Plain-English definitions of the commercial and specialty insurance terms our clients ask about most, from claims-made policies and tail coverage to D&O, cyber, and E&O. Written by the brokers at Alton Risk. Where a term maps to a coverage we place, we link straight to it.
83 terms. Jump to a letter, or use your browser's find (Ctrl/Cmd + F) to search the page.
Actual cash value (ACV) is a way of valuing insured property at the time of loss, most often replacement cost minus depreciation for age, wear, and condition. Some states and policies use fair market value or a broader evidence test instead. Compare Replacement Cost.
An additional insured is a person or organization added to another party's liability policy by endorsement, so it has coverage for liability tied to that party's work, premises, or products, usually within limits the endorsement sets. Common in enterprise contracts.
An admitted carrier is an insurer licensed by a state to write insurance there, typically under that state's rate and form filing rules, and whose policies are generally backed by the state's guaranty fund if the insurer becomes insolvent, up to statutory limits.
An aggregate limit is the most an insurer will pay in total for all covered claims during a policy period, typically one year, no matter how many separate claims arise. It works alongside any per-claim or per-occurrence limit.
AI liability insurance is coverage designed for claims that an artificial intelligence product or its outputs caused harm, such as model errors, hallucinations, or biased decisions. There is no single standard form, so scope varies by policy and insurer.
Allocation is the process of dividing a loss, such as defense costs or a settlement, between the part a policy covers and the part it does not, for example when a claim involves uninsured parties or uncovered allegations.
The Bermuda market is the set of insurers and reinsurers licensed in Bermuda and supervised by the Bermuda Monetary Authority. It writes large, complex, and specialty risks, including property catastrophe reinsurance, excess liability, and directors and officers liability.
A binder is a temporary written agreement that provides evidence of insurance and puts coverage in force with a named insurer until the formal policy is issued or the application is declined. It usually states the coverage type, amount, and time limit.
A broker of record (BOR) letter is a written statement signed by the insured telling an insurer that a named broker or agent is its authorized representative on specified policies, so the insurer can share information and deal with that broker.
Business email compromise (BEC) is a fraud in which a criminal compromises or impersonates a legitimate email account, posing as an executive, vendor or colleague, to trick someone into sending money or sensitive information.
Business interruption (BI) insurance, also called business income coverage, is property coverage that typically pays lost net income and continuing expenses while a covered physical loss, such as a fire, suspends operations. It generally requires direct physical damage to trigger.
A captive insurance company is a licensed insurer owned by the business or group of businesses it insures, used to finance and manage their own risks. Common forms include single-parent (pure) captives, group captives, and association captives.
A certificate holder is the person or company that receives a certificate of insurance as evidence that another party carries the listed coverage. Holding a certificate does not make someone an insured or give them rights under the policy.
A certificate of insurance (COI) is a document, usually an ACORD form, that summarizes an existing policy's carriers, coverages, limits, and dates for a third party. It is issued for information only and does not amend, extend, or alter the policy.
A claims-made policy is triggered when a claim is first made against the insured during the policy period (or an extended reporting period), regardless of when the underlying act happened, subject to any retroactive date and the policy's reporting requirements. Compare Occurrence Policy.
Coinsurance is a property insurance clause requiring you to insure at least a stated percentage of a property's value, often 80% to 100%. If you carry less, claim payments are reduced proportionally. In health insurance, it means your percentage share of a covered cost.
Commercial general liability (CGL) insurance covers a business's legal liability to third parties for bodily injury, property damage, and personal and advertising injury. Under the standard ISO form it typically responds on an occurrence basis and includes a duty to defend covered suits.
Consent to settle is a policy provision requiring the insurer to get the insured's agreement before settling a claim. It is common in professional liability policies and is often paired with a hammer clause that penalizes an insured who refuses.
Contingent business interruption (CBI) insurance reimburses lost income and extra expenses when an event at a supplier's or customer's premises, rather than your own, interrupts your operations. Most policies require covered physical damage at the third-party location.
Crime insurance covers a business for direct financial loss from dishonest acts such as employee theft, forgery, and fraud, sometimes including impersonation schemes. A fidelity bond is a related form focused on employee dishonesty. See Crime / Fidelity.
Cyber liability insurance is coverage for a company's losses and legal liability after a cyber incident such as a data breach, ransomware or system outage, typically including first-party response costs and third-party claims, subject to the policy's terms and exclusions.
A deductible is the portion of a covered loss that the policyholder pays before the insurer's payment begins, usually a fixed dollar amount per claim or occurrence. Higher deductibles typically mean lower premiums.
