Reviewed October 2, 2026 by the CoveragePrep editorial team · Sources: state insurance departments, statutes, exam candidate handbooks · How we research

Reference · 217 terms

Insurance claims glossary

217 terms you will meet on the adjuster exam and on the job, defined in plain English. Study them as flashcards, or jump to a letter.

A

Actual cash value (ACV): The value of property at the time of loss, commonly figured as replacement cost minus depreciation. A 12-year-old roof with a 20-year life that costs $15,000 to replace has an ACV of $6,000 using straight-line depreciation, and a totaled car's ACV is the pre-loss market value of comparable vehicles. See also: Replacement cost (RCV), Depreciation, Recoverable depreciation. Practice this
Additional living expense (ALE): Coverage for the necessary increase in living costs, such as a rental and higher food bills, so a household can keep its normal standard of living while a covered loss makes the home unlivable. Costs that continue anyway, such as the mortgage payment, are not part of the claim, and neither the DP-1 nor the NFIP flood policy includes ALE. See also: Coverage D (Loss of use), DP-1 (Basic form), Standard Flood Insurance Policy (SFIP). Practice this
Admitted insurer: An insurer licensed by a state's insurance department to do business in that state. A nonadmitted (surplus lines) insurer is not licensed there but may write risks the admitted market will not accept through a licensed surplus lines broker; its policies are generally not subject to state rate and form approval and generally lack state guaranty association protection. Practice this
Adverse selection: The tendency of people with a higher than average chance of loss to seek or keep insurance more often than lower-risk people. If premiums assume an average risk, the insurer collects too little, so it relies on underwriting, risk classification and policy terms to control adverse selection. See also: Law of large numbers, Moral hazard. Practice this
Aggregate limit: The most a policy will pay for all covered losses during the policy period, as opposed to a per occurrence limit that caps any one occurrence. Under the CGL, products-completed operations claims erode a separate aggregate from the general aggregate, and defense costs paid as supplementary payments reduce neither. See also: Commercial general liability (CGL), Products-completed operations hazard, Supplementary payments. Practice this
Agreed value: A valuation method in which the insurer and insured settle the property's value when the policy is written, so a total loss pays that amount with no depreciation or new appraisal. Scheduled fine arts are commonly insured this way, and the commercial Agreed Value option suspends the coinsurance condition until its expiration date. See also: Stated amount, Coinsurance, Scheduled personal property endorsement. Practice this
Aleatory contract: A contract in which the values exchanged are unequal and depend on an uncertain event. An insured may pay premiums for years and collect nothing, or pay one premium and collect far more after a large loss, which is why insurance policies are called aleatory. See also: Unilateral contract, Conditional contract, Contract of adhesion. Practice this
All-lines adjuster license: A broad adjuster license covering most property and casualty lines. In Texas it covers property, casualty and surety plus workers compensation, employers liability and longshore claims, and Florida's 6-20 all-lines license covers all lines except life insurance and annuities. See also: Appointment, Designated home state (DHS) license. Practice this
Anti-concurrent causation clause: Policy wording that excludes a loss caused by an excluded peril regardless of any other cause or event contributing concurrently or in any sequence. The HO-3 and the commercial Causes of Loss forms use it for exclusions such as earth movement and water, although an ensuing loss exception can still restore coverage for a resulting covered loss. See also: Ensuing loss, Exclusion, Proximate cause. Practice this
Appointment: A filing that authorizes a licensed adjuster to act for a particular insurer or adjusting firm. Some states, such as Florida, require adjusters to be both licensed and appointed: a company employee adjuster is appointed by the insurer, an independent adjuster by an adjusting firm or by self-appointment, and the license expires after 48 months without an appointment. See also: All-lines adjuster license, Independent adjuster, National Insurance Producer Registry (NIPR). Practice this
Appraisal: A policy process for settling disagreements over the amount of loss, not coverage. Each party chooses a competent and impartial appraiser (within 20 days of a written demand under the HO-3), the appraisers choose an umpire, an amount agreed to by any two is binding, and each side pays its own appraiser and half of the umpire's cost. See also: Umpire, Conditions. Practice this
Arising out of and in the course of employment (AOE/COE): The two tests a work injury must meet to be compensable. Arising out of looks at origin, meaning a causal link to a risk of the job, while in the course of looks at time, place and activity, meaning the worker was doing something job related when hurt. See also: Going and coming rule, Occupational disease, Workers compensation. Practice this
Assignment: Transfer of a policy's rights to another person. Property insurance is a personal contract that insures a person rather than the property itself, so the HO-3 makes an assignment invalid without the insurer's written consent, and a home buyer does not automatically take over the seller's policy. See also: Insurable interest, Conditions. Practice this
Assumption of risk: A defense that applies when a claimant knew of a specific risk and voluntarily accepted it. When the acceptance is in writing, such as a signed waiver before a rafting trip, it is express assumption of risk, which generally bars recovery for harm within that risk unless the waiver violates public policy. See also: Contributory negligence, Comparative negligence, Negligence. Practice this
Attractive nuisance: A doctrine that requires a landowner to use reasonable care toward trespassing children when the owner knows children are likely to trespass, a condition such as an unfenced pond poses an unreasonable risk of serious harm, and children are unlikely to appreciate the danger. See also: Negligence. Practice this
Auto medical payments coverage: Part B of the personal auto policy, which pays reasonable medical and funeral expenses for the insured, family members and occupants of the covered auto regardless of fault, for services rendered within three years of the accident. The limit applies to each injured person. See also: Personal injury protection (PIP), Personal auto policy (PAP). Practice this

B

Bad faith: An insurer's unreasonable handling of a claim. First-party bad faith involves mistreating the insured's own claim, such as denying it without a reasonable investigation, while third-party bad faith usually means unreasonably refusing a settlement demand within the insured's liability limits, which can expose the insurer to the entire excess judgment. See also: Unfair claims settlement practices, Third-party claim, Duty to defend. Practice this
Bailee: A person or business that holds another's property for storage, repair, processing or transport, such as a dry cleaner, repair shop or parking garage. A bailee for hire can be liable for damage to customers' property, and the personal auto policy states that its coverage will not benefit a bailee for hire, so the insurer can pay its insured and subrogate against the bailee. See also: Bailee's customers coverage, Subrogation. Practice this
Bailee's customers coverage: Inland marine coverage for customers' property in a bailee's care, such as garments at a dry cleaner, that pays for direct physical loss whether or not the bailee is legally liable. It protects customer goodwill and fills a gap left by the CGL, which excludes property in the insured's care, custody or control. See also: Bailee, Inland marine insurance. Practice this
Base flood elevation (BFE): The height floodwater is expected to reach in the base flood, the flood that has a 1-percent chance of being equaled or exceeded in any year. BFEs appear on Flood Insurance Rate Maps in zones such as AE and VE and guide how high new and substantially improved buildings must be elevated. See also: Flood Insurance Rate Map (FIRM), Special Flood Hazard Area (SFHA), Elevation Certificate. Practice this
Betterment: The amount by which a repair or replacement leaves the insured better off than before the loss, such as a new tire replacing one that was 75% worn. The personal auto policy does not pay for betterment, so the insured pays the share that reflects wear already used up. See also: Depreciation, Like kind and quality, Collision. Practice this
Bid bond: A surety bond that guarantees a bidder will honor its bid and, if awarded the contract, sign it and furnish the required performance and payment bonds. See also: Performance bond, Payment bond, Surety bond. Practice this
Binder: A temporary insurance contract that provides coverage until the permanent policy is issued. Agents with binding authority can bind property and casualty coverage, sometimes orally, and the insurer can be held to a binder its agent issues. See also: Declarations, Utmost good faith. Practice this
Bodily injury and property damage liability (CGL Coverage A): The CGL insuring agreement that pays damages the insured is legally obligated to pay because of bodily injury or property damage caused by an occurrence during the policy period, plus defense. Exclusions include expected or intended injury (except reasonable force to protect persons or property), contractual liability other than insured contracts, employer's liability, pollution, autos and damage to the insured's own product or completed work, subject to exceptions. See also: Commercial general liability (CGL), Occurrence, Insured contract. Practice this
Builders risk: Property coverage for a building under construction. Under the ISO form, coverage ends at the earliest of events such as policy expiration, acceptance by a purchaser, abandonment of construction, 90 days after construction is complete or 60 days after the building is occupied or put to its intended use. See also: Building and Personal Property Coverage Form (BPP), Inland marine insurance. Practice this
Building and Personal Property Coverage Form (BPP): The ISO commercial property form (CP 00 10) that insures buildings, the insured's business personal property and personal property of others, with the perils supplied by a separate causes of loss form. It also contains additional coverages, coverage extensions, a coinsurance condition and optional coverages such as agreed value, inflation guard and replacement cost. See also: Business personal property, Causes of loss special form, Coinsurance. Practice this
Business income: Coverage for the net income (net profit or loss before income taxes) a business would have earned plus its continuing normal operating expenses, including payroll, during the period of restoration after covered physical damage. Expenses that stop during the shutdown are not part of the loss, and after repairs the Extended Business Income coverage can continue payments for up to 60 days while income recovers. See also: Extra expense, Period of restoration, Civil authority. Practice this
Business personal property: Under the BPP, the furniture, fixtures, machinery, equipment, stock and other personal property the insured owns and uses in its business at the described premises. It also includes a tenant's use interest in improvements and betterments it paid for. See also: Improvements and betterments, Building and Personal Property Coverage Form (BPP). Practice this
Businessowners policy (BOP): A package of property and liability coverage for small and midsize businesses such as offices, apartments, shops and restaurants. The ISO BOP includes business income for actual loss sustained up to 12 months, has no coinsurance clause (although full replacement cost requires insurance to 80% of value), and its liability aggregates are each twice the per occurrence limit. See also: Business income, Commercial general liability (CGL), Insurance to value. Practice this

