Glossary A-Z

These definitions are provided as a tool to help explain some basic concepts in reasonably plain language. Therefore, the definitions are not always technically complete or accurate. No definition shall affect the meaning of terms used in insurance policies issued by the company. The language of the policies, not this glossary of terms, controls the meaning of the policies.

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Abandonment
The termination of a professional relationship between physician and patient at an unreasonable time and without giving the patient a reasonable opportunity to obtain medical care elsewhere.

Admitted Assets
Assets allowed by state insurance laws to be reported on a statutory balance sheet; generally Assets with reasonably certain values that are easily liquidated to raise cash to pay Claims plus receivables that are likely to be paid.

Aggregate Limit or Annual Aggregate Limit
The maximum amount an insurer can pay for all Claims covered by the Insurance Policy for the Policy Term, typically a one-year term.    

Allocated Loss Adjustment Expenses (ALAE)
Expenses insurers pay to others to investigate Claims, including the cost of defending a lawsuit, but not including operating expenses such as employee salaries. See Unallocated Loss Adjustment Expenses (ULAE).

Assessability
An Insurance Policy may be assessable or non-assessable. Assessability exists when there is an obligation of policyholders, included in the Insurance Policy, to pay in excess of policy Premiums if the company’s financial condition deteriorates below a certain level.

Arbitration
Resolution of a dispute outside of court by presenting the case to a third party, typically under an agreement to accept the decision reached by the third party.  

Assets
The property owned by an insurance company. Due to conservative accounting requirements of state insurance laws, some Assets are not allowed to be included on a company’s balance sheet. See Admitted Assets.

Assumed Premium
The payment an insurance company receives for providing Reinsurance for another Insurance Company.  See Reinsurance.

Attorney-in-Fact  
A person authorized by a signed document to act on behalf of another, the principal, for a particular act or purpose; an attorney-in-fact acts as an agent for the principal, but within the limits of authority described in the signed document .

Authorized Company
An insurer or reinsurer authorized by a given state’s insurance department to conduct business in that state. Term is used interchangeably with “licensed company” and “admitted company.”

Best’s Rating
A.M. Best, the most widely used insurance company rating service, publishes annual reports on the financial condition of insurers. Ratings range from excellent to poor and are based on comparisons with broad industry standards.

Capacity
The maximum amount of Insurance a company can Underwrite based on its financial condition and expressed in terms of the maximum Premium volume it is prepared to accept. In a broader sense, it is the maximum total Insurance or Reinsurance available in the marketplace from all companies.

Captive
An insurer created and wholly owned by one or more non-insurers to provide the owners with coverage. It is a form of self-insurance usually administered by specialized consultants.

Claim
A demand, written notice, or lawsuit that seeks monetary compensation from the policyholder and is reported to the insurer.

Claims-Made Insurance or Claims-Made Policy
Liability insurance that covers Claims brought against the insured and reported to the insurer during the Policy Term.

Claims-Paid Insurance
A variant of Claims-Made Insurance that provides coverage for Claims arising from Incidents that are both reported to and paid by the insurer while the policy is in force.

Claims Reserves
The liability booked for estimated losses on unpaid Claims. See Loss Reserves.

Comparative Negligence  
See the definitions of Contributory Negligence and Negligence.

Continuing Medical Education (CME)
A form of continuing professional development designed to improve the physician's ability to care for patients.

Contributory Negligence
Negligence by a claimant which is a cause of his or her own injury. Historically, Contributory Negligence was a complete defense for the insured. Today, however, usually the doctrine of Comparative Negligence applies so that the recovery by a claimant guilty of Contributory Negligence is reduced by the extent to which the claimant’s Contributory Negligence caused the injury.

Damages
The money the court or jury awards as compensation for a Tort or breach of contract. The major categories are general, special, and punitive/exemplary damages. General Damages (or Non-Economic Damages) are non-quantifiable, such as pain and suffering or emotional distress. Special Damages (or Economic Damages) are quantifiable, such as medical expenses, lost wages, and rehabilitation costs. Punitive Damages (or Exemplary Damages) are awarded to punish a defendant who intended to harm the plaintiff or acted in callous or reckless disregard of the likelihood of harm. Some states, including Washington, do not permit an award of Punitive Damages in Tort cases.

