Hi, I'm Phil and I'm here to help you understand insurance in plain English.
As with many sectors, insurance terminology can often be weird, wonderful or confusing. The following glossary has been put together to help you to understand insurance:
Cover for loss of or damage to the property insured by specified causes, subject to the policy terms, conditions and exceptions, and less the amount of any excess applicable for each and every claim.
Theft
Theft provides cover for theft or attempted theft involving entry to or exit from the premises by forcible and violent means or involving actual or threatened assault or violence.
Business Interruption
Cover for loss of profit or revenue including additional expenditure incurred to maintain your business following insured loss or damage at the premises.
If the Basis of Cover is Increased Cost of Working only, this provides cover for additional expenditure incurred to maintain your business following insured loss or damage at the premises only. (Liability under this basis of cover is limited to 50% of the sum insured during the first 3 months of the indemnity period, the balance being payable in equal amounts over the remaining months.)
Book Debts
Book Debts covers your books and accounting documents if they are lost or destroyed. The cover includes the cost of tracing and establishing how much customers owe you, the amount of any unpaid debit balances which cannot be traced and professional fees incurred in production of information relating to the claim.
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All Risks - Business Machines
Loss of or damage to the property insured (usually portable equipment that may be used away you're your business premises) within the territorial limits specified (Premises only, anywhere in the UK or anywhere in the World), subject to the excess in respect of each and every loss, and any non-standard terms specified.
Deterioration of Stock
Loss of or damage to food as a result of the breakdown of an approved freezer or refrigeration unit, or by accidental failure of the public electricity supply.
Glass
Covers breakage of glass at the premises, including the cost of boarding up, subject to the excess in respect of each and every loss, and any non- standard terms specified. Cover can be for external glass only, all internal and external glass including sanitary ware or could also be extended to include shop fronts including their contents.
Goods in Transit
Loss of or damage to your own goods or goods for which you are responsible in connection with your business whilst in transit on land or water anywhere within the territorial limits specified, subject to the excess in respect of each and every loss, and any non-standard terms specified.
Money & Personal Accident/Assault
Loss of money belonging to your business or for which you are responsible.
Personal Accident/Assault provides cover for bodily injury sustained by someone being attacked whilst carrying your business' money.
Cover is normally subject to limits for different occurrences as follows:
Credit company sales vouchers, crossed cheques and other non-negotiable forms of payment
Cash on the premises during business hours
Cash on the premises outside business hours in a locked safe
Cash on the premises outside business hours not in a locked safe
Cash in bank night safe
Cash at private home of directors or authorised employees
Cash in transit
Fidelity Guarantee
Cover for losses caused by fraud or dishonesty committed by your employees.
Loss of Licence
Cover for the reduction in the value of your interest in the premises or business as a result of non-renewal or withdrawal of your licence from causes beyond your control.
Legal Expenses
Cover for defending you or an employee acting on your behalf in any criminal action or certain civil action taken against you for any non-motor related incident arising in connection with the business. This includes cover for prosecutions under health and safety legislation, data protection rules and wrongful arrest.
Employers Liability
Employers Liability is cover required by law. This insurance provides an indemnity in respect of your legal liability for injury or disease sustained by your employees caused by or arising out of their employment. Cover is on a worldwide basis for employees normally resident in the UK but includes employees who are temporarily working overseas.
Cover also includes legal costs and expenses incurred with the written consent of insurers in defending prosecutions under the health and safety legislation of Great Britain, Northern Ireland, the Channel Islands and the Isle of Man.
Labour only sub-contractors, work experience and government scheme trainees are deemed to be employees.
Premiums are calculated on the estimated annual wages and then adjusted at the end of the policy period based on the actual declared wages. This adjustment could result in an additional or return premium.
Public Liability
Public Liability provides protection against your legal liability for injury to the public or for loss of or damage to property not owned by you or in your custody or control. Cover usually extends to include:
- Obstruction, trespass, nuisance, interference, wrongful arrest and eviction
- Contingent motor third party liability arising out of the use of vehicles not owned by you within the UK
- Employees' and visitors' personal belongings
- Personal liability of employees and directors whilst they are overseas on your business
- Liability for loss of or damage to premises hired, leased or rented to you for the purposes of your business
- Legal costs and expenses in defending prosecutions under all relevant health and safety legislation
- Associated court attendance costs
The limit of indemnity provided relates to any one occurrence or series of occurrences arising out of one event.