C

Cancellation: Termination of a policy before its expiration date, by the insured or, for permitted reasons and with the required notice, by the insurer. Unearned premium is generally refunded; nonrenewal, by contrast, is a decision not to continue the policy after the current term ends. See also: Conditions, Personal auto policy (PAP). Practice this
Case reserve: The amount an adjuster estimates remains to be paid on a specific reported claim, revised as facts develop. Paid loss plus the outstanding case reserve equals the claim's total incurred (reported) loss. See also: Incurred but not reported (IBNR), First notice of loss (FNOL). Practice this
Catastrophe (CAT) adjuster: An adjuster, often independent, who travels to handle large volumes of claims after hurricanes, hailstorms, wildfires and other disasters. CAT adjusters need authority to work in the affected states, usually through nonresident licenses based on a home state or designated home state license, and states may also issue emergency licenses after a catastrophe. See also: Emergency adjuster license, Independent adjuster, Reciprocity. Practice this
Causes of loss basic form: The ISO commercial named perils form (CP 10 10), covering fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse and volcanic action. See also: Causes of loss broad form, Causes of loss special form, Named perils. Practice this
Causes of loss broad form: The ISO commercial named perils form (CP 10 20) that adds falling objects, weight of snow, ice or sleet, and water damage from plumbing, heating and air conditioning systems to the basic perils. It also includes collapse coverage. See also: Causes of loss basic form, Causes of loss special form. Practice this
Causes of loss special form: The ISO commercial open perils form (CP 10 30), which covers direct physical loss unless excluded or limited. Exclusions include flood, earth movement, off-premises utility failure, wear and tear, repeated seepage over 14 days or more and employee dishonesty, and theft of patterns, dies, molds and forms is limited to $2,500. See also: Open perils, Causes of loss broad form, Equipment breakdown. Practice this
Civil authority: Business income coverage that applies when a covered cause of loss damages other property and a civil authority prohibits access to the insured's premises. Under CP 00 30 the premises must be within one mile of the damaged property, and business income coverage begins 72 hours after the order and lasts up to four consecutive weeks. See also: Business income, Coverage D (Loss of use). Practice this
Claims-made form: A liability form that covers claims first made during the policy period, or an extended reporting period, for injury or damage that happened on or after the retroactive date and before the policy ended. ISO offers the CGL on a claims-made basis (CG 00 02) as well as on an occurrence basis. See also: Retroactive date, Extended reporting period (ERP), Occurrence. Practice this
Coinsurance: A property policy condition that penalizes carrying too little insurance. If the limit is less than the coinsurance percentage times the property's value at the time of loss, the insurer pays only the ratio of the limit carried to the limit required; with a $500,000 building, 80% coinsurance and a $300,000 limit, the insured collects 75% of a covered loss before the deductible. See also: Insurance to value, Agreed value, Building and Personal Property Coverage Form (BPP). Practice this
Collision: Personal auto policy Part D coverage for loss to the covered auto caused by its upset or its impact with another vehicle or object. Losses such as hitting a deer, fire, theft and hail are other than collision instead, although glass broken in a collision may be treated as part of the collision loss. See also: Other than collision (comprehensive), Total loss, Betterment. Practice this
Combined single limit: One liability limit that applies per accident to bodily injury and property damage together, with no separate per person or property damage caps. A $300,000 combined single limit pays up to $300,000 however the damages are divided among claimants. See also: Split limits. Practice this
Commercial crime coverage: Insurance for a business's losses from crimes such as employee theft, forgery or alteration of checks and theft of money and securities, which commercial property forms exclude or limit. Coverage for an employee ends once the insured learns of any theft or dishonest act by that employee, and discovery forms cover losses discovered during the policy period whenever they occurred. See also: Fidelity bond, Causes of loss special form. Practice this
Commercial general liability (CGL): The ISO business liability form (CG 00 01) with three coverages: bodily injury and property damage liability (Coverage A), personal and advertising injury liability (Coverage B) and medical payments (Coverage C). Coverage C pays reasonable medical expenses for accidents on the insured's premises or from its operations regardless of fault, if incurred and reported within one year. See also: Bodily injury and property damage liability (CGL Coverage A), Personal and advertising injury (CGL Coverage B), Aggregate limit. Practice this
Comparative negligence: A rule that reduces a claimant's recovery by the claimant's own percentage of fault. Under pure comparative negligence a claimant 70% at fault still recovers 30% of damages, while modified rules bar recovery once the claimant's fault reaches 50% (the 50% bar) or exceeds 50% (the 51% bar, used in Texas). See also: Contributory negligence, Negligence, Joint and several liability. Practice this
Compensatory damages: Damages that make up for a claimant's loss. Special damages are calculable economic losses, such as medical bills and lost wages, and general damages are non-economic losses, such as pain and suffering; punitive damages are not compensatory but punish especially harmful, willful or wanton conduct. See also: Negligence, Joint and several liability. Practice this
Concealment: The intentional failure to disclose a material fact that the applicant knows the insurer would consider important, even though no false statement is made. Because insurance rests on utmost good faith, an insurer that proves material concealment may be able to void the policy. See also: Misrepresentation, Utmost good faith, Fraud. Practice this
Conditional contract: A contract in which the insurer's duty to pay depends on the insured meeting the policy conditions, such as giving prompt notice and cooperating after a loss. If the insured fails a condition and the failure prejudices the insurer, payment may be denied. See also: Conditions, Duties after loss, Aleatory contract. Practice this
Conditions: The policy section that sets out the rights and duties of the insurer and the insured, such as notice of loss, duties after loss, appraisal, other insurance, cancellation and suit against the insurer. Failing to meet a condition can defeat coverage when the failure prejudices the insurer. See also: Duties after loss, Conditional contract, Appraisal. Practice this
Constructive total loss: In marine insurance, a loss treated as total even though the property still exists, because it is reasonably abandoned or because saving, recovering or repairing it would cost more than it would be worth afterward. A ship whose repair cost would exceed its value once repaired is the classic example. See also: Total loss, Ocean marine insurance, Salvage. Practice this
Continuing education (CE): Coursework a licensed adjuster must complete to renew a license. A common requirement is 24 hours every two years, including 3 hours of ethics, as in Texas and Georgia, while some licensing states require none for independent adjusters and nonresidents can often rely on their home state's CE. See also: Designated home state (DHS) license, Reciprocity. Practice this
Contract of adhesion: A contract drafted entirely by one party and offered to the other on a take-it-or-leave-it basis, as insurance policies are. Because the insurer chose the words, courts generally construe genuine ambiguities against the insurer (the contra proferentem rule), but clear policy language is enforced as written. See also: Aleatory contract, Unilateral contract, Parol evidence rule. Practice this
Contributory negligence: A traditional rule under which any fault by the claimant, even a small percentage, bars recovery entirely. Only a few jurisdictions still follow it, including Alabama, Maryland, North Carolina and Virginia. See also: Comparative negligence, Assumption of risk. Practice this
Coverage A (Dwelling): The homeowners coverage for the dwelling on the residence premises, including structures attached to it. Other limits are usually set from it: under ISO rules, Coverage B is 10%, Coverage C is 50% and Coverage D is 30% of Coverage A on the HO-2, HO-3 and HO-5. See also: Coverage B (Other structures), Insurance to value, Ordinance or law coverage. Practice this
Coverage B (Other structures): Homeowners coverage for structures on the residence premises set apart from the dwelling by clear space, such as a detached garage, shed or fence, usually 10% of Coverage A and in addition to it. It does not cover structures from which any business is conducted or most structures rented to someone who is not a tenant of the dwelling. See also: Coverage A (Dwelling), Coverage C (Personal property). Practice this
Coverage C (Personal property): Homeowners coverage for personal property owned or used by an insured anywhere in the world, usually 50% of Coverage A. The HO-3 covers it against 16 named perils and settles at actual cash value unless a replacement cost endorsement is added, and special limits apply to items such as money and jewelry theft. See also: Special limits of liability, Scheduled personal property endorsement, Named perils. Practice this
Coverage D (Loss of use): Homeowners coverage that pays additional living expense, or the fair rental value of any part of the home rented to others, when a covered loss makes the residence unfit to live in. It is 30% of Coverage A on the HO-2, HO-3 and HO-5 under ISO rules, and it pays up to two weeks when a civil authority bars use because of damage to a neighboring premises. See also: Additional living expense (ALE), Civil authority, Coverage A (Dwelling). Practice this
Coverage E (Personal liability): Homeowners coverage for damages an insured is legally liable for because of bodily injury or property damage caused by an occurrence, with defense costs paid in addition to the limit. The basic ISO limit is $100,000 per occurrence, and many business, motor vehicle and watercraft exposures are excluded. See also: Coverage F (Medical payments to others), Occurrence, Duty to defend. Practice this
Coverage F (Medical payments to others): Homeowners coverage that pays necessary medical expenses, regardless of fault, for people injured on the insured location with permission or, in listed situations, away from it, if incurred or medically ascertained within three years. It does not cover the named insured or regular household residents other than residence employees, and the basic ISO limit is $1,000 per person. See also: Coverage E (Personal liability), Bodily injury and property damage liability (CGL Coverage A). Practice this

