Glossary of Insurance Terms

Additional Insured – 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 indemnities 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 status is often included on auto insurance as a feature built into the policy to protect interested parties automatically, and is also available on contractor’s pollution liability (CPL) policies. These endorsements do not apply to professional liability (E&O) or workers’ compensation coverage.

Admitted Insurer – An insurance carrier that is directly licensed by the state in which the insured is domiciled. Admitted insurers are directly regulated by the state’s department of insurance and normally protected by a state guarantee fund.

Certificate of Insurance (COI) – A form that includes information on the insurance carrier(s), coverage and limits of coverage. The COI is a snapshot in time that gives the holder reasonable assurance of coverage in place, but provides only a very limited obligation to the insurance agent or broker who has issued the certificate. Commonly issued on an “Acord” form with disclaimer language.

Claims Made – “Claims made” refers to a coverage trigger within a liability insurance policy. Claims made form is always applicable on professional liability and directors’ & officers’ liability, and is often incorporated in other coverages as well when an underwriter wishes to limit the form and avoid exposure to long tail liabilities. These policies require that claims be made and reported during the policy year or extended reporting period (if applicable) in order for coverage to apply. If a claim is not made within the policy period, coverage does not apply. (See Retroactive Date.)

Commercial General Liability (CGL or GL) – Coverage for liability to third parties for “bodily injury” or “property damage” due to business operations. Coverage may include additional important coverages such as limited “contractual” liability, no fault medical payments and coverage for personal and advertising injury.

Contractor’s Pollution Liability (CPL) – Contractor’s pollution coverage is essentially general liability coverage applicable to an insured’s work at a site other than its own. Typically, this means coverage is applicable for pollution incidents and any “bodily injury”, “property damage” or “economic damage” resulting from a pollution incident.

Contractual Liability – Liability policies offer limited protection for contractual obligations. Within a general liability policy “contractual liability” is excluded and then given back for certain specific types of contracts, and for liability that would have been in existence even in absence of contract. The general liability policy does extend some important defenses for contract liability which should be reviewed on a case by case basis with a legal advisor or insurance broker. In general, insurance does not carry over to indemnity agreement language unless the liabilities being assumed in an indemnity agreement existed anyway.

Deductible – The amount the insured must pay as their portion of a loss.

Directors’ & Officers’ Liability (D&O) – Coverage for the directors of the company for certain business risks not covered by other commercial liabilities. Common examples of claims applicable to D&O polices are shareholder claims, competitor claims, government claims and investor claims, where the claims do not fall within the scope of coverage for a firm’s other business insurance. Importantly, D&O provides personal protection to individual directors as well as the insured entity.

Employee Benefit Liability (EBL) – 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.

Employment Practices Liability Insurance (EPLI) – A type of liability insurance covering wrongful acts or alleged wrongful acts arising from employment practices. This coverage is important as it goes beyond workers’ compensation and other coverages and protects a firm as well as its directors and officers in the event of an employee lawsuit alleging a wrongful employment practice. Examples of claims include allegations of wrongful termination, discrimination, harassment and retaliation. Although EPLI is available as a stand-alone coverage, it is also frequently sold as part of a management liability package policy (see Management Liability).

Errors & Omissions (E&O) – 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 due to an act, error or omission in professional services where a professional may be legally liability for negligence. (Also see Professional Liability.)

Excess Liability – 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. (Also see Umbrella Liability.)

Exclusion – A provision of an insurance policy or bond referring to hazards, perils, circumstances, or property not covered by the policy. Exclusions are usually contained in the coverage form or causes of loss form used to construct the insurance policy.

First Dollar Defense – 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.

Management Liability – A package liability policy, commonly providing directors and officers (D&O) employment practices liability (EPLI). Fiduciary coverage is also commonly included.

Non-Admitted Insurer – An insurer that is not directly licensed with the state of domicile of the named insured. These carriers often have more flexibility, can write higher and broader limits, and have high financial ratings. However, insureds do not have protection from any State Guarantee Fund in the event of insolvency. These carriers are also known as “Surplus Lines” carriers.

Non-Owned Disposal Site Liability (NODS) – Owners of facilities which generate and dispose of waste may be liable for the cleanup of the non-owned disposal site. NODS endorsements provide coverage for the insured’s legal liability arising out of pollution conditions at the designated non-owned disposal site. NODS, or sites which accept waste from generators, can be added, via endorsement, by a majority of the environmental insurers or may be an included coverage with others.

