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Insurance Glossary (D - H)

  • Deductible - An amount which the insured agrees to accept as self insurance, and which is deducted from the total amount of loss payable in a claim, before the insurers liability is determined. See also Excess
  • Defendant - An entity being sued by the plaintiff in a legal action.
  • Deflagration - A deflagration is a relatively slow explosion, generating only subsonic pressure waves. This sort of explosion is usually produced by rapid chemical combustion reactions, for instance of gunpowder in a firearm, or fuel in an internal combustion engine. The immediate contrast is detonation, where the pressure waves are supersonic.
  • Demurrage - A charge required as compensation for the delay of a ship, transport vehicle or other cargo beyond its scheduled time of departure.
  • Deposit Premium - An initial amount of premium charged under an adjustable contract, which is ultimately recalculated based on agreed factors - often to a set minimum and maximum amount.
  • Depreciation - The lessening in value of an item of property over time due to its ongoing ageing, wear and tear or obsolescence.
  • Difference in Conditions (DIC) - Insurance which is arranged to provide supplementary coverage, over and above that which is insured by a nominated original or primary policy.
  • Dilapidation Report - A report used by construction insurers (and regulatory authorities) to verify the condition of buildings adjacent to a construction site prior to the commencement of construction. Enables more efficient adjusting of any loss without dispute over pre existing damage.
  • Disclaimer - A verbal or written statement intended to draw attention to and avoid responsibility for the negative consequences of an action or the supply of goods or services.
  • Discovery Period - A period of time, after expiration or cancellation of an insurance contract, during which an insured can discover and report whether there would have been a recoverable loss if the contract had remained in force. Generally found in policies providing fraud and dishonesty (fidelity) coverage, or certain bonds.
  • Drop Down Coverage - A method of structuring an insurance or reinsurance placement so that in the event of a loss (or series of losses) which exhausts the policy limit in a nominated lower (or primary) layer, the unexhausted limit of the highest upper layer will "drop down" to respond to subsequent loss(es) during the same policy period, as a replacement for the lower layer. Common in umbrella liability, and a variety of reinsurance contracts.
  • Duty of Care - One of the elements in the tort of negligence, a duty owned by one to another to take reasonable care not to cause physical, psychiatric or economic loss or harm. The particular content of the duty depends upon the risks that the person creates.
  • Duty of Disclosure - An individual or business applying for insurance has an obligation to disclose to the insurer, every matter which they know, or should know, would effect the insurers decision on whether or not to accept the risk, and what premium to charge. If relevant matters are not disclosed, the insurer is given certain rights to decline a claim or cancel a policy.
  • Earned Premium - The portion of premium which applies to the period of time under the insurance contract which has already expired.
  • Easement - A legal right of way giving persons other than the owner access to or over a property. (E.g. the right of a public utility company to lay transmission lines below or above the property, access for others to a common road, dock or water source.)
  • Economic Loss - The total financial loss which results from the death or disability of an individual, or from the destruction of property. Includes such things as the loss of earnings, medical expenses, legal expenses, and the cost of restoring or replacing property. It does not include non-economic losses, such as pain and suffering caused by an injury.
  • Endorsement - A clause added to an insurers policy wording which changes the coverage provided, and is considered to form part of the insurance contract.
  • Employers Liability Insurance - Insurance against the common law liability of an employer for injuries sustained by employees, as distinct from liability imposed by a specific statutory workers compensation law.
  • Environmental Impairment Insurance - A specialised insurance policy providing coverage for liability and/or clean up costs associated with gradual pollution and contamination of the environment.
  • Excess - The amount of a claim that is the insured's responsibility to fund. The insurer pays all amounts over and above this amount. See also Deductible
  • Excess of Loss Coverage - Insurance or reinsurance coverage which only applies to indemnify that part of a loss or series of losses which exceeds a predetermined amount - the insured or insurers "retention".
  • Exclusion - A clause in the policy which describes events or circumstances for which the policy will not provide cover (i.e. cover is excluded).
  • Exemplary Damages - Also referred to as punitive damages, these are damages requested and/or awarded in a legal action as a punishment and example to others for malicious, oppressive, violent, evil, grossly reckless or fraudulent acts. - also referred to as punitive damages, these are damages requested and/or awarded in a legal action as a punishment and example to others for malicious, oppressive, violent, evil, grossly reckless or fraudulent acts.
