Glossary of insurance terms

The following is a glossary of terms commonly used in insurance coverage cases.

 

All risk policy: Alternative name for a Builders risk policy. The term “all risk” is somewhat of a misnomer because no insurance policy covers all risks, but there are always exclusions.

 

Claims made policy: An insurance policy that covers claims made during the policy period regardless of when the loss occurred.

 

Coverage period: The length of time during which insurance coverage is in place under a particular insurance policy.

 

Builders risk policy: Insurance that protects against losses that occur during the course of a construction (building project). Also referred to as “course of construction insurance”.  A builders risk policy is typically a property insurance policy which covers primarily the project property. The contractor’s property (e.g. tools) may be covered, but if so that is normally done by way of an endorsement. The policy is a “wrap up” in the sense that all contractors and subcontractors are named and cannot claim against one another if one of them damages property of another contractor on the project, or the project property itself.

 

Contra proferentem: a rule of contractual interpretation that states that when a contract is ambiguous the court will interpret the contract in favour of the party that did not draft the contract. 

 

Course of construction (COC): Insurance that protects against losses that occur during the course of a construction (building project). Also referred to as “builders risk insurance”.

 

CGL: A Commercial General Liability policies are liability insurance policies taken out by businesses to protect them against liability for claims made by third parties with respect to property damage or bodily injury.

 

Declining limits policy: See Eroding limits.

 

Deductible: Portion of the loss which the insured is required to reimburse the insurer for.

 

Difference in coverage (DIC): fills in gaps

 

Duty to defend: The obligation to defend court proceeding commenced by third parties against the insured.

 

Duty to indemnify: The obligation on an insurer to indemnify an insured; see Indemnify.

 

Endorsement (also called a rider): An addition to a standard form insurance policy which extends the amount of coverage available. 

 

Eroding limits policy (also called declining limits): A feature of some liability insurance policies where the costs to defend claims are included in the amount payable as policy limits. Under such policies the amount payable to the party claiming against the insured decreases (erodes) as the litigation continues. 

 

Errors and omissions insurance: An insurance policy that covers claims made by third parties for loss or damage caused by the negligence of the insured, typically a professional such as an engineer or architect. 

 

Fortuity: a “chance occurrence”, not intended or expected from the viewpoint of the insured. “Fortuity” means essentially the same thing as “accident”:

 

Indemnity: An agreement under which one party agrees to bear a particular financial loss of another. This may include the obligation to pay for the repair or replacement of property, or the obligation to pay damages due to another party.

 

Insurable interest: An interest or involvement with property such that the insured benefits from or would be prejudiced by the loss of the property insured. 

 

Insured: A person who is covered under an insurance policy. A person may be an insured under a policy even if they did not personally take out or pay for the policy. The terms of the policy should be examined to determine who is an insured.

 

Liability insurance: Insurance that protects against claims made by third parties.

 

Limitation period: A deadline by which a court action must be started. Failing to commence a court action before a limitation period is generally prevents any claim being made.

 

Notice period: A deadline by which the claimant must send a letter giving notice of an intention to make a particular claim.

 

Occurrence policy: A policy that covers claims arising from damage that occurred during the policy period.

 

Policy period: See Coverage period.

 

Property insurance: Insurance that protects against loss of or damage to property.

 

Proximate cause: A cause that plays a significant part in producing an event, as opposed to a cause that is too remote to play a significant role. 

 

Rider: See Endorsement.

 

Risk: “[A] future event, certain or uncertain, which may occasion loss” or “the hazard or chance of misfortune or loss at some time in the future”; see Somersall v. Friedman, 2002 SCC 59 at para. 16.

 

Statutory conditions: Standard terms which are incorporated into insurance contracts by legislation applicable in the province in which the insurance contract is formed.

 

Self-insured retention: Amount below which all losses are to be borne by the insured i.e. the insurer only becomes liable to pay losses once the self-insured retention amount is exceeded. Self-insured retentions fulfill a similar purpose to deductibles but there are differences between self-insured retentions and deductibles.

 

Subrogation: The right of one party to step into the shoes of another and pursue rights held by the second party.

 

Wrap up: The term “wrap up” can be used to describe both a CGL policy or a builders risk policy, but is more commonly used to describe a CGL policy. The essential feature of a wrap up policy is that it covers (wraps up) all of the project participants. A wrap up CGL policy guards against claims by others against project participants, and prevents the project participants cross claiming against each other when sued by a third party. A CGL wrap up policy will typically have a two years completed operations period for if harm results to others within two years of the construction being completed. A builders risk wrap up policy will typically not have a two year completed operations period because when the builders leave site there is no longer any chance that they will damage anyone’s property, or have their own property damaged, while working on site.