Premiums are calculated on estimated annual wages and/or turnover, and then adjusted at the end of the policy period based on actual declared figures. This adjustment could result in an additional or return premium.
Products Liability
Products Liability covers the goods you manufacture, supply, sell, repair, service, maintain or test, which through your negligence causes injury to the public or damage to property not owned by you or in your custody or control. Cover automatically includes solicitors' fees, all costs and litigation expenses, damages awarded and claimant's costs for which you would be legally liable. The limit of indemnity provided relates to any one period of insurance.
Premiums are calculated on estimated annual turnover, and then adjusted at the end of the policy period based on actual declared figures. This adjustment could result in an additional or return premium.
Professional Indemnity Insurance
Provides cover up to the limit of indemnity against any claim (including claimant's costs and expenses) in respect of civil liability arising out of your business due to: -
- Breach of professional duty arising out of negligence, whether by act, error or omission
- Unintentional infringement of intellectual property rights
- Breach of confidence
- Libel and slander
- Fraud and dishonesty of business partners, directors, members and employees
Cover extends to include defence costs, court attendance compensation, criminal prosecution defence costs, mitigation costs and accidental damage to documents.
Credit Insurance
Cover against losses arising from non-payment of trade credit and buyer insolvency in both your domestic and export markets. Cover also includes a trade debt collection service and financial risk management tools.
Directors & Officers Liability Insurance protects directors, officers and other employees with managerial responsibilities from costs that they may become personally liable to pay as a result of litigation by various parties including shareholders, government bodies, regulators, liquidators/receivers, creditors and other third parties.
Cover includes defence costs, settlements and damages but also the expertise of your insurers in defending claims on your behalf.
Cover can be extended to include:
- Entity Extension - This provides an additional indemnity for claims made against your company (rather than an individual director or officer) for wrongful acts, for employment related wrongful acts and legal representation expenses in respect of any investigation under the Health and Safety at Work Act 1974.
- Employment Practices Liability - This protects your company against the financial impacts of employment legislation tribunal claims. Cover includes damages, judgements, settlements, defence costs and claimant's costs, for which you may be legally liable, legal representation costs for employment investigations, the cost of paying wages from the date of dismissal to the date of judgement and punitive and exemplary damages where insurable by law. Cover is on a worldwide basis (except USA which can be added by separate endorsement) and also includes acts committed prior to inception of the policy, provided the claim is brought within the policy period.
Computer All Risks
Covers loss of or damage to computer equipment on an all risks basis, usually including breakdown whilst at the premises. Cover can be extended to include portable equipment away from the premises within the territorial limits specified (Anywhere in the UK or anywhere in the World).
Cover extensions can include:
- Additional equipment obtained throughout the year up until your policy renewal up to £250,000
- Programs lost following damage
- Up to £25,000 for replacement of existing data and programs if not compatible with replacement equipment
- Increased Costs of Working - This covers the increased costs of working resulting from accidental damage, breakdown, failure of electricity and telecommunications services or distribution equipment as well as malicious erasure of data and denial of access.
- Reinstatement of Data - This covers the costs of reinstating data following erasure, malicious or otherwise, destruction, distortion or corruption.
Employment Practices Liability
This protects your company against the financial impacts of employment legislation tribunal claims. Cover includes damages, judgements, settlements, defence costs and claimant's costs for which you may be legally liable, legal representation costs for employment investigations, the cost of paying wages from the date of dismissal to the date of judgement and punitive and exemplary damages where insurable by law. Cover is on a worldwide basis (except USA which can be added by separate endorsement) and also includes acts committed prior to inception of the policy, provided the claim is brought within the policy period.
Engineering - Machinery Damage
This insurance covers loss of or damage to your machines and the machinery process. There are a number of cover options available:
This is the widest form of cover and provides indemnity against breakdown, explosion, collapse and damage by accidental causes, which necessitates repair or replacement of the plant.
Breakdown, Explosion or Collapse
Provides indemnity for damage to plant arising from mechanical and electrical defects in the equipment, occurring under normal working conditions. For pressure vessels, damage to the item's permanent structure by its own internal steam or fluid pressure or loss of steam or fluid pressure causing the item to explode or collapse.
