Property Basics

Consequential Loss

A second or financial loss occurring as the result of a direct loss.

Salvage Value

The amount for which property can be sold at the end of its useful life.

In property insurance, the salvage value is the scrap value of damaged property.

Primary Insurance

Property coverage that provides benefits up to the limits of a policy, regardless of other policies in effect.

Insured

The party to an insurance contract whom the insurer agrees to indemnify for losses, to provide benefits for, or to render services to.

Pro Rata Cancellation

The cancellation of a policy for which a refund is made of unearned premium calculated in proportion to the time the policy was in force.

Bailor

An individual who retains the ownership of property that has been taken into the care, custody, and/or control of a bailee.

Theft

The broadest of the crime coverages, includes any act of stealing, burglary, or robbery.

Non-Concurrency/Non-Concurrent Policies

A situation where liability policies that are in a layered program (such as primary and excess policies) do not agree as to their policy effective dates or provisions, creating a gap in coverage.

Subrogation

The legal process by which an insurer seeks recovery of the amount paid to the insured from a third party responsible for having caused the loss.

Agreed Value

The insurer and insured agree, at the time of insuring, on an amount of insurance to be paid in the event of a loss.

(Used when valuation is difficult to determine.)

Indirect Loss or Consequential Loss

A second or financial loss occurring as the result of a direct loss.

Non-Renewal

When an insurer determines not to renew a policy at the end of a policy period.

Hostile Fire

A fire that produces a visible spark, flame, or glow and leaves the area in which it was intended to be kept.

Specific Limit

Insures a single item of property for a single limit of insurance.

Bailee

An individual or organization who has taken into its care, custody, and/or control the property of another for servicing, repair, or storage.

Proximate Cause

The cause that sets other causes in motion when multiple causes combine to produce loss or damage.

The cause without which a given result would not have occurred.

Direct Loss

Damage to property in which the proximate cause of the loss is an insured peril.

Liberalization

Specifies that if the insurer broadens coverage with no increase in premium, the broadened coverage automatically applies to existing policies without the need for an endorsement.

Stated Value

A valuation method that states the value of a particular property on the declarations page, but provides for the insurer to pay the lesser of the stated value or ACV of the property following a loss.

Named Peril

Coverage applies only to losses caused by perils that are specifically stated in the policy.

Inherent Vice

A condition or defect that exists within property itself that causes the property to spoil, break, become defective, or destroy itself.

Robbery

The taking of property from the care and custody of a person by one who has caused or threatened bodily harm or committed an unlawful act witnessed by that person.

Short Rate Cancellation

The cancellation of a policy for which the premium refund is calculated according to a short rate table whereby the insurer retains a portion of the unearned premium.

Coinsurance

Applies to commercial property, and:

• Encourages the insured to purchase insurance to value.

• Establishes the basis of payment if the insured fails to maintain a specified percentage of that value.

• Applies only in the event of a partial loss.
  
  ( Had / Should Have Had) X Amount of Loss = The Amount the Insurer Pays

First Named Insured

The person, firm, or organization whose name appears in the first position of the Declarations Page of the policy when several names are listed.

Cancellation

The termination of an insurance policy before its expiration date. Insured or insurer may cancel.

Arbitration

The process whereby a disputed claim is decided by a neutral third party.

Excess Insurance

Property coverage above the primary amount of insurance. Excess does not pay until primary is exhausted.

Burglary

The taking of property from inside the premises by a person unlawfully entering or leaving the premises as evidence by visible signs of forcible entry or exit.

Vacancy

A property that has neither occupants nor personal property is described as vacant.

Open Perils

Coverage applies to all losses caused by all perils except for those specifically excluded.

(aka: all risk)

Insuring Agreement

The insurer's promise of protection to the insured.

Additional Coverage(s)

Additional coverages are automatically included in property policies without an additional premium, depending upon the type of policy.

Additional coverages are paid in addition to those stated in the insuring agreement and include debris removal, collapse, and fire department service charges.

Concurrency/Concurrent Policies

A situation under which at least 2 policies provide identical coverage for the same risk.

Valued Policy

Policy that states the value of property as the amount shown on the Declarations page.

Will pay stated full face value in the event of a total loss, regardless of the actual cash value.

Additional Insured

A person or organization not ordinarily protected by a policy but which, through the addition of an endorsement to the policy, is granted status as an insured.

Bankruptcy Clause

Specifies that bankruptcy or insolvency of the insured does not relieve the insurer of any of its duties or obligations under the policy.

Accident

A sudden, unforeseen, unintended, and unplanned event.

Occurrence

An accident.

Includes continuous or repeated exposure to the same general harmful conditions.

Abandonment of Property

Specifies that the insured may not abandon or relinquish ownership of damaged property to the insurer for disposal or repair.

Unoccupancy

A property that contains personal property or contents but has no occupants is described as unoccupied.

Mysterious Disappearance

The disappearance of property without an identifiable cause of loss.

Scheduled Limit

Insures one or more items of property on a single policy.

The amount of insurance applying to each item is shown on a schedule.

Loss Valuation

A property policy pays for losses to property based on the valuation method contained in the policy or chosen by the insured in an endorsement added to the policy.

Concurrent Causation

A principle holding that when two perils simultaneously cause a loss, the insurer must pay the loss even if one of the perils is excluded by the policy.

Named Insured

Any person, firm, or organization specifically designated by name on the Declarations Page of the policy.

Proof of Loss

A document that verifies how and when a loss happened and includes the cost of damages.

Flat Cancellation

The cancellation of a policy on the date the policy becomes effective.

Replacement Value

The cost to replace property with property of like kind and quality, at current pricing, without a deduction for depreciation.

Actual Cash Value (ACV)

The policy pays for the cost to repair or replace the damaged property at the time of loss, less depreciation.

Functional Replacement Value

A property policy provision that changes the valuation method otherwise applicable (ACV or RC) to valuation that allows replacement with less costly property that is functionally equivalent.

Right of Salvage

The right of the insurer to take possession of damaged property after the loss to the property has been paid.

Legal Action Against Us

Specifies that the insured may not bring suit against the insurer until the insured has complied with all of the terms of the policy.

Definitions

Words, terms, and phrases that are clearly described and used in an insurance policy for the purpose of clarifying the intent of the insurer with respect to the extent of coverage provided by the policy.

Blanket Limit

This method of writing coverage is used when you are insuring more than one property in one policy by only an amount of insurance that applies to all properties covered under the policy.

Market Value

A property policy provision that changes the valuation method otherwise applicable (ACV or RC) to a valuation method that allows reimbursement to the insured, according to the price a willing buyer would pay for the property purchased from a willing seller.

Loss Payment

Specifies the time frame within which the insurer must pay a loss to the insured after the insurer has received the insured's proof of loss and reached an agreement.

Friendly Fire

A fire that was intentionally set and stays within its intended boundaries (e.g., a fireplace).

Binder

A document that temporarily provides insurance coverage until a policy is issued.