D, E & F Definitions

Question 1

Define

Damages

Answer 1

Damages:

Monetary compensation awarded by a court to an injured party. Damage awards may be “compensatory,” to make the injured party whole again or “punitive,” awards made against the negligent party as a form of punishment.

Question 2

Define

DCBS

Answer 2

DCBS:

Department of Consumer and Business Services

Question 3

Define

Declarations

Answer 3

Declarations:

Personalizes the policy to the insured

Attached to and made part of the policy; personalizes the policy to the insured; identifies the Named Insured and Additional Insureds, as applicable; lists provided coverages and associated premium; specifies the policy period and coverage territory, when applicable.

Question 4

Define

Declination

Answer 4

Declination:

Rejection of an application by the insurer

Question 5

Define

Deductible

Answer 5

Deductible:

The insured’s obligation relative to a covered claim (loss), which must be satisfied before the insurer has a financial obligation to pay. Deductibles may be expressed as stated dollar amounts, relative to time or a percentage of the loss or limit of insurance. Once the deductible has been satisfied, the insurer pays the remainder of each covered loss up to the limit of insurance.

Question 6

Define

Defense Costs

Answer 6

Defense Costs:

Legal expenses incurred by the insurer to defend suits brought against insureds. Defense costs are paid in addition to payments for BI or PD claims, i.e. in addition to the limit of insurance.

Question 7

Define

Definitions

Answer 7

Definitions:

Section of an insurance policy that clarifies the meaning of certain terms used in the policy.

Question 8

Define

Degree Of Care

Answer 8

Degree Of Care:

Extent of legal duty owed by one person to another. Also called standard of care.

Question 9

Define

Deposit Premium

Answer 9

Deposit Premium:

The initial premium paid, which is based upon an estimate of the loss exposure during the policy period. A deposit premium is also referred to as a “provisional” or “advance” premium, because the initial premium paid is subject to a premium audit at the end of the policy period with adjustment to the overall premium based upon the actual loss exposure during the policy period. Premium adjustments are based on reports submitted to the insurer by the insured at the end of the policy period.

Question 10

Define

Direct Loss

Answer 10

Direct Loss:

Financial loss resulting directly from a loss or damage to property, e.g. a building destroyed by fire.

NOTE - The fire department is dispatched to the fire and extinguishes the fire with water, the water damage is also considered to be a direct loss.

See Also Indirect Loss.

Question 11

Define

Direct Response Insurer

Answer 11

Direct Response Insurer:

Insurance company that sells insurance through the mail or over the phone. No agents are involved.

Question 12

Define

Direct Writer

Answer 12

Direct Writer:

Insurance marketing system where the company’s appointed agents are also employees (salaried) of the company. A Direct Writer does not have an agency field force, applicants for insurance and insureds deal directly with the insurer.

Question 13

Define

Discovery Period (Condition)

Answer 13

Discovery Period (Condition):

Provision found in Commercial Crime forms; which provides a period of time following the expiration of the policy, during which losses that occurred during the policy period, but discovered after expiration will be covered.

Question 14

Define

Dividend

Answer 14

Dividend:

The proportionate share of surplus (profits), as declared by the Board of Directors of the company, which is paid to the owners and to participating policyholders. Cash dividends paid to stockholders (stock insurer) are income taxable to the recipient, however, policy dividends paid relative to participating policies (mutual insurer) are considered to be a return of excess premiums paid, and therefore non-taxable.

Question 15

Define

Divisible Surplus (Profits)

Answer 15

Divisible Surplus (Profits):

Profits of the insurer, resulting from savings in claims, i.e. how well has the insurer underwritten its book of business, interest (earnings), i.e. investment returns, and expenses, i.e. how well has the insurer controlled its operating costs.

Question 16

Define

Doctrine of Reasonable Expectations

Answer 16

Doctrine of Reasonable Expectations:

Legal principle that provides that an insurance policy includes coverages that an average person would reasonably expect it to include, regardless of what the policy actually provides.

Question 17

Define

Domestic Company (Insurer)

Answer 17

Domestic Company (Insurer):

Insurance company doing business in the state in which it is incorporated.

Question 18

Define

Excess Insurance

Answer 18

Excess Insurance:

When two or more policies or coverages apply to the loss, the one that applies only after the limits of the primary coverage have been exhausted is considered excess loss coverage..

