Business Insurance Terminology

The definitions appearing in this Glossary are provided solely for general informational purposes. They are not intended to be complete descriptions of all terms, conditions and exclusions applicable to the products and services defined. Also, in the case of any inconsistency between the definitions in this Glossary and the definitions appearing in the actual insurance policy, the definitions contained in the actual policy shall govern.


Actual Cash Value (ACV) “Actual Cash Value” is the replacement cost of property damaged or destroyed at the time of loss with deduction for depreciation. Actual cash value cannot exceed the applicable limit of liability shown in the declarations of the policy, nor the amount it would cost to repair or replace such property with material of like kind and quality within a reasonable amount of time after a loss.

Additional Insured An individual or entity that is not automatically included as an insured under the policy of another, but for whom the named insured’s policy provides a certain degree of protection. An endorsement is typically required to get additional insured status. The named insured’s impetus for providing additional insured status to others may be a desire to protect the other party because of a close relationship with that party (e.g., employees or members of an insured club) or to comply with a contractual agreement requiring the named insured to do so (e.g., customers or owners of property leased by the named insured).

Additional Named Insured An individual or entity, other than the first named insured, identified as an insured in the policy declarations or an addendum to the policy declarations. Such an individual or entity would have the same rights and responsibilities as an individual or entity named as an insured in the policy declarations (other than those rights and responsibilities reserved to the first named insured only).

Agreed Amount Endorsement This endorsement is an agreement made by the insurance company wherein it waives the coinsurance clause on the specified property. As long as this endorsement is in effect, there would be no coinsurance penalty at the time of a claim.

Annual Aggregate The maximum dollar amount that can be paid under a policy during a one-year period.

All-Risk Insurance Insurance against loss or damage to property from any cause, except those that are specifically excluded. Most often associated with property coverage. An all risk policy is differentiated from a Named Perils insurance policy

Bailee An individual or business that has been given temporary custody of another’s property for the purpose of providing a service.

Binder Written acknowledgement that insurance applied for is in force, whether or not the premium had been paid or the policy issued.

Blanket Property Coverage Blanket insurance can provide coverage under a single limit for the following:

  • Two or more items (i.e. Building or Contents)
  • Two or more locations (i.e. Location A and/or location B)
  • A combination of items and/or locations

Boiler and Machinery Insurance Even if you do not own a boiler, you may need this coverage. The term boiler and machinery insurance is gradually being replaced with terms such as equipment breakdown or mechanical breakdown coverage. This insurance provides coverage against the sudden and accidental breakdown of boilers, machinery or equipment, including computer systems and telephones/communication systems. Coverage usually includes reimbursement for property damage, expediting expenses (e.g., express transportation charges), and business interruption losses.

Builders Risk Coverage This provides property insurance for buildings in the course of construction. Depending on the policy, this coverage can be for either the building’s value at the time of loss or its full value at the time of completion.

Building Ordinance Coverage Provides coverage when a community has a building ordinance stating that when a building is damaged to a specified extent (usually 50%), it must be completely demolished and rebuilt in accordance with current building codes rather than repaired. Special attention is required when establishing the amount of insurance.

Business Interruption Insurance This covers the loss of earnings as a result of damage or loss of business property. Reimbursement for salaries, taxes, rents, and other expenses plus net profits that would have been earned during the period of interruption can be included.

Certificate of Insurance A document which serves as proof of the types of coverage, amounts of coverage and policy effective dates of an insurance policy. Certificates are held by the insured or, in some cases, by a company or person to whom the insured is potentially liable.

Certificate Holder A person or company to whom an insured is liable, who holds the Certificate of Insurance on the insured as proof of the in-force policy.

Claims-Made Coverage A policy providing coverage only if a claim is made during the policy period. If the policy has a retroactive date a loss which occurred before that date, is not covered. Coinsurance A policy provision by which the insured, in consideration of a reduced rate, agrees to carry an amount of insurance equal to a percentage of the total value of the property insured.