Declaration
Also called Declarations Page, Dec Page, or Face Sheet, this essential portion of an Insurance Policy includes basic information such as the name and address of the named insured, the Policy Term, the general nature of the coverages provided, the Limits of Liability, the Premiums for the policy period, and any Deductible.  

Deductible
An amount of loss defined in advance for which the insured assumes responsibility. The insurer pays covered losses above the Deductible amount.  

Direct Written Premium
Premium (other than Assumed Premium) received or receivable for all Insurance sold by an insurer adjusted for additional or return Premiums but not adjusted for any Premiums paid for Reinsurance purchased by the insurer.

Discovery
Pretrial disclosure of pertinent facts and documents to minimize the element of surprise at the time of trial and to enable more informed assessment of whether to settle or go to trial. These procedures usually include written interrogatories, oral depositions of witnesses, requests for admission of facts, independent medical examinations, and requests for production of documents.

Dismissal
A decision by a court to terminate a lawsuit or a portion thereof or a filing of a document by a plaintiff that terminates the lawsuit.

Dividends
Distribution of money to policyholders, which typically occurs when there are enough earnings to make it financially prudent to declare a Dividend. Dividends must be declared by the board of directors, and it is illegal to promise that policyholder Dividends will be distributed before they are actually declared by the board.

Domiciled
Refers to the state in which an insurance company is incorporated. Generally, that state’s department of insurance will be its primary regulator. Companies Domiciled in a particular state are said to be “Domestic Insurance Companies” in that state.

Duty
An obligation recognized by the law. A physician’s Duty to a patient is to exercise that degree of skill, care, and learning expected of a reasonably prudent physician in the profession or class to which he or she belongs acting under the same or similar circumstances.

Earned Premium
Premium paid in advance is not “earned.”  It becomes fully earned at the end of the Policy Term. At any one time during the Policy Term, the Earned Premium is that part of the Written Premium that covers the portion of the Policy Term that has elapsed.
    
Endorsement
An amendment added to and made a part of an insurance contract for the purpose of modifying the original terms and/or documenting a change in the Premium.

Excess Coverage
Insurance coverage that applies only after other Insurance or self-insurance limits have been exceeded by settlement or judgment.

Excess Insurance
Insurance Policy designed to provide coverage for losses over the amount covered by primary insurance, and which does not pay unless the primary insurer has paid its limit for a particular loss.

Experience Rating
A system of pricing Insurance in which the Premium calculation is affected by the prior loss experience of the insured.

Extended Reporting Endorsement
Amendment to a Claims-made Policy which provides coverage for Claims arising from Incidents which occurred during prior coverage periods but are reported after the policy’s expiration.

Incident
An event that the insured reports to the insurer that may lead to a Claim.

Incident Date
The date on which treatment, care, or a failure to act took place. It can also be called the date of occurrence. For Medical Malpractice, it can be called the “medical incident” date.

Incurred But Not Reported Losses (IBNR)
The liability booked for future payments on losses which have already occurred but have not yet been reported to the insurer.  

Incurred Losses
In insurance accounting, an amount representing the losses paid plus the change (positive or negative) in outstanding Loss Reserves within a given period of time. Incurred Losses also include changes in IBNR within the given time period.

Indemnity
An insurance company’s payment to a plaintiff or claimant as a result of a Claim.

Indemnity Agreement
Agreement by which one party agrees to pay a second party for losses suffered by the second party. Insurance Policies are one major class of Indemnity Agreements, under which the insurer is the indemnitor and the insured is the indemnitee.

Informed Consent
A patient’s agreement to allow medical treatment based on a full disclosure of the facts necessary to make an intelligent decision. It allows a patient to balance a treatment’s potential benefits and risks against the potential benefits and risks of alternative treatment, including the alternative of no treatment. Generally, the patient’s Informed Consent is required for any medical treatment involving significant possible risks, complications, or adverse outcomes.