Question 19

Define

Domicile

Answer 19

Domicile:

(1) The state under which, the insurer is incorporated and maintains its principal place of business.

(2) An individual’s state of residence.

Question 20

Define

Duplication of Benefits

Answer 20

Duplication of Benefits:

A situation where identical or overlapping coverage exists between two or more insurance companies or service organizations.

Question 21

Define

Duties

Answer 21

Duties:

Duties After a Loss (Occurrence); Condition found in property-casualty policies that explains the insured’s responsibilities after a loss occurs.

Question 22

Define

Earned Premium

Answer 22

Earned Premium:

The portion of premium payment that has been paid for protection that is deemed earned by the insurer, e.g. the insured pays a full years premium in advance and the contract is terminated mid-year, the insurer has only earned premium effective with the date of termination.

See Also Pro-Rate, Short Rate and Flat Rate.

Question 23

Define

Endorsement

Answer 23

Endorsement:

Document attached to an insurance policy that changes the policy in some way. An endorsement may be used to add coverage to a policy or limit coverage. An endorsement (change in the basic policy) is not effective unless accepted by the insurer, which is evidence by a signature of an executive officer of the insurer and endorsed to the policy.

Question 24

Define

Errors & Omissions (E&O) Liability

Answer 24

Errors & Omissions (E&O) Liability:

Professional liability assumed by an insurance producer in the course of doing business; liability for errors or omissions he/she may incur or commit in recommending, providing, continuing or failing to recommend, provide or continue the insurance coverage clients require. An insurance producer can protect him/herself by purchasing adequate amounts of E&O liability insurance. Insurers recommend and most require evidence of satisfactory E&O insurance as a condition of appointment.

Question 25

Define

Estimated Premium

Answer 25

Estimated Premium:

See Deposit Premium

Question 26

Define

Estoppel

Answer 26

Estoppel:

Principle that protects one party from being harmed by another party’s voluntary conduct. Voluntary conduct may be an action or inaction e.g. silence or concealment of a material fact. In insurance, if one party voluntarily gives up previously known right, that party is henceforth “estopped” from exercising that right in the future. An example exists in property insurance relating to a “binder” due to the law of agency, which states that a contract entered into by an appointed agent is considered entered into by the principal (insurer). If an appointed agent issues a binding without a disclaimer, indicating that the binder is temporary coverage only; allowing the insurer an opportunity to evaluate the risk, the insurer may be prohibited from denying coverage.

Question 27

Define

Excess Lines Producer

Answer 27

Excess Lines Producer:

See surplus lines producer.

Question 28

Define

Exclusions

Answer 28

Exclusions:

Section of an insurance policy that lists property, perils, persons, or situations that are not covered under the policy. It is important to note; there are no true “all risk” policies, therefore, it is more important to discuss what is not covered than what is covered

Question 29

Define

Exclusive Agent

Answer 29

Exclusive Agent:

See Captive Agent

Question 30

Define

Express Authority

Answer 30

Express Authority:

Legal doctrine that states that an appointed agent has the authority specifically given, either orally or in writing, by the principal. An insurance producer becomes an appointed agent of the insurer (principal) and as such is granted certain authority to act on behalf of the insurer, which is “expressed” in the contract of appointment.

See also Apparent Authority and Implied Authority.

Question 31

Define

Exclusive Remedy Doctrine

Answer 31

Exclusive Remedy Doctrine:

One of the precepts upon which the Workers Compensation system was founded; which stipulates that the only means available to employees to receive compensation from employers for injuries covered by Workers Compensation laws is through the benefits mandated by those laws (state law).

Question 32

Define

Exemplary Damages

Answer 32

Exemplary Damages:

See Punitive Damages

Question 33

Define

Experience Modification Factor

Answer 33

Experience Modification Factor:

In experience rating, the factor applied to reduce the premium when loss experience is better than expected or to increase premium rates when loss experience is worse than expected.

Question 34

Define

Experience Rating

Answer 34

Experience Rating:

Type of merit rating that determines premium based on previous loss experience. Experience rating imposes a rate adjustment to premium going forward based upon past experience.

Question 35

Define

Exports

Answer 35

Exports:

Category of the Nationwide Definition that includes risks eligible for Ocean Marine insurance.

See also Imports

Question 36

Define

Exposure

Answer 36

Exposure:

A condition or situation that presents a possibility of loss.

