Twenty One Useful Insurance Terms You Should Know

INSURED An individual or company that has insurance policies in place to protect them from damage or loss to their property. This also applies to liability policies which defend him against third party claims.

NAMED INSURED– A person, firm, or company that is named specifically as an insured under a policy. This is to distinguish from individuals who may be covered in certain circumstances even if they are not named. In auto liability policies this principle is used frequently. The policy defines the “insured” and coverage extends to any other drivers using the vehicle with permission from the named insured. Other parties can benefit from an insurance policy by being listed as “additional insurers” in an endorsement or policy.

Additional insured A person or entity that is not automatically covered by another policy but who receives some protection under the policy of named insureds. In most cases, an endorsement will be required to obtain additional insured status. In order to obtain additional insured status, an endorsement is typically required.

COINSURED: Sharing a single insurance policy or risk between multiple insurance companies. Each insurer pays its share of the losses directly to the insured. Co-insurance is when the insured agrees, in exchange for a lower rate, to cover a percentage of the property. If you agree to guarantee your contents and the building to a maximum of 90% or 80%, it doesn’t matter what happens. Only if you are covered by the correct coverage will your company pay out any claims.

Use the following equation to determine the amount that can be recovered for partial losses:

Insurance amount * loss

Insurance is the amount that equals payment

Should be carried

Example BMr. Here is an example co-insurance provision that Right uses:

$100,000 building value

Insurance up to $80,000

$ 10,000 building loss

Applying the equation to calculate payment for partial loss, you can collect the following amount:

$80,000x 10,000 = $10,000

$80,000

Mr. Right can recover the full amount of his losses due to the co-insurance clause he has.

Example A In the following scenario, Mr. Worrong is covered by a co-insurance clause of 80%.

$100,000 building value

Insure yourself for $ 70,000

$ 10,000 building loss

Applying the equation to calculate payment for partial loss, you can collect the following amount:

$70,000x 10,000 = $8,750

$80,000

The company is not responsible for the $10,000 loss that Mr. Wrong has suffered. For the remaining loss, Mr. Wrong has self-insured himself at $1,250

PREMIUM – This is the amount that an insured pays for insurance coverage.

DEDUCTIBLE First dollar loss that an insured must pay before benefits are paid by the insurer. It is similar to the self-insured retention (SIR). The insurer becomes liable when the deductible is exhausted.

SIR This is the same as a deductible but the insured must pay all legal costs incurred in relation to the amount of the SIR.

POLICY CAP – Maximum amount of money that an insurer can charge the insured under its policy.

FIRST PARTY INSURANCE This insurance covers your property or person. This insurance covers any damage to property. It includes property insurance coverage. BUILDERS RISK INSURANCE is an example first-party insurance. This insurance protects against damage to vessels and rigs during construction. This insurance covers only the contractor and owner of the rig.

THIRD PARTY INSURANCE– Insurance that covers the claims and negligent acts of third parties. Not the insurer or insured – a part of the insurance policy. SHIP REPAIRER’S LEGAL RESPONSIBILITY – This policy protects contractors who repair, alter or modify a vessel for a client in their yard, at another location, or on the sea. The insured is also covered while the property of the customer remains in the “Care Custody & Control” of the insurer. Commercial General Liability is required for additional coverages, such as in slip-and-fall situations.

INSURABILITY Any legal interest or interest in something that is covered under an insurance policy. This could lead to a loss of money for the insured. Insurable interests include ownership or an interest in a property. A shipyard is building a vessel, or rig. (See BUILDERS RISK above).

LIABILITY INSURED Insurance covering an insured from third-party claims for personal injury or property damage. These losses are usually caused by the negligence of the insured. In marine construction, this policy is known as an MGL (marine General Liability). In non-marine situations, the policy will be called a CGL policy (commercial general liability). There are basically two types of policies:

• First-party insurance covers the insured’s personal property. First-party insurance is a policy for a home owner that covers fire damage. Third-party insurance is also known as liability coverage. Liability insurance covers the policyholder’s liability towards others. The homeowners’ policy could cover the liability of someone who trips or falls on the property. As shown in the above examples, one policy can offer first- and third party coverage.
• Liability insurance offers two benefits. Liability insurance covers third-party losses. It is also called indemnity or coverage of loss. Most liability policies include a duty to defend. To fulfill its duty to defend the insurer must pay for court costs, experts witnesses and lawyers in order to defend the claims of third parties. They can be substantial and should not be ignored when facing a liability claim.

UMBRELLA LIABILITY COVERAGE

This type of insurance provides additional liability protection. This insurance is important for several reasons.

