Study 8-9: Key Terms

Question 1

Warranty

Answer 1

Statement or stipulation or promise in an insurance contract, the breach of which may nullify the contract.

Question 2

Loss reserve

Answer 2

An amount carried as a liability in an insurer’s balance sheet representing, in respect of each claim, an amount equal to the estimated final settlement cost less any amounts already paid.

Question 3

Risk management

Answer 3

Analyzing a risk to quantify the potential for losses in a specific investment and to decide what is the appropriate action to take (or whether not to take action).

Question 4

Product recall insurance

Answer 4

Insurance that indemnifies the insured for the cost of recalling products known or suspected to be defective.

Question 5

Directors and Officers (D&O) liability insurance

Answer 5

Protection for officers and directors of a corporation against damages resulting from negligent or wrongful acts in the course of their duties. Also covers the corporation for expenses incurred in defending lawsuits arising from alleged wrongful acts of officers or directors. These policies always require the insured to retain part of the risk uninsured. Also called D&O liability insurance.

Question 6

Errors and Omissions (E&O) insurance

Answer 6

An insurance form that protects the insured against liability for committing an error or omission in the performance of professional duties. Generally, such policies are designed to cover financial losses rather than liability for bodily injury or property damage.