Defense costs are the attorney fees, expert charges, and other expenses of defending a claim. Depending on the policy, they either reduce the limit of insurance (defense within limits) or are paid in addition to it (defense outside limits).
Digital asset insurance is a group of specialty coverages for businesses that hold, custody, trade or build on crypto and other digital assets, typically addressing theft, hacks, insider fraud and related liability, subject to policy wording and exclusions.
Directors and officers (D&O) liability insurance covers claims against a company's directors and officers for alleged wrongful acts in their management roles. It typically pays defense costs and settlements for individuals and, depending on the policy, reimburses or protects the company.
The duty to defend is a liability insurer's obligation to provide and pay for a legal defense when a suit alleges facts that potentially fall within coverage. It is generally broader than the duty to indemnify. See the full explainer.
The duty to indemnify is a liability insurer's obligation to pay covered damages, whether a judgment or an approved settlement, on behalf of its insured. It is generally narrower than the duty to defend and turns on the actual facts, not just the allegations.
Employment practices liability (EPL) insurance covers an employer against claims by current, former or prospective employees alleging wrongful employment acts, such as discrimination, harassment, retaliation or wrongful termination, including defense costs and covered settlements or judgments.
An endorsement, also called a rider, is a written amendment to an insurance policy that adds, removes, excludes, or changes coverage. Once issued, it becomes part of the contract and generally takes precedence over conflicting language in the base policy.
Entity coverage, often called Side C in a D&O policy, insures the company itself for claims made against it. For public companies it is typically limited to securities claims, while private company policies often cover a broader range of claims.
Errors and omissions (E&O) insurance is professional liability coverage for claims that a business's services, advice, or work caused a client financial harm through mistakes, negligence, or failure to perform. It generally excludes bodily injury and property damage.
Excess and surplus lines (E&S) is the non-admitted insurance market that covers unusual or hard-to-place risks the standard admitted market will not write. Placement runs through licensed surplus lines brokers, with more flexible forms, and policyholders generally lack state guaranty fund protection.
An exclusion is a provision of an insurance policy that removes specific hazards, perils, property or circumstances from coverage, narrowing what the insuring agreement would otherwise pay for. Exclusions may themselves contain exceptions that restore coverage in defined situations.
An extended reporting period (ERP) is a set window after a claims-made policy ends during which a claim can still be reported and covered as if made during the policy period, generally for events that happened before the policy ended.
Fiduciary liability insurance covers claims that those who manage an employee benefit plan, such as a 401(k), breached their duties, for example through mismanagement. It typically pays defense costs and covered damages, and is distinct from the ERISA fidelity bond.
First notice of loss (FNOL) is the initial report of a loss, claim or incident to an insurer, which starts the claims process. It typically includes the policy number, what happened, when it happened, and the damage or exposure involved.
First-party coverage is insurance that pays the policyholder for its own covered losses, such as damage to its property, lost income, or cyber incident response costs. It differs from third-party coverage, which responds to claims other people make against the insured.
The general aggregate is the most a commercial general liability policy will pay during a policy period for most covered claims combined, including bodily injury, property damage, personal and advertising injury, and medical payments, but not products-completed operations claims.
A hammer clause, also called a consent-to-settle or blackmail settlement clause, limits the insurer's obligation if the insured refuses a settlement the insurer recommends, typically capping payment near the settlement amount plus defense costs to that point, or splitting later costs.
A hard market is a phase of the insurance cycle in which premiums rise, underwriting tightens, policy terms narrow and insurers offer less capacity, making coverage costlier and harder to obtain. It is the opposite of a soft market.
Indemnity means compensating someone for a loss or damage, or agreeing in a contract to do so. In insurance, the principle of indemnity aims to restore the insured to their pre-loss financial position, without allowing profit from the loss.
An insured is a person or organization protected under an insurance contract. The named insured is the party identified in the policy, and other people or entities may also qualify as insureds depending on the policy's definitions.
An insurer, often called a carrier, is the company that issues an insurance policy, accepts the risk described in it, and pays covered claims under its terms. Insurers may be licensed (admitted) in a state or operate as non-admitted surplus lines carriers.
Key person insurance is life, and sometimes disability, coverage that a company buys on a founder or other critical employee. The business owns the policy, pays the premiums, and receives the benefit if that person dies or, under a disability policy, cannot work.
A limit of liability is the maximum amount an insurance policy can be called on to pay for a specified coverage, commonly stated per occurrence or claim and as an aggregate for the policy period, subject to the policy's terms, retention and any sublimits.