• This insurance provides additional coverage to the “underlying” policy you already have.
• The policy will cover all liabilities except for some exclusions. The deductible ranges from $10,000 to $25,000
• This policy provides coverage for loss-related claims and replacement coverage.

NEGLIGENCE

– Failure of reasonable care. Person who acts in a way that a prudent and reasonable person would not. Negligence is a legal cause for damage if, directly or continuously and naturally, it causes or substantially contributes to such damages.

GROSSNEGLIGENCE An irresponsible disregard for safety or life of others. It’s almost as if you are consciously violating other people’s rights to safety. It is not only negligence, but it could also be considered intentional misconduct. In some jurisdictions, punitive damage can be awarded if the trier of fact (jury or court) finds someone guilty of gross negligence.

WILLFUL MISLEADER– An intentional action taken with knowledge of the possibility of serious injury, or reckless disregard to its consequences.

PRODUCT RESPONSIBILITY– Liability that arises from the negligent manufacture of a product and its subsequent release into circulation. Liability arises when a manufacturer fails to test or manufacture a product properly.

DEFECTS IN THE MANUFACTURING A design that does not conform to the product.

DESIGN FAILURES When foreseeable harm to a product can be avoided or reduced by adopting a reasonable alternative design. If the alternate design is not used, it becomes unreasonably unsafe.

Inadequate Warnings or Instructions– A product that does not have reasonable warnings or instructions is considered to be unsafe.

PROFESSIONAL LICENSE– Liability Insurance that covers professionals, such as doctors and lawyers, engineers and architects, against any loss or expenses resulting from their negligence, errors, omissions or failure to provide professional services. Insurance similar to malpractice.

Professional liability has expanded over the years to include occupations requiring special knowledge, skills and close client relations. Professional occupations are on the rise as businesses shift from a manufacturing-based sector to one that is more service-oriented. Service-based businesses are at greater risk of malpractice claims due to our litigious society.

ERRORS AND OMISSIONS – This is the same as professional malpractice or liability insurance.

HOLD HARMLESS AGREEMENT An agreement in which the one party assumes full liability for the other. In a lease agreement, the lessee may be required to “hold harmless” their lessor in case of an accident.

TO COMPENSATE– To compensate a victim in full or in part for a lost by means of repair, payment or replacement.

INEMNITY AGREEEMENTS This clause identifies who is responsible for liabilities that could arise. It also transfers liability to the other side for their wrongdoing.

WARRANTY An agreement between a buyer and seller of goods or services, which specifies conditions in which repairs or improvements will be provided or made at no charge to the buyer.

You can give implied or explicit warranty. EXPRESS GUARANTEE is a guarantee that the seller gives to the purchaser of the goods. It states explicitly the conditions attached to the purchase, e.g. This item is covered for one year against construction defects.

Common law jurisdictions have a IMPLIED GUARANTEE. The manufacturer attaches it to the sale through the law. These warranties are not usually written. The implied warranties cover the fact that goods are fit for purpose and that they do not have defects.

DAMAGES A monetary result that is a result of injury to an object, person or other.

CONSEQUENTIAL DAMAGE– Any loss or damage resulting from a covered peril, such as fire or windstorm. A tree falling on a fridge can cause the refrigerator to stop working if windstorms are considered covered perils. Food could also spoil if this is the case. Some insurance policies cover consequential damages or losses. Insurance for Business Interruption includes consequential damage and loss, including additional expenses, rent values, profits, commissions etc.

LIQUIDATED DAMAGE– Payment made by contracting parties in order to satisfy certain clauses that have not been met. Liquidated damages may be a forfeiture of the deposit, down payment, or percentage of contract value depending on how much work was not completed. In some cases liquidated damages may be used in place of a lawsuit, but in other situations a court case is still necessary. Liquidated damages are paid when the amount of the financial loss is uncertain. Liquidated damages relieve the party that has breached a contract of its obligation to perform the rest of the contract.

SUPROGATION : “To take the place of” This term is often found in first-party property insurance policies. When an insurer covers a loss, or damages to insured properties, it acts as if the insured. It may also pursue third parties that may be responsible. The insurer can sue a manufacturer if a defective component is sold and damages the product as a result. Insurance companies that pay for the loss may sue the manufacturer of the defective component.

There are several sub-principles of Subrogation.

• Subrogation is not possible until the insurer has compensated the insured for the loss or paid it.
• Subrogation is only available in cases where the insured brings a claim against the insurer.
• Subrogation rights of the insurer cannot be affected by an insured. The insured cannot compromise or give up his rights if he can’t exercise them against a third party.
• Subrogation is a claim against an insurance company. The insurer can’t make money on the loss of an insured. The insurer is only entitled to recover the indemnity amount paid. If the insured recovers more, they should get the rest.
• Subrogation gives the insurer the right of salvage.