Insurance terms Glossary

OVERVIEW OF COMMON TYPES OF INSURANCE AND INSURANCE TERMS

The following is an alphabetical list of common insurance terms and types of insurance coverage:

• >>A-B :: C-F :: G-M :: N-R :: S-Z

CLAIMS MADE POLICIES
Under claims made policies, all coverage ceases upon the expiry date of the policy – any new claims reported a minute after the policy expiry date would be denied.

CO-INSURANCE
The co-insurance clause is found in the property policy and provides for insurance to be carried to a certain percentage (usually 90%) of the replacement value or actual cash value of the insured property. There is a severe penalty for under-insurance when a partial loss occurs. In such a situation the formula would be as follows: The $ amount you have insured over the $ amount you should have insured, multiplied by the loss.

CONTINGENT BUSINESS INTERRUPTION
When considering Business Interruption coverage, it is important to determine whether there are any exposures to a “contingent” financial loss resulting from damage to other people’s property.

CREDIT INSURANCE
Credit Insurance protects the non-payment of account receivables due to the insolvency or collapse of one of your major customers.

CRIME INSURANCE
Crime coverage can be broken down into two principal areas - theft and/or burglary of money and securities by “outsiders” (often called Broad Form money and securities coverage) and theft and/or burglary of money and securities by “employees” (called Fidelity bond coverage).
The Broad Form money and securities coverage is divided between inside and outside the premises with a separate sum insured applying to each.

The Fidelity bond can be written as a “Blanket Position” bond (the sum insured applies to each position) or as a “Commercial Blanket” bond (the sum insured protects to the total amount irrespective of whether one or many employees are involved).

CYBER RISKS
The average property and liability coverage rarely provides protection against both the incurred financial loss by the corporation’s destruction of its data or the legal liability imposed upon the corporation for misuse or misappropriation of the data it holds in respect to other parties.

DIRECTORS AND OFFICERS LIABILITY INSURANCE
Directors and Officers Liability provides financial protection for the directors and officers of a company in the event that they are sued as a result of the performance of their duties as they relate to the company.

There is an expectation that the directors and officers of a company will perform honestly, in good faith, and in the best interests of the company and so they will normally be indemnified by the corporation for loss - including defense costs - resulting from claims made against them for their wrongful acts. A corporation, however, may not indemnify its directors and officers if:

• it is prohibited by law from doing so;
• it is permitted to do so by law and the company’s bylaws but chooses not to; and
• the company is financially incapable of doing so, due to bankruptcy, liquidation, or lack of funds.

The most common source of claims is from stockholders due to a drop in share value, however, employees and clients may also make claims against the company and against the directors of the company.

This liability coverage is written on a “claims made” basis and is applicable to both public and private companies. The reasons for public companies carrying this cover are relatively obvious but it is equally important for most private companies to be insured, especially if an initial public offering (“IPO”) is going to be considered in the future, as an established relationship with an underwriter will allow for a smoother transition from private to public.

The policy covers the directors and officers who are sued by shareholders, creditors, customers, competitors, regulators (or other third parties) for a broad range of alleged wrongdoing.

Many firms think that they can rely on their company’s indemnification bylaw to protect their directors but such indemnification is normally unavailable if:

• conduct is not honest and in good faith;
• the company is financially unable to indemnify; or
• the action involves a shareholder derivative lawsuit.

This cover should also include protection for or, alternatively, separate policies should be purchased for:

Employment Practices Liability
Protection in respect of allegations of wrongful dismissal, breach of employment contract, employment related misrepresentation and violation of employment discrimination laws including harassment.

Fiduciary Liability
Protection against actions alleging a breach of fiduciary duty (violations of the duties imposed upon fiduciaries by common, civil or statutory law) and wrongful administration (negligent errors or omissions in the administration of any employee benefit program).

E-COMMERCE COVER
This is a relatively new area of insurance, and few underwriters are providing the specialty coverages that are required. The coverage provides protection for web site operators and financial institutions, among others.

EMPLOYEE BENEFITS LIABILITY
Employee Benefits Liability provides coverage for errors and omissions committed by the insured in the administration of the insured’s employee benefit plan, but do not include fiduciary liability.

EMPLOYMENT PRACTICES LIABILITY INSURANCE
The area of employment practices liability (“EPL”) has seen dramatic changes in the 1990s with an explosion in the number of employment discrimination lawsuits brought. An EPL policy provides defence and indemnity coverage for many types of alleged wrongful employment practices.

Coverage is provided to the company, current and former directors and officers, and current and former employees. The policy covers wrongful acts directed against any employee, former employee or employment applicant arising out of an employment relationship involving:

• Discrimination based on race, religion, age, sex, national origin, disability or any other protected class;
• Harassment, sexual or other;
• Wrongful termination, including wrongful discipline or evaluation; retaliation; demotion; failure to hire or promote; or breach of employment contract; and
• Retaliation in response to whistleblower actions.

The policy covers defence expenses; damages, including punitive damages (if permitted by law) in excess of mandatory jurisdictional requirement; judgments, including interest; and settlements.

ENVIRONMENTAL IMPAIRMENT LIABILITY INSURANCE
Unlike Pollution Liability coverage that can be provided under a commercial general liability policy, Environmental Impairment Liability is written as a specific policy. Many property and liability policies may afford some protection for “sudden and accidental” pollution but such coverage is very restrictive and is becoming more rare.

The policy is designed to provide coverage for environmental liability arising from sudden, accidental and gradual pollution conditions with the provision for defence costs to be included as a supplemental limit. There are numerous coverage extensions available so the policy can be tailored according to any unique operational exposures.

EXCESS LIABILITY COVERAGE
All liability policies contain a maximum limit of liability that can be expressed as a maximum per claim/claimant or maximum any one accident/ occurrence or maximum aggregate any policy term. The insured may wish to carry a limit/limits of liability that are either beyond the capacity of one insurance company to provide, or would be prohibitively expensive to purchase from a single company.