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INSURANCE 102: INSURANCE POLICY WORDS AND PHRASES

Business woman showing insurance document over white desk at office

October 28, 2020
Louis Niedelman, Esq.

We hear  many insurance terms. Some are well known and others  sound like a foreign language.

This article should clarify the maze of certain insurance jargon.

“Named Insured”: This is the name that appears in the insurance policy as “The Named Insured.” It could be a person’s name or a business name. It could be singular or plural. For example, in a typical business policy, the named insured could be “The Peerless Group, LLC, and its subsidiary businesses” or it could read “James Ross, and his household members.” The correct description of the “The Named Insured” specifies who is protected by the insurance coverage policy.

“Additional Insured”: There are insurance policies that, in addition to “The Named Insured”, also extend insurance coverage to a person(s) or business that is not identified as “The Named Insured” but is named as an “Additional Insured” and will be insured with the same insurance coverage. There may be an additional premium for adding such a person or entity.

“Certificate of Insurance”: Such a certificate is customarily requested by “The Named Insured” to add to an insurance policy a person or entity that is doing business with “The Named Insured.” For example, if a general contractor enters into a contract with a subcontractor, the former may require that the latter supply such a certificate that names the general contractor as an “Additional Insured” within the subcontractor’s insurance policy. This serves to protect the general contractor for any liability of the subcontractor. Depending upon the language of the contract between the general and the subcontractor, this insurance may also protect the general contractor from its own fault. However, be aware that the mere existence of  a certificate does not bestow insurance coverage upon another unless there is specific language indicating that it does.

“Reservation of Rights”: There are times when it may be questionable if an insurance company should extend full insurance coverage to an insured for an accident claim. In other words, there may be ambiguity within the insurance policy that prevents an immediate decision to allow for 100% insurance coverage. In this instance, an insurance company may agree to defend its insured but also issue a Reservation of Rights letter which tells the insured that the insurance company is extending a defense to its insured but also reserves its right to further investigate the claim and withdraw this defense at a later time. The insurance carrier does this to protect its right to disclaim insurance coverage in the future.

“Endorsements”: Endorsements are add-ons to an insurance policy usually found at the end of the policy. Many are state specific which means that New Jersey may require that there be specific policy language that conforms to its state requirements. Endorsements modify the general policy language that appears in the main policy. They may extend or limit or exclude the insurance coverage that appears in the main policy. “Endorsements” are as equally important as the language of the main insurance policy.

“Exclusions”: Exclusionary language appears in every insurance policy. In general, the insurance policy language in the beginning of the policy outlines all of the insurance coverage that is extended to the insured. Exclusionary language usually follows and specifies those claims or events that are not covered by the main insurance language. For example, a business insurance policy may insure business losses caused by all natural disasters. But a later policy exclusion may exclude from such coverage  landslides or avalanches. 

“Occurrence” vs “Claims Made” policies: Most general liability insurance policies are “occurrence” policies. This means that when there is an accident (or occurrence) the insurance protects the insured from claims arising from that occurrence. This means that when an insurance policy is cancelled or not renewed and an accident occurs when the policy was in force, the insurance would still protect the insured and extend insurance coverage. A “Claims Made” policy states that the claim arising from an accident or incident must be made and reported to the insurance company within the insurance policy period. Usually, this applies to insurance policies that insure professionals such as doctors, lawyers, architects, engineers, and insurance brokers. Here is an example this type of insurance coverage: An architect buys a professional insurance policy with coverage dates of January 1, 2017 to January 1, 2018. The architect makes a mistake in preparing building plans during this period and this results in a claim. The architect must report this claim during the pendency of the year of coverage for there to be insurance coverage. Even if the architect does not learn of the claim until after January 1, 2018, and then reports it, there is no insurance coverage.

“Tail Insurance Coverage”: This type of insurance coverage usually applies to professionals. If a doctor retires from his or her practice and has a “claims made” insurance policy while in practice, he or she may choose to purchase “Tail Coverage” which extends their insurance beyond the end of the policy period up to a given date. This serves to protect the doctor, if after retirement, he or she learns of a claim, the claim will be honored even the claim arose during the policy period but was not reported until after his or her retirement and before the end date of the “Tail Coverage”

“Single” vs “Aggregate” insurance coverage: Most insurance policies specify  a particular insurance policy limit for a single occurrence and another insurance policy limit for aggregate insurance coverage. For example, in an automobile insurance policy, the policy limit for one accident claim may have a $250,000 policy limit and an aggregate policy limit of $500,000 for all accidents  that occur within the policy period. 

To explain further, during a one year policy period, an insured may have three accidents resulting in multiple bodily injury claims. For any one accident there will be $250,000 of insurance coverage available. But for all three accidents occurring within that policy period there will be a limit of $500,000 to insure all claims from the three accidents.

Should you have any questions about insurance policy words and phrases, please contact your insurance agent or broker or give me a call at the office.

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