Lloyd's of London is a specialist insurance and reinsurance marketplace, not a single insurer, where syndicates of underwriters accept risks presented by accredited brokers, often for large, complex or unusual exposures.
A loss run is a carrier-issued report listing an insured's claims over a stated period, typically showing dates, claim types, amounts paid, and amounts reserved as of a valuation date. Underwriters use it to assess claims history when quoting or renewing coverage.
A managing general agent (MGA) is an intermediary that an insurer authorizes to underwrite risks and often bind coverage, issue policies and handle related functions on the insurer's behalf, within limits set by a written agreement and state law.
A named insured is a person or organization specifically identified by name on the policy as an insured. The first named insured typically holds extra rights and duties, such as paying premium, receiving cancellation notices, and receiving return premium.
A non-admitted carrier is an insurer that is not licensed in a given state but is allowed to write coverage there through a licensed surplus lines broker. Policyholders are generally not protected by that state's insurance guaranty fund.
An occurrence policy covers bodily injury, property damage or other covered loss that takes place during the policy period, regardless of when the claim is later made, so coverage generally does not depend on reporting the claim before the policy expires. Compare Claims-Made Policy.
A peril is a specific cause of loss, such as fire, windstorm, theft or collision, that an insurance policy covers or excludes. Policies either list the covered perils (named perils) or cover all causes except those excluded (open perils).
A policy period is the span between a policy's stated inception and expiration dates, during which coverage applies. It is typically twelve months, and how it operates depends on whether the policy is written on an occurrence or claims-made basis.
A premium is the amount an insurer charges for the coverage described in a policy. It is typically paid in full or in installments, and it is separate from the deductible or retention, which the insured bears when a claim occurs.
Primary and non-contributory is policy wording, often added by endorsement, that makes your liability insurance respond first for another party, usually an additional insured, and bars your insurer from seeking contribution from that party's own insurance. Contracts commonly require it.
Prior acts coverage is a feature of a claims-made policy that covers claims first made during the policy period for wrongful acts that happened before it began, back to the retroactive date or, with full prior acts, without any retroactive date.
Product liability is the legal responsibility a manufacturer, distributor or seller can face when a defective product injures someone or damages property. Product liability insurance is the coverage that may pay defense costs and covered damages from such claims, subject to the policy's terms.
Professional liability insurance covers a business or professional against claims that its services or advice caused a client a financial loss through error, omission or negligence. It is often called errors and omissions (E&O) insurance and typically excludes bodily injury and property damage.
Property insurance is first-party coverage for the insured's own buildings, equipment, inventory, and other physical assets against direct physical loss or damage from covered causes, such as fire or windstorm. What is covered depends on the causes-of-loss form and its exclusions.
Ransomware coverage is protection, usually part of a cyber liability policy, for costs after a ransomware attack, such as incident response, negotiation, extortion payments where legally permitted, data restoration and business interruption, subject to limits and exclusions.
Reinsurance is insurance that insurers buy from other insurers, called reinsurers, so that the reinsurer agrees to pay part of the primary insurer's losses. It lets carriers spread risk, protect capital, and write larger limits than they could retain alone.
Replacement cost is a valuation basis under which a property policy pays to repair or replace damaged property with new property of like kind and quality, without subtracting depreciation. Compare Actual Cash Value. Compare Actual Cash Value.
Representations and warranties (R&W) insurance is a transactional policy, most often bought by the buyer in an M&A deal, that pays covered losses from breaches of the seller's representations and warranties in the purchase agreement, subject to a retention, limit and exclusions.
A reservation of rights is a written notice from an insurer telling the policyholder that it is investigating or defending a claim but may later deny coverage, or cover only part of it, based on policy terms or facts still being determined.
A retention, or self-insured retention (SIR), is the amount of loss the insured pays before the insurer's obligation begins. Unlike a typical deductible, an SIR is usually paid directly by the insured and generally does not reduce the policy limit.
A retroactive date is a provision in many claims-made policies that excludes coverage for claims arising from wrongful acts that happened before a specified date, even if the claim is first made during the policy period.
Run-off has two common insurance meanings: an insurer that has stopped writing new policies while handling claims on existing ones, and run-off cover, often called tail, that protects directors and officers against claims about past acts after a sale, merger, or wind-down.
Severability, or separation of insureds, is a policy provision that treats coverage as applying separately to each insured, so one insured's conduct or misstatement generally does not defeat coverage for the others, though the policy limits remain shared.