Accidental Damage
Provides cover for damage to plant for any cause other than its own explosion, collapse or breakdown.
Engineering - Machinery Movement (Annual)
Covers loss of or damage to insured property during the operations specified. The definitions of all available operations are as follows:
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Transit |
Transportation (other than by sea or air) of the insured property and any trans-shipments, deviations or storage en route from the time that the load is secured onto the carrying vehicle until the commencement of removal of the securing devices. |
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Erection |
From the completion of the unloading of the insured property from transport vehicles until the completion of testing or running or the date of taking over by the purchaser whichever is the earlier. |
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Dismantling |
From the commencement of dismantling and/or disconnecting of the insured property until the commencement of loading onto transport vehicles. |
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Re-Sitting |
Bodily removal of insured property or a major part of it from one site to another in the same premises and not involving the use of road or rail vehicles. |
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Handling |
Bodily removal of the insured property from one point to another |
Cover applies on an annual basis with all specified operations carried out during the policy period are covered.
Cover does not include:
- Loss of or damage to insured property caused by or arising from its own breakdown, derangement or explosion
- Defects in material workmanship or design (but insured damage resulting from it is covered)
- Loss of use or loss of profits as a result of damage
- Unaccountable or unexplained losses discovered during checks or inventories unless you can provide reasonable proof that such losses occurred as a result of an identifiable incident
Engineering - Machinery Movement (Specific Contract)
Covers loss of or damage to insured property during the operations specified for a specific contract. The definitions of all available operations are as follows:
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Transit |
Transportation (other than by sea or air) of the insured property and any trans-shipments, deviations or storage en route from the time that the load is secured onto the carrying vehicle until the commencement of removal of the securing devices. |
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Erection |
From the completion of the unloading of the insured property from transport vehicles until the completion of testing or running or the date of taking over by the purchaser whichever is the earlier. |
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Dismantling |
From the commencement of dismantling and/or disconnecting of the insured property until the commencement of loading onto transport vehicles. |
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Re-Sitting |
Bodily removal of insured property or a major part of it from one site to another in the same premises and not involving the use of road or rail vehicles. |
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Handling |
Bodily removal of the insured property from one point to another |
Cover does not include:
- Loss of or damage to insured property caused by or arising from its own breakdown, derangement or explosion
- Defects in material workmanship or design (but insured damage resulting from it is covered)
- Loss of use or loss of profits as a result of damage
- Unaccountable or unexplained losses discovered during checks or inventories unless you can provide reasonable proof that such losses occurred as a result of an identifiable incident
Engineering - Deterioration of Stock
Covers loss of or damage to stock as a result of the breakdown of refrigeration units, freezer units or cold stores. Cover includes:
- Change in temperature due to sudden and unforeseen damage
- Accidental failure of the public electricity supply and contaminant by refrigeration gases or fumes
- Cleaning and decontamination costs following an insured event up to a maximum of £25,000
- Disposal of insured goods up to £25,000
Engineering - Statutory Inspection
In order to satisfy your statutory requirements under the Health and Safety at Work legislation, certain types of machinery and plant must be inspected by a Competent Person on a regular basis. The legislation states how often different types of plant must be inspected and to what level.
Your Insurers provide their services in the role of the competent person and inspect the plant specified in the schedule on your behalf. Non-Statutory plant inspections can also be included.
Engineering - Business Interruption
Cover for loss of profit or revenue following insured loss or damage at the premises. Cover extends to include:
- Payment of expenses which continue to be incurred despite a reduction in turnover
- Additional expenses incurred which assist in preventing or minimising the reduction in turnover, such as overtime payments, hiring alternative machinery or the cost of provisional repairs.
- Accountant's fees incurred by you in producing information required by the Insurers
Motor Fleet
You motor fleet policy provides cover in accordance with the requirements of the Road Traffic Acts giving unlimited legal liability cover for death or injury to any third party arising out of the use of your business vehicles. Third party property damage is covered up to the limit of indemnity specified in your policy. Cover also includes any costs and expenses incurred, with your insurer's written consent, in connection with the claim made against you.
The level of cover chosen for each vehicle can vary and a brief summary of the cover provided by each option is as follows: -
Third Party Only (TPO)
Legal liabilities only, as defined above.