D

Declarations: The page or pages that personalize a policy: the named insured, policy period, insured location or vehicles, coverages, limits, deductibles, premium and attached forms. Adjusters usually check the declarations first to confirm who and what is insured. See also: Insuring agreement, Endorsement, Deductible. Practice this
Deductible: The part of a covered loss the insured pays before the insurer pays. Property deductibles generally apply per loss or occurrence; under the HO-3, if two or more deductibles apply to one loss only the highest applies, and the commercial BPP applies its deductible once per occurrence even when several buildings are damaged. See also: Hurricane deductible, Coinsurance, Self-insured retention (SIR). Practice this
Depreciation: The decrease in property value from age, use and wear. Straight-line depreciation divides age by expected useful life, so a water heater 12 years into a 15-year life is 80% depreciated, and on a $1,500 replacement cost its ACV is $300. See also: Actual cash value (ACV), Recoverable depreciation, Betterment. Practice this
Designated home state (DHS) license: An adjuster license issued by a state the adjuster designates as home, for people who live in a state that does not license adjusters, so they have a home-state license to support nonresident licenses elsewhere. Texas and Florida (license 70-20) both offer one, and the applicant must qualify as a resident of that state would, including its continuing education. See also: Reciprocity, Continuing education (CE), National Insurance Producer Registry (NIPR). Practice this
Desk adjuster: An adjuster who handles claims remotely, working by phone, email, photos, documents and estimates instead of inspecting losses in person. When a loss needs to be seen, a desk adjuster may rely on a field adjuster or inspector for the site visit. See also: Field adjuster, Staff adjuster. Practice this
Diminished value: The loss in a vehicle's market value after an accident, even after a proper repair, because of its accident history. First-party collision coverage generally does not pay it, but in most states it can be part of a third-party claim against the at-fault driver's liability insurer; rules vary by state. See also: Third-party claim, Collision. Practice this
DP-1 (Basic form): The narrowest ISO dwelling property form, whose base perils are fire, lightning and internal explosion, with extended coverage perils and vandalism available for an added premium. It has no additional living expense coverage, and like all dwelling forms it covers property only, so liability is added with a separate personal liability form (DL 24 01). See also: DP-2 (Broad form), DP-3 (Special form), Named perils. Practice this
DP-2 (Broad form): An ISO dwelling property form that covers the dwelling, other structures and personal property against a broader list of named perils than the DP-1 and adds additional living expense. Dwelling forms are typically used for rentals, seasonal homes and other dwellings the owner does not occupy as a primary residence. See also: DP-1 (Basic form), DP-3 (Special form), Vacancy provision. Practice this
DP-3 (Special form): An ISO dwelling property form that insures the dwelling and other structures on an open perils basis and personal property against named perils. Like the HO-3, it pays replacement cost on buildings only when the limit is at least 80% of full replacement cost, and the DP-2 and DP-3 allow up to 20% of Coverage A for fair rental value and additional living expense combined. See also: DP-2 (Broad form), HO-3 (Special form), Insurance to value. Practice this
Duties after loss: The insured's obligations after a loss, which under the HO-3 include prompt notice, notifying police of a theft, protecting property from further damage, preparing an inventory, showing the damaged property, submitting to examination under oath and sending a sworn proof of loss within 60 days after the insurer's request. The insurer is relieved of its duty to provide coverage only if a failure to comply prejudices it. See also: Examination under oath (EUO), Proof of loss, Conditional contract. Practice this
Duty to defend: A liability insurer's obligation to defend a suit whose allegations are potentially covered, judged mainly by comparing the complaint with the policy. It is broader than the duty to indemnify, which depends on the actual facts and applies only to covered damages, and if any allegation is potentially covered most courts require a defense of the whole suit, often under a reservation of rights. See also: Reservation of rights, Supplementary payments, Bodily injury and property damage liability (CGL Coverage A). Practice this

E

Elevation Certificate: A FEMA form, completed by a licensed professional such as a land surveyor, that documents a building's elevations and flood zone information. Under current NFIP rating it is optional and can supply the building's first floor height, while communities still use it to confirm that new and substantially improved buildings in a Special Flood Hazard Area are properly elevated. See also: Base flood elevation (BFE), Risk Rating 2.0. Practice this
Emergency adjuster license: A temporary license a state issues after a catastrophe so insurers can add adjusters quickly, usually on certification by an insurer or licensed adjuster or firm that is responsible for the emergency adjuster's conduct. Texas issues it for 90 days with a possible 90-day extension, and Florida's is valid for up to six months with possible extensions. See also: Catastrophe (CAT) adjuster, Independent adjuster. Practice this
Employers liability: Part Two of the standard workers compensation policy, covering an employer's liability for employee injuries outside the workers compensation law, such as third-party-over suits and claims by an injured worker's family members. Standard limits are $100,000 bodily injury by accident (each accident), $500,000 by disease (policy limit) and $100,000 by disease (each employee), and personnel practices such as harassment or wrongful termination are excluded. See also: Workers compensation, Exclusive remedy. Practice this
Endorsement: A written form attached to a policy that adds, removes or changes coverage, also called a rider. When an endorsement conflicts with the main policy form, the endorsement controls, subject to its own terms, limits and deductible. See also: Declarations, Scheduled personal property endorsement. Practice this
Ensuing loss: A covered loss that results from an excluded event. The HO-3 and the commercial Special Form exclude earthquake damage but cover fire that follows an earthquake, so the fire damage is paid while the cracking caused by the quake is not. See also: Anti-concurrent causation clause, Exclusion. Practice this
Equipment breakdown: Coverage, historically called boiler and machinery insurance, for sudden and accidental breakdown of boilers, machinery and electrical equipment. It fills a gap left by commercial property forms, which exclude mechanical breakdown and explosion of steam boilers owned, leased or operated by the insured. See also: Causes of loss special form. Practice this
Estoppel: A doctrine that bars a party from taking a position that contradicts its earlier words or conduct when another party reasonably relied on them to its detriment. An insurer that tells an insured in writing that a loss is covered, then tries to deny it after the insured spends money relying on that statement, may be estopped from denying. See also: Waiver, Reservation of rights, Non-waiver agreement. Practice this
Examination under oath (EUO): Sworn questioning of an insured that the policy lets the insurer require, as often as it reasonably needs, during a claim investigation. Under the HO-3, each insured is examined outside the presence of any other insured and must sign the examination, and it is a policy condition that does not wait for a lawsuit. See also: Duties after loss, Recorded statement, Special investigations unit (SIU). Practice this
Exclusion: A policy provision that removes coverage for certain perils, property, persons, locations or types of loss. Under an open perils form, the insurer generally bears the burden of proving that an exclusion applies. See also: Open perils, Anti-concurrent causation clause, Ensuing loss. Practice this
Exclusive remedy: The rule that workers compensation benefits are an injured employee's only remedy against the employer for a covered work injury, even when the employer was negligent. Some states make exceptions, such as injuries the employer intentionally caused, and the rule does not bar suits against negligent third parties. See also: Workers compensation, Employers liability, Subrogation. Practice this
Experience modification factor: A multiplier that adjusts an employer's workers compensation premium by comparing its actual losses with the losses expected for its classifications and payroll. A factor of 1.00 is average, so a 0.85 mod turns a $48,000 manual premium into $40,800. See also: Workers compensation. Practice this
Extended reporting period (ERP): A period after a claims-made policy ends during which claims can still be reported, often called tail coverage; injury must still have occurred before the policy ended. The ISO claims-made CGL gives a free basic ERP (60 days, or five years for occurrences reported within 60 days after the policy ends) and an optional supplemental ERP of unlimited length for added premium, requested in writing within 60 days. See also: Claims-made form, Retroactive date. Practice this
Extra expense: Coverage for necessary expenses a business incurs during the period of restoration that it would not have incurred without the loss, such as renting temporary space or equipment to keep operating or reopen sooner. Unlike business income, it begins immediately after the loss, and the business income coinsurance condition does not apply to it. See also: Business income, Period of restoration. Practice this

