adjusting and recording claims but that cannot be charged against specific claims.
Claims-made and Reported Policy
A type of claims made policy in which a claim must be both made against the insured and reported to the insurer during the policy period for coverage to apply. Claims-made and reported policies are unfavorable from the insured’s standpoint because it is sometimes difficult to report a claim to an insurer during a policy period if the claim is made late in that policy period. However, more liberal versions of claims-made and reported policies provide postpolicy “windows,” which allow insureds to report claims to the insurer within 30 to 60 days following policy expiration.
Claims-made Coverage Trigger
A type of coverage trigger that obligates an insurer to defend and/or pay a claim on an insured’s behalf, if the claim is first made against the insured during the period in which the policy is in force. (The term “made” means notification to an insured that a demand for money or services is being requested.)
For example, assume that a policy containing a claims-made coverage trigger is written with a term of January 1, 2015-2016. Coverage will apply to claims made against the insured during this time period.
Claims-made coverage is in contrast to policies written with an occurrence trigger, whereby coverage applies to incidents occurring while the policy is in force–regardless of when the claim arising out of that incident is made against the insured. Thus, under an occurrence policy with a term of January 1, 2015-2016, coverage would apply to claims arising from incidents that occurred during the January 1, 2015-2016, period, irrespective of when the claims are made against the insured or reported to the insurer.
Although claims-made policies are most often used to write professional and directors and officers liability policy forms, they are occasionally found in commercial general liability (CGL) policies.
A type of lawsuit that is brought by a single, affected individual on behalf of a large group of similarly affected individuals. Class actions were created by the judicial system because frequently, the number of plaintiffs involved in a lawsuit is so numerous that it would be onerous to name and adjudicate the claims of all plaintiffs on an individual basis.
Coinsurance Hammer Clause
An alternative to the standard hammer clause found within professional, directors and officers (D&O), and errors and omissions (E&O) policy forms. Such a provision provides for a sharing of defense and indemnity costs (between the insured and the insurer) incurred after the insured refuses to consent to a settlement proposed by an insurer. The most common sharing percentage is 50/50 but can sometimes go higher (e.g., 70 insurer/30 insured). The effect of such clauses is to reduce the amount of indemnity and defense costs that an insured could potentially incur if it refuses to consent to a settlement amount recommended by an insurer.
Computer Software Design Errors and Omissions
Provides professional liability coverage for computer software designers, analysts, and consultants to cover errors in programs or in systems design. This coverage is often written as part of a package policy arranged for computer firms. The policies, which are provided on a claims-made basis, cover financial losses that result from an insured’s negligence. For example, coverage would apply if a software designer’s e-commerce program contained a security glitch that allowed hackers to purchase goods with expired credit cards.
Consent to Settlement Clause
A provision (also known as the “hammer clause” and “blackmail settlement clause”) found in professional liability insurance policies that requires an insurer to seek an insured’s approval prior to settling a claim for a specific amount. However, if the insured does not approve the recommended figure, the consent to settlement clause states that the insurer will not be liable for any additional monies required to settle the claim or for the defense costs that accrue from the point after the insurer makes the settlement recommendation.
Construction Management Agency / Agency Construction Management
A fee-based service in which the construction manager (CM) is responsible exclusively to the owner and acts in the owner’s interests throughout each stage of the project. An agency CM does not contract with subcontractors. The agency CM offers advice on optimum use of available funds; control of the scope of the work; project scheduling; optimum use of design and construction firms’ skills and talents; avoidance of delays, changes, and disputes; enhancing project design and construction quality; optimum flexibility in contracting; and procurement.
Construction Management At-risk
The construction manager (CM) acts as consultant to the owner in the development and design phases, but as the equivalent of a general contractor during the construction phase. The CM at-risk is responsible for early coordination during the design phase, value engineering, and constructability reviews as well as the selection, scheduling, and sequencing of trade subcontractors. The term “at-risk” conveys that the CM under this method bears the risks of the general contractor, such as price escalation, delay, etc., that are not present in an agency CM situation.
Construction Management Professional Liability Insurance
Claims-made coverage for the numerous professional exposures created by the providing of construction management (CM) services. The terms of coverage are similar to those found in design professional liability insurance but will include a number of specific exclusions that are intended to remove coverage for construction-related claims that are typical of general contracting operations, which are more appropriately covered under the contractor’s general liability insurance.
Liability imposed on an entity by the terms of a contract. As used in insurance, the term refers not to all contractually imposed liability but to the assumption of the other contracting party’s liability under specified conditions.
Crisis Management Coverage
An insuring agreement found within technology errors and omissions and Internet/online property and liability insurance policies. Subject to a sublimit (e.g., $25,000—$50,000), crisis management coverage generally reimburses expenses incurred to restore confidence in the security of the insured’s computer system. For example, a crisis management firm might be hired to develop a program for reassuring the customers of an online retailer that, following a breach of the retailer’s security system, the system has been reconfigured to prevent future breaches.
Cyber and Privacy Insurance
A type of insurance designed to cover consumers of technology services or products. More specifically, the policies are intended to cover a variety of both liability and property losses that may result when a business engages in various electronic activities, such as selling on the Internet or collecting data within its internal electronic network.
Most notably, but not exclusively, cyber and privacy policies cover a business’ liability for a data breach in which the firm’s customers’ personal information, such as Social Security or credit card numbers, is exposed or stolen by a hacker or other criminal who has gained access to the firm’s electronic network. The policies cover a variety of expenses associated with data breaches, including: notification costs, credit monitoring, costs to defend claims by state regulators, fines and penalties, and loss resulting from identity theft.
In addition, the policies cover liability arising from website media content, as well as property exposures from: (a) business interruption, (b) data loss/destruction, (c) computer fraud, (d) funds transfer loss, and (e) cyber extortion.
Cyber and privacy insurance is often confused with technology errors and omissions (tech E&O) insurance. In contrast to cyber and privacy insurance, tech E&O coverage is intended to protect providers of technology products and services, such as computer software and hardware manufacturers, website designers, and firms that store corporate data on an off-site basis. Nevertheless, tech E&O insurance policies do contain a number of the same insuring agreements as cyber and privacy policies.
See also Technology errors and omissions insurance.