Insurance
A contractual relationship in which one party, for a consideration, agrees to reimburse the other party, or pay directly on behalf of the other party, for loss caused by designated contingencies. The first party is called the insurer or underwriter; the second, the insured or policyholder; the contract is the Insurance Policy; the legal consideration is the Premium; and the contingency is the happening of the insured event.

Insurance Policy
The written agreement between an insurance company and its insured that describes the Insurance purchased by the insured. The policy sets forth the rights and obligations of both parties to the agreement. Generally, in liability insurance, in return for the payment of a Premium by the insured, the insurer agrees to investigate and defend covered Claims and to pay covered Claims up to the policy limit.

Insuring Agreement
That portion of the Insurance Policy that states the contingencies insured against; the coverage afforded by the policy.

Joint and Several Liability
A legal doctrine whereby each individual defendant is responsible for all the Damages awarded against all defendants. A number of states, including Washington, have created some exceptions to Joint and Several Liability.

Joint Underwriting Associations (JUAs)
A risk-pooling arrangement typically authorized by a state legislature for the purpose of providing Insurance that is often not readily available in the voluntary market. A JUA is structured so it can be financed by assessments against its insureds, but typically also has the authority to assess property and casualty insurers licensed to do business in a state in the event of a deficit.

Limits of Liability
The maximum amount an insurance company agrees in the policy to pay in the event of a loss.

Loss Ratio
The sum of losses plus Allocated Loss Adjustment Expenses incurred divided by Earned Premiums, expressed as a percentage.

Loss Reserves
The liability booked to pay for outstanding Claims, which includes Claims Reserves, Reserves for estimated future development of Claims Reserves, and Reserves for IBNR losses.

Mature Claims-Made Rate
In the early years of Claims-Made Insurance (typically the first five years), Rates rise annually until they are considered “mature.” In year one, the Risk of a Claim is limited to matters reported in year one that arise from patient treatment in year one. Less Premium is needed to cover this year one Risk than is needed in year two when a Claim can arise from patient treatment in either year one or in year two. This growing Risk of Claims continues as the years go by until about the fifth year of Claims-Made Insurance, at which time a Claim can arise from patient treatment that occurred in any of the first five years of coverage. After five years, the data show that the Risk of a Claim is about the same from year to year even though more years of patient treatment are covered. So, the Mature Claims-Made Rate is the Rate charged during the fifth year of coverage.  

Medical Malpractice
The failure of the health care provider to exercise that degree of skill, care, and learning expected of a reasonably prudent health care provider in the profession or class to which he or she belongs, acting under the same or similar circumstances. To be legally responsible to pay Damages, the failure to meet this acceptable standard must cause the patient injury.

Member
A policyholder of a Mutual Insurance Company.

Mutual Insurance Company
One that has no capital stock but is owned by the policyholders and managed by a board of directors chosen by those policyholders. This differs from a stock company, which is owned by its stockholders and operated to maximize stockholder equity. Accumulated earnings over and above payment of losses and operating expenses and Reserves are the property of the policyholders.

Negligence
A Tort, the failure to do something which a “reasonable person” would do under the circumstances, or doing something a “reasonable person” would not do. The elements of a Tort include: (1) a legal Duty to use reasonable care under the circumstances, (2) a breach of this Duty, (3) a direct causal link between the breach and the plaintiff’s harm, and (4) resulting harm to the plaintiff.  

Net Written Premium
Direct Written Premium less payments to reinsurers.

Nonadmitted Assets
Assets not accepted for solvency purposes by state insurance laws or insurance department regulations. Examples include furniture, fixtures, and Premiums due and not collected after ninety days.

Nonassessable
A policy provision under which an insurance company states it will not require policyholders to assume an obligation to pay additional money for past losses for which Reserves are inadequate.

Noneconomic Damages
Pain, suffering, emotional distress, loss of consortium, disfigurement, and other non-pecuniary Damages.

Nose Coverage
See Prior Acts Coverage.