Third Party, Fire and Theft (TPFT)
In addition to legal liabilities, cover for loss of or damage to your vehicle caused by fire or theft only. In the event of a claim, your insurers will repair the vehicle, provide a replacement vehicle or reimburse the market value of the vehicle.
Comprehensive (COMP)
In addition to legal liabilities, cover for loss of or damage to your vehicle caused by fire or theft, or following an accident, irrespective of who is at fault for the accident, and malicious damage. In the event of a claim, your insurers will repair the damaged vehicle, provide a replacement vehicle or reimburse the market value of the vehicle.
The principle motor fleet policy exclusions are as follows. For a full list of exclusions, please refer to your policy documents.
- Loss of use
- Depreciation, wear and tear, mechanical or electrical breakdown, failure or breakage
- Damage to tyres
- Loss of value following repair
- Loss or damage arising from theft when the keys have been left in or on the vehicle.
- Death of or bodily injury to employees whilst driving an insured vehicle in the course of employment (This would be covered under your Employers Liability policy)
Fleet Declarations - As & When
Your fleet policy is not subject to declarations, therefore any changes to the Vehicle Schedule (being permanent or temporary) must be notified to us as and when they occur in order that we may advise you're Insurers who, in turn, will update the Motor Insurers Database on your behalf
Fleet Declarations - Annual
Your fleet policy is subject to an annual declaration, therefore all changes to the Vehicle Schedule (being permanent or temporary) must be declared to your Insurers at the end of the current period of insurance.
Fleet Declarations - Quarterly
Your fleet policy is subject to quarterly declarations, therefore all changes to the Vehicle Schedule (being permanent or temporary) must be declared to your Insurers each quarter.
Fleet Declarations - Half Yearly
Your fleet policy is subject to six monthly declarations, therefore all changes to the Vehicle Schedule (being permanent or temporary) must be declared to your Insurers half way through and at the end of the current period of insurance.
Personal Accident/Sickness
Cover for accidental bodily injury to the insured person. The benefits payable for death, loss of limbs, eyes etc and permanent total disablement are lump sums, whilst temporary total disablement and temporary partial disablement benefits are paid on a weekly basis until incapacity has ceased or until the benefit period has been reached, whichever occurs first. Temporary total disablement and temporary partial disablement benefits can also be extended to include cover in the event of sickness.
The deferred period is the length of time that must be exceeded before a claim can be made. Alternatively, if an excess applies, this amount will be deducted from each and every claim.
Marine Cargo
Provides cover for loss of or damage to goods whilst in transit and in storage during the normal course of transit, including imports, exports, inland transits, loading and unloading, and returned goods on a worldwide basis. Goods can be raw materials and/or finished goods and claims are paid based on the value of the goods, rather than weight, subject to the policy limits specified.
Cover can be extended to include: -
- Non-Sale Movements such as inter-company movements, exhibitions, engineer's tools and rep's samples.
- Storage of goods outside the normal course of transit
- Stock throughput cover - A combination of marine cargo, stock and distribution cover all in one.
Whilst cover is provided on a worldwide basis, your policy will include an Excluded Territories clause as standard. The excluded territories are usually: -
Afghanistan, Angola, Democratic Republic of Congo, Ethiopia, Iran, Iraq, Lebanon, Liberia, Libya, Malawi, Nigeria, Philippines, Rwanda, Somalia, Sudan, Yemen, all former Yugoslavian states (see below) and all former USSR states (see below).
Former Yugoslavian states - Bosnia, Herzegovina, Croatia, Macedonia, Serbia & Montenegro, and Slovenia
Former USSR states - Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Russia, Siberia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.
Although these tend to be standard throughout the market, they are subject to change so please check your policy wording for exact details. Insurers will consider inclusion of cover for excluded territories on an individual basis subject to full details.
Wrongful Conversion
Provides cover if you purchase a vehicle from someone who is not the true owner and the true owner subsequently makes a claim upon you for return of the vehicle or its cash value. Conversely, if you sell a vehicle and the purchaser finds that he does not have a valid title to the vehicle; cover is provided should he claim against you as the motor trader for its value.
Cover is subject to vehicles being cleared via approved agencies and usually excludes the first 20% of each and every claim.