Nose Endorsement – The period between the inception date and retroactive date in a claims made liability policy, if the specified retroactive date is earlier than the inception date of the policy. Claims made liability policies typically include a retroactive date, where policy will not cover claims arising from covered occurrences, acts, or omissions committed prior to that date. It gets its name from its attachment to the front or “nose” of the policy term, as opposed to “tail” coverage provided by an extended reporting period (ERP) on the end of a claims made policy.

Occurrence – In insurance policy language is a defined term. It is also a type of coverage form or claim trigger. Occurrence form is generally broader than the claims made form (see Claims Made). Occurrence generally means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. For purposes of being able to make a claim against an insurance policy, occurrence form requires only that the occurrence happen during the policy year for coverage to be triggered. Thus, if an occurrence happens and is not discovered until after the policy expiration (even years after), the insured is able to make a claim against a policy based on the date of the occurrence.

Pollution Legal Liability (PLL) – This coverage provides pollution liability for a fixed address or site. Pollution coverage applies to pollution issues at the described site and often for adjacent sites as well. PLL was coined by an insurer in the 1980s when pollution became a broad exclusion on general liability policies and products were introduced to sell this coverage on a stand-alone policy. This coverage applies to a site owner providing insurance against pollution of a site in the owner’s control. Policies are often written for a multi-year term and may help facilitate a real estate transaction where property is being transferred from one owner to another, or to fortify a company balance sheet to help control unknown liabilities at a site in return for a premium.

Professional Liability (PL or E&O) – A type of liability coverage designed to protect traditional professionals (e.g. accountants, attorneys, architects, engineers) and quasi-professionals (e.g. real estate brokers, consultants). This is a key insurance product for environmental consultants and engineers, as well as civil and geotechnical engineers. This coverage protects professionals from claims of negligence that the professional did not perform to the required standard due to an act, error or omission.

Retroactive Date – A provision found in many, but 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. Generally, for environmental service firms, once a retroactive date is set it carries forth as long as coverage is kept continuous. This means that should a claim arise many years after 2010 in the example here, the policy in force when the claim is made will be the one that responds with coverage as long as the claim occurred based on the insured’s activities after the “retro date”.

Self-Insured Retention (SIR) – A dollar amount specified in a liability insurance policy that must be paid by the insured before the insurance policy will respond to a loss. Thus, under a policy written with a SIR provision, the insured (rather than the insurer) would pay defense and/or indemnity costs associated with a claim until the SIR limit was reached. After that point, the insurer would make any additional payments for defense and indemnity that were covered by the policy.

Third Party Over Action – A type of action in which an injured employee, after collecting workers’ compensation benefits from the employer, sues a third party for contributing to the employee’s injury. Then, because of some type of contractual relationship between the third party and the employer, the liability is passed back to the employer by prior agreement. Additionally, there are instances in which the third party can circumvent the exclusive remedy doctrine of workers’ compensation and enjoin the employer in the action. Depending on the nature and allegations of the action, coverage may be afforded under the contractual liability section of the employer’s commercial liability policy or the employer’s liability section of the employer’s workers’ compensation policy.

Umbrella Liability – A policy designed to provide protection against catastrophic losses. It generally is written over various primary liability policies, such as the business auto policy (BAP), commercial general liability (CGL) policy, watercraft and aircraft liability policies, and employer’s liability coverage. The umbrella policy serves three purposes: it provides excess limits when the limits of underlying liability policies are exhausted by the payment of claims; it drops down and picks up where the underlying policy leaves off when the aggregate limit of the underlying policy in question is exhausted by the payment of claims; and it provides protection against some claims not covered by the underlying policies, subject to the assumption by the named insured of a self-insured retention (SIR).

Waiver of Subrogation – An agreement between two parties in which one party agrees to waive subrogation rights against another in the event of a loss. The intent of the waiver is to prevent one party’s insurer from pursuing subrogation against the other party. Generally, insurance policies do not bar coverage if an insured waives subrogation against a third party before a loss. However, coverage is excluded from many policies if subrogation is waived after a loss because to do so would violate the principle of indemnity.

*This definition of an additional insured is an excerpt from International Risk Management Institute www.irmi.com