Abandonment Clause

A clause in fire insurance policies and other property forms that prohibits the insured from abandoning partially damaged property to the insurer in order to claim a total loss.

Accounts Receivable Insurance

Insurance against the loss that occurs when an insured is unable to collect outstanding accounts because of damage to or destruction of the accounts receivable records by a peril covered in the policy.

Additional Living Expense Insurance

A contract to reimburse the insured for increased living costs when loss of his property forces him to maintain temporary residence elsewhere. Examples of these types of expenses are the cost for a hotel or motel, the extra cost for restaurant meals, and the cost of using a laundromat. The term Extra Expense Insurance is defined with regard to additional expenses incurred by businesses. See also Loss of Use.

Agreed Amount Clause

Under this clause, the insured and the insurer agree that the amount of insurance carried will automatically satisfy the coinsurance clause. The effect is to eliminate the necessity of determining whether or not the amount carried is equal to the stated percentage of the actual cash value indicated in the coinsurance clause.

Appurtenant Structures

Buildings on the same premises as the main building insured under a Property Insurance policy. Most Dwelling Property Insurance policies cover appurtenant structures under most circumstances.

Arbitration Clause

The provision in a Property Insurance contract which states that if the insurer and insured cannot agree on an appropriate claim settlement, each will appoint an appraiser, and these will select a neutral umpire. A decision by any two of the three prescribes a settlement and binds both parties to it.

Automatic Increase In Insurance Endorsement

See Inflation Guard Endorsement.

Basic Coverage Form

Any of the commercial or personal lines property forms which provide basic coverages. These forms generally provide the most limited coverage, which is surpassed by broad forms and special forms.

Blanket Insurance

A form of Property Insurance that covers, in a single contract, either multiple types of property at a single location or one or more types of property at multiple locations.

Boiler and Machinery Insurance

Insurance against the sudden and accidental breakdown of boilers, machinery, and electrical equipment. Coverage is provided on (1) damage to the equipment, (2) expediting expenses, (3) property damage to the property of others, and (4) supplementary payments; and (5) automatic coverage is provided on additional objects. Coverage can be extended to cover consequential losses and loss from interruption of business.

Broad Form

A term generally used to designate policies that provide insurance for multiple types of perils over and above the usual basic perils, or additional coverages beyond standard coverages.

Broad Theft Coverage Endorsement.

This form may be attached to a dwelling policy to provide theft coverage for a named insured who is an owner occupant.

Builder’s Risk Coverage Form

A commercial property coverage form specifically designed for buildings in the course of construction.

Building and Personal Property Coverage Form

A commercial property coverage form designed to insure most types of commercial property (buildings, or contents, or both). It is the most frequently used commercial property form, and has replaced the General Property Form, Special Building Form, Special Personal Property Form, and others.

Business Income Coverage Form

A commercial property form providing coverage for “indirect losses” resulting from property damage, such as loss of business income and extra expenses incurred. It has replaced earlier Business Interruption and Extra Expense forms.

Business Interruption Insurance

A time element coverage that pays for loss of earnings when operations are curtailed or suspended because of property loss due to an insured peril. Now referred to as business income insurance. See Business Income Coverage Form.

Business Personal Property

Traditionally known as “contents,” this term actually refers to furniture, fixtures, equipment, machinery, merchandise, materials, and all other personal property owned by the insured and used in the insured’s business.

Causes of Loss

Under the latest commercial property forms, this term replaces the earlier term “perils” insured against.

Causes of Loss Forms

Commercial property forms stating the perils insured against, additional coverages provided, and exclusions that apply. There are four Causes of Loss Forms _ Basic, Broad, Special and Earthquake.

Civil Commotion

An uprising of a large number of people, usually resulting in damage to property. This term is generally used to describe one of the extended coverage perils in the Extended Coverage Endorsement.

Coinsurance Clause

A clause under which the insured shares in losses to the extent that he is underinsured at the time of loss. The insurer grants a reduced rate to the insured providing he carries insurance 80, 90, or 100% to value. If, at the time of loss, he carries less than required, he must share in his loss. For example, if an insured has a building worth $100,000 and carries an 80% coinsurance clause, it means that he agrees to carry at least $80,000 of insurance. If the insurance carried equaled $60,000, then any loss under the policy would be paid for on the basis of the comparison of $60,000 (amount carried) divided by $80,000 (amount agreed upon in advance) times the amount of the loss. Thus, the insured above would only receive 75% of a loss or $7,500 for a $10,000 loss.

Condominium Association Coverage Form

A commercial property form designed to cover the joint insurance needs of members of a condominium association who collectively own commercial property.