Defective Workmanship/Service Indemnity
Defective Workmanship &/or Service Indemnity provides protection against your legal liability for injury or damage sustained by your customers who arise from:
- Defects in the goods sold or supplied by you
- Defective workmanship performed by you on their vehicles
Cover automatically includes solicitors' fees, all costs and litigation expenses, damages awarded and claimant's costs for which you are legally liable. The limit of indemnity provided relates to any one period of insurance.
Road Risks
Provides cover for any vehicle owned by you or in your custody or control in connection with your business. Cover also applies for vehicles away from your business premises within defined territorial limits and whilst such vehicles are temporarily in the custody or control of your sub-contractors. Cover is provided whilst the vehicle is being used in connection with your motor trade business and for social, domestic and pleasure purposes by principals, partners, directors, their spouses and employees.
The level of cover chosen can vary and a brief summary of the cover provided by each option is as follows:
Third Party Only - Cover in accordance with the requirements of the Road Traffic Acts giving unlimited legal liability cover for death or injury to any third party arising out of the use of the vehicle.
Third Party, Fire and Theft - In addition to Third Party cover as defined above, cover is also provided for loss of or damage to the vehicle caused by fire or theft only. In the event of a claim, your insurers will repair the vehicle, provide a replacement vehicle or reimburse the market value of the vehicle.
Comprehensive - In addition to Third Party cover, cover is provided for loss of or damage to the vehicle caused by fire, theft or following an accident, irrespective of who is at fault for the accident, and malicious damage. In the event of a claim, your insurers will repair the damaged vehicle, provide a replacement vehicle or reimburse the market value of the vehicle.
Cover can be extended to include social, domestic and pleasure use by either named persons or unnamed relatives and friends of partners or directors.
Motor Insurance Database
It is your responsibility to ensure that this is kept up to date with all changes of vehicles as and when they occur unless your Insurers have confirmed that they will carry this out on your behalf. Details of all relevant vehicles must be provided in electronic format to the Motor Insurance Database website in order to satisfy the requirements of the relevant law applicable to England, Scotland, Wales and Northern Ireland. Failure to do so could lead to prosecution.
Loss of Rent
Financial protection for your business following insured loss or damage at the premises insured. The cover replaces the shortfall in your rental income up to the indemnity period that you have selected.
Cover usually includes:
- Payment of expenses which continue to be incurred
- Any additional expenses incurred which assist in preventing or reducing a drop in rental income
- Accountant's fees incurred by you in producing information in support of a claim
- Loss of income due to damage to a nearby property that prevents tenants gaining access to the premises
- Reduction in income due to loss or damage at the public electricity, gas and water supplier's premises
- Loss or rent due to damage at managing agent's premises
- Loss of rental income due to Legionellosis (Legionnaires disease)
- Closure of a nearby attraction which has a detrimental effect on rental income, both for existing rentals and whilst negotiating a new lease
- Cover for the additional interest payable whilst being repaired or replaced should a building awaiting sale be damaged or destroyed
- Failure of tenants insurances up to £500,000
- Inadvertent failure to insure up to £500,000
- Privity of Contract up to a limit of £2,000,000
- If there is a pre-existing Cessor clause in the lease, any loss under this section would include payment of the insurance premiums that the lessee would have paid.
- Includes any premises occupied by yourselves
Property Owners Liability
This insurance covers your legal liability for injury to the public or loss of or damage to property not owned by you or in your custody or control arising out of your ownership of the buildings &/or land insured.
Cover automatically includes:
- Obstruction, trespass, nuisance, interference, wrongful arrest or eviction
- The Defective Premises Act
- Legal costs & expenses in defending prosecutions under all relevant health & safety legislation
- Associated court attendance costs
- Employees' & visitors' personal belongings
- Indemnity to managing agents
The limit of indemnity provided relates to any one occurrence or series of occurrences arising out of one event.
Contractors All Risks
Loss of or damage to the contract works (excluding existing structures), contract materials and plant including hired-in plant, owned by you or for which you are contractually responsible. Cover is on All Risks basis and also includes offsite storage of materials designated for inclusion in the contract you are working on, transit of contract materials to and from the contract site including loading and unloading, and plant and tools anywhere in the UK including whilst on site, in transit or at your premises.
Warranties and Conditions Precedent to Liability
Your policies may contain Warranties and certain Conditions which determine whether cover would apply in the event of a claim.
