Insurance Terminology

Additional insured

A person or entity who can make claims against an insurance policy that was procured and paid for by someone else. That “someone else” is the “named insured” under the same insurance policy. An “additional insured” and a “named insured” can both be referred to as “insureds.”

AI requirement

A contractual obligation to name another party as an additional insured under a general liability insurance policy. “AI” is short hand for “additional insured” in the context of construction insurance.

AIA A201-1997

A model construction contract form, containing terms of agreement between the owner and the general contractor, promulgated by the American Institute of Architects (AIA). AIA has published several revisions of its “standard” forms since 1906, and the most recent revision of the A201 document, “General Conditions of the Contract for Construction,” was published in 1997, and is referenced as the A201- 1997.

AIA A401-1997

A model construction contract form, containing terms of agreement between the general contractor and the subcontractor, promulgated by the American Institute of Architects (AIA). AIA has published several revisions of its “standard” forms since 1906, and the most recent revision of the A401 document, “Standard Form of Agreement Between Contractor and Subcontractor,” was published in 1997, and is referenced as the A401-1997.

Bad faith

A term describing a claim asserted by an insured in a lawsuit against its insurer that the insurer intentionally denied coverage for a claim against the insured’s policy that the insurer knew was actually covered, as part of a deliberate effort to wrongfully avoid making payment.

Blanket endorsement

An additional insured endorsement to a general liability insurance policy that identifies the additional insured as any person whom the named insured is obligated by contract to name as an additional insured. For example, a standard form endorsement to the policy may identify the additional insured as “Any Person or Organization that the Insured has Agreed and/or is Required by Contract to Name as an Additional Insured.”

Bodily injury

One of two kinds of losses that are insured by a standard, general liability insurance policy, subject to numerous exclusions. Usually defined in the policy as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.”

Broad form indemnity

Commentators use this term to refer to a particular kind of indemnity contract that obligates the indemnitor to pay for losses that are caused by the indemnitee’s sole, active negligence, such as bodily injury and property damage, caused solely or partially by those other parties. Broad form is distinguished from intermediate form, which obligates the indemnitor to pay for all losses except those which it can prove were caused by the indemnitee’s sole, active negligence.

Claim

To demand as one’s own, to assert ownership through claim in the context of insurance and assertion of coverage under a policy.

Claims experience

One of several terms often used interchangeably, including “experience,” “experience rating,” “experience modifier,” “experience-rating modifier” and “ERM,” each of which describes the history of claims made against a named insured’s insurance policy, and which is used to determine the price the named insured will have to pay for future insurance, based on the assumption that the historical number and size of claims that have been made against a particular named insured can be used to predict the size and number of claims likely to occur in the future. In the case of workers’ compensation insurance, for example, insurers typically file set insurance premium rates with a government agency, but then use the ERM that is generated by the National Council on Compensation Insurance (NCCI) based on past “claims experience” as a multiplier to determine the actual premium charged, so that an ERM of 1.0 will result in a premium which is equal to the filed rate being charged, while a modifier under 1.0 will result in a premium less than the filed rate being charged, and a modifier greater than 1.0 will result in a premium higher than the filed rate being charged.

Commercial general liability (CGL)

General liability insurance protecting against legal liability from bodily injury or property damage claims resulting from jobsite operations, exclusive of injuries to subcontractor’s employees, damage to its own work and stated policy limitations. see also “general liability insurance policy.”

Comparative negligence indemnity

A standard observed in many states that apportions liability according to the degree of fault, so that, for example, if a judge, jury or arbitrator finds that one party’s negligence was 20 percent responsible for causing an accident, then that party is liable for only 20 percent of the damages awarded. In the context of an indemnity contract, an agreement would employ this standard by indemnifying another party, but only to the extent of bodily injury or property damage caused by the indemnitor. Such as agreement is also referred to as “limited form” indemnity.

Continuous injury

Cumulative damage; damage that progresses over time. For example, defective stucco might allow moisture to damage the wooden frame of a house over several years, worsening with each rainfall. In states that have adopted the “continuous injury” trigger of coverage for occurrence-based third-party liability insurance, damage that occurs over time is held to have triggered coverage under each of the policies in effect during the progression of the damage. Seven years of damage could reach the limits of seven, separate, annual general liability insurance policies, instead of only the policy in effect when the claim for damage was made.