Condominium Unit Owners Coverage Form

A commercial property form designed to cover the individual needs of commercial (not residential) condominium unit-owners.

Consequential Loss (or Damage)

An indirect loss arising out of the policyholder’s inability to use the property over a period of time, as opposed to a direct loss that happens almost instantaneously. Business Interruption, Extra Expense, Rents Insurance, and Leasehold Interest are the most common coverages included under the category of Consequential Loss coverages. (2) A loss not directly caused by a peril insured against, such as spoilage of frozen foods caused by fire damage to the refrigeration equipment. See also Indirect Loss, and contrast with Direct Loss.

Data Processing Coverage

A special form providing protection for loss due to the breakdown of data processing systems. It also includes coverage for the additional expense of putting the system back into operation.

Debris Removal Clause

A provision that may be included in a Property policy contract to provide the insured with indemnification for expenditures incurred in the removal of debris produced by the occurrence of an insured peril. Ordinarily a Property policy covers only the direct damage caused by an insured peril.

Declaration

A term used in insurance other than Life or Health to denote that portion of the contract in which is stated such information as the name and address of the insured, the property insured, its location and description, the policy period, the amount of insurance coverage, applicable premiums, and supplemental representations by the insured.

Demolition Insurance

Insurance written to cover the cost of demolition excluded by a demolition clause. It may be endorsed to Property Insurance for an additional premium. See also Demolition Clause.

Depreciation Insurance

See Replacement Cost Insurance.

Direct Loss (or Damage)

A loss which is a direct consequence of a particular peril. Fire damage to a refrigerator would be a direct loss. Spoiling of food in the refrigerator as a result of the fire damage would be an indirect loss. Contrast with Indirect Loss and Consequential Loss. (PR)

Disappearing Deductible

A type of deductible that gradually disappears as the loss gets larger. If the deductible is $50, the insurer will pay 111% of that part of the loss which is in excess of $50. The deductible on losses between $50 and $500 is gradually reduced by this system, and if the loss reaches $500, the full amount is covered.

Dwelling Forms

A policy form designed specifically to cover a dwelling building and the personal property in it plus other additional coverages. There are several forms available, depending on what coverage is to be provided.

E.C.

See Extended Coverage.

Earnings Insurance

A form of Gross Earnings Business Interruption Insurance, whose principal feature is the lack of a coinsurance clause. It is designed for small risks, and the maximum amount of loss the insured can collect in any 30-day period is established when the policy is written.

Earth Movement

A peril including landslide, mud flow, earth sinking, rising or shifting, and earthquake. Usually excluded on homeowners’ and commercial property policies.

Earthquake Insurance

Insurance covering damage caused by an earthquake as defined in the contract.

Electronic Data Processing (EDP) Coverage

Specialized type of insurance designed to cover computer equipment, data systems, information storage media and expenses or income loss related to EDP losses.

Explosion Insurance

Insurance against loss of property due to explosion but not including explosion of steam boilers, pipes, and certain pressure instruments. Most commonly written as part of the Extended Coverage Endorsement.

Extended Coverage (EC)

A common extension of property insurance beyond coverage for fire and lightning. Extended coverage adds insurance against loss by the perils of windstorm, hail, explosion, riot and riot attending a strike, aircraft damage, vehicle damage, and smoke damage. At one time EC was added by endorsement. In recent years it has been included on many forms as either an optional coverage or as part of the minimum coverages provided.

Extra Expense Insurance

A form that provides reimbursement to the insured for the extra expenses reasonably incurred to continue the operation of a business when the described property has been damaged by a peril covered by the contract. This insurance is normally used by businesses where continuity of operation, regardless of cost, is a necessity as, for example, any business that would permanently lose customers if there were any suspension of operations. The term Additional Living Expense Insurance is defined with regard to extra expenses incurred by individuals, and such coverage is a common feature of homeowner policies.

FAIR Plan

Fair Access to Insurance Requirements. A pooling plan reinsured by the United States government that makes insurance available to those in inner-city or other high risk areas who cannot obtain insurance through normal channels. Coverages for fire and allied perils is available, with considerably high limits, after inspection of the premises.

Fair Rental Value Coverage

Insurance that pays the loss of rental value, minus expenses which do not continue, when property rented to others or held for rental is damaged by a peril insured against.

Fire

Combustion which is rapid enough to produce a flame or glow. A fire, for purposes of Property Insurance, must be “hostile,” which means it is not in a place in which it is intended to be. Fires in their proper contained area are called “friendly fires” and are not covered under most basic Property Insurance policies.