F

Family member: Under the personal auto policy, a person related to the named insured by blood, marriage or adoption who lives in the named insured's household, including a ward or foster child. A married child living elsewhere and an unrelated roommate are not family members. See also: Personal auto policy (PAP), Your covered auto. Practice this
Fidelity bond: Coverage that protects an employer against loss from dishonest acts of its employees, such as theft or embezzlement. Commercial crime policies now provide this protection through the employee theft insuring agreement. See also: Commercial crime coverage, Surety bond. Practice this
Field adjuster: An adjuster who inspects damaged property, vehicles or accident scenes in person, takes photos and measurements, prepares the scope and estimate, and meets with insureds and claimants. See also: Desk adjuster, Scope of loss, Independent adjuster. Practice this
First notice of loss (FNOL): The first report of a loss or claim to the insurer or its agent, which opens the claim and starts the claim-handling clock. Under the NAIC model claims regulation (Model 902), the insurer must acknowledge the notice within 15 days unless it pays the claim within that time. See also: Duties after loss, Case reserve. Practice this
Floater: An inland marine policy that covers movable property wherever it is located, often on an open perils basis. Examples include personal property and personal articles floaters for households, the contractors equipment floater for bulldozers and other equipment that moves between job sites, and the installation floater for materials until they are installed. See also: Inland marine insurance, Scheduled personal property endorsement. Practice this
Flood (SFIP definition): A general and temporary condition of partial or complete inundation of two or more acres of normally dry land, or of two or more properties (one of them the insured's), from overflow of inland or tidal waters, unusual and rapid accumulation or runoff of surface waters, or mudflow; it also includes certain shoreline collapse. A burst pipe that floods only one home is not a flood under this definition. See also: Standard Flood Insurance Policy (SFIP), National Flood Insurance Program (NFIP). Practice this
Flood Insurance Rate Map (FIRM): The official FEMA map of a community that shows its flood zones and base flood elevations. Zone VE marks coastal areas with storm-induced velocity wave action, Zone AE marks other 1-percent-annual-chance areas with base flood elevations, and shaded Zone X is a moderate-hazard area outside the Special Flood Hazard Area. See also: Special Flood Hazard Area (SFHA), Base flood elevation (BFE), Mandatory purchase requirement. Practice this
Fraud: A false statement of material fact made knowingly or recklessly, with intent that the other party rely on it, that causes harm. Fraud can occur on an application or in a claim, and the HO-3's concealment or fraud conditions take away coverage when an insured engages in fraudulent conduct relating to the insurance. See also: Concealment, Misrepresentation, Special investigations unit (SIU). Practice this
Functional replacement cost: Valuation that pays to repair or replace damaged property with common, modern materials and methods that serve the same function and cost less than obsolete, antique or custom construction, such as asphalt shingles in place of slate. The HO-8 settles repaired building losses this way, which suits older homes whose replacement cost far exceeds market value. See also: HO-8 (Modified coverage form), Replacement cost (RCV), Actual cash value (ACV). Practice this

G

Gap coverage: Auto loan/lease coverage (ISO PP 03 35) that pays the difference between the actual cash value paid on a totaled vehicle and the larger balance still owed on the loan or lease. It does not pay overdue payments, late fees or similar charges. See also: Total loss, Actual cash value (ACV). Practice this
General average: A loss from an extraordinary sacrifice or expense voluntarily and reasonably made to save a voyage from a common peril, such as throwing cargo overboard in a storm. The ship and all cargo interests saved share it in proportion to their values, so a cargo owner with $3,000,000 of $12,000,000 in contributing values pays 25% of the loss. See also: Particular average, Ocean marine insurance. Practice this
Going and coming rule: A rule that generally excludes injuries during an ordinary commute to and from a fixed workplace. A widely recognized exception covers a special errand or trip the employer directs, because the travel itself is part of the job. See also: Arising out of and in the course of employment (AOE/COE). Practice this

H

Hazard: A condition that increases the chance or severity of a loss from a peril. Physical hazards are tangible conditions, such as frayed wiring or oily rags, while moral and morale hazards come from a person's dishonesty or indifference. See also: Peril, Moral hazard, Morale hazard. Practice this
HO-2 (Broad form): An ISO homeowners form for owner-occupants that insures the dwelling, other structures and personal property against named perils only. It is narrower than the HO-3, which covers the dwelling on an open perils basis. See also: HO-3 (Special form), Named perils. Practice this
HO-3 (Special form): An ISO homeowners form for owner-occupants that insures the dwelling and other structures on an open perils basis and personal property against 16 named perils. It also includes loss of use, personal liability and medical payments to others. See also: HO-5 (Comprehensive form), Open perils, Coverage C (Personal property). Practice this
HO-4 (Contents broad form): The ISO renters form, which covers a tenant's personal property against named perils plus loss of use and personal liability, with no dwelling coverage. It also provides up to 10% of Coverage C for building additions and alterations the tenant paid for. See also: HO-6 (Unit-owners form), Coverage C (Personal property), Improvements and betterments. Practice this
HO-5 (Comprehensive form): The broadest ISO owner-occupant homeowners form, covering the dwelling, other structures and personal property on an open perils basis. The HO-3, by contrast, limits personal property to named perils. See also: HO-3 (Special form), Open perils. Practice this
HO-6 (Unit-owners form): The ISO form for condominium and cooperative unit owners. Coverage A insures alterations, appliances, fixtures and improvements that are part of the unit, plus property the association agreement makes the owner's responsibility, and under ISO rules Coverage D is 50% of Coverage C. See also: HO-4 (Contents broad form), Coverage A (Dwelling). Practice this
HO-8 (Modified coverage form): An ISO owner-occupant form for homes that may not meet underwriting standards for other forms, often older homes whose replacement cost far exceeds market value. It settles repaired building losses using common construction materials and methods that are functionally equivalent to the original, instead of duplicating obsolete or custom work. See also: Functional replacement cost, HO-3 (Special form). Practice this
Hurricane deductible: A separate deductible for hurricane losses, often a percentage of the dwelling (Coverage A) limit rather than of the loss. A 2% deductible on a $350,000 dwelling limit is $7,000, and Florida applies hurricane deductibles on a calendar-year basis. See also: Deductible, Coverage A (Dwelling). Practice this