A type of online crime in which a criminal threatens to damage or shut down a company’s website, e-mail server, or computer system or threatens to expose electronic data or information belonging to the company unless the company pays the criminal a specific ransom amount.
An amount the insurer will deduct from the loss before paying up to its policy limits. Most property insurance policies contain a per-occurrence deductible provision that stipulates that the deductible amount specified in the policy declarations will be subtracted from each covered loss in determining the amount of the insured’s loss recovery. Usually, the amount of the deductible is not subtracted from policy limits.
See also Aggregate deductible
Defense within Limits
A liability policy provision according to which amounts paid by the insurer to defend the insured against a claim or suit reduce the policy’s applicable limit of insurance. General liability policies are ordinarily not subject to such a provision, although the standard commercial general liability (CGL) policy provides for defense of the named insured’s indemnitee “within limits”Â when the named insured has a contractual obligation to provide such a defense. Defense within limits is more common in professional liability policies.
A type of lawsuit brought by one or more stockholders, on behalf of the corporation, alleging financial loss to the organization. The alleged harm must be to the corporation as a whole, such as the diminishing of the corporation’s assets, for shareholders to pursue an action derivatively. Any recovery in such suits inures to the benefit of the corporation itself as opposed to the shareholders who institute the action.
Design Build-professional Liability Insurance
Affords professional liability coverage for firms that function as both the designer and general contractor on a construction project.
Difference-in-Conditions (DIC) Insurance
(1) A policy designed to broaden coverage by providing additional limits of coverage for specific perils when standard markets won’t provide adequate limits of coverage, providing coverage for perils that are excluded on standard coverage forms, or supplementing international policies that are written by admitted insurers in the applicable foreign countries. (2) An all risks property insurance policy that is purchased in addition to a commercial property policy to obtain coverage for perils not insured against in the commercial property policy (usually flood and earthquake). (3) An endorsement to a contractor’s blanket builders risk insurance policy that fills the gaps between a policy provided by the project owner and the contractor’s policy so that the contractor has insurance comparable to what it would have had if coverage had been arranged under the contractor’s builders risk program. When a project owner elects to provide the builders risk coverage for all parties with an insurable interest, the project is normally removed from coverage under the contractor’s policy. A DIC endorsement typically states that, to the extent a loss is not covered under the owner-provided policy but would be covered under the contractor’s policy, coverage will apply on an excess basis. (4) An insurance policy that is designed to fill the gaps between the coverage provided by a multinational organization’s master insurance policies (property or liability) and coverage provided by policies purchased locally in accordance with each country’s insurance requirements so that the organization has uniformity of coverage regardless of location. This policy is referred to as a foreign DIC policy.
Directors and Officers (D&O) Liability Insurance
A type of liability insurance covering directors and officers for claims made against them while serving on a board of directors and/or as an officer. D&O liability insurance can be written to cover the directors and officers of for-profit businesses, privately held firms, not-for-profit organizations, and educational institutions. In effect, the policies function as “management errors and omissions liability insurance,” covering claims resulting from managerial decisions that have adverse financial consequences. The policies contain “shrinking limits” provisions, meaning that defense costs–which are often a substantial part of a claim–reduce the policy’s limits. This approach contrasts with commercial general liability (CGL) policies, in which defense is covered in addition to policy limits. Other distinctive features of D&O policies are that they: (a) are written on a claims-made basis, (b) usually contain no explicit duty to defend the insureds (when covering for-profit businesses), and (c) cover monetary damages but exclude bodily injury (BI) and property damage (PD).
See also Claims-made coverage trigger; Duty to defend; Errors and omissions (E&O) insurance; Nonprofit directors and officers liability insurance
Disciplinary Proceeding Expense Coverage
A type of coverage found within nearly all lawyers professional liability insurance policies that pays the expenses required to defend an insured attorney when a state bar association or regulatory agency brings disciplinary proceedings against him or her. Disciplinary proceeding expense coverage is typically subject to an annual sublimit of either $5,000 or $10,000. In addition, expenditure of such monies reduces the policy’s annual aggregate limit. However, disciplinary proceeding expense coverage does not apply to fines, penalties, monetary sanctions, or the return of any client fees.
The period of time after expiration allowed an insured to identify and report losses occurring during the period of a policy or a bond.
Duty to Defend
A term used to describe an insurer’s obligation to provide an insured with defense to claims made under a liability insurance policy. As a general rule, an insured need only establish that there is potential for coverage under a policy to give rise to the insurer’s duty to defend. Therefore, the duty to defend may exist even where coverage is in doubt and ultimately does not apply. Implicit in this rule is the principle that an insurer’s duty to defend an insured is broader than its duty to indemnify. Moreover, an insurer may owe a duty to defend its insured against a claim in which ultimately no damages are awarded, and any doubt as to whether the facts support a duty to defend is usually resolved in the insured’s favor.
With respect to directors and officers (D&O) and employment practices liability insurance (EPLI) policies, policies containing explicit “duty to defend”Â wording obligate an insurer to assume control of the claim defense process, including selecting counsel and paying legal bills. In contrast, non-duty to defend (or duty to pay) policies require only that the insurer reimburse the insured for funds expended by the insured in defending a claim.
That portion of a policy’s premium that applies to the expired portion of the policy. Although insurance premiums are often paid in advance, insurers typically “earn” the premium at an even rate throughout the policy term. The unearned portion of the premium that has been paid is kept in the “unearned premium reserve.”
Educators Legal Liability (ELL) Insurance
Designed to cover a broad range of nonbodily injury/nonproperty damage liability claims made against the administrators, employees, and staff members of both schools and colleges. ELL, which is also known as “school board legal liability insurance,” is a hybrid of traditional directors and officers (D&O) and errors and omissions (E&O) coverages. Typical claims covered by ELL include wrongful termination, wrongful dismissal, failure to grant tenure, and negligent counseling.
Employed Lawyers Professional Liability Insurance
Professional liability insurance covering lawyers who are employed by corporations rather than law firms, or those operating as sole practitioners. The need for such policies arises from the fact that both commercial general liability (CGL) and directors and officers (D&O) liability policies generally exclude coverage for the acts of professionals, including attorneys who work for corporations.
