Glossary of Business Insurance Terms
For your benefit, this page provides a glossary of insurance terms and their definitions most commonly used when defining business insurance products and programs.
Buildings – Real Property: Buildings or structures including additions, fixtures, machinery and equipment constituting a permanent part of the building, building service equipment, and supplies. Foundations, walks, retaining walls, and similar property may be included by endorsement.
Contents – Personal Property: Furniture, fixtures, office equipment, machinery, stock, product, etc.
Business Income: Covers the actual loss of business income sustained due to necessary suspension of business operations during the period of restoration. Business income includes net income, continuation of normal operating expenses, extra expense, and rental value. Period of restoration means the period of time that:
- Begins with the date of direct physical loss or damage caused by, or resulting of any covered cause of loss at the described premises; and
- Ends on the date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality.
Extra Expense: Covers the increased costs of continuing operations after a loss from an insured peril. For example, if your building is deemed uninhabitable by an insured peril and you need to secure other quarters to continue operation, this cost is covered.
Valuable Papers: Covers the cost to reconstruct damaged records as well as the cost of new paper and transcription.
Accounts Receivable: Covers all uncollectible sums due from customers, interest charges on any loan to offset impaired collections pending repayment of such sums, collection expense in excess of normal collection cost, and other reasonable expenses as a result of loss or damage to records of accounts receivable.
Glass: Includes the expenses of repairing frames, installing temporary plates or boarding up an opening.
Ordinance or Law Coverage: Provides coverage if the enforcement of any building, zoning, or land use law results in loss or damage, any increased cost of repairs or reconstruction, and demolition and removal costs. Coverage must be purchased for at least 80% of the property’s replacement cost value plus an additional amount for demolition and increased construction costs.
Off-Premises Power Failure—Direct Damage: Provides coverage for loss of or damage to covered property caused by the interruption of service to the described premises which results from direct physical loss or damage by a covered cause of loss to the following:
- Water supply services
- Communication supply services
- Power supply services
Business Income from Dependent Properties—Broad Form: Pays for the actual loss of business income you sustain due to the necessary suspension of your operations during the period of restoration. The suspension must be caused by direct physical loss of or damage to contingent business property at premises described in the schedule caused by or resulting from any covered cause of loss.
Special Form: Insures property against all risks of direct physical loss except perils specifically excluded. Significant exclusions are:
- Loss caused by or resulting from explosion, rupture, or bursting of steam boilers, steam pipes, steam turbines, steam engines, or rotating parts of machinery caused by centrifugal force;
- Mysterious disappearance of property or inventory shortage;
- Wear, tear or deterioration;
- Loss caused by animals, birds, vermin, termites or other insects;
- Artificially generated electrical currents or electrical arcing;
- Seepage or influx of water from natural underground sources into basements or water which backs up through sewers or drains;
- Dishonest act or omission by an insured, employee, volunteer, or authorized representative;
- Earth movement (other than sinkhole collapse) such as earthquakes, landslides or earth sinking, rising or shifting;
- Dampness or dryness of atmosphere including changes in temperature;
- Flood including surface waters or water which backs up through sewer or drains, water below the surface of the ground including that which exerts pressure on water flows, seeps or leaks through sidewalks, driveways, foundations, walls, or basements, and other flooding through any opening;
- Damage to personal property in the open from rain, snow, ice or sleet;
- Smoke, vapor or gas from agricultural smudging or industrial operation;
- Failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premise;
- Seizure or destruction of property by order of governmental authority;
- Release, discharge or disposal of contaminant or pollutants.
Replacement Cost: Provides coverage on the basis of full replacement cost without deduction for depreciation on any loss sustained, subject to the terms of any applicable co-insurance clause and the policy limits. This coverage applies only to buildings and items specifically insured on the face of the policy. Replacement cost coverage does not apply to the following types of property:
- Fine arts including property of rarity, historic value or artistic merit;
- Outdoor radio and television antennas or aerials, cloth awnings, carpeting, air conditioners, domestic appliances, and outdoor equipment, all whether permanently attached to the building or not.
Coverage on property outlined in the items listed above is provided on an actual cash value basis (replacement cost less deduction for depreciation).
Co-insurance: Co-insurance in property insurance is a means for insurers to obtain rate and premium equality. It’s often used as a means of risk sharing between insured and insurer as a means to lower the insured’s monthly premium cost. Co-insurance requirements differ by insurance policy type to reflect the insurer’s and/or insured’s specific need, the insured’s tolerance for risk and ability to pay (self-insure) a portion of that risk.
Commercial General Liability
Premises & Operations – Public Liability: Covers your liability for occurrences resulting in bodily injury or property damage which occur on the premises where your business is conducted or which may be caused by your operations away from the premises. It also insures all existing liability exposures on a blanket basis and covers automatically any new and unknown exposures that may develop.