Fire Department Service Clause

A provision in a Fire Insurance policy that provides the insured with indemnification for charges he incurs due to action by a fire department to save his property. It is useful for property located outside the jurisdiction of the nearest fire department and where the call will be answered only for a fee.

Fire Legal Liability

An insurance policy which protects the insured against liability incurred when his negligent actions result in the destruction of property which is in his care, custody or control.

Fire Resistive Construction

A building which has exterior walls, floors, and roof constructed of masonry or other fire-resistive materials.

Flat Deductible

A deductible which is not one of the disappearing or franchise type. A specific amount deducted from each loss or claim.

Flood

A general and temporary condition of partial or complete inundation of normally dry land areas from (1) overflow of inland or tidal waters, (2) the unusual accumulation and runoff of surface waters from any source, or (3) abnormal, flood-related erosion and undermining of shorelines. Flood also means inundation from mud flows caused by accumulations of water on or under the ground, as long as the mud flow and not a landslide is the proximate cause of loss.

Flood Insurance

A form of insurance designed to reimburse property owners from loss due to the defined peril of flood. Usually sold in connection with a government Flood Insurance plan.

Frame

A type of construction. A frame building is primarily made with wood frames and joists.

Full Reporting Clause

Under this clause, an insured is required to report values periodically. The clause provides for a penalty to the insured if true values are not reported.

Glass Coverage Form

A commercial property form used to insure plate glass, lettering, frames and ornamentation. It has replaced earlier commercial glass insurance forms.

Grading Schedule for Cities and Towns

A schedule prepared by the National Board of Fire Underwriters for the purpose of determining which of ten grades to assign to a city for fire rating purposes, based on such factors of fire protection as water supply.

Gross Earnings

An accounting term which is arrived at by subtracting the cost of goods sold from the total sales. Traditionally, the term was used primarily in Business Interruption Insurance as the basis for determining how much insurance a policyholder should carry. The latest Business Income insurance forms have dropped this term.

Homeowners Policy

A Property and Liability Insurance contract that provides insurance against any of the Property and Liability perils to which a homeowner or renter is exposed.

Increased Hazard

Property Insurance policies provide that coverage shall be suspended when the hazard in a risk is increased beyond that contemplated when the insurance was written. If a dwelling owner commences manufacturing dynamite in his home, the hazard is extremely increased, and coverage could be denied by the insurer if there were a loss.

Indirect Loss (or Damage)

Loss resulting from a peril but not caused directly and immediately by that peril. For example: Loss of property due to fire is a direct loss, while the loss of rental income as the result of the fire would be an indirect loss. See also Consequential Loss.

Inflation Guard Coverage

Coverage which provides for automatic periodic increases in the amount of insurance on buildings to keep an appropriate “limit to value” considering the effect of inflation on building replacement costs. An endorsement is usually used to add this coverage to a Homeowners Policy. On the latest commercial property forms, inflation guard coverage is an option that may be activated by an entry in the declarations.

Insurance Services Office (ISO)

An organization of the Property and Liability Insurance business designed to gather statistics, promulgate rates, and develop policy forms.

Joisted Masonry Construction

A building which has exterior walls constructed of masonry materials, such as adobe, brick, concrete, gypsum block, hollow concrete block, stone, tile, or other similar materials, and a roof and floor constructed of combustible materials. A floor which rests directly on the ground is an exception and may be disregarded.

Liberalization Clause

A clause in Property Insurance contracts which provides that if policy or endorsement forms are broadened by legislation or ruling from rating authorities and no additional premium is required, then all existing similar policies will be construed to include the broadened coverage.

Limited Theft Coverage Endorsement

This form may be attached to a Dwelling Policy to provide theft coverage for a named insured who is not an owner occupant.

Loss Assessment Charge

An insured’s share of a loss assessment for property damage or liability which is charged by a corporation or association of property owners. Homeowners policies provide some coverage for loss assessments charged against the insured as owner or tenant of a residence premises.

Loss of Use Insurance

Coverage to compensate an insured for the loss of use of his property if it cannot be used because of a peril covered by the policy. See also Additional Living Expenses.

Loss Payable Clause

A provision in Property Insurance contracts that authorizes payment to persons other than the insured to the extent that they have an insurable interest in the property. This clause may be used when there is a lien or loan on the property being insured, and it protects the lender.

Machinery Breakdown Insurance

See Boiler and Machinery Insurance.

Market Value Clause

A provision that may be used in certain Property Insurance forms which obligates an insurer to pay the established market price of destroyed or damaged stock rather than its cost to the insured, as is usually provided in the Standard Fire policy. This coverage is only available to manufacturers with finished products, not to wholesalers or retailers.