Employee Benefits Liability
Liability of an employer for an error or omission in the administration of an employee benefit program, such as failure to advise employees of benefit programs. Coverage of this exposure is usually provided by endorsement to the general liability policy but may also be provided by a fiduciary liability policy.
Employee Dishonesty Coverage
Coverage for employee theft of money, securities, or property, written with a per loss limit, a per employee limit, or a per position limit. Employee dishonesty coverage is one of the key coverages provided in a commercial crime policy.
Employee Leasing Company
An organization whose business it is to furnish workers to another entity (usually referred to as the client company) on a long-term basis. Organizations in this industry are referred to by a number of descriptive names. In addition to employee leasing company, commonly used labels include labor contractor and professional employer organization (PEO). The popularity of this type of staffing solution is driven by potential benefits to the client that include reduced administrative costs, access to risk management services like safety and loss control, and higher-quality, more cost-effective employee benefits.
Employee Retirement Income Security Act liability
Liability under the Employee Retirement Income Security Act (ERISA) for the exposure arising out of the responsibility as an officer or fiduciary of a company for the handling of pension funding and other employee benefit plans. Should the fiduciary responsibility be breached, the individual is personally liable for the loss. This resulting exposure is usually excluded from the general liability policy, even when employee benefits liability coverage is purchased. However, coverage may be purchased in the form of a separate fiduciary liability policy.
Employment Practices Liability Insurance (EPLI)
A type of liability insurance covering wrongful acts arising from the employment process. The most frequent types of claims covered under such policies include: wrongful termination, discrimination, sexual harassment, and retaliation. In addition, the policies cover claims from a variety of other types of inappropriate workplace conduct, including (but not limited to) employment-related: defamation, invasion of privacy, failure to promote, deprivation of a career opportunity, and negligent evaluation. The policies cover directors and officers, management personnel, and employees as insureds. The most common exclusions are for bodily injury (BI), property damage (PD), and intentional/dishonest acts. EPLI policies are written on a claims-made basis. The forms contain “shrinking limits” provisions, meaning that insurer payment of defense costs–which are often a substantial part of a claim–reduce the policy’s limits. This approach contrasts with commercial general liability (CGL) policies, in which defense is covered in addition to policy limits. Although EPLI is available as a stand-alone coverage, it is also frequently sold as part of a management liability package policy. In addition to providing directors and officers (D&O) and fiduciary liability insurance, management liability package policies afford the option to cover employment practices liability (EPL).
See also Directors and officers (D&O) liability insurance; Errors and omissions (E&O) insurance; Fiduciary liability; Management liability insurance.
Equal Employment Opportunity Commission (EEOC)
Enforces the principal federal statutes prohibiting employment discrimination, including Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Equal Pay Act of 1963, Title I of the Americans with Disabilities Act (ADA) of 1990, the Civil Rights Act of 1991, and Section 501 of the Rehabilitation Act of 1973. The EEOC was established by Title VII of the Civil Rights Act of 1964 and began operating July 2, 1965. Individuals who believe they have been discriminated against in employment can file administrative charges, which the EEOC investigates and then attempts to reach a voluntary resolution between the charging party and the respondent if it finds that discrimination has occurred. If unable to do so, the EEOC may sue in federal court. The commission also issues regulatory and other forms of guidance interpreting the laws it enforces.
Errors and Omissions (E&O) Insurance
An insurance form that protects the insured against liability for committing an error or omission in performance of professional duties. Generally, such policies are designed to cover financial losses rather than liability for bodily injury (BI) and property damage (PD).
Excess and Surplus (E&S) Lines Insurance
Any type of coverage that cannot be placed with an insurer admitted to do business in a certain jurisdiction. Risks placed in E&S lines markets are often substandard as respects adverse loss experience, unusual, or unable to be placed in conventional markets due to a shortage of capacity. Captives sometimes qualify as E&S companies. Hefty local premium taxes are payable by the broker.
Excess Liability Policy
A policy issued to provide limits in excess of an underlying liability policy. The underlying liability policy can be, and often is, an umbrella liability policy. An excess liability policy is no broader than the underlying liability policy; its sole purpose is to provide additional limits of insurance.
See also Liability insurance.
Extended Reporting Period (ERP)
A designated time period after a claims-made policy has expired during which a claim may be made and coverage triggered as if the claim had been made during the policy period.
Fair Labor Standards Act (FLSA) of 1938
A law that established a national, hourly minimum wage and promulgated eligibility rules for overtime pay. The Wage and Hour Division of the U.S. Department of Labor administers the law, and virtually all wage and hour claims cite a violation of the FSLA. Wage and hour claims allege that workers classified by employers as “exempt” (and therefore ineligible for overtime pay), are in fact, entitled to overtime pay. Wage and hour claims are a serious exposure for employers; a number of class action wage and hour claims have settled for more than $10 million.
The responsibility on trustees, employers, fiduciaries, professional administrators, and the plan itself with respect to errors and omissions (E&O) in the administration of employee benefit programs as imposed by the Employee Retirement Income Security Act (ERISA).
Financial Institution Bond
Used to insure banks and other financial institutions against employee dishonesty, burglary, robbery, forgery, and similar crime exposures. Previously called a “bankers blanket bond.” Coverage may be provided on the standard forms promulgated by the Surety Association of America (SAA) or on a special form drafted by the insurer.
First Dollar Defense Coverage
A coverage feature of some liability policies in which retentions do not apply to defense costs, even if no indemnity payments are made in conjunction with a claim. Thus, if an insurer were to expend $10,000 on defense of a claim and nothing for indemnity, the insured would not be required to pay any out-of-pocket costs for defense.
Insurance applying to the insured’s own property or person.
See also: business income coverage, difference-in-conditions insurance.
The cancellation of an insurance policy or bond as of its effective date, before the insurer has assumed liability. This requires the return of paid premium in full since the insured has never been covered under the policy.
See also: Cancellation; Pro rata cancellation; Short-rate cancellation.