Products & Completed Operations
Products Liability: Provides liability coverage for bodily injury and property damage arising out of products sold or distributed by the named insured.
Completed Operations Liability: Provides liability coverage for bodily injury and property damage claims arising out of operations, for someone else, after the operations have been completed.
Independent Contractors: Coverage provided automatically for independent contractors. Reduced rates apply to adequately insured subcontractors. Higher rates apply if they are inadequately insured. The policy includes no definition of adequate coverage.
Explosion, Collapse, Underground: Explosion hazard includes property damage arising out of blasting or explosion. Collapse hazard includes structural property damage and property damage to any other property at any time resulting from blasting or explosion. Underground property damage hazard includes underground property damage and property damage to any other property at any time resulting from blasting or explosion.
- False arrest, detention or imprisonment, or malicious prosecution.
- Libel, slander, defamation or violation of right of privacy.
- Wrongful entry or eviction or other invasion of right of privacy.
Blanket Contractual: Contractual liability covers liability expressly assumed under a contract or agreement. Before signing any contract it would be advisable to have the contract reviewed by your attorney. The basic policy is intended to provide coverage only for liability imposed by law and specifically excludes liability that is voluntarily assumed under a business policy to automatically include liability assumed under most business contracts.
Host Liquor Liability: Provides protection for personal injury and property damage liability arising out of the serving or giving of alcoholic beverages, as long as you are not engaged in the business of selling or distributing alcoholic beverages, or do not own premises used for that purpose.
Broad Form Property Damage: Liability coverage under a general liability policy excludes coverage for property in the care, custody and control of the insured. This form modifies the general liability policy to include coverage for property in the care, custody and control of the insured with the exception of the immediate area or part, upon which the operation is being performed. Excluded is rented, owned or leased property, or property on premises owned, leased, or rented to you.
Incidental Malpractice: This extends the term “bodily injury” to mean injury arising out of the rendering or failure to render professional services by any physician, dentist or nurse employed by you as named insured.
Worldwide Products Coverage: This extension broadens the definition of policy territory to include liability for bodily injury or property damage arising out of the worldwide use of your products, but only if the suit or claim is brought within the United States, its territories or possessions or Canada.
Non-owned Watercraft: Coverage is provided for bodily injury and property damage arising out of the use of a non-owned watercraft. Coverage is secondary to any other valid and collectible insurance and does not provide coverage for damage to the boat. Normally, coverage is limited to boats less than 26-feet long.
Advertising Injury Liability: Under this coverage, the company will pay all sums which the insured becomes legally obligated to pay as damages because of advertising injury sustained by any person or organization arising out of the conduct of the named insured’s business.
Additional Persons Insured: The general liability policy now includes “all employees” as insureds. Coverage would respond for the individual employee in the same manner as it would for the insured, subject to the limits of the policy.
Extended Bodily Injury: This coverage includes any intentional act by or at the direction of the insured which results in bodily injury, if such injury arises solely from the use of reasonable force for the purpose of protecting persons or property.
Fire Damage Liability: This provides you with property damage liability coverage for any structures or portions of a structure rented to or occupied by you as named insured up to a maximum of $50,000.
Premises Medical Payments: Under this coverage the company will pay all reasonable medical expenses for each person who sustains bodily injury arising out of a condition in the insured’s premises or as a result of the insured’s operations.
Automatic Coverage for Newly Acquired Organizations: Any entity that is newly formed or acquired after the effective date of this policy will be covered for a period of ninety days.
Pollution Coverage: The policy contains an absolute exclusion for pollution liability. The former exception to the exclusion for “sudden and accidental releases” has been omitted. By exception to the new exclusion, coverage is provided for bodily injury and property damage caused by pollutants and included in the products-completed operations hazard under certain circumstances. Also by exception, contractors may have premises/operations coverage for releases of pollutants they have not handled, disposed of, or generated.
General Aggregate: Annual aggregate places a cap on what the policy will pay for all bodily injury and property damage, personal injury and advertising injury, medical payments, and fire legal liability claims. This does not include products and completed operation claims, which are subject to their own aggregate limit.
Products and Completed Operations Aggregate: Annual aggregate places a special limit on what the policy will pay for all claims arising out of the products and completed operations area.
Erroneous Delivery of Liquid Products: Covers your liability arising out of the delivery of any liquid product into a wrong receptacle or to a wrong address or the erroneous delivery of one liquid product for another.
Failure to Supply: Covers your liability arising out of or contributed to by any complete or partial failure to supply water, electricity, gas or fuel oil.
Umbrella Liability: This type of liability insurance will accomplish three purposes for your organization:
- It will provide excess coverage over primary liability insurance carried by you;
- If your primary policy does not cover a particular exposure and the umbrella policy does not specifically exclude it, then the umbrella policy will act as your primary policy; and
- Provide automatic replacement coverage for primary liability policies which are reduced or exhausted by loss.