Question 37

Define

Fair Credit Reporting Act

Answer 37

Fair Credit Reporting Act:

Federal law that applies to all financial institutions (including insurance companies) that base eligibility (in all or in part) on third-party (consumer) reports and allows consumers who are denied insurance because of information contained in a report (credit or investigative consumer report) to be notified and allowed to obtain the information used in the report from the reporting agency.

Question 38

Define

FAIR Plan

Answer 38

FAIR Plan:

Program established by law that makes Property insurance available to insureds who might otherwise by uninsurable in the regular market. FAIR plans provide property coverages only; no liability coverage and only those unable to obtain insurance in the regular markets are eligible for coverage under the FAIR Plan.

FAIR stands for Fair Access to Insurance Requirements.

Question 39

Domestic Risk

Answer 39

Domestic Risk: Resident of this state, including someone or something located or to be performed
within this state.

Question 40

Define

Federal Employers Liability Act (FELA)

Answer 40

Federal Employers Liability Act (FELA):

Federal law that provides benefits to injured Railroad employees who are exempt under state Workers Compensation laws.

Question 41

Define

Fellow Servant Rule

Answer 41

Fellow Servant Rule:

Common law defense against liability that allowed employers to escape liability for injury to an employee if another employee’s carelessness had contributed to or caused the injury.

Question 42

Define

Fiduciary

Answer 42

Fiduciary:

Person who stands in a special relationship of trust to another person. A person in possession and/or control of someone else’s property, e.g. a trustee on a trust account, a guardian of a minor child who has control of the minor child’s assets, etc.

Question 43

Field Underwriting

Answer 43

Field Underwriting:

An insurance producer appointed by an insurer to act as its agent is then considered to be a “field underwriter” in the application process. It is the field underwriter’s responsibility to provide full disclosure in the application process. It is also important to remember that an appointed agent represents the insurance company in the insurance transaction.

Question 44

Define

File And Use

Answer 44

File And Use:

Method of rate and form ratification used by some state insurance departments that allows a company to begin using forms or rates as soon as they are filed with the department. The department eventually reviews the filing and officially accepts or rejects it.

Question 45

Define

Financial Responsibility Laws

Answer 45

Financial Responsibility Laws:

State laws that require owners and/or operators of motor vehicles to provide evidence that they have sufficient funds to pay for bodily injury and/or property damage claims for which they might become liable, resulting from an auto accident. Insurance is the usual method for providing this evidence to the state.

Question 46

Define

First Named Insured

Answer 46

First Named Insured:

First person listed in the Declarations as an insured. The first named insured may have a higher level of duties or rights under the policy. Commercial policies require a First Named Insured by designated, who then authorized to act on behalf of the company (insured).

Question 47

Define

First Party Loss

Answer 47

First Party Loss:

Loss or damage to property owned by or controlled by the insured where the insured has a contractual obligation to insure. In other words; first party losses covered by insurance benefit the insured.

See also Third Party Loss (Claim).

Question 48

Define

Flat Rate Cancellation

Answer 48

Flat Rate Cancellation:

Cancellation of a policy by the insured or the insurance company coincident with its effective date.

Question 49

Define

Floater

Answer 49

Floater:

Insurance policy that covers property wherever it is located. A floater follows the property.

Question 50

Define

Foreign Company (Insurer)

Answer 50

Foreign Company:

An insurance company doing business in a state other than the one in which it is incorporated.

Question 51

Define

Fraternal Benefit Society

Answer 51

Fraternal Benefit Society:

An unincorporated society or order, without capital stock, that is operated on the lodge system and is conducted solely for the benefit of its members and their beneficiaries. Fraternal benefit societies offer insurance that is available only to members

Question 52

Define

Fraud

Answer 52

Fraud:

An intentional misrepresentation, concealment or omission of a material fact. An intentional action made by one person with the intent to gain an advantage and relied upon by a second party. In insurance, a material fact is information, had the insurer known may have altered the insurer’s decision relative to issuance of a policy and/or administration of a claim.

Question 53

Define

Functional Replacement Cost

Answer 53

Functional Replacement Cost:

Method to determine reimbursement for some losses, particularly those associated with antique, ornate or custom construction. The damaged property is repaired or replaced with less expensive, but functionally equivalent, materials and methods