Masonry Noncombustible Construction

A building which has exterior walls constructed of masonry materials, such as adobe, brick, concrete, gypsum block, hollow concrete block, stone, tile, or other similar materials, with floors and roof constructed of metal or other noncombustible materials.

Mercantile Risk

A term most often used in Property Insurance meaning a retail or wholesale risk as contrasted with a service risk, a manufacturing risk, or a habitational risk.

Mobile Home Policy

A Homeowners policy written on a mobile home which is permanently situated.

Modified Fire-Resistive Construction

A building which has exterior walls, floors and roof constructed of masonry or fire-resistive materials.

Mortgage (or Mortgagee) Clause

A provision attached to a Fire or other direct damage policy that covers mortgaged property, specifying that the loss reimbursement shall be paid to the mortgagee as the mortgagee’s interest may appear, that the mortgagee’s rights of recovery shall not be defeated by any act or neglect of the insured, and giving the mortgagee other rights, privileges, and duties. For instance, one duty is that the mortgagee must report to the insurer any change in hazards that he becomes aware of.

Mortgagee

The creditor to whom a mortgage is given and who lends money on the security of the value of the property mortgaged.

Mortgagor

The debtor who receives money and in turn grants a mortgage on his or her property as security for a loan.

Named Perils

Perils specifically covered on property insured. Contrast Named Perils Insurance with All-risks Insurance, which covers all losses not specifically excluded. e rates and forms.

National Flood Insurance Program (NFIP)

Federal program providing flood insurance for fixed property. Under a “dual” program coverage may be written directly by the NFIP or by private carriers whose losses may be reimbursed by the NFIP.

Occupancy

This refers to the type or character of use of the property in question. The type of occupancy has a bearing on its desirability and also effects the rate for the policy.

Off Premises

A clause in a Property Insurance contract extending coverage away from the premises described in the policy. The amount of coverage away from the premises is usually restricted to a percentage of the total coverage on the premises, e.g., 10%.

Other Structures

Structures, such as a garage or storage shed, which are separated from an insured dwelling by a clear space, or are connected only by a fence or utility line. Dwelling and Homeowner policies provide coverage for other structures.

Peak Season Endorsement

An endorsement which provides increased amounts of coverage on inventories during peak seasons, beginning and ending on dates specified in the endorsement.

Personal Property

Any property of an insured other than real property. Homeowner policies protect the personal property of family members, and commercial forms are used to protect many types of business personal property of an insured.

Personal Property Floater

A Broad Form policy covering all personal property worldwide, including at the insured’s home. Similar coverage is available by endorsement as part of the “Special” Homeowners policy form.

Physical Damage

A generic term indicating actual damage to property.

Power Interruption Insurance

This coverage indemnifies the insured in the event of loss due to the interruption of power supplied by a public utility and caused by any of the perils insured against.

Property Insurance

Insurance that indemnifies a person with an interest in physical property for its loss or the loss of its income producing abilities. This definition encompasses all lines of insurance written by Property and Inland Marine insurers and can also include certain kinds of insurance written by Casualty insurers, e.g., Burglary and Plate Glass coverages.

Protection Class

The grading of fire protection, determined by the Grading Schedule of Cities and Towns, for a given area. This designation is used for all fire rating except for dwellings, in which case the Dwelling Class is used.

Removal

Removing property to protect it from loss. Most personal and commercial property forms cover damage to property at another location when it has been removed from the premises to protect it from loss by a peril insured against.

Rental Value Insurance

A form of Property Insurance that provides indemnity (1) for the loss of the rental value of property when the owner or tenant is deprived of the use of the property because it has been damaged by an insured peril, or (2) for the loss by the owner-landlord of the rent that would have been payable by a tenant of the property, under the terms of the lease or by statute, when he is relieved of liability for the payment of rent during a period of untenantability due to an insured peril.

Replacement Cost

The cost of replacing property without a reduction for depreciation. By this method of determining value, damages for a claim would be the amount needed to replace the property using new materials. Contrast with Actual Cash Value.

Replacement Cost Insurance

Insurance that provides that loss will be paid on a replacement cost basis. See also Replacement Cost.

Reporting Form

The form for a periodic report to an insurer by an insured that covers the fluctuating values of stocks of merchandise, furniture and fixtures, and improvements and betterments. Premiums are adjusted annually, based on the average values insured during the policy period. An insured with fluctuating inventories might use this form.

Residence Premises

In homeowners insurance, the dwelling, other structures and grounds, or that part of any other building where the named insured lives.

Schedule

A list of individual items covered under one policy, such as various buildings and contents.