Full Prior Acts Coverage
A type of claims-made liability policy that does not contain a retroactive date and therefore covers claims arising from acts that took place at any time prior to the inception date of the policy–regardless of how far in the past. For example, assume that an insured has a claims-made policy that includes a January 1, 2000, retroactive date and a January 1, 2010—11, term. If a claim is made against the insured on July 1, 2010, and the claim arose from a wrongful act that took place on January 1, 1998, there would be no coverage under the policy. This is because the wrongful act took place prior to the January 1, 2000, retroactive date. Now assume that another insured has a policy written with the same January 1, 2010—11, policy term, but the policy contains no retroactive date. If a claim were made against the insured on July 1, 2010, from a wrongful act that took place on January 1, 1998, coverage would apply because the absence of a retroactive date means that regardless of how far in the past a wrongful act giving rise to a claim took place, the claim will be covered (as long as it is made against the insured during the policy period). Full prior acts coverage is most likely to be granted when an applicant already has coverage in place at the time it submits an application. On the other hand, underwriters generally do not provide full prior acts coverage to insureds that have not previously purchased liability insurance. This is because underwriters sometimes believe that an applicant’s desire to buy coverage at this juncture may be motivated by the applicant’s intention to report a claim under the new policy.
See also: Claims-made coverage trigger; Prior acts coverage; Retroactive date.
Health Insurance Portability and Accountability Act (HIPAA) of 1996
A federal law that affords rights and protections for participants and beneficiaries in group health plans. HIPAA includes: (1) protections for coverage under group health plans that would otherwise limit or exclude coverage for preexisting conditions; (2) prohibitions of discrimination against employees and dependents based on their health status; and (3) allowance of a special opportunity for employees to enroll in a new plan, under certain circumstances, known as “open enrollment.”
Hospital Professional Liability (HPL) Insurance
Insurance purchased by hospitals covering their liability for professional acts, errors, or omissions. HPL forms are usually written on a combined basis with commercial general liability (CGL) policies to avoid “gray area” situations in which coverage could apply under either policy. HPL forms cover hospital employees but not independent contractor staff physicians who have been granted admitting privileges. Rather, such individuals are required to maintain their own professional liability insurance. Retention levels under HPL forms are often substantial, with $1 million self-insured retentions (SIRs) not uncommon for even small hospitals. The policies are normally written with a claims-made coverage trigger.
Immigration Violation Coverage Endorsement
A type of coverage endorsement sometimes added to employment practices liability insurance (EPLI) policies. Only a handful of insurers offer these endorsements, which usually address three types of costs otherwise excluded by the standard provisions of EPLI policies. These costs include coverage for (1) defending managers/supervisors charged with criminal violations of federal, state, and local immigration laws; (2) criminal fines and penalties; and (3) civil fines and penalties. Coverage is usually subject to a sublimit (e.g., $25,000) that is part of–not in addition to–the policy’s regular limit. When payments are made under these endorsements, they reduce the policy’s limit. One caveat associated with this endorsement is that coverage for civil and criminal fines/penalties may be considered contrary to public policy and, thus, uninsurable in certain jurisdictions. However, to date there have been no known challenges to the coverage provided by such an endorsement.
See also Employment practices liability.
(1) In policies written on an indemnification basis, the insurer reimburses the insured for claims and claim costs already paid by the insured. Technically, the insured must not only suffer a loss but must also pay the loss before being indemnified by the insurer. (2) The agreement of one party to assume financial responsibility for the liability of another party. Hold harmless agreements are typically used to impose this transfer of risk.
An individual or company that has signed an agreement with another party to perform some job or function on behalf of that party without the direction or oversight of the party. As respects workers compensation, many states have established criteria that determine whether an individual is functioning as an independent contractor or employee. A worker classified as an independent contractor and not an employee is ineligible to receive benefits under the workers compensation policy of the other party. In spite of the rules established, the delineation of an independent contractor remains in many jurisdictions a legal ambiguity.
Insurance Agents Errors and Omissions
Liability coverage for any act or omission of the insured (or of any other person for whose acts or omissions the insured is legally responsible), arising out of the performance of professional services for others in the insured’s capacity as an insurance agent or insurance broker.
Insured versus Insured Exclusion
An exclusion found in directors and officers (D&O) liability policies (and to a lesser extent in other types of professional liability coverage). The exclusion precludes coverage for claims by one director or officer against another. The purpose of this exclusion is to eliminate coverage for four types of situations: (1) employment practices claims, (2) internal disputes/infighting, (3) claims involving collusion, and (4) claims by organizations against their directors and officers for imprudent business practices.
Intangible products of human intelligence, especially as one may be entitled to the commercial proceeds of such products, such as patents or copyrights.
Specialty crime coverage that insures against loss by the surrender of property as a result of a threat of harm to the named insured, an employee, or a relative or guest of the insured or the insured’s employees. Available under an Insurance Services Office, Inc. (ISO), crime coverage form G, extortion (CR 00 08).
Known Loss Provision
Language commonly included in the insuring agreement of a liability policy that stipulates that the policy does not apply to losses of which the insured was aware prior to the policy period. In some policies, this restriction appears in the exclusions section of the policy. Some policies go a step further, stipulating that where the insurer has issued successive policies, the only policy that will apply is the one in force when the insured first becomes aware of the loss. The difference in these two types of provisions is most dramatic when progressive injury or damage goes undetected over multiple policy periods.
Lawyers Professional Liability Coverage
Provides attorneys with liability coverage for financial loss suffered by third parties arising from acts, errors, and omissions in providing professional legal services. Fraud, intentional and criminal acts, bodily injury (BI), and property damage (PD) are excluded from coverage. However, most of the policies provide coverage for personal injury (PI) perils (i.e., defamation, invasion of privacy) since allegations of such acts occur frequently in the legal arena. As is the case with most professional liability forms, lawyers professional liability policies are written with a claims-made coverage trigger. Lawyers professional liability coverage is also available in many states through bar-sponsored captive insurers in addition to commercial insurers.
Insurance paying or rendering service on behalf of an insured for loss arising out of legal liability to others.
See also Professional liability.
Limit of Insurance
The most that will be paid by the insurer in the event of a covered loss under an insurance policy.
Lloyd’s of London
An association of independent underwriters operating in England. It is not an insurance company; rather, it operates as a marketplace for large and/or unusual insurance exposures where brokers representing insurance applicants are able to contract with underwriters offering coverage.
