Definitions of Common Insurance Terms

Actual Cash Value (ACV): Cost of replacing damaged or destroyed property with comparable new property, minus depreciation (age of property).  For example, a four year old computer will not be replaced at current replacement value.  The insurance company will depreciate four years from the replacement value. Actual Cash Value does not apply to real property losses.

Bond: An obligation of the insurance company to protect one against financial loss caused by the acts of another.

Burglary: Generally defined in policies as breaking and entering the premises of another, with felonious intent and with visible signs of the forced entry, while the premises are closed for business.

Care, Custody, and Control: Non-owned property that is in the care, custody, and control of the insured, buy means of written contract or agreement.

Claim: In reference to insurance, a claim may be a demand by an individual or a corporation to recover, under a policy of insurance, for loss that may fall within that policy.  Or it may be a demand by an individual or an entity against an insured for damages covered by a policy held by the insured.  In the latter case, claims are referred to the insurance company for handling on behalf of the insured, in accordance with the contract terms.

Claimant: A person who makes a claim.

Coverage: The scope of protection provided under an insurance policy.  In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification.

Depreciation: Decrease in the value of property over a period of time due to wear and tear, as well as obsolescence.

Exclusion: A provision of an insurance policy or bond referring to hazards, circumstances, or property not covered by the policy.

Gross Negligence:  This is the highly unreasonable conduct or an extreme departure from ordinary care in a situation where a high degree of damage is apparent.

Fidelity Bond: Fidelity Bonds guarantee that the bonded employee(s) will handle their employer's money and property with fidelity.  In other words, it guarantees they won't steal.

Incident: An occurrence or event involving agency personnel, personal injury, loss, damage of State property, or an occurrence or event involving the public that exposes the State to a liability loss.

Indemnity: Restoration to the victim of a loss by payment, repair, or replacement.

Insurance Adjuster:  A representative of the insurer who seeks to determine the extent of the insurer's liability for loss when a claim is submitted.  Independent insurance adjusters are hired by insurance companies on an as needed basis.  Independent adjusters charge insurance companies both by the hour and by miles traveled.

Insured:  An Insured is an individual or legal entity protected under an insurance contract.

Insurer:  Any entity licensed or admitted to engage in the business of providing primary or excess insurance in any state; the party to an insurance arrangement who undertakes to indemnify for losses.

Liability: Any legally enforceable obligation.

Loss: An occurrence that is the basis for submission and/or payment of a claim.  Loss can be covered, limited, or excluded from coverage depending on the terms of the policy.

Loss Control: Any action or plan intended to reduce the frequency and/or severity of property, liability, or workers' compensation losses.

Negligence: The failure to use that degree of care which is considered to be a reasonable precaution under the given circumstances.  Acts of either omissions or commission, or both, may constitute negligence; failure to exercise the care a prudent person usually exercises.

Negligence, Gross: Willful and wanton negligence or misconduct.

Personal Property: This type of property is usually movable and easily transportable (e.g. computers, furniture, scientific equipment).

Primary Insurance: Provides coverage up to a specified amount or against specific perils; this is coverage that provides the first limits to be used to pay for a covered loss.

Proof of Loss: Documentation presented to the insurance company by the insured in support of a claim so that the insurer can determine its liability under the policy.

Real Property: Is generally considered to be immovable, such as land, buildings and fixtures permanently affixed to buildings and land.

Repair or Replacement Cost: The amount of money necessary to enable restoration of the damaged property to the same condition it was in at the time of the loss, without deduction for depreciation.

Risk Management: This involves management of the pure risks to which a company might be subject.  It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.

Salvage: Damaged property an insurer takes over to reduce its loss after paying a claim.  Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged vehicles.

Self-Insurance: Making financial preparations to meet risks by appropriating sufficient funds in advance to meet estimated losses, including enough to cover possible losses in excess of those estimated.  The State government and its employees are not covered against loss by private insurance, but losses are funded through State Risk Management Section's revolving funds.

Subrogation: The legal process by which an insurance company seeks from a third party who may have caused the loss, recovery of the amount paid to the insured.

Third-Party Claim: A claim filed by an individual against a policyholder of another company for bodily injury or property damage.

Total Loss: A loss of sufficient size that it can be said no value is left; the complete destruction of the property.  The term also is used to mean a loss requiring the maximum amount a policy will pay.

Uninsured Motorist Coverage: Endorsement to a personal automobile policy that covers an insured collision with a driver who does not have liability insurance.

Vandalism (Criminal Damage): Willful, intentional, often random, destruction or defacement of private or public property.

Vicarious Liability: The law says that under certain circumstances a person is liable for the acts of someone else.   An employer is vicariously liable for damages to an injured person if an employee causes injury through negligent acts while in the scope of employment (doing work for the employer).

Waiver: The surrender of a right or privilege which is known to exist.