Schedule Policy

An insurance contract that lists separate kinds of property, separate locations, or separate insurance coverages with the amount of insurance applying to each.

Schedule Rating Plan

(1) Applying debits or credits within established ranges for various characteristics of a risk which are either below or above average according to an established schedule of items. (2) Under Liability and Automobile Insurance, the schedule rating plan has been designed to allow credits and debits for various good or bad features of a particular commercial risk. An example in automobile schedule rating would be allowing credits for driver training classes or fleet maintenance programs.

Sinkhole Collapse

The peril of a sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or similar rock formations. This peril is now covered by the latest commercial property forms. Other forms of earth movement continue to be excluded in most cases.

Special Building Form

A form which provides all-risk coverage on commercial buildings, subject to certain exclusions. It was once the broadest coverage available on buildings. Largely replaced by the Building and Personal Property Coverage Form.

Special Coverage Form

Any of the commercial or personal lines property forms which provide coverage on an all-risk type basis. These forms provide the broadest coverage and do not list covered perils, but do include a lengthy list of exclusions.

Special Personal Property Form

A form which provides all-risk coverage on the personal property (contents) of commercial risks with certain exclusions. It was once the broadest coverage available on commercial contents. Largely replaced by the Building and Personal Property Coverage Form.

Specific Insurance

A policy which describes specifically the property to be covered. This is in contrast to a policy which covers on a blanket basis all property at one or more locations without specific definitions. In the case of overlapping coverages, specific insurance is considered the primary one.

Specific Rate

A rate applying to an individual piece of property.

Specified Perils

See Named Perils.

Sprinkler Leakage Insurance

Insurance against damage done by the accidental discharge of water from an automatic sprinkler system, as contrasted with discharge because of heat from a fire.

Sprinkler Leakage Legal Liability Insurance

Insurance which covers the legal liability of an insured who has a sprinkler leakage loss which damages the property of others, on a floor below or in adjoining premises, for instance.

Stated Amount

An agreed amount of insurance which is shown on the policy, and which will be paid in the event of total loss regardless of the actual value of the property.

Statement of Values

Sometimes property is written using a blanket rate and one single limit of liability applying to all locations. In order to determine the blanket or average rate, a rating bureau or company requires an insured to submit a declaration of the amounts of value at each separate location on a Statement of Values form.

Tenants Policy

A Homeowners form which is specifically designed for people who rent.

Time Element Insurance

Insurance which covers expenses consequent to damage or destruction by an insured peril that continue over a period of time. The amount paid depends on the length of time during which the expenses accumulate. An example would be Business Interruption insurance, which pays for the loss of earnings during the time it takes to repair the property.

Unoccupied

Refers to property which may be furnished or have furnishings in it but is not occupied or being lived in. The Standard Fire policy prohibits unoccupancy beyond a specified period of time. This term is contrasted with vacant, which means that there is nothing within the building.

V&MM, or VMM

Vandalism and Malicious Mischief. Damage or destruction to property which is willful. Traditionally VM&M coverage was optional on many forms or added by endorsement, but today it is automatically covered by basic commercial and homeowner forms.

Vacant

A term used in Property Insurance to describe a building that has nothing in it. This goes one step beyond the description of unoccupied. The Standard Fire policy prohibits vacancy beyond a specified period of time. Contrast with Unoccupied.

Valuable Papers and Records

An all-risk coverage for physical loss or damage to valuable papers and records of the insured. It includes practically all types of printed documents or records except money.

Value Reporting Form

Commercial form designed for businesses that have fluctuating merchandise values during the year. As values are reported (monthly, quarterly or annually) the amount of insurance is adjusted . Reporting forms help eliminate problems of over-insurance and under-insurance, as well as the need to continually endorse a policy.

Valued Policy

A policy which states that in the event of a total loss, a specific amount will be paid, that being the amount stated in the policy. The effect is to eliminate the need for determining the actual cash value of an item of property in the event of a total loss. It is generally used with certain more valuable items, such as fine arts, antiques, and furs. See also Valued Policy Law.

Vandalism and Malicious Mischief

See V&MM.

Waiver of Coinsurance

A provision in a Property policy that the coinsurance clause will not apply if the total loss does not exceed a stated amount, such as 2% of the sum insured or the amount of $2,500, whichever is greater. The reason for such a provision is to eliminate having to do a large inventory in order to determine whether or not the insured has complied with the coinsurance clause, especially where very small losses are involved.

Windstorm

Wind of sufficient violence to be capable of damaging insured property. Windstorm coverage has traditionally been part of extended coverage (EC), but today it is usually included automatically as part of basic coverage.

[Source: www.goodmanninsurance.com]