Proportionate relationship of incurred losses to earned premiums expressed as a percentage. If, for example, a firm pays $100,000 of premium for workers compensation insurance in a given year, and its insurer pays and reserves $50,000 in claims, the firm’s loss ratio is 50 percent ($50,000 incurred losses/$100,000 earned premiums).
Major Shareholder Exclusion
An exclusion contained in some directors and officers (D&O) liability policies that precludes coverage for claims made by individuals who own a large percentage of the insured entity’s stock (typically more than 5 percent to 10 percent). The rationale for the exclusion is that such claims are often the result of infighting or personality conflicts between major shareholders and management rather than being caused by managerial errors involving substantive business decisions.
See also Directors and officers liability insurance.
Insurance for a professional practitioner that will defend professional liability suits and pay damages up to a maximum limit. Also known as “professional liability insurance.”
Managed Care Liability Insurance
A form of liability coverage written to cover organizations engaged in delivering medical services on a managed-care basis, such as health maintenance organizations (HMOs). Representative types of claims covered by the policies include allegations of negligent provider selection, direct professional liability, and wrongful denial of treatment.
Management Liability Insurance
Insurance that covers exposures faced by directors, officers, managers, and business entities that arise from governance, finance, benefits, and management activities (also called “executive liability insurance”). This includes (1) directors and officers (D&O) liability insurance, (2) employment practices liability (EPL) insurance, (3) fiduciary liability insurance, and (4) “special crime” insurance (covering kidnap, ransom, and extortion exposures). These coverages may be written as stand-alone insurance policies or combined into a single, “package” policy. Management liability policy “package” policies usually contain a set of common conditions applying to all of the coverage lines purchased. In most cases, an insured must select a minimum of two types of coverage to be eligible to purchase a management liability “package” policy. This arrangement offers meaningful premium discounts because much of the same data is needed to underwrite employment practices, D&O, fiduciary, and special crime coverages. Management liability “package” policies are usually available only to privately held firms, not-for-profit organizations, and small publicly traded companies (i.e., those with annual sales of under $25 million). Large publicly traded firms generally purchase stand-alone policies.
See also Directors and officers liability insurance; Employment practices liability insurance; Fiduciary liability insurance.
Media Liability Coverage
A type of errors and omissions (E&O) liability insurance designed for publishers, broadcasters, and other media-related firms. The policies are typically written on a named perils basis and cover the following broad areas: defamation, invasion of privacy, infringement of copyright, and plagiarism.
Medical Malpractice Insurance
Coverage for the acts, errors, and omissions of physicians and surgeons, encompassing physicians professional liability insurance, hospital professional liability (HPL) insurance, and allied healthcare (e.g., nurses) professional liability insurance. Although the majority of policies are written with a claims-made coverage trigger, such coverage is sometimes available on an occurrence basis. Typical exclusions are for: intentional/criminal acts, punitive damages, sexual misconduct, and specialized procedures (e.g., radial keratotomy) for which coverage may be “bought back” in return for additional premium. In addition to commercial insurers, medical malpractice coverage is also available in most states through physician-owned insurance companies known as “bedpan mutuals.”
The least amount of premium to be charged for providing a particular insurance coverage. The minimum premium may apply in any number of ways such as per location, per type of coverage, or per policy.
Miscellaneous Liability Coverage
A form of errors and omissions (E&O) coverage provided for a variety of professionals and quasi-professionals, including stock brokers, process servers, detective agencies, auctioneers, customs house brokers, franchisors, etc., for which no standard policy form is available (as is available for the “traditional” professions such as physicians, accountants, and attorneys). To tailor such policies to the particular profession involved, insurers generally append manuscript coverage provisions and exclusions.
A false or misleading statement that, if intentional and material, can allow the insurer to void the insurance contract. Some insurance policies and state laws that govern insurance contract provisions vary on the exact details of the conditions under which coverage may be voided; these variations are usually denoted in state amendatory endorsements.
An insurance company not licensed to do business in a certain state or country. In U.S. jurisdictions, such insurers can nevertheless write coverage through an excess and surplus lines broker licensed in that jurisdiction.
Nonprofit Directors and Officers Liability Insurance
Errors and omissions (E&O) liability insurance covering the directors and officers of nonprofit organizations. Such policies, while resembling the directors and officers (D&O) forms covering for-profit firms, generally offer broader protection by providing entity coverage, employment practices liability insurance (EPLI), and substantially lower retention levels.
A policy covering claims that arise out of damage or injury that took place during the policy period, regardless of when claims are made. Most commercial general liability (CGL) insurance is written on an occurrence form.
Contrast with: Claims-made coverage trigger; Claims-made policy.
Outside Directorship Liability Coverage
The coverage provided by directors and officers (D&O) liability policies for service on boards of directors outside the insured firm. Typically, such coverage only extends to service on the boards of nonprofit, rather than for-profit companies. Outside directorship liability coverage is found within the majority of corporate D&O liability policies and is written on either a double excess or a triple excess basis.
An attorney or law firm chosen by an insurance company to represent its policyholders in defending liability claims. Defense firms are selected for the panel based on their expertise in handling claims involving the particular coverage lines written by the insurer and their willingness to use billing rates acceptable to the insurer. When a policy is written on a duty to defend basis, either the insurer selects or the insured is allowed to select defense counsel from one of the firms contained within the panel. However, in some instances, insurers allow insureds to choose law firms that are not part of a panel. This is especially true if (1) the request is made prior to policy inception, and (2) the insured’s preferred firm has demonstrated capabilities in the applicable line of coverage.
See also Duty to defend.
An encroachment on a right granted by a government to an inventor assuring the sole right to make, use, and sell an invention for a certain time period. Coverage for this exposure is normally not provided by liability policies.
A one-time charge or flat per policy charge that does not change with the size of the policy.
Specifies the geographic area in which the property must be damaged (inland marine policies) or where injury or damage must occur (liability policies) for coverage to apply.
Predecessor Firm Coverage
A provision found in professional liability policies written mainly for lawyers or accountants that affords coverage for the acts of the firm that preceded the current insured organization. For example, assume that two accountants, “A” and “B,” form a partnership. After 5 years, they merge their practice with an existing partnership consisting of accountants “C,” “D,” and “E.” The predecessor firm provision in the professional liability policy purchased by this new combination would provide coverage for errors and omissions committed during the AB partnership even if claims arising from those errors or omissions are not made until after the merger of the two firms.