Where a Warranty is included, any failure to comply fully will allow your insurers to repudiate any claim, irrespective of whether the incident was connected with the breach of compliance. For example, if you were in breach of a No Smoking Warranty and suffered a Storm Damage loss, then your insurers could repudiate the loss, despite the fact that the breach has had no effect on the claim.
If your policy contains a Condition precedent to Liability then insurers may only decline to pay a claim directly linked to your failure to comply with the Condition. For example, if the policy contains a Condition that a flat roof is to be inspected for defects on an annual basis and a Storm Damage loss occurred when the roof had not been checked then the claim could be declined.
Please contact us if there is anything unclear about the scope of your cover or your policy terms.
Average Condition
Most insurance policies include an Average Condition which means that if your sum insured is found to be inadequate following a loss, then your claim payment may be proportionately reduced. For example, if the sum insured is only 50% of the ‘true' value, then only 50% of the amount claimed will be paid. You should remember that the onus for setting adequate sums insured falls on you as the policyholder.
Stock
Claims are settled on a cost only basis and your sum insured should reflect this value. You should also include separate amounts for any target stock items that you may have, such as cigarettes and tobacco, wines and spirits, radio, TV and other electrical items, computer equipment and mobile phones.
Machinery Plant and All Other Contents
Furniture, fixtures, fittings and machines are usually insured on a Reinstatement basis and the sum insured should be based on their new replacement value. You should also include an amount for proprietors' and employees' personal belongings, debris removal, the cost of reproducing your business books and computer records and any fees that may be required for lawyers, architects and surveyors. Occasionally, you may have chosen to insure on an Indemnity basis which would allow for a payment based on the current value of the item, taking into account deductions for depreciation or wear and tear, based on the age and condition of the equipment at the time of the loss.
Buildings and/or Tenants Improvements
Cover is on a Reinstatement basis and you should insure for the full rebuilding cost, not the market value. This should take into account any possible increase in cost due to delays in rebuilding and/or alterations in rebuilding design. The sum insured should also include the cost of clearing the site, fees for lawyers, architects, surveyors and consulting engineers (as a guide, this is usually 10-15% of the rebuilding cost), walls, gates, fences, outbuildings and annexes, and any signs and nameplates.
The most effective way of achieving an accurate sum insured is to obtain a professional re-building valuation.
VAT Status (impact on Sums Insured)
If you are non-registered, exempt or partially exempt you should ensure that all sums insured are adjusted to include the non-recoverable VAT element.
Day One
"Day One" is a form of Reinstatement cover used as a method of countering the effects of inflation on sums insured. This can apply to buildings and/or machinery, plant and all other contents. The sum insured is shown in two parts - Declared Value (normally shown in brackets) and Sum Insured. The declared value should represent the Reinstatement cost on the first day of the period of insurance (i.e. on "Day One"). The declared value is then increased by an agreed percentage (the inflation provision) to produce the ‘Sum Insured', which should be adequate to meet the reinstatement costs that could be incurred until the end of the period of reinstatement. This could be years after the damage has occurred.
Insurance policies are void or voidable ‘ab initio', i.e. from the beginning, if there is a breach precedent to the policy.
Accidental damage cover
Cover under a policy that provides all the benefits of standard named perils policy plus accidental damage cover, e.g. spilling paint on a carpet or computer. Under a named peril policy a loss has to be matched to a named peril.
Accountants' clause
A clause in a business interruption policy which indemnifies you in respect of the cost of an accountant's fee in respect of preparing and submitting the claim. Without the clause, the cost would not be covered.
Act of God
Natural occurrences (earthquake, typhoon, etc.) that no amount of human foresight could have avoided. It is a defence against strict liability in tort. An example of this is seen in Nichols v. Marsland (CA 1876) where the defendant was not liable when exceptionally violent storms caused his artificial lakes to flood his neighbour's land, but the defence is of very restricted application.
Additional Increase in Cost of Working
An optional extension under a business interruption insurance. It allows you to incur reasonable additional expenditure to avoid or diminish any further reduction in turnover following a loss even if the amount payable exceeds the saving made. Without this extension you would only be able to recovery additional expenses that are economic and agreed by the insurers i.e. they will only agree to spend £1 to save at least £1. The extra cover is for a specific sum.
Adjustable policies
Policies where, at inception, the insured estimates the amounts of key variables such as turnover or wages. The premium is based on this estimate but adjusted up or down at the end of the year when the actual figure is declared by the insured. Any return made to the insured is subject to a minimum premium.