I

Improvements and betterments: Fixtures, alterations, installations or additions a tenant makes at its own expense to a building it does not own and cannot legally remove. Under the BPP, the tenant's use interest in them is insured as business personal property, not as building coverage. See also: Business personal property, HO-4 (Contents broad form). Practice this
Increased Cost of Compliance (ICC): SFIP Coverage D, which pays up to $30,000 to elevate, floodproof, relocate or demolish a flood-damaged building to meet floodplain management laws, most often after the community declares it substantially damaged. No deductible applies, but combined building and ICC payments cannot exceed the program maximum, such as $250,000 for a single-family dwelling. See also: Substantial damage, Ordinance or law coverage, Standard Flood Insurance Policy (SFIP). Practice this
Incurred but not reported (IBNR): A reserve for losses that have occurred but have not yet been reported to the insurer as of the reporting date, such as hail damage policyholders have not yet claimed. It is estimated in total because no individual claim exists yet on which to set a case reserve. See also: Case reserve. Practice this
Indemnity: The principle that insurance should restore the insured to about the same financial position as before the loss, without a profit. Insurable interest, actual cash value valuation, subrogation and other insurance clauses all help enforce it. See also: Insurable interest, Actual cash value (ACV), Subrogation. Practice this
Independent adjuster: An adjuster who is not the insurer's employee but is hired on a contract or fee basis, directly or through an adjusting firm, to handle claims for insurers. Like a staff adjuster, an independent adjuster represents the insurer and charges the insured nothing. See also: Staff adjuster, Public adjuster, Catastrophe (CAT) adjuster. Practice this
Independent medical examination (IME): An examination by a physician who is not the treating doctor, requested by the insurer or employer to evaluate the diagnosis, causation, work ability, maximum medical improvement or impairment. The IME doctor gives an opinion but does not take over care, and disputes can be challenged under state procedures. See also: Maximum medical improvement (MMI), Permanent partial disability (PPD). Practice this
Inflation guard: An option or endorsement that automatically raises property limits by a set annual percentage, applied pro rata through the policy term, to help keep insurance to value. A $400,000 building limit with a 6% annual increase is $404,800 on day 73 of the policy year. See also: Insurance to value, Coinsurance. Practice this
Inland marine insurance: Insurance for property that moves or is connected with transportation, including goods in transit, property held by bailees, mobile equipment, floaters and instrumentalities of transportation and communication such as bridges and towers. The Nationwide Marine Definition describes which risks may be written as inland marine. See also: Nationwide Marine Definition, Floater, Bailee's customers coverage. Practice this
Instrumentalities of transportation and communication: Under the Nationwide Marine Definition, fixed property that helps move goods or information, such as bridges, tunnels, pipelines, piers, power lines and radio and television towers. These qualify for inland marine coverage even though they do not move, but buildings and their contents do not. See also: Nationwide Marine Definition, Inland marine insurance. Practice this
Insurable interest: A financial stake in the subject of insurance, so that the insured would suffer a financial loss if it were damaged. In property insurance it must exist at the time of the loss, so an owner who sold a building and was paid in full cannot collect for a later fire. See also: Indemnity, Assignment. Practice this
Insurance to value: Carrying a limit close to the full value of the property. Homeowners forms pay full replacement cost only when the dwelling limit is at least 80% of full replacement cost; below that, the HO-3 pays the greater of actual cash value or the limit carried divided by 80% of replacement cost, times the loss. See also: Replacement cost (RCV), Coinsurance, Inflation guard. Practice this
Insured contract: A CGL term for contracts under which the insured's assumed liability is covered despite the contractual liability exclusion. It includes a lease of premises, a sidetrack agreement, an easement, an elevator maintenance agreement and any business contract in which the insured assumes another party's tort liability for third-party bodily injury or property damage. See also: Bodily injury and property damage liability (CGL Coverage A), Commercial general liability (CGL). Practice this
Insuring agreement: The part of a policy that states the insurer's basic promise, such as to pay for direct physical loss to covered property or to pay damages the insured is legally obligated to pay. The definitions, exclusions and conditions then shape the coverage it grants. See also: Declarations, Exclusion, Conditions. Practice this

J

Joint and several liability: A rule that makes each liable defendant responsible for the entire judgment, so the claimant can collect all of it from one defendant, who may then seek contribution from the others. Many states now limit joint and several liability by statute. See also: Comparative negligence, Vicarious liability. Practice this
Jones Act: A federal law that lets an injured seaman, meaning a member of a vessel's crew, sue the employer for negligence with a jury trial instead of receiving state workers compensation. Interstate railroad workers have a similar negligence-based remedy under the Federal Employers' Liability Act (FELA). See also: Longshore and Harbor Workers' Compensation Act (USL&H), Protection and indemnity (P&I). Practice this

L

Law of large numbers: The principle that as the number of similar, independent exposure units grows, actual losses come closer to expected losses. Pooling many similar exposures lets an insurer predict losses well enough to set adequate premiums. See also: Adverse selection, Pure risk. Practice this
Like kind and quality: The standard for repair or replacement: property of the same type and quality as what was damaged, not an upgrade. In auto claims, OEM parts are made by or for the vehicle's manufacturer and aftermarket parts by independent companies, and state rules on using and disclosing non-OEM parts vary. See also: Betterment, Replacement cost (RCV), Actual cash value (ACV). Practice this
Longshore and Harbor Workers' Compensation Act (USL&H): A federal law that provides workers compensation to maritime workers such as longshore workers, ship repairers and shipbuilders injured on navigable waters or adjoining areas like piers, dry docks and terminals. Vessel masters and crew members are excluded and fall under the Jones Act, and a standard workers compensation policy needs an endorsement to cover USL&H exposure. See also: Jones Act, Workers compensation. Practice this
Loss to a pair or set: A loss settlement condition for items worth more together, such as matched earrings or lamps. The insurer may repair or replace part to restore the pair or set, or pay the difference between its actual cash value before and after the loss, rather than a flat share of the set's value. See also: Actual cash value (ACV), Scheduled personal property endorsement. Practice this

M

Mandatory purchase requirement: The rule, created by the Flood Disaster Protection Act of 1973, that federally backed lenders may not make loans secured by buildings in a Special Flood Hazard Area of a participating community unless the building is covered by flood insurance. It does not apply in moderate or minimal hazard zones such as B, C and X. See also: Special Flood Hazard Area (SFHA), NFIP waiting period. Practice this
Maximum medical improvement (MMI): The point at which an injured worker's condition has plateaued and further material improvement is not expected. Temporary disability benefits generally end at MMI, and an impairment rating, often based on the AMA Guides, is used to set permanent disability benefits, while needed medical care may continue. See also: Temporary total disability (TTD), Permanent partial disability (PPD), Independent medical examination (IME). Practice this
Misrepresentation: A false statement of fact on an application or in a claim. Only a material misrepresentation, one that would have led the insurer to decline the risk or charge a different premium, generally gives the insurer grounds to void coverage; listing the wrong car color would not. See also: Representation, Concealment, Fraud. Practice this
Monopolistic state fund: A state workers compensation fund that is the only legal source of coverage, so private insurers cannot sell it there. The four monopolistic states are North Dakota, Ohio, Washington and Wyoming; a competitive state fund, by contrast, sells alongside private insurers and is often the insurer of last resort. See also: Workers compensation. Practice this
Moral hazard: A hazard that comes from dishonesty, such as an insured who deliberately causes or fakes a loss or inflates a claim to collect insurance money. See also: Morale hazard, Hazard, Fraud. Practice this
Morale hazard: Carelessness or indifference to loss because a person has insurance, such as leaving a car unlocked with the keys inside because theft is covered. It involves no intent to defraud, which is what separates it from moral hazard. See also: Moral hazard, Hazard. Practice this
Mortgage clause: A property policy provision that protects a named mortgagee (lender). Building losses are paid to the insured and the mortgagee as interests appear, and the lender can still recover when the insured's claim is denied for the insured's own acts if it meets its own duties, such as filing a sworn statement of loss within 60 days after notice. See also: Coverage A (Dwelling), Subrogation. Practice this

N

Named perils: Coverage that applies only to the causes of loss listed in the policy, such as fire, windstorm and theft. The insured generally must show that a listed peril caused the loss; HO-3 personal property, the HO-2 and the DP-1 are examples. See also: Open perils, Peril, HO-2 (Broad form). Practice this
National Flood Insurance Program (NFIP): The federal program, managed by FEMA, that offers flood insurance for buildings and contents in communities that adopt and enforce floodplain management rules meeting NFIP minimums. Policies are sold through Write Your Own insurers and NFIP Direct, and the program cannot sell or renew coverage in a community that does not participate. See also: Standard Flood Insurance Policy (SFIP), Write Your Own (WYO), Flood (SFIP definition). Practice this
National Insurance Producer Registry (NIPR): A not-for-profit organization that works with the NAIC and state regulators to provide online licensing services and licensing data for insurance professionals. Many states accept nonresident adjuster license applications and renewals through NIPR, although some use other systems, such as Sircon in Texas. See also: Reciprocity, Designated home state (DHS) license, Appointment. Practice this
Nationwide Marine Definition: A definition first adopted by the NAIC in 1933, and later revised, that identifies the property and risks that may be insured as marine, inland marine or transportation insurance. It grew out of competition between fire and marine insurers over land-based risks and does not set rates. See also: Inland marine insurance, Instrumentalities of transportation and communication. Practice this
Negligence: Failure to use the care a reasonable person would use in the circumstances. A claimant must prove a legal duty, breach of that duty, causation (including proximate cause) and actual damages, so careless conduct that harms no one supports no claim. See also: Proximate cause, Negligence per se, Comparative negligence. Practice this
Negligence per se: A doctrine under which an unexcused violation of a statute designed to protect a class of people from a particular harm establishes breach of duty. The claimant must still prove causation and damages. See also: Negligence, Res ipsa loquitur, Strict liability. Practice this
Newly acquired auto: A vehicle the named insured becomes the owner of during the policy period. Under the 2018 personal auto policy, coverage generally applies from the date of ownership only if the insured asks within 14 days; for collision or other than collision when no declared auto carries that coverage, the request must come within four days, and a $500 deductible applies to a loss before the request. See also: Your covered auto, Collision. Practice this
NFIP basement limitation: SFIP limits on coverage in a basement (an area with its floor below ground level on all sides) and in enclosures below the lowest elevated floor of post-FIRM elevated buildings in certain high-risk zones. Covered items are limited to a list such as furnaces, water heaters, central air conditioners, electrical boxes, sump pumps and unfinished drywall, plus washers, dryers and food freezers for contents, so finishes like carpet and paneling are not covered. See also: Standard Flood Insurance Policy (SFIP), Flood Insurance Rate Map (FIRM). Practice this
NFIP waiting period: The 30-day delay before a new NFIP policy takes effect. Exceptions include coverage bought in connection with making, increasing, extending or renewing a loan (no waiting period), a map revision that newly places the building in a Special Flood Hazard Area (1 day, if bought within 13 months) and certain post-wildfire flooding (1 day). See also: Mandatory purchase requirement, National Flood Insurance Program (NFIP). Practice this
No-fault auto insurance: A system in which injured people collect benefits, usually personal injury protection, from their own insurer regardless of fault, in exchange for limits on suing for pain and suffering. A verbal threshold allows a tort suit only for injuries that meet a statutory definition of serious injury, while a monetary threshold allows one once medical expenses reach a set dollar amount. See also: Personal injury protection (PIP), Auto medical payments coverage. Practice this
Non-waiver agreement: A bilateral agreement, signed by both the insurer and the insured, that the insurer's investigation of a claim will not waive its right to deny coverage later. An insured does not have to sign one, and if the insured refuses, the insurer typically sends a reservation of rights letter instead. See also: Reservation of rights, Waiver, Estoppel. Practice this