Prior Acts Coverage
A feature of claims-made policies that have either no retroactive date or a retroactive date earlier than the inception date of the policy. Such a policy covers claims during the policy period arising out of events that precede the policy period. Without such a feature, the policy’s retroactive date would preclude coverage with respect to these “prior acts.”
Prior and Pending Litigation Exclusion
An exclusion found in most directors and officers (D&O) liability policies that precludes coverage for claims from litigation that was pending prior to the inception of the policy. For example, assume that litigation was pending against the corporation–rather than individual directors–prior to the inception of a D&O policy. If the suit was later amended (following inception of a new policy) so that it also named the firm’s directors, the prior and pending litigation exclusion would eliminate coverage for the claim against the directors. The intent of the exclusion is to avoid exposure for the “burning building.” However, insurers will sometimes agree to remove this exclusion when a policy is renewed.
Privacy Notification Costs (Cybercoverage)
Found in some media technology coverage forms, may include the cost of hiring an expert to determine whether an electronic breach occurred and, if so, how widespread. It also may provide coverage for the costs incurred to notify those affected, credit monitoring for those affected, and public relations assistance to mitigate the damage to the insured’s reputation as a result of the data breach.
Private Company Directors and Officers Liability Insurance
Insures directors and officers of privately held companies against claims alleging mismanagement of the firm. Unlike publicly held corporations, the shares of privately held organizations are not traded on major stock exchanges. In addition, ownership is usually restricted to a small number of persons, typically the executives and managers who operate the company. As a result, the potential for high-dollar securities class action lawsuits is negligible under private company directors and officers (D&O) liability insurance. Consequently, premiums for private company D&O insurance policies are substantially lower than for comparable limits written for publicly held organizations.
See also Directors and officers liability insurance.
Insurance coverage for the cost of getting a defective product back under the control of the manufacturer or merchandiser that would be responsible for possible bodily injury (BI) or property damage (PD) from its continued use or existence. Standard product liability insurance does not cover this exposure due to the “sistership liability exclusion.”
A type of liability coverage designed to protect traditional professionals (e.g., accountants, attorneys) and quasi-professionals (e.g., real estate brokers, consultants) against liability incurred as a result of errors and omissions in performing their professional services. Although there are a few exceptions (e.g., physicians, architects, and engineers), most professional liability policies only cover economic or financial losses suffered by third parties, as opposed to bodily injury (BI) and property damage (PD) claims. This is because the latter two types of loss are typically covered under commercial general liability (CGL) policies. The vast majority of professional liability policies are written with claims-made coverage triggers. In addition, professional liability policies contain what are known as “shrinking limits,” meaning that unlike CGL policies (where defense costs are paid in addition to policy limits), the insurer’s payment of defense costs reduces available policy limits. Accordingly, when attempting to determine appropriate policy limits, insureds must consider the fact that because defense costs are often a high proportion of any claim settlement or judgment, they must usually purchase additional limits. The most common exclusions in professional liability policy forms are for BI, PD, and intentional/dishonest acts.
See also: Accountants professional liability insurance; Architects and engineers (A&E) liability coverage; Errors and omissions (E&O) insurance; Lawyers professional liability coverage; Management liability insurance; Medical malpractice insurance.
Professional Services Exclusion
An exclusion commonly endorsed onto general liability policies and found within directors and officers (D&O) liability insurance policies. As a modification of commercial general liability (CGL) policies, the exclusion serves to segregate general liability from professional (errors and omissions (E&O)) exposures, leaving only the former insured. (For example, it would not interfere with coverage of a physician’s premises liability if someone falls and is injured while in the office, but it would exclude any liability arising from the physician’s providing of medical care.)
As part of a D&O policy, the intent of the exclusion is similar: to preclude coverage of traditional professional services that are sometimes performed by individuals covered by the D&O policy but should be separately insured. The exclusion would apply in the following situation. Assume that a corporation’s chief counsel is an officer of the corporation and therefore covered by the D&O policy. The chief counsel reviews a merger and acquisition agreement with a competitor firm, concluding that the merger does not violate antitrust laws. But 3 months later, the antitrust division of the U.S. Department of Justice challenges the merger, which, after protracted litigation, does not take place. The competitor firm then sues the chief counsel for rendering an erroneous legal opinion that cost the competitor millions of dollars in legal and consulting fees. The professional services exclusion would preclude coverage for the chief counsel in this situation because the services provided were those of a lawyer rather than those of a traditional director or officer. Coverage for this exposure is available under a lawyers professional liability policy or under an employed lawyers professional liability policy.
See also: Duty to defend; Employed lawyers professional liability insurance; Lawyers professional liability coverage.
Project Liability Insurance
A form of architects and engineers (A&E) liability coverage in which coverage applies only to an insured’s work on a single project rather than to the entire scope of an insured’s practice. Such policies are advantageous because they provide coverage for all members of a project’s design team, reduce the incidence of disputes in the event of a claim, ensure coverage continuity following completion of work, and facilitate the availability of high limits needed on large projects.
Property Damage (PD)
As defined in the general liability policy, physical injury to tangible property including resulting loss of use and loss of use of tangible property that has not been physically injured. Also addressed in the homeowners and personal auto policies.
Pro Rata Cancellation
The cancellation of an insurance policy or bond with the return of unearned premium credit being the full proportion of premium for the unexpired term of the policy or bond, without penalty for interim cancellation.
See also: Short-rate cancellation; Cancellation; Flat cancellation.
Public Officials Liability Insurance
Provides liability coverage for the errors and omissions of public officials. In effect, such policies serve the same function for elected/appointed officials of state and local government as directors and officers (D&O) insurance serves for the directors and officers of corporations. However, one major difference is that under public officials liability forms, employees and the public entity itself are insureds, whereas this is not the case with D&O policies. Exclusions under this policy include losses due to fraud or dishonesty, bodily injury (BI) or property damage (PD), false arrest, assault and battery, defamation, and fiduciary liability.