Advance profits insurance
A form of business interruption insurance relating to a new business or a new activity for an existing business. It covers loss of gross profit following delay consequent upon damage insured under a contractor's all risks or erection all risks policy. The delay in starting the activity may be due to damage to: (a) the new works, extension or machinery; (b) suppliers' premises; (c) machinery in transit. The indemnity period commences on the date production was intended to start and continues until it does actually start, but any increase in cost of working is calculated from the date of loss.
Aggregate limit of indemnity
The maximum amount that the insurer will pay in respect of all insured losses that occur during the policy term. No further claim is payable once the limit has been exhausted unless it has been reinstated by policy condition or agreement. Aggregate limits are common to professional indemnity insurance and product liability insurance. Under some covers the insurer may also impose a limit per claim or occurrence.
All other contents clause
A phrase in the basic specification wording of the standard fire policy to extend cover to forms of property otherwise excluded. The term includes money and stamps, national insurance stamps, documents, manuscripts and business books, computer systems records, patterns, moulds, plans and designs, employees' pedal cycles and personal effects. Monetary limits are usually applied to the majority of these items and cover in respect of plans, documents, etc., is limited to the cost of labour in writing them up and not their market values.
All risks
A term describing a property insurance covering any fortuitous loss or damage that is not specifically excluded. This contrasts with a policy covering physical loss or damage caused by a named peril, e.g. fire. The ‘all risks' exclusions relate to inevitable forms of loss, such as depreciation and wear and tear, and other losses due to gradually operating causes. ‘All risks' cover is available for personal possessions, cameras, jewellery, industrial equipment and goods in transit, and applies to Institute Cargo Clauses A. Under household and commercial policies on buildings and contents, and cover on motor vehicles, the term has given way to ‘accidental loss or damage' as a means of going beyond named perils cover.
Alternative accommodation clause (loss of rent)
A clause in both household buildings and contents insurances to cover the insured if his home becomes uninhabitable due to insured damage. The buildings insurer will pay the reasonable cost of: any necessary alternative accommodation, loss of rent due to the insured and a maximum of two years ground rent for which the insured is liable, subject to a maximum of 10 per cent of the amount insured. The contents insurer covers the cost of alternative accommodation and rent payable by the insured up to 20 per cent of the sum insured.
Annual turnover
Defined in a business interruption policy as the turnover during the 12 months immediately before date of damage (where the indemnity period is for 12 months or less).
Arbitration clause
A policy condition that commits the insured and the insurer to use arbitration as a means of settling disputes as to the amount of a claim liability otherwise being admitted. The clause does not appear in liability policies.
Architects', surveyors' and consulting engineers' fees
These fees are covered when relating to insured property damage either by making due allowance in the sum insured or by a special item. The fees are payable for plans, specifications, etc., and general supervision of rebuilding in the event of fire or other insured perils. Increasing the buildings sum insured by 12.5 per cent and the machinery sum insured by 7.5 per cent often provides cover, but insured's with very large sums insured may insure the fees on a first loss basis. Fees paid by the insured for preparing the claim are not covered.
Average
In non-marine property insurance if a sum insured is ‘subject to average', and the sum insured is less than the value at risk at the time of loss, the claim will be reduced in the same proportion. The measure combats under-insurance. Agricultural products and ecclesiastical property are subject to the special condition of average (the 75 per cent condition) as values fluctuate or are difficult to assess. If the sum insured is 75 per cent or more than the value at the time of loss no deduction is made for partial losses. The two conditions of average applies where property (e.g. A) is insured under both a specific policy and a more general policy covering property that includes additional property (e.g. A, B and C) under an inclusive sum insured. The first condition is pro rata average while the second is initially ‘non-contribution', i.e. the more specific insurance pays first, leaving only any uninsured balance to be recovered under the general policy on the basis of pro rata average. See REINSTATEMENT AVERAGE; DAY ONE AVERAGE; FIRST LOSS POLICIES. 2. In marine insurance ‘average' means ‘loss' in different ways, notably general average and particular average but the non-marine approach is also used. A cargo claim is based on the percentage of depreciation calculated by comparing the actual damaged value at destination with the actual sound value at destination and applying this percentage to the agreed insured value (Marine Insurance Act 1906, s.71).