Commercial Crime Coverage This covers money and securities, stock and fixtures against theft, burglary and robbery both on and off the insured premises and from both employees and outsiders.

Debris Removal Coverage Covers the cost of removing debris after damage from fire or other covered peril that requires debris removal before reconstruction of the damaged building can begin.

Difference in Conditions (DIC) Coverage DIC insurance provides coverage designed to close specific gaps in standard insurance policies and is usually available only for larger industrial or commercial risks. It allows coverage to be customized to extend to such exposures as water damage, flood, collapse, earthquake, landslide, etc., according to the insured’s needs. DIC coverage may be provided by means of a separate insurance policy or it may be added by endorsement to the basic policy.

Electronic Data Processing Coverage Specialized type of insurance designed to cover your computer equipment, data systems, information storage media and expenses or income loss related to the destruction of hardware or software.

Employee Benefit Plan Liability Coverage Protects the insured employer against claims by employees or former employees resulting from negligent acts or omissions in the administration of the insured’s employee benefits programs.

Employee Dishonesty Coverage Employee dishonesty coverage protects an employer from financial loss due to the fraudulent activities of one or more employees. The coverage includes protection for loss of money, securities, and other property of the insured.
Some schedule policies are still available, but the majorities are written on a blanket basis. This provides coverage for all employees, subject to policy definition.
The limit of liability is per loss and is applied on an occurrence basis. All acts involving the same employee or group of employees is considered one occurrence.

Fidelity Bonds This covers business owners for losses due to dishonest acts by their employees.

Fiduciary Liability Coverage Fiduciary Liability, also known as pension trust liability, provides coverage for loss that the insured becomes legally liable to pay because of a claim made against the insured for any alleged wrongful act by such insured or by any other person for whom the insured is legally responsible. It also covers the defense costs in connection with a covered claim. The policy is written on claims made form.
A wrongful act includes any violation of responsibilities, obligations, or duties imposed on fiduciaries by the Employee Retirement Income Security Act (ERISA), as well as acts, errors, or omissions in the performance of the duties of the plan administrator.

Forgery or Alternation Coverage This type of insurance covers losses sustained through forgery or alteration of outgoing negotiable instruments made or drawn by you, or drawn on your account(s), or made or drawn by one acting as your agent. This includes loss caused by any of the following:

  • Checks or drafts made or drawn in your name, payable to a fictitious entity
  • Checks or drafts, including payroll checks, executed through forged endorsements
  • Alteration of the amount of a check or draft

Garagekeepers Legal Liability Provides coverage to owners of storage garages, parking lots, etc. for liability as bailees with respect to damage to automobiles left in their custody. Coverage is contingent upon establishing liability on the part of the insured.

General Aggregate Limit The total amount that will ever be paid by an insurance policy regardless of the number of claims made against it.

Glass Coverage This provides coverage for glass breakage such as store windows and plate glass on office fronts.

Independent Agent An insurance agent that is affiliated with more than a single insurance company. An independent agent is able to shop several insurance carriers for the best plan for a particular insured.

Inland Marine Insurance Primarily covers property in transit such as from warehouse to warehouse or warehouse to retail store, as well as other people’s property left on your business premises, such as clothes left at a dry cleaning business or an employee’s personal effects left in the company locker room.

Insurance Fraud Insurance fraud is any act or omission with the purpose of illegally obtaining a property and casualty insurance benefit. This definition encompasses the full range of fraudulent acts, from completely fabricated claims, to inflation or padding of legitimate claims, to false statements on insurance applications, to internal fraud.

