Insurance is complicated enough, particularly when looking to cover the risks for your business. Here we give our explanations of the top 10 jargon terms seen in commercial insurance. We would also highly recommend that you read our “Guide to the Insurance Act“:
Average clause – A policy condition that requires the amount of a claim payment to be reduced proportionately if the policyholder has not insured his property for the full value or replacement cost (this is known as underinsurance – see below) e.g. if you innocently only insure 50% of the value of your premises, having carried out a reasonable search, the insurer will only pay 50% of the value of any loss.
Underinsurance – when the sum insured in not enough to cover the maximum possible loss or damage.
Aggregate limit of indemnity – The maximum amount an insurer will pay under a policy for all accumulated claims arising within a specified period of insurance.
Breach of warranty – A warranty is an undertaking by an insured person or company that a statement is true or a policy condition will be fulfilled. If the statement turns out to be false or the condition is not fulfilled, the warranty is said to have been breached, which may lead to a claim being declined.
Fair presentation – The disclosure of every material circumstance/fact (see below) which the insured knows or ought to have known after they have performed a reasonable search.
Material circumstance/fact – A circumstance or fact is material if it would influence the judgement of a prudent insurer in fixing the premium and/or terms of the insurance in determining whether to accept the risk. This refers to any prudent insurer and not just the insurer who has been offered the risk.
Waiver of subrogation – Subrogation is when an insured party agrees that the insurer covers the losses incurred by a third party. The insurer then inherits the right to recover those losses from the third party responsible for the loss for a paid claim. For example, suppose you and a client of yours are facing a lawsuit for negligence and part of the claim is against you but part is because of your client’s faulty services. You have the right to recover the part of the loss that is their fault. If your insurance company pays out on the claim on your behalf, they now inherit the right to recover that part of the loss from the client or their insurance company.
A waiver of subrogation is when that right of subrogation is relinquished. A client of your business might ask for this as they want peace of mind that they won’t be held responsible for any damages if they are somehow partly responsible for a loss.
Jurisdiction clause – A policy clause that specifies which country’s courts shall have jurisdiction in the event of a dispute under the policy. This is important because the insurer may be based in one country, the insured in another and the claimant in a third.
Hold harmless agreement – A contractual agreement that specifies that one party to the agreement will protect the other party and possibly others from being held liable in a given situation. Used when talking about Public and / or Products Liability insurance. The effect of a hold harmless agreement is that the two parties to the agreement agree that one party will not have a legal liability if matters described in the agreement should occur. The other party effectively assumes the whole liability.
Insurable interest – For a contract of insurance to be valid, the policyholder must have an interest in the insured item that is recognised at law whereby he benefits from its safety, wellbeing or freedom from liability and would be prejudiced by its damage or the existence of liability. This is called the insurable interest and must exist at the time the policy is taken out and at the time of the loss.
Please note that these are our interpretations of some confusing terms, not legal definitions. If you are ever in any doubt about any jargon or the meaning of a term in your business insurance policy documents, please don’t hesitate to get in touch with one of our commercial insurance specialist teams.
References: AXA, British Insurance Brokers’ Association, startups.co.uk, ABI