O

Obligee: The party protected by a surety bond, such as a project owner or government agency that requires a contractor to be bonded. If the principal fails to meet the bonded obligation, the obligee can recover from the surety up to the bond amount (the penal sum). See also: Surety bond, Principal (surety bond), Surety. Practice this
Occupational disease: A disease caused by exposure to conditions characteristic of the work, often over a long period, such as a sandblaster's silicosis. Ordinary diseases of life that the general public catches outside of work, such as the flu, are generally not compensable. See also: Arising out of and in the course of employment (AOE/COE), Employers liability. Practice this
Occurrence: In the CGL and homeowners policies, an accident, including continuous or repeated exposure to substantially the same general harmful conditions. On an occurrence form, coverage is triggered by injury or damage during the policy period no matter when the claim is made, and one occurrence, such as a deck collapse that injures three guests, is subject to one per occurrence limit. See also: Claims-made form, Bodily injury and property damage liability (CGL Coverage A), Coverage E (Personal liability). Practice this
Ocean marine insurance: Insurance for vessels and waterborne shipments. Its main coverages are hull (physical damage to the vessel), cargo (the goods shipped) and protection and indemnity (the owner's liability), and policies carry implied warranties of seaworthiness, legality and no deviation from the voyage. See also: Protection and indemnity (P&I), General average, Warranty. Practice this
Open perils: Coverage for direct physical loss from any cause that is not excluded, also called special form or all risk. Once a covered loss is shown, the insurer generally must prove an exclusion applies, which makes open perils coverage broader than named perils. See also: Named perils, Exclusion, HO-3 (Special form). Practice this
Ordinance or law coverage: Coverage for added costs caused by enforcing building codes after a covered loss. The commercial endorsement (CP 04 05) splits it into Coverage A for the value of the undamaged portion that must be torn down, Coverage B for demolition and Coverage C for the increased cost of construction, and the HO-3 gives up to 10% of Coverage A as additional insurance. See also: Coverage A (Dwelling), Increased Cost of Compliance (ICC). Practice this
Other insurance clause: A condition that decides how a policy shares a loss with other insurance covering the same loss. Common methods are pro rata by limits, contribution by equal shares (each insurer pays equal amounts until its limit is used up, as in the CGL) and excess, under which a policy pays only after the other insurance is exhausted. See also: Pro rata liability, Umbrella liability policy. Practice this
Other than collision (comprehensive): Personal auto policy Part D coverage for loss to the covered auto not caused by collision, including contact with a bird or animal, missiles or falling objects, fire, theft, windstorm, hail, flood, vandalism and glass breakage. It is commonly called comprehensive. See also: Collision, Transportation expenses. Practice this

P

Parol evidence rule: A legal rule that generally prevents earlier or contemporaneous oral or written agreements from being used to contradict a complete written contract. A $1,000 deductible clearly stated in the policy normally controls over an agent's earlier oral promise of a lower one, although exceptions exist, such as genuinely ambiguous wording. See also: Contract of adhesion, Waiver. Practice this
Particular average: A partial loss from an insured peril that falls only on the interest that suffered it, such as storm damage to one shipper's cargo. Unlike a general average loss, it is not shared by the other interests in the voyage. See also: General average, Ocean marine insurance. Practice this
Payment bond: A surety bond that guarantees a contractor will pay the subcontractors, laborers and material suppliers on a project. Public construction contracts often require it together with a performance bond. See also: Performance bond, Bid bond, Surety bond. Practice this
Performance bond: A surety bond that guarantees a contractor (the principal) will complete a contract according to its terms. If the contractor defaults, the surety pays money or arranges completion of the work, up to the penal sum. See also: Payment bond, Bid bond, Surety bond. Practice this
Peril: The cause of a loss, such as fire, lightning, windstorm or theft. A peril differs from a hazard, which is a condition that makes a loss from a peril more likely or more severe. See also: Hazard, Named perils, Open perils. Practice this
Period of restoration: The time for which business income and extra expense are paid. It begins 72 hours after the direct physical loss for business income (immediately for extra expense) and ends when the property should be repaired or replaced with reasonable speed, or when business resumes at a new permanent location. See also: Business income, Extra expense, Civil authority. Practice this
Permanent partial disability (PPD): Benefits for a lasting impairment that still leaves the worker able to work. Scheduled awards pay a set number of weeks for listed body parts such as a thumb, hand or eye, while non-scheduled injuries, such as back injuries, are rated to the body as a whole or by loss of earning capacity. See also: Permanent total disability (PTD), Maximum medical improvement (MMI). Practice this
Permanent total disability (PTD): Benefits for a worker whose total disability is permanent, so a return to gainful work is not expected. Under the federal Longshore Act, for example, PTD pays two-thirds of the average weekly wage for as long as the disability continues, and loss of both hands, arms, feet, legs or eyes, or any two of them, is presumed to be permanent total disability. See also: Permanent partial disability (PPD), Temporary total disability (TTD), Second injury fund. Practice this
Personal and advertising injury (CGL Coverage B): CGL coverage for listed offenses rather than accidents: false arrest, detention or imprisonment; malicious prosecution; wrongful eviction or entry; libel, slander or disparagement; publication violating privacy; and using another's advertising idea or infringing copyright, trade dress or slogan in the insured's advertisement. Patent and trademark infringement and breach of contract are not covered. See also: Commercial general liability (CGL), Umbrella liability policy. Practice this
Personal auto policy (PAP): The ISO standard policy for private passenger autos, made up of Part A Liability, Part B Medical Payments, Part C Uninsured Motorists, Part D Coverage for Damage to Your Auto, Part E Duties After an Accident or Loss and Part F General Provisions. The 2018 edition is PP 00 01 09 18. See also: Your covered auto, Split limits, Collision. Practice this
Personal injury protection (PIP): Auto coverage that pays the insured's own medical expenses, lost wages and similar losses regardless of who caused the accident. In no-fault states injured people collect PIP from their own insurer, and Texas includes PIP in every auto liability policy unless the named insured rejects it in writing. See also: No-fault auto insurance, Auto medical payments coverage. Practice this
Principal (surety bond): The party whose performance or payment a surety bond guarantees, such as a contractor that buys a performance bond. The principal remains primarily responsible for the obligation and generally must reimburse the surety for any claim the surety pays. See also: Surety bond, Obligee, Surety. Practice this
Pro rata liability: An other insurance method under which each policy pays the share of a loss that its limit bears to the total insurance covering the loss. With a $200,000 policy and a $300,000 policy, the first pays 40% of the loss; HO-3 Section I uses this method. See also: Other insurance clause. Practice this
Products-completed operations hazard: A CGL term for bodily injury and property damage that occurs away from premises the insured owns or rents and arises out of the insured's product or completed work. These claims are paid from a separate products-completed operations aggregate limit, not the general aggregate. See also: Aggregate limit, Bodily injury and property damage liability (CGL Coverage A). Practice this
Proof of loss: The insured's signed, sworn statement of the amount claimed. Under the SFIP it is due within 60 days after the loss unless FEMA extends the deadline, and the adjuster may help prepare it only as a courtesy; homeowners and commercial property forms instead require it within 60 days after the insurer's request. See also: Standard Flood Insurance Policy (SFIP), Duties after loss. Practice this
Protection and indemnity (P&I): Ocean marine liability insurance for a vessel owner, covering bodily injury to the crew and others, damage to property of others such as docks and piers, and liability for cargo aboard the vessel. See also: Ocean marine insurance, Jones Act. Practice this
Proximate cause: A cause that is legally sufficient to support liability, generally one whose harmful result was foreseeable, and not merely a cause in fact. It is a required element of negligence, and the question of what caused a loss is also central to property coverage decisions. See also: Negligence, Anti-concurrent causation clause. Practice this
Public adjuster: An adjuster hired and paid by the insured, often a percentage of the settlement, to prepare and negotiate a first-party claim with the insurer. Public adjusters need their own license in many states, and states may require a surety bond, such as $10,000 in Texas and $50,000 in Florida. See also: Independent adjuster, Staff adjuster, Surety bond. Practice this
Pure risk: A risk that offers only the chance of loss or no loss, with no chance of gain, such as a warehouse that may or may not burn. Private insurers generally insure pure risks, while speculative risks, such as buying stock or betting on a game, can produce a gain and are generally not insurable. See also: Peril, Law of large numbers. Practice this