Contractor-Controlled Insurance Program (CCIP)

See “wrap-up.”

Damage

loss injury or deterioration caused by the negligence, design, or accident of one person to another, in respect to the latter’s person or property.

Defect

The deficiency, imperfection or insufficiency of work.

Endorsement

a written modification of an insurance contract; an amendment.

ERM or experience rating modifier

when used specifically, “experience rating” or “experience rating modifier” usually refers to a number generated by the National Council for Compensation Insurance (NCCI) based on the number and size of claims made on a workers’ compensation insurance policy, which is used as a multiplier to an insurance carrier’s filed rate to determine the actual premium charged; thus, an experience rating smaller than 1.0 is beneficial, while an experience rating higher than 1.0 is detrimental to the contractor. When used generally, see “claims experience.”

Experience rating

see ERM.

Form endorsement

An endorsement to an insurance policy that adheres to standardized language promulgated by the Insurance Services Office, Inc. (ISO). The CG 20 10 and the CG 20 31 are form endorsements. Distinguished from a “manuscript endorsement,” which uses nonstandard language.

General liability insurance policy

A type of indemnity contract that obligates one party, the “insurer,” to pay any sums that other parties, the “insureds,” become legally obligated to pay as damages to third persons who suffer bodily injury or property damage, usually because the damage was caused by an insured or someone for whom the insured is responsible. The same contract also obligates the insurer to provide a legal defense to the insureds when any claims are made for losses that might have to be paid by the insurer. Despite the apparently “general” nature of the coverage, it is subject to numerous, specific exclusions. The Insurance Services Office, Inc. (ISO) publishes a commonly used form for the general liability insurance policy, the Commerical General Liability Coverage Form (CG 00 01).

Indemnification

The act of indemnifying.

Indemnify

To save harmless; to pay for injury or damage; to fully reimburse an entity that experiences a loss.

Indemnitee

The entity that, in a contract of indemnity, is to be held harmless and reimbursed by the other.

Indemnitor

The entity that is bound, by an indemnity contract, to hold harmless and reimburse another.

Indemnity

Reimbursement for injury or damage.

Indemnity contract

An agreement, including any term or condition of a construction contract or subcontract, that obligates one party, who is called the “indemnitor,” to save harmless and fully reimburse the other party, who is called the “indemnitee,” in the event that the indemnitee should, at some future time, experience any injury, loss, or damage of a kind described in the contract. It is possible to agree to indemnify losses that have already occurred, but it is unusual. Unrestricted indemnity contracts that obligate the indemnitor for losses that the indemnitor did not cause, even in part, including losses caused solely by the indemnitee, are called “broad form” by commentators. Indemnity contracts which obligate the indemnitor for losses that the indemnitor caused only in part, or did not cause at all excepting only losses caused solely by the indemnitee, are called “intermediate form” by commentators. Indemnity contracts that limit the indemnitor’s obligation to the extent of losses caused by the indemnitor are called “limited form” or “comparative negligence” or “comparative fault” by commentators.

Intermediate form

An indemnity contract that obligates the indemnitor to indemnify the indemnitee for losses that the indemnitor caused only in part, or did not cause at all excepting only losses caused solely by the indemnitee.

Liability

an obligation, usually to pay money.

Limited form indemnity

see “comparative negligence indemnity.” loss - the depletion or depreciation or destruction or shrinkage of value; injury.

Manuscript endorsement

An endorsement to an insurance policy that does not adhere to standardized language promulgated by the Insurance Services Office, Inc. (ISO). Distinguished from a “form endorsement,” which uses standard language.

Named insured

The person or entity to whom an insurance policy is issued, generally referred to in the policy as “you” or “your,” and who is the primary indemnitee under the insurance contract with reference to whom all other insureds are identified. For example, an “additional insured” identified in a typical endorsement to a general liability insurance policy is insured, by the terms of the endorsement, only for claims that arise out of “your ongoing operations,” where “your” refers to the named insured.

OCP

See “Owners and Contractors Protective Liability Insurance.”

Owner Controlled Insurance Program (OCIP)

See “wrap-up.”