Occurrence Policy
A policy which covers Claims arising from Incidents occurring during the policy period irrespective of when the Claim is reported.

Paid Losses
The amount actually paid for losses during a specified time period.

Partnership Liability
See Vicarious Liability.

Policy Term
The period of time for which a policy is written, specified by inception and expiration dates.

Policyholders’ Surplus
The net worth of an insurer as reported on its annual statement. Policyholders’ Surplus serves as an extra source of resources in case of unexpected losses and as the company’s working capital for growth.

Premium
The amount of money an insurance company charges to provide the Insurance Policy.

Premium Credit
A reduction in Premium in accordance with conditions specified in filed Rates, such as discounts. Also may be based upon compliance with risk management guidelines or other factors an insurer deems relevant to the quality of the Risk.

Premium-to-Surplus Ratio
The ratio of Net Written Premium to Surplus. This ratio is one indicator of a company’s financial strength, future solvency, and of its Capacity to write more business. Typically, the lower the ratio the more Capacity a company has to grow its business.

Prior Acts Coverage
Also known as “Nose Coverage,” this term refers to coverage for Claims reported to an insurer that arise from Incidents that occurred prior to the beginning of the insurance relationship. Prior Acts Coverage is an alternative to an Extended Reporting Endorsement, also known as “Tail Coverage,” which can be purchased from the former insurer when a change in carriers is made.   

Property Insurance
Insurance that covers damage to or loss of property caused by “covered perils” such as fire, windstorm or theft.

Punitive Damages
See Damages.

Rate
Often used interchangeably with “Premium,” the Rate is more accurately used to mean the cost of a unit of insurance, such as the cost of $1,000,000 of liability insurance for a particular medical specialty. The actual Premium is often different than the Rate because of other factors such as loss experience.

Rating
Any procedure used to compute the Premium a particular insured is charged for a given coverage.

Reinsurance
The acceptance by an insurer, called a reinsurer, in return for a Premium, of all or part of the Risk of loss of another insurer, known as the reinsured or the ceding insurer.

Report Date
The date on which an Incident or Claim was reported to the insurance company.

Res ipsa loquitur
“The thing speaks for itself.” A doctrine of law that arises when the defendant had exclusive control of the instrumentality causing the harm and the bodily injuries would not have ordinarily occurred in the absence of Negligence. In such cases the defendant has the burden of proving there was no Negligence.  

Reserves
See Loss Reserves.

Reserves-to-Surplus Ratio
A measure of a company’s financial ability to pay Claims if Reserves prove to be inadequate.

Respondeat Superior
“Let the master answer.” The legal principle that makes an employer liable for civil wrongs committed by employees acting within the course and scope of their employment. See Vicarious Liability.

Retroactive Date
The earliest date for which coverage is provided under a Claims-made Policy. Only claims with an Incident Date subsequent to the Retroactive Date are covered by a Claims-made Policy.

Retrospective Rating Plan
A method of determining Premium based on actual loss experience during the Policy Term, generally subject to maximum and minimum Premiums.

Reunderwrite
Review of an insured after the policy has been in force to determine if the Risk is still acceptable.

Risk
A chance of loss. The term is used to designate an insured as well as to designate a peril insured against.

Risk Classification
A Risk Classification is based on the historical loss experience of a particular medical specialty and/or the procedures performed by someone in that specialty. The higher the classification, the higher is the Rate.  This term is used interchangeably with “Class.”

Risk Management
In health care, this term refers to processes to identify the risks and causes of patient injury, the implementation of changes in health care delivery to reduce or eliminate patient injury, and techniques to reduce the frequency and Severity of Medical Malpractice Claims. This term also refers to the risk financing chosen by a practice, such as the purchase of Insurance, the use of Deductibles, or self-insurance.

Risk Purchasing Group (RPG)
Federal law permits a group of similarly situated persons or entities with common insurance needs to offer Insurance to its members through a single insurer. States cannot ban RPGs, but states can require the insurer to comply with state insurance regulatory requirements such as Rate and form approval.