Liability of a book, periodical, or other type of publisher arising from acts such as plagiarism, libel, or copyright infringement. Publishers of medical, engineering, and technical works may also face an errors and omissions (E&O) exposure from damage or injury arising from incorrect information that they provide. Coverage for these exposures is available in specialized policies, known as media liability insurance.
Damages in excess of those required to compensate the plaintiff for the wrong done, which are imposed in order to punish the defendant because of the particularly wanton or willful nature of his or her wrongdoing. Also called “exemplary damages.” Although the standard commercial general liability (CGL) policy and business auto policy (BAP) contain no punitive damage exclusion, many umbrella and excess liability policies contain such an exclusion.
Real Estate Brokers Errors and Omissions
Professional liability coverage for persons engaged in buying, selling, leasing, or otherwise dealing in real estate on behalf of others. Depending on the scope of such policies, coverage may also apply to persons engaged in property management, real estate appraisal, real estate consulting, or other related aspects of the business, although coverage for these more specialized exposures usually requires a special endorsement. As is the case with most professional liability policy forms, coverage is written on a claims-made basis.
Related Claims Provisions
Provisions within professional liability insurance policies stating that if more than one claim results from a single wrongful act, and if claims are made during more than one policy period, the insured is entitled to the limit applicable when the first claim was made rather than the sum of the limits that were applicable to the policy periods during which all claims were made. In recent years, this term has replaced the term “noncumulation of limits provision,” which has essentially the same meaning in both common usage and within policy forms. The related claims provision is also sometimes referred to as the “interrelated claims provision,” although this usage is less common.
(1) Assumption of risk of loss by means of noninsurance, self-insurance, or deductibles. Retention can be intentional or, when exposures are not identified, unintentional. (2) In reinsurance, the net amount of risk the ceding company keeps for its own account.
A provision found in many (although not all) claims-made policies that eliminates coverage for claims produced by wrongful acts that took place prior to a specified date, even if the claim is first made during the policy period.
For example, a January 1, 2010, retroactive date in a policy written with a January 1, 2010-2011, term, would bar coverage for claims resulting from wrongful acts that took place prior to January 1, 2010, even if claims (resulting from such acts) are made against the insured during the January 1, 2010-2011, policy period.
There are two purposes of retroactive dates: (1) to eliminate coverage for situations or incidents known to insureds that have the potential to give rise to claims in the future and (2) to preclude coverage for “stale” claims that arise from events far in the past, even if such events are unknown to the insured. In the former case, the retroactive date preserves the principle of “fortuity”–that is, the insurer should not be called upon to cover the so-called burning building. In the latter instance, the retroactive date makes policies more affordable by precluding coverage for events that, while insurable, are remote in time.
The practice of identifying and analyzing loss exposures and taking steps to minimize the financial impact of the risks they impose. Traditional risk management, sometimes called “insurance risk management,” has focused on “pure risks” (i.e., possible loss by fortuitous or accidental means) but not business risks (i.e., those that may present the possibility of loss or gain). Financial institutions also employ a different type of risk management, which focuses on the effects of financial risks on the organization. For example, interest rate risk is a bank’s most important financial risk, and various hedging tools and techniques such as derivatives are used to manage banks’ exposure to interest rate volatility.
Security Holder Exclusion
An exclusion in directors and officers liability (D&O) policy forms for claims brought by stockholders of the organization with the assistance, or on the urging, of any director or officer. The intent of the exclusion is to prevent so-called infighting claims in which a director/officer sues another director/officer by using a security holder in the organization as a “front.”
A type of insurance policy cancellation that serves as a disincentive for the named insured to cancel the policy before its normal expiration date. The only time short-rate cancellation would occur would be when the insured initiates the cancellation prior to the expiration date. With short-rate cancellation, the insurer is entitled to retain a greater percentage of unearned premium (UEP) than would otherwise apply with pro rata cancellation. The method in which the short-rate cancellation penalty may apply varies with the insurance policy in question. For example, a short-rate table may be included as a part of the policy; or the short-rate penalty may be calculated by multiplying the pro rate cancellation factor by a certain percentage increase–for example, 10 percent.
See also: Cancellation; Flat cancellation; Pro rata cancellation.
Side A coverage
The section of coverage under a directors and officers liability insurance policy affording “direct” coverage of an organization’s directors and officers. This portion of the policy provides direct indemnification to the directors and officers for acts for which the corporate organization is not legally required to indemnify the directors and officers.
A limitation in an insurance policy on the amount of coverage available to cover a specific type of loss. A sublimit is part of, rather than in addition to, the limit that would otherwise apply to the loss. In other words, it places a maximum on the amount available to pay that type of loss, rather than providing additional coverage for that type of loss. In professional liability insurance, sublimits are usually a stated percentage of an aggregate limit of coverage under a policy. For example, under a lawyers professional liability policy written with a $500,000 aggregate limit of coverage, there may be a 10 percent sublimit on coverage (i.e., $50,000) for punitive damages. In property insurance, however, sublimits may be stated as dollar amounts or as a percentage of the limit that would otherwise apply. For example, under a commercial property policy with a $2 million limit applicable to loss from all other causes, there may be a $100,000 sublimit on coverage for loss from flood, a $500,000 sublimit on loss from earthquake, and a debris removal sublimit of 25 percent of the direct damage loss amount. In both examples, the sublimit is the most the insured can collect for the type of loss to which the sublimit applies.
A term used in liability policies for the costs associated with the investigation and resolution of claims. Supplementary payments are normally defined to include such items as first aid expenses, premiums for appeal and bail bonds, pre- and postjudgment interest, and reasonable travel expenses incurred by the insured at the insurer’s request when assisting in the defense of a claim. Actual settlements/judgments are considered damages rather than supplementary payments. Attorneys’ fees may be considered as either damages or supplementary payments, depending on the policy. Commercial general liability (CGL) and business automobile liability policies cover supplementary payments in addition to their limits of liability. In contrast, supplementary payments reduce the limit of coverage under most (although not all) professional liability policies.
Surplus Lines Broker
A broker who is licensed to place coverage with nonadmitted insurers (insurers not licensed to do business in a given state). Surplus lines insurers can write coverage through a surplus lines broker if the broker is licensed in the state where coverage is being written. The types of risks typically written by surplus lines brokers are generally substandard risks (e.g., risks with adverse loss experience), unusual risks, and risks for which there is a shortage of capacity in the admitted market.