Liquor Liability Liquor liability insurance provides coverage for bodily injury or property damage for which an insured may be held liable by reason of the following:

  • Causing or contributing to the intoxication of any person
  • Furnishing alcoholic beverages to a person under the legal drinking age or under the influence of alcohol
  • Violating any statute, ordinance, or regulation relating to the sale, gift, distribution, or use of alcoholic beverages This coverage only applies if the insured is involved in the following activities:
  • Manufacturing, selling, or distributing alcoholic beverages
  • Serving or furnishing alcoholic beverages for a charge, whether or not such activity requires a license or is for the purpose of financial gain or livelihood
  • Serving or furnishing alcoholic beverages without a charge, if a license is required for such activity

Loss Control Inspection and engineering work done to help remove potential causes of loss. Loss control is also referred to as safety engineering, accident prevention, accident control, or loss prevention.

Loss of Lease Income or Value This covers the loss of income when rental property is damaged or destroyed and the loss of value when the owner of the rental property also used some of its space for business. If the tenant of the destroyed or damaged building is forced to rent space elsewhere at a higher cost, this is called loss of lease value.

Named Perils Insurance An insurance policy which covers only defined perils or causes of loss. This is the opposite of an All-Risk policy, which covers all perils except those specifically excluded.

Negligence Failure to use that degree of care, which an ordinary person of reasonable prudence would use under the given circumstances. Negligence may be constituted by acts either committed or omitted, or both.

Occurrence Coverage A policy providing coverage only for injury or loss that occurs during the policy period, regardless of when the claim is made. For example, a claim made after expiration of a policy would be covered if the injury or loss occurred during the time the policy was in force. (See Claims-Made Coverage for comparison.)

Ordinance or Law Coverage In many jurisdictions, once a building or structure has been substantially damaged or destroyed, even if the cause of loss is covered by a property insurance policy, significant additional expenses may be incurred by the insured as a result of local ordinances or laws. An unendorsed property policy does not protect the insured for those additional costs required by law and for which the insured has no option but to comply with if he/she wishes to remain in operation at that location. Coverage may be obtained for losses that result from the enforcement of laws or ordinances which do not permit restoring property to the same condition as existed prior to damage. The endorsement available is titled: Ordinance or Law Coverage. These types of losses may result from:

  • Loss of value of an undamaged portion of the existing property that must be destroyed (not directly from a covered cause of loss) from the operation of building or zoning laws.
  • Costs of demolition of the undamaged portion of the property; AND
  • Increased expenses to:
  1. Replace the property so as to comply with current building, zoning or land use laws or ordinances.
  2. Repair the undamaged property so that it complies with current building, zoning or land use laws or ordinances.

Peril The cause of a loss. Examples of perils are fire, wind, an accident and acts of vandalism.

Pollution Cleanup and Removal Coverage This is an aggregate first party coverage that applies to your expense in extracting pollutants from land or water at your location, if the release of the pollutants is caused by or results from a covered loss.

Products Liability Coverage The liability for bodily injury or property damage incurred by a merchant or manufacturer as a consequence of some defect in the product sold or manufactured or the liability incurred by a contractor after he has completed a job as a result of improperly performed work. The latter described part of products liability is called Completed Operations.

Professional Liability Insurance Liability insurance protecting professionals for loss or expense resulting from claims of mistakes, errors or omissions committed or alleged to have been committed by the insured in his professional activities.

Replacement Cost Coverage This form of insurance provides coverage on the basis of full replacement cost without deduction for depreciation on any loss sustained, subject to terms of the co-insurance clause. This coverage applies to both building and contents items as specified on the face of the policy.

Retroactive Date Date on a claims-made policy which triggers the beginning period of coverage prior to the effective date. A retroactive date is not required. If one is shown on the policy, any claim made during the policy period on a loss that occurred before the retroactive date will not be covered.

Surplus Lines Tax A tax paid by the insured on insurance placed with surplus lines carriers. It is collected by the agent and paid to the state.

Umbrella Liability Policy A liability policy designed to provide liability protection above and beyond that provided by standard policies.

Workers Compensation Provides medical and disability coverage for on-the-job injuries or work related injuries; Also provides Employers Liability coverage, protecting the company from an injured employees claim that the employers negligence was the cause of the employees injury.