R

Reciprocity: An arrangement under which a state issues a nonresident adjuster license, usually without its own exam, to an adjuster who holds an active license in good standing in a home state or designated home state it recognizes. Most licensing states accept it, but some, such as New York, require every adjuster to pass the state's own exam. See also: Designated home state (DHS) license, National Insurance Producer Registry (NIPR), Continuing education (CE). Practice this
Recorded statement: An interview recorded with the speaker's knowledge to document an insured's, claimant's or witness's account of a loss. The adjuster should identify everyone present and confirm consent on the recording, since some states require all parties to consent, and the 2018 personal auto policy requires a person seeking coverage to give recorded statements as often as reasonably required. See also: Examination under oath (EUO), Three-point contact. Practice this
Recoverable depreciation: Depreciation an insurer holds back on a replacement cost claim and pays after the insured actually repairs or replaces the property, limited to the amount actually spent. Under the HO-3, a building loss that is less than both $2,500 and 5% of the insurance is paid at replacement cost even before repairs, and on ACV-only coverage depreciation is not recoverable. See also: Replacement cost (RCV), Actual cash value (ACV), Depreciation. Practice this
Release: A document in which a claimant gives up the right to pursue a claim in exchange for payment. A minor's settlement generally needs court approval to be binding, and a check for an undisputed partial payment should not be labeled a final payment or full release. See also: Third-party claim, Subrogation. Practice this
Replacement cost (RCV): The cost to repair or replace damaged property with new property of like kind and quality, without a deduction for depreciation. Replacement cost policies usually pay actual cash value first and the rest after repairs are complete, and the HO-3 requires a dwelling limit of at least 80% of full replacement cost for full replacement cost settlement. See also: Actual cash value (ACV), Insurance to value, Recoverable depreciation. Practice this
Representation: A statement an applicant makes to induce the insurer to issue coverage. It must be substantially true rather than literally true, and only a material misrepresentation lets the insurer void the policy. See also: Warranty, Misrepresentation, Utmost good faith. Practice this
Res ipsa loquitur: Latin for 'the thing speaks for itself,' a doctrine that lets a claimant prove negligence with circumstantial evidence. It applies when the event ordinarily does not happen without negligence, the cause was in the defendant's exclusive control and the claimant did not contribute to it. See also: Negligence, Negligence per se. Practice this
Reservation of rights: A letter in which an insurer tells the insured it is investigating or defending a claim while reserving the right to deny coverage later, citing the specific policy language and issues. It is unilateral, so the insured's agreement is not needed, and sending it promptly helps the insurer avoid waiver and estoppel arguments. See also: Non-waiver agreement, Waiver, Duty to defend. Practice this
Residential Condominium Building Association Policy (RCBAP): The SFIP form for a residential condominium association's building. Building coverage is limited to the lesser of replacement cost or $250,000 times the number of units, and unlike the Dwelling Form it applies a coinsurance penalty when the building is insured for less than the lesser of 80% of replacement cost or the program maximum. See also: Standard Flood Insurance Policy (SFIP), Coinsurance. Practice this
Retroactive date: The date in a claims-made policy before which injury or damage is not covered, even if the claim is first made during the policy period. A claim made in 2026 for an injury in June 2023 is not covered if the retroactive date is January 1, 2024. See also: Claims-made form, Extended reporting period (ERP). Practice this
Risk Rating 2.0: FEMA's NFIP pricing approach, in effect for new policies since October 1, 2021, which rates each building on property-specific factors such as flood frequency, multiple flood types, distance to water and cost to rebuild instead of on its flood zone. Flood maps still govern mandatory purchase and floodplain management. See also: Flood Insurance Rate Map (FIRM), Elevation Certificate. Practice this

S

Salvage: Damaged property the insurer takes over after paying a total loss and then sells to reduce its cost. If an insurer pays $15,500 on a totaled car and sells the wreck for $2,800, its net cost is $12,700; if the owner keeps the vehicle, the salvage value is deducted from the payment. See also: Total loss, Subrogation. Practice this
Scheduled personal property endorsement: A homeowners endorsement (ISO HO 04 61) that lists valuables such as jewelry, furs, cameras and fine arts for specific amounts and covers them against direct physical loss, subject to a few exclusions, with no policy deductible. Scheduled fine arts are paid at the scheduled amount, and newly acquired items in a scheduled class get automatic coverage for a limited time. See also: Special limits of liability, Agreed value, Floater. Practice this
Scope of loss: The detailed, item-by-item record of what was damaged, with measurements, quantities and a repair or replace decision for each item. The estimate then prices that scope with labor, material and equipment costs. See also: Field adjuster, Replacement cost (RCV). Practice this
Second injury fund: A state fund that pays the difference between the benefits owed for a new work injury alone and the larger cost of the disability that results when it combines with a pre-existing impairment, such as loss of a second eye. It removes a reason not to hire workers with disabilities, although many states have abolished or limited their funds. See also: Permanent total disability (PTD), Workers compensation. Practice this
Self-insured retention (SIR): An amount the insured must pay itself before an umbrella or other policy responds, especially when an umbrella drops down to cover a claim no underlying policy covers. Unlike a deductible, which the insurer typically pays and then recovers from the insured, a retention is funded by the insured first. See also: Umbrella liability policy, Deductible. Practice this
Special Flood Hazard Area (SFHA): An area on a Flood Insurance Rate Map subject to the 1-percent-annual-chance (base) flood, shown as zones beginning with A or V. Buildings in an SFHA of a participating community that secure federally backed loans must carry flood insurance. See also: Flood Insurance Rate Map (FIRM), Base flood elevation (BFE), Mandatory purchase requirement. Practice this
Special investigations unit (SIU): An insurer's team that investigates suspected insurance fraud. Adjusters refer files when red flags appear, such as an unwitnessed injury reported Monday morning or claimed items out of line with the household's income, but indicators are not proof and a good-faith investigation is still required. See also: Fraud, Examination under oath (EUO), Unfair claims settlement practices. Practice this
Special limits of liability: Dollar caps within homeowners Coverage C for certain kinds of property. In the 2011 HO-3 they include $200 for money and coins, $1,500 for watercraft including trailers and motors, $1,500 for theft of jewelry, watches and furs, $2,500 for theft of firearms or silverware, and $2,500 for business property on the premises ($1,500 away from it). See also: Coverage C (Personal property), Scheduled personal property endorsement. Practice this
Split limits: Auto liability limits written as three numbers, such as 25/50/25: $25,000 for bodily injury to each person, $50,000 for all bodily injury in one accident and $25,000 for property damage. The per person cap is applied first, then the per accident cap. See also: Combined single limit, Personal auto policy (PAP). Practice this
Stacking: Adding together uninsured or underinsured motorists limits from more than one vehicle or policy. With three cars each carrying $50,000 of UM coverage, stacking makes $150,000 available; the ISO policy's limit wording tries to prevent stacking, and state law decides whether that wording is enforced. See also: Uninsured motorists coverage (UM), Underinsured motorists coverage (UIM). Practice this
Staff adjuster: An adjuster employed in an insurance company's claims department, also called a company adjuster. Licensing rules vary: Texas licenses company adjusters, while some states that license independent adjusters, such as Georgia, do not individually license insurer employees. See also: Independent adjuster, Public adjuster, Desk adjuster. Practice this
Standard Flood Insurance Policy (SFIP): The NFIP policy contract, issued as the Dwelling Form for one to four family homes and residential contents, the General Property Form for non-residential and larger residential buildings, and the Residential Condominium Building Association Policy. The Dwelling Form allows up to $250,000 building and $100,000 contents coverage, applies separate building and contents deductibles and pays no additional living expense. See also: National Flood Insurance Program (NFIP), Residential Condominium Building Association Policy (RCBAP), Proof of loss. Practice this
Stated amount: A valuation method, common for vehicles and equipment, that pays the least of the stated amount, the actual cash value or the cost to repair or replace. The stated amount is a ceiling, not a guaranteed payment, which is the key difference from agreed value. See also: Agreed value, Actual cash value (ACV). Practice this
Statutory employer: Under laws in most states, an upstream contractor that becomes responsible for workers compensation benefits owed to employees of an uninsured subcontractor. General contractors collect certificates of insurance from subcontractors for this reason, and premium audits may charge for payments to uninsured subcontractors. See also: Workers compensation, Exclusive remedy. Practice this
Strict liability: Liability without proof of fault, imposed for abnormally dangerous activities such as blasting with explosives, for keeping wild animals and for injuries caused by defective products. Using reasonable care is not a defense. See also: Negligence, Vicarious liability. Practice this
Subrogation: The insurer's right, after paying a loss, to recover its payment from a third party responsible for the loss by standing in the insured's shoes. An insured who releases the responsible party can impair this right, and the insured generally shares in the recovery to recoup the deductible. See also: Salvage, Indemnity, Release. Practice this
Substantial damage: A community determination that restoring a flood-damaged building to its pre-damage condition would cost 50% or more of its market value. It triggers floodplain management requirements, such as elevating the building, and is the most common route to Increased Cost of Compliance benefits. See also: Increased Cost of Compliance (ICC), Base flood elevation (BFE). Practice this
Supplementary payments: Costs a liability insurer pays in addition to the limit, such as defense costs and interest that accrues on a judgment before the insurer pays. Under the 2018 personal auto policy they include up to $250 for bail bonds and up to $250 a day in lost earnings for attending trials at the insurer's request, and the duty to defend ends once the limit is used up paying judgments or settlements. See also: Duty to defend, Aggregate limit. Practice this
Surety: The company or person that guarantees a principal's obligation under a bond and becomes liable to the obligee if the principal defaults. After paying a valid claim, the surety generally turns to the principal for reimbursement. See also: Surety bond, Principal (surety bond), Obligee. Practice this
Surety bond: A three-party agreement in which a surety guarantees to an obligee that a principal will perform an obligation, such as completing a construction contract or following licensing laws. If the principal fails, the surety pays or performs up to the bond's penal sum and then generally seeks reimbursement from the principal, a key difference from insurance. See also: Principal (surety bond), Obligee, Surety. Practice this