See also: Nonadmitted insurer; Surplus lines insurance; Wholesale broker.
Surplus Lines Insurance
Refers to coverage lines that need not be filed with state insurance departments as a condition of being able to offer coverage. The types of risks typically insured in the surplus lines insurance markets can usually be categorized as risks with adverse loss experience, unusual risks, and those for which there is a shortage of capacity within the standard market.
A group of companies or underwriters who join together to insure very high-valued property or high-hazard liability exposures. Insurance exchanges, such as Lloyd’s of London, use syndicates to write insurance.
See also Lloyd’s of London.
A provision found within a claims-made policy that permits an insured to report claims that are made against the insured after a policy has expired or been canceled, if the wrongful act that gave rise to the claim took place during the expired/canceled policy. Tail coverage requires that the insured pay additional premium.
For example, assume that a claims-made policy with a January 1, 2015-2016, term contains tail coverage with a term of January 1, 2016-2017. Also assume that the insured did not renew the policy when it expired on January 1, 2016. Under the tail coverage, the insured will be able to report claims to the insurer during the January 1, 2016-2017, period of tail coverage, provided the claim resulted from a wrongful act that took place during the expired January 1, 2015-2016, policy term.
Tail coverage, which is synonymous with extended reporting period provisions, includes several important features: (1) the coverage applies only if the wrongful act giving rise to the reported claim took place during the expired/canceled policy period. Thus, there is no tail coverage available for wrongful acts if committed during the period of tail coverage. (2) Tail coverage applies for a limited time period, generally 1 year. (3) Purchasing tail coverage for a specific time period does not reinstate the policy’s aggregate limit of liability.
See also Extended reporting period.
Technology Errors and Omissions Insurance (Tech E&O)
A type of insurance designed to cover providers of technology services or products. For example, data storage companies and website designers provide technology services, while computer software and computer manufacturers offer technology products.
Tech E&O policies cover both liability and property loss exposures. Major liability insuring agreements include losses resulting from: (a) technology services, (b) technology products, (c) media content, and (d) network security breaches. Key property insuring agreements provide coverage for extortion threats, crisis management expense, and business interruption.
Tech E&O insurance is often confused with cyber and privacy insurance. In contrast to tech E&O coverage, cyber and privacy insurance is intended to protect consumers of technology products and services. Nevertheless, cyber and privacy insurance policies do offer a number of the same insuring agreements as tech E&O policies.
See also Cyber and privacy insurance.
Terrorism Risk Insurance Act (TRIA) of 2002
Federal legislation enacted in 2002 to guarantee the availability of insurance coverage against acts of international terrorism. Under the Act, commercial insurers are required to offer insurance coverage against such terrorist incidents and are reimbursed by the federal government for paid claims subject to deductible and retention amounts. This legislation was modified and extended by the Terrorism Risk Insurance Extension Act (TRIEA) in 2005
Third-party Liability Coverage
In general, any type of insurance covering the legal liability of one party to another party. For example, commercial general, business auto, and errors and omissions (E&O) liability policies all provide third-party liability coverage. In the context of employment practices liability (EPL) insurance, a so-called third-party liability coverage option is sometimes available to address claims made by nonemployees (e.g., customers, vendors, clients) against the insured company that arise from acts committed by employees. Most often, third-party claims allege some form of either discrimination or harassment. The majority of EPL policies do not explicitly cover third-party claims, although most insurers will provide such coverage by endorsement.
Wage and Hour Claims
An assertion by an employee-plaintiff that his or her employer has failed to pay overtime wages owed to the employee. Within the past several years, a number of high-profile, high-dollar wage and hour claims have been filed on a class action basis, a fact that has vastly increased the dollar amount payable under such lawsuits. Given the magnitude of this exposure, most employment practices liability insurance (EPLI) policies specifically exclude coverage for wage and hour claims.
A key provision within the Dodd-Frank Act that requires the Securities and Exchange Commission (SEC) to award whistleblowers a payment equal to 10 to 30 percent of the proceeds (recovered from corporations that violate U.S. securities laws) based on information provided by the whistleblower. Significantly, the SEC will not provide awards for such information unless it produces actual monetary recoveries.
Where the SEC recovers at least $1 million, a reward to eligible whistleblowers must be between 10 and 30 percent of the aggregate monetary penalties obtained by the SEC and other U.S. governmental entities, in any related actions.
The SEC retains broad discretion in calculating the actual amount of the award. The factors that are considered in arriving at the amount include the significance of the information provided; the extent of the assistance provided; whether the whistleblower made use of a company’s internal compliance function; whether the individual put himself/herself in danger; whether the whistleblower encouraged others to assist the SEC; and the extent to which the whistleblower participated in the offense.
The whistleblower provision also includes a number of so-called anti-retaliation measures that are designed to protect employees (and others) who report various types of corporate malfeasance.
In addition to the heightened exposures created by whistleblowers’ reports to the SEC, corporate directors and officers are also likely to face more numerous securities class action claims as a result of the whistleblower provision. This is because plaintiffs’ attorneys are expected to “harvest” a number of the more egregious tips provided by whistleblowers and then use the information associated with such tips as the basis for bringing securities class action claims.
A type of insurance broker who acts as an intermediary between a retail broker and an insurer, while having no contact with the insured. Wholesale agents place business brought to them by retail agents. Unlike a retail broker, wholesale brokers have direct contact with the insurer, whereas the retail agent who produced the business does not. The same broker can function as a retailer or wholesaler, depending on the specific situation.
Wholesale brokers often possess specialized expertise in a particular line of coverage or in a line of coverage that is unusual and/or have greater access to or influence with certain insurance markets, which is especially valuable when dealing with a difficult-to-place risk.
There are two types of wholesale brokers: managing general agents and surplus lines brokers. The latter work with the retail agent and the insurer to obtain coverage for the insured; but unlike a managing general agent, a surplus lines broker does not have binding authority from the insurer.
The event triggering coverage under many professional liability policies. Typically, a “wrongful act” is defined as an act, error, or omission that takes place within the course of performing professional services.
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