Risk Retention Group
An insurance mechanism authorized by federal law whereby trade associations or other related groups can form a liability insurance company that is not subject to all of the various state insurance laws.

Severity
The dollar value of a Claim.  Also refers to the average dollar value of all Claims.

Standard Risk
A person or entity that, under the company’s underwriting standards, is eligible for Insurance without restrictions or Surcharges.

Statute of Limitations
The time limit on when a plaintiff may file a lawsuit. Once this period expires, the plaintiff’s lawsuit is barred.

Stock Insurance Company or Stock Insurer
An insurer owned and controlled by stockholders, conducted for profit, and operated for the benefit of stockholders. This differs from a Mutual Insurance Company, which issues no stock, is owned and controlled by policyholders, and is operated for the benefit of policyholders.

Structured Settlement
An alternative to lump-sum settlement of bodily injury liability Claims or court verdicts in which the claimant is paid over a period of time instead of in a lump sum. These settlements are usually financed through the purchase of an annuity.

Substandard Risk
A person or entity that, under the company’s underwriting standards, may be ineligible for Insurance or may be required to pay higher Premiums and/or be subject to special coverage restrictions.

Summary Judgment
Granting of a judgment in favor of a party prior to trial. Summary Judgment is granted when there is no material issue of fact for a judge or jury to consider and one of the parties is entitled to judgment by law.

Summons
A legal document that must accompany a complaint to inform the recipient that he or she has been sued. It notifies the recipient of the need to enter an appearance in the lawsuit within a specified period of time to avoid a default judgment.

Surcharge
Additional Premium charged insureds who are Substandard Risks.

Surplus
The amount by which an insurance company’s Assets exceed its liabilities-the net worth of an insurer.  Surplus provides financial strength and protects fiscal integrity in the event of unanticipated adverse loss experience.

Surplus Contributed
Sometimes called “Contributed Surplus,” it is the amount of capital that insureds provide a Mutual Insurance Company during the formation of the company. These funds are generally returned to the original policyholder if the company is able to earn more Surplus over time.

Surplus Earned
Sometimes called “Earned Surplus,” it is the earnings of the company after losses, expenses, and taxes. Over time, earned surplus from profits is added to the contributed surplus, and the contributed surplus can be returned to the original policyholders.

Tail Coverage
See Extended Reporting Endorsement.

Tort
Wrongful conduct, either negligent conduct or intentional misconduct, that causes bodily injury, personal injury or property damage and for which an action can be filed in court to recover Damages.

Unallocated Loss Adjustment Expenses (ULAE)
Operational expenses of a general nature that pertain to Claims management but are not directly attributable to specific Claims. They include the salaries of Claims personnel and the other costs of maintaining a Claims department. See definition of Allocated Loss Adjustment Expenses.

Unauthorized Company
An insurer or reinsurer not having a license to transact business in a given state. Also known as a “Surplus Lines Company.” An Unauthorized Company can offer insurance coverage unavailable from insurers licensed in the state such as Risks where the highest Rates allowed by state regulators are considered inadequate by the Authorized Companies.

Underwrite
The investigation and review of a Risk to determine its eligibility for Insurance and the Premium to charge for accepting the Risk.

Underwriting Results
Measure of an insurance company’s success, calculated by subtracting from Earned Premium those amounts paid out and reserved for losses and expenses. Any positive amount is called an underwriting profit. If deductions exceed Earned Premium, it is called an underwriting loss. Underwriting Results do not include investment income.

Unearned Premium
That portion of the Premium that is paid in advance of a coverage period. An advance payment is initially unearned and starts to become earned on the first day of the coverage period and incrementally thereafter during the ensuing coverage period. See Earned Premium and Written Premiums.

Vicarious Liability
Civil liability for the Torts of others for whose acts someone is deemed legally responsible, such as the Vicarious Liability of an employer for the conduct of employees acting within the course and scope of their employment or the Vicarious Liability of each partner for the conduct of one partner acting on behalf of the partnership.

Written Premiums
The Premiums charged on all the policies the company issues in a period of time. See Earned Premium and Unearned Premium.

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