Owners and Contractors Protective Liability Insurance (OCP)

An insurance policy purchased by the subcontractor, but in which the general contractor is the “named insured,” and which covers the named insured for any loss that “arises out of operations” performed for the named insured by the subcontractor, and for “acts or omissions in connection with the general supervision of such operations.” (When purchased by a general contractor, the owner is the “named insured.” Architects and engineers can be added as insureds with the CG 20 31 form endorsement.) The policy is separate from the subcontractor’s general liability policy, with separate limits, and the subcontractor’s experience rating is not affected when a general contractor or an owner causes a loss. Moreover, insurers cannot sue a “named insured” by subrogation, so waivers of subrogation for the insured are rendered unnecessary. However, a waiver of subrogation for OCP-covered losses benefits the subcontractor, and is customary (e.g., A201-1997 ¶ 11.3.2). see also “Project Management Protective Liability” (PMPL).

PMPL

See “Project Management Protective Liability.”

Project Management Protective Liability (PMPL) Insurance

Project Management Protective Liability Insurance, or “PMPL,” insures the same risks of loss as OCP (see listing above), and is therefore desirable for the same reasons. PMPL, however, has added benefits. It amounts to a master policy for the entire project so that the general contractor need not obtain a separate OCP policy from each and every subcontractor on the job. PMPL is therefore administratively cheaper than OCP, and prevents litigation between various OCP carriers to apportion losses. The AIA A201-1997 (¶ 11.3.2) provides for a waiver of subrogation for PMPLcovered losses, which is beneficial for subcontractors.

Property damage

One of two kinds of losses that are insured by a standard, general liability insurance policy, subject to numerous exclusions. Usually defined in the policy to include both “physical injury to tangible property” and “loss of use of tangible property.”

Risk transfer

Prospective shifting of a chance of loss. In reference to a construction contract, subcontract, purchase order or acknowledgment, the shifting by terms and conditions of the agreement, from one party to another, of the financial burden of certain accidental losses that have not occurred, but which may occur.

Subrogate

to substitute in place of another. For example, if you are injured in a car accident, and your medical insurance company pays to care for your injuries, then your medical insurance company is entitled to pursue any claims you may have against the other car driver for causing your injuries, i.e., the insurance company “subrogates” to your claims, or may pursue a “subrogation” claim against the other car driver. Insurance companies generally may pursue a subrogation claim against anyone except for the named insureds under their own policies.

Third-party-over lawsuit

A lawsuit by an employee or an independent contractor for bodily injuries that occurred within the scope of employment, against a third party other than the employer. In a typical “third-party-over lawsuit,” the injured employee of a subcontractor sues the general contractor and/or the owner (the “third-party”) for benefits “over” and above those provided by the subcontractor through workers’ compensation.

Waiver of subrogation

Contracting terms in which the parties relinquish any right they would otherwise have to make claims against each other for damages that are covered by insurance. Such terms have the effect of relinquishing the rights of the parties’ insurers as well, because the insurers’ rights to recover for claims they have paid are derivative of the rights of their insureds. For example, a subcontract might provide that the subcontractor waives any claims against the general contractor that are covered by the subcontractor’s workers’ compensation insurance. If one of the subcontractor’s employees is injured by an employee of the general contractor, and the injury is covered by the subcontractor’s workers’ compensation insurance, then the “waiver of subrogation” in the subcontract will prevent the subcontractor’s insurer from recovering any money from the general contractor for the benefits paid.

Wrap-up

A Consolidated Insurance Program (CIP); a construction project where all or part of the lines of insurance needed for many or all of the involved entities (owners, prime contractors, subcontractors, etc.) are consolidated and procured from a single source. For example, in a wrap-up that includes workers’ compensation insurance, one party, the owner (in an Owner Controlled Insurance Program (OCIP)) or the general contractor (a Contractor-Controlled Insurance Program (CCIP)) procures all of the workers’ compensation insurance for all of the project participants, so that none of the subcontractors purchases its own insurance and passes on the cost through the subcontract. Subcontractors must carefully consider the real, but often hidden, costs of wrap-up insurance before giving unduly large credits in their bid prices. Hidden costs include the loss of volume discounts for their own insurance purchases, coverage gaps, deductibles, uninsured builder’s risk losses, the lost benefits of retrospective premium plans, unavailability of fund dollars to pay for safety and early return to work programs, lost control over claims management and added administrative costs incurred in coping with unfamiliar insurance terms, procedures and insurance company representatives.