  • Ex Gratia Payment - A payment which is made by an insurer even though they are not technically liable under the terms of the insurance policy. Usually made in lieu of incurring greater legal expenses in defending a claim, or as a gesture of goodwill due to the impact of a broader relationship. (Less frequent occurrence in today's competitive insurance environment.)
  • Expense Ratio - The percentage of premium used to pay all the costs of acquiring, writing and servicing insurance and reinsurance.
  • Extended Reporting Period - An additional period of time provided after the expiry of a claims made policy, during which valid claims will continue to be accepted by insurers.
  • Facultative Reinsurance - A type of reinsurance under which the reinsurer has the option to accept or reject any risk presented to it by the insurer seeking reinsurance.
  • Fidelity Guarantee - A type of insurance policy which provides coverage for the theft / misappropriation of money or property by an employee - can also be referred to as crime insurance.
  • Fiduciary Liability - The legal responsibility of an entity to safeguard assets and manage investments held in trust in the best interest of the beneficiaries. Fiduciary liability insurance covers breaches of fiduciary duty such as misstatements or misleading statements, errors and omissions.
  • Financial Services Guide (FSG) - A statement that must be given to a (defined) "retail client" under Australian Financial Services Reform legislation.
  • First Loss - A form of insurance or reinsurance (non proportional) where the insurer or reinsurer indemnifies for a primary layer of insurance or component of risk, i.e. there may be additional layers of insurance or levels of risk in which they do not provide any coverage.
  • First Party Coverage - Cover provided under a policy for the insured's own property or person. E.g. own clean up costs in environmental insurance, and the cost of own injuries in no fault motor insurance.
  • Force Majeure - A french term meaning "greater force". Force Majeure clauses excuse a party from liability if some event beyond the control of that party prevents it from performing its obligations under the contract. Typically, force majeure clauses cover natural and unexpected events ("acts of god", war etc.) that result in the failure of one party to perform their obligations to another contracting party. Force majeure clauses are usually intended to excuse a party only if the failure to perform could not be avoided by the exercise of due care by that party.
  • Floater - A policy that covers multiple construction projects or items of equipment at all times, subject to declarations and premium adjustments made at specified periods.
  • Flood - A specific definition provided in a property insurance contract to clarify the difference between storm related losses and those where a normally dry area of land is inundated following the escape of water, which is usually confined within a natural boundary or man made structure (e.g. river, lake, canal or dam).
  • Franchise - A method of imposing a policy excess where the insured is responsible to self insure losses up to an agreed amount. Where losses exceed this amount, any valid claim will be paid for the full amount of the loss.
  • Fraud - A dishonest act or omission.
  • Fronting - A process by which one insurer acts as the official "front" insurer by issuing a policy, but then passes all or portions of the risk to another insurer or reinsurer in exchange for a commission. Often the fronting insurer is licensed to do business in a country where the risk is located, but the ultimate insurer or reinsurer is not. This scenario also arise where an organisation uses a captive to retain substantial portions of risk, but needs to issues local policies for each of it operations.
  • Generally Accepted Accounting Principles (GAAP) - Generally Accepted Accounting Principles (GAAP) accounting is a method of reporting the results of an insurer for the US Securities and Exchange Commission. This approach assigns income and disbursements to their proper period, rather than the more conservative statutory accounting approach usually granted to insurers.
  • General Average - A loss incurred in ocean marine cargo insurance, where a claim is shared by all parties to the voyage.
  • Gross Loss - The amount of insurers loss irrespective of any reinsurance recoveries due.
  • Gross Premium - The total of an insurers net premium plus operating expenses, commissions and other expenses.
  • Hard Market - The stage in an underwriting cycle where capacity is scarce, insurers are able to charge higher premiums and limit the cover provided, leaving insureds with limited alternatives to arranging insurance. See also Soft Market
  • Decennial Liability Insurance - A form of completed operations insurance which provides ten years of coverage to the owner of a construction project for repair or replacement costs in the event of a complete or partial collapse. (Decennial means lasting ten years, or occurring every ten years.)
  • Hold Harmless - A clause contained in a contract under which one party agrees to release another party from all legal liability

Extract from "The Executives Guide To Insurance and Risk Management" by Berwick, G .  © QR Consulting 2007. 

Hutchison Rodway highly recommends this book.  Copies can be purchased from QR Consulting Website

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