A glossary of commonly used general insurance and risk management terms.

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CANCELLATION – Termination of an insurance coverage during the policy period by the voluntary act of the insurance company or insured, effected in accordance with provisions in the contract or by mutual agreement.

CATASTROPHE – A sudden, great disaster.

CERTIFICATE OF INSURANCE – Written document stating that insurance is in effect. Includes particulars of the policy’s coverage.

CERTIFICATE OF SUBSTANTIAL COMPLETION – Document stating that, in the engineer’s opinion, work is sufficiently complete, in accordance with contract documents, for work to be utilized for intended purposes.

CERTIFIED COPY – Reproduction of a document, that the authority having custody of the original signs and attests as a true, genuine and authentic copy.

CLAIMS MADE BASIS – Provision in some insurance and reinsurance contracts covering only claims made during term of the contract.

CLAUSE – A term used to identify a particular part of a policy or endorsement.

COINSURANCE – In property insurance, a clause under which the insured shares in losses to the extent that he is underinsured at the time of loss.

A condition in a policy where the insured is required to maintain insurance to a set percentage (80%, 90% or 100%) of the value of the building. The sum insured for the building can be established using either replacement cost or actual cash value (defined as today’s replacement cost minus depreciation). Remember that for insurance purposes, the replacement value always refers to cost to repair, replace or rebuild the destroyed property to the same construction & occupancy it was prior to the loss. By-laws insurance is required to cover any costs associated with demolition, debris removal or increased cost to comply with the building or municipal codes.

When an insured accepts a co-insurance clause, he has already accepted a portion of the risk in a total loss situation, because the insurance company will never pay more than the policy limit. The insured is depending on the fact that most losses are only partial losses and in these cases, as long as the co-insurance clause is satisfied, the loss will be completely paid by the insurer. If the co-insurance clause is not satisfied, it becomes a penalty clause.

When a loss occurs, the insured must first prove that he satisfied the requirements of the co-insurance clause or he will bear a proportionate part of the loss. For example, if a building is worth $100,000 and the policy includes an 80% co-insurance clause, the policy limit must be at least $80,000 or the insured will have to bear some of the loss. If the insured chose to insure only $50,000, the insurance company will only pay 5/8 of the loss and the insured will pay 3/8. This is the formula the insurance company will use:

Amount of insurance   x   Amount of the loss
Amount of insurance required

When a policy includes stated amount co-insurance, the normal co-insurance clause has been suspended for the term of the policy. The insurer will only suspend the co-insurance clause when the insured (i.e. the Borrower) completes a statement of values, which is a signed declaration as to the value of the building. The normal co-insurance clause remains in the policy because the stated amount co-insurance clause will expire with the term of the policy and a revised statement of values must be completed before the stated amount co-insurance clause will be effective for another term.

On some policies, a blanket limit is used, or a limit of loss/liability. If a blanket limit is used you should still ask the values declared for the location. A policy can also be issued with no co-insurance requirement.

Regardless of what co-insurance clause is included, it is always dependent on proper evaluation of replacement cost at inception of the policy.

COMMERCIAL GENERAL LIABILITY – The standard liability form of coverage protecting commercial entities for the liabilities for bodily injury and property damages losses arising from their operations.

CONSEQUENTIAL DAMAGE – A loss, which is an indirect result of an accident or fire, e.g. food spoiled through breakdown of a refrigerator.

CONSTRUCTIVE TOTAL LOSS – A partial loss but where the damage is so extensive that repairs would cost as much or more than the repaired property would be worth, or the limit of insurance.

CONTINGENT BUSINESS INTERRUPTION INSURANCE – The insurance against loss due to interruption of business by fire or other insured peril occurring at another’s premises, such as those of a supplier or a large customer.

CONTINGENT LIABILITY – A liability which may be incurred by an insured as a result of negligence on the part of independent persons engaged by him to perform work. The most common example is the contingent liability of a principal contractor, which may result from construction operations undertaken by his subcontractors.

CONTRACT BOND – In general terms, a surety bond guaranteeing the performance of a contract. Usually associated with construction work, but these bonds can cover any kind of contract. Performance, labour and material payment, supply and maintenance bonds are contract bonds.

CONTRACTOR’S PROTECTIVE LIABILITY – A liability insurance form protecting the contractor in the event of claims resulting from operations conducted on his behalf by independent contractors or subcontractors. This insurance is included in the coverage provided by the Commercial General Liability form.

CONTRACTUAL LIABILITY – Liability assumed by contract either written or implied. Legal liability policies are based upon liability in tort or negligence and have a ore limited coverage normally for contractual liability. The Commercial General Liability policy includes coverage for claims for bodily injury and property damage assumed under specified types of contracts.

COUNTER-SIGNATURE – Policies usually have a facsimile printed signature of a company officer at the bottom. They must also be individually signed by hand, usually by the agent. This signature is the “counter” signature.

COVER – To insure.

COVERAGE – Insurance.

COVER NOTE – A document which tells the insured that the insurance described therein is in effect. Since there are often delays in issuing formal policies, a cover note gives the insured a description of what insurance is in effect.

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