T

Temporary partial disability (TPD): Benefits for a worker who returns to work during recovery, such as on light duty, but earns less than before the injury. A common formula pays two-thirds of the difference between the pre-injury average weekly wage and current earnings. See also: Temporary total disability (TTD), Maximum medical improvement (MMI). Practice this
Temporary total disability (TTD): Wage-loss benefits for a worker who cannot work at all for a time while recovering, commonly two-thirds of the average weekly wage subject to state minimum and maximum weekly amounts. A short waiting period often applies, with those days paid retroactively if the disability lasts long enough, and TTD generally ends when the worker returns to work or reaches maximum medical improvement. See also: Temporary partial disability (TPD), Maximum medical improvement (MMI), Permanent total disability (PTD). Practice this
Third-party claim: A claim made against another person's insurance policy, such as an injured driver's claim against the at-fault driver's liability insurer. A first-party claim, by contrast, is made by an insured under his or her own policy, such as a homeowner's fire claim. See also: Bad faith, Diminished value, Release. Practice this
Three-point contact: Prompt contact with the injured worker, the employer and the treating medical provider after a lost-time workers compensation claim is reported. Together these contacts support a timely compensability decision, accurate benefit payments and early return-to-work planning. See also: Recorded statement, First notice of loss (FNOL). Practice this
Total loss: Property that is destroyed or not economically worth repairing. For autos, state law and insurer practice set the test, either a percentage threshold, such as repair costs reaching 75% of actual cash value, or a total loss formula under which repair cost plus salvage value equals or exceeds ACV, and the claim is then paid at ACV less the deductible. See also: Salvage, Actual cash value (ACV), Gap coverage. Practice this
Transportation expenses: Personal auto policy Part D coverage for temporary transportation after a covered loss. The 2018 edition pays up to $30 a day and $900 in total with no deductible, and after a total theft payment begins 48 hours after the theft. See also: Other than collision (comprehensive), Collision. Practice this

U

Umbrella liability policy: A policy that adds liability limits above underlying auto, homeowners or CGL policies and may also cover some claims they exclude, such as libel, usually subject to a self-insured retention. A follow-form excess policy, by contrast, adds limits only for losses the underlying policies cover. See also: Self-insured retention (SIR), Other insurance clause, Personal and advertising injury (CGL Coverage B). Practice this
Umpire: The neutral third person the two appraisers choose in an appraisal to settle the differences they cannot resolve. Under the HO-3, if the appraisers cannot agree on an umpire within 15 days, either party may ask a judge to choose one, and the parties split the umpire's cost equally. See also: Appraisal. Practice this
Underinsured motorists coverage (UIM): Coverage that pays when an at-fault driver has liability insurance but not enough to cover the insured's damages. A driver carrying exactly the state minimum is not uninsured, so recovering the shortfall requires UIM, which is added to the ISO personal auto policy by endorsement. See also: Uninsured motorists coverage (UM), Stacking. Practice this
Unfair claims settlement practices: Improper claim practices listed in the NAIC Unfair Claims Settlement Practices Act and similar state laws, such as misrepresenting policy provisions, refusing to pay without a reasonable investigation, failing to disclose pertinent coverages and forcing insureds to sue by offering too little. Under the NAIC model act, an act becomes a violation when committed flagrantly or often enough to be a general business practice, and enforcement is by the insurance commissioner rather than private lawsuits. See also: Bad faith, Special investigations unit (SIU). Practice this
Unilateral contract: A contract in which only one party makes a legally enforceable promise. The insurer promises to pay covered losses, but the insured makes no enforceable promise to keep paying premiums; if premiums stop, the coverage simply ends. See also: Aleatory contract, Conditional contract, Contract of adhesion. Practice this
Uninsured motorists coverage (UM): Coverage for damages the insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle, such as one with no liability coverage, limits below the state minimum, an unidentified hit-and-run driver or an insolvent insurer. The ISO form requires actual contact for a hit-and-run vehicle, although some states change that rule. See also: Underinsured motorists coverage (UIM), Stacking, Personal auto policy (PAP). Practice this
Utmost good faith: The principle that both parties to an insurance contract must deal honestly and disclose material facts, because the insurer relies heavily on what the applicant tells it. Concealment, material misrepresentation and fraud all breach this duty. See also: Concealment, Representation, Warranty. Practice this

V

Vacancy provision: A condition that limits coverage when a building has been vacant for more than 60 consecutive days before a loss. Under the BPP, vandalism, sprinkler leakage, building glass breakage, water damage and theft are not covered and other covered losses are reduced by 15%, while the HO-3 and dwelling forms drop vandalism coverage after the same 60 days. See also: Building and Personal Property Coverage Form (BPP), DP-2 (Broad form). Practice this
Valued policy law: A state law that requires the insurer to pay the full policy limit, rather than the property's actual value, when insured real property is totally destroyed by a covered peril. Texas, for example, treats a total fire loss to insured real property as a demand for the full amount of the policy. See also: Agreed value, Indemnity. Practice this
Vicarious liability: Liability for another person's wrongful acts because of a relationship, even without personal fault. The main example is respondeat superior, under which an employer is liable for torts an employee commits within the scope of employment; it generally does not apply to independent contractors. See also: Strict liability, Negligence, Joint and several liability. Practice this

W

Waiver: The intentional, voluntary giving up of a known right, such as an insurer knowingly excusing a proof of loss requirement. Insurers use reservation of rights letters and non-waiver agreements to avoid waiving coverage defenses while they investigate. See also: Estoppel, Reservation of rights, Non-waiver agreement. Practice this
Warranty: A statement or promise made part of the insurance contract. Under traditional common law a warranty had to be strictly true or complied with even if it was not material, although many courts now soften that rule; ocean marine policies carry implied warranties such as seaworthiness and no deviation. See also: Representation, Utmost good faith, Ocean marine insurance. Practice this
Workers compensation: A state-based no-fault system that pays medical care, wage-loss and death benefits to employees injured at work without proof of employer negligence, in exchange for protecting the employer from employee tort suits. Part One of the standard policy pays the benefits required by the state law with no dollar limit, and the worker pays no deductible or copay for medical care. See also: Exclusive remedy, Employers liability, Arising out of and in the course of employment (AOE/COE). Practice this
Write Your Own (WYO): The NFIP arrangement under which private insurers sell and service flood policies in their own names and adjust and pay the claims, while FEMA sets rates and coverage and the federal government keeps the underwriting risk. NFIP Direct, FEMA's servicing agent, offers the same policy. See also: National Flood Insurance Program (NFIP), Standard Flood Insurance Policy (SFIP). Practice this

Y

Your covered auto: A personal auto policy term that includes any vehicle shown in the declarations, a newly acquired auto, a trailer the named insured owns, and a temporary substitute for one of those vehicles while it is out of normal use because of breakdown, repair, servicing, loss or destruction. Coverage for a borrowed temporary substitute is excess over the owner's insurance. See also: Newly acquired auto, Family member, Personal auto policy (PAP). Practice this