Side A, B and C are the main insuring agreements of a D&O policy. Side A protects individuals when the company cannot indemnify them, Side B reimburses the company when it does, and Side C covers the entity itself, often for securities claims.
Social engineering fraud is a scheme in which criminals deceive an employee into voluntarily sending money or other property, typically by impersonating a vendor, executive or client. Coverage is usually added by endorsement to a crime or cyber policy and carries a sublimit.
A soft market is the phase of the insurance cycle in which competition and abundant capacity push premiums down and make coverage terms broader and easier to obtain. It is the opposite of a hard market.
A sublimit is a cap within an insurance policy on the amount payable for a specific type of loss or coverage. It is part of, not in addition to, the overall policy limit, so it can only reduce what is available.
Subrogation is the insurer's right, after paying a covered loss, to step into the insured's shoes and recover that payment from the party legally responsible for it. The right comes from the policy or the law, and the insured must not impair it.
A surety bond is a three-party agreement in which a surety guarantees that a principal will fulfill an obligation to an obligee, such as completing a contract or complying with a license requirement. If the principal defaults, the surety may pay, then seek reimbursement.
Tail coverage is an extended reporting period added to a claims-made policy, giving extra time after it ends to report claims from acts that occurred earlier. It extends the reporting window, not the period in which new wrongful acts are covered.
Technology errors and omissions (Tech E&O) insurance covers technology companies against third-party claims that their software, platform, hardware or services failed or did not perform as promised, causing a customer financial loss, including defense costs and covered settlements.
Third-party coverage is liability insurance that protects the insured against claims brought by other people or businesses alleging injury or harm, such as customers or vendors. It contrasts with first-party coverage, which pays for the insured's own losses.
Umbrella insurance is a liability policy that provides additional limits above underlying policies, such as general liability, auto and employers liability, once those limits are exhausted. Some umbrellas also cover certain claims the underlying policies do not, depending on their wording.
Underwriting is the process an insurer uses to evaluate a risk, decide whether to accept it, and determine how much coverage to offer and at what price. Underwriters review application information, loss history, and exposures before quoting terms.
A waiver of subrogation is a provision, usually added by endorsement and often required by contract, in which the insurer gives up its right to recover a covered loss payment from a specified party who may have caused the loss.
A wholesale broker is an insurance intermediary that works between a retail broker and an insurer, typically without dealing with the insured directly, and gives retail brokers access to specialty, excess and surplus lines and other hard-to-place markets.
Workers' compensation is a state-regulated insurance system that pays medical care, rehabilitation and partial lost wages to employees injured or made ill by their jobs, generally without proving fault, in exchange for limiting the employee's right to sue the employer.
A wrongful act is the actual or alleged error, omission, misstatement, or breach of duty that triggers coverage under a management or professional liability policy. The exact definition is written into each policy and varies by coverage type.
Common questions
What is Directors and Officers (D&O) Liability?
Coverage protecting directors, officers, and the company against claims alleging wrongful acts in managing the business. See D&O.
What is Claims-Made Policy?
A policy that responds only to claims first made and reported while the policy (or its extended reporting period) is active, regardless of when the act occurred. Compare Occurrence Policy.
What is Extended Reporting Period (ERP)?
An add-on to a claims-made policy allowing claims to be reported for a set time after it ends. Also called tail or run-off coverage. See tail coverage explained.
What is Cyber Liability Insurance?
Coverage for data breaches, ransomware, network failures, and the related regulatory and liability costs. See Cyber / Tech E&O.
What is Errors and Omissions (E&O)?
Professional liability coverage for claims that a company's services, advice, or work caused a client financial harm. See Errors & Omissions.
What is Additional Insured?
A person or organization added to another party's policy so they are covered for liability arising from that party's work or products. Common in vendor and enterprise contracts.
What is Employment Practices Liability (EPL)?
Coverage for claims of wrongful termination, discrimination, harassment, and retaliation. See EPL.
What is Occurrence Policy?
A policy that covers events that happen during the policy period, whenever the claim is later made. Compare Claims-Made Policy.
What is AI Liability Insurance?
Coverage for claims arising from artificial intelligence products and decisions, including model errors, hallucinations, algorithmic bias, and regulatory actions. See AI Liability.
What is Waiver of Subrogation?
A provision, often required by contract, in which the insured and insurer give up the right to recover from a specified party after a loss.
Definitions only go so far. Our brokers translate these terms into a program built for how your company actually operates, and read every policy for the exclusions that matter.