Glossary | BrownfieldsInsurance.org

Accident

An unexpected event that happens by chance and is not expected in the normal course of events.

Act of God

A sudden and violent act of nature that could not have been foreseen or prevented (e.g., flood, earthquake).

Additional Insured

An individual or entity that is not automatically included as an insured under the policy of another, but for whom the named insured's policy provides a certain degree of protection. The named insured's impetus for providing additional insured status to others may be a desire to protect the other party because of a close relationship with that party (e.g., redevelopment authority serving as an intermediary during the cleanup and redevelopment process) or to comply with a contractual agreement requiring the named insured to do so (e.g., customers or owners of property leased by the named insured). In most cases, additional insureds are protected only when a claim filed against them also is filed against the named insured.

Admitted Policy

An insurance policy that is written and issued in a specific locale, by an insurer authorized to transact business under the confines of the local insurance laws.

Aggregate Limits

Indicates the amount of coverage that the insured has under the insurance policy for a specific period of time, usually the contract period, no matter how many separate accidents may occur. Once the aggregate limit has been reached, no more damages can be allocated to that policy. For example, a property covered under a policy with a $1 million limit per occurrence and a $2 million aggregate limit will have coverage for up to $1 million per occurrence or incident, and coverage for up to $2 million in total damages under the policy. Thus, if a policyholder had three claims in a year for $750,000 each, the insurance will cover the first $2 million dollars, at which point the $2 million aggregate will have been reached, and the remaining $250,000 will not be covered by the policy.

Amendment

A formal document revising the provisions of an insurance policy.

As-Is

A risk allocation tool used in property transactions that involves an express statement that the seller makes no representations or warranties about the condition of the property. It is intended to preclude buyer from recovering damages from seller for known or unknown conditions at time of sale. Also, it is intended to assist enforceability. Specific environmental conditions, including latent defects, should be disclosed to buyer and indemnification should expressly state that the property transfer includes all risks associated with listed federal and state environmental laws.

Assumed Liability

Liability that would not rest upon a person except that he has accepted responsibility by contract, expressed, or implied (a.k.a., a contractual liability).

Assumption, Retention, and Releases Provisions

A risk allocation tool used in property transactions wherein the buyer accepts or seller retains, responsibility for known or unknown environmental conditions and releases the other party from liability for current and future claims arising from the specified conditions.

Attachment Point

Monetary level of expenditures that must be exhausted before payment from an insurance policy begins.

Bodily Injury

Bodily injury, sickness, disease, mental anguish injury, shock, or building-related illness sustained by any person, including death resulting therefrom, caused by pollution conditions.

Bodily Injury Liability Insurance

This coverage protects an insured against legal liability for injury to another person arising from pollution conditions or an accident.

Broker

An independent person or firm who acts on behalf of the insured in placing business with the insurance company. Typically, a broker's compensation is on a commission basis.

Brownfields

With certain legal exclusions and additions, the term "brownfield site" means real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.

Brownfields Act of 2002

The Small Business Liability Relief and Brownfields Revitalization Act (H.R. 2869) (Brownfields Act of 2002) was signed by the President on January 11, 2002. The intent of the act is "to provide certain relief for small businesses from liability under the Comprehension Environmental Response, Compensation, and Liability Act (CERCLA) of 1980, and to amend such Act to promote the cleanup and reuse of brownfields, to provide financial assistance for brownfields revitalization, to enhance State response programs, and for other purposes." Under the law, the purchase of environmental insurance is an eligible activity for grantees.

Business Interruption

Business expenses and loss of income resulting from fire or other insured peril.

Cancellation

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

Captive Insurer

A bona fide insurance or reinsurance company that is established and owned by a parent company or group of companies (who are non-insurance companies) to insure their own risks. Captive insurance is a form of self-insurance.

Carrier

The insurance company or the one who agrees to pay the losses. The carrier may be organized as a stock or mutual company, a reciprocal exchange, an association of underwriters, or a state fund.

Claim (on a policyholder)

The assertion of a legal right alleging liability or responsibility on the part of the insured, arising out of pollution conditions (e.g., lawsuits, regulatory actions).

Claim (on an insurer)

A request for payment for a loss that may come under the terms of an insurance contract. There are two types of claims: first party and third party.

Claims Made Based Coverage

The trigger of coverage is a claim being made and reported during the policy period; therefore, insurance coverage is applicable only if the insured files a claim with the insurer during the period expressed in the policy.

Clause

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

Co-insurance

Co-participation that involves the payment by the insured of a predetermined proportion of all costs above the amount at which the insurance begins to pay.

Comprehensive General Liability (CGL) Insurance

This policy provides broad protection against situations in which a business must defend itself against lawsuits or pay damages for bodily injury or property damage from third party claims. CGL contracts are enforced and interpreted based on state law. CGL insurance has become more restrictive over time; therefore, it rarely covers environmental liabilities.

Conditions

Provisions of an insurance policy that state the rights and duties of the insured and insurer.

Covenants

A risk allocation tool used in property transactions which may involve a promise or agreement by seller or buyer to do, or refrain from doing, an act. For example, a covenant may allocate responsibility for tasks, particularly elements of the cleanup, transferring permits, continued operations of assets, and compliance with environmental laws.

Coverage

The scope of the protection provided under a contract of an insurance policy.

De Minimis

This is a Latin phrase which means "the law does not care about very small matters." In other words, the issue of concern is unlikely to have substantial impact, is immaterial, or is insignificant.

Declarations

A term used in insurance for the portion of the contract (a.k.a., Dec Sheet or Dec Page) that contains information such as the name and address of the insured, the property insured, its location and description, the policy period, the amount of insurance coverage, applicable premiums, and supplemental representations by the insured.

Deductible

A threshold on a policy basis that the insured must pay for damages (i.e., insured loss) before an insurer will provide coverage. In other words, whether the policy covers one year or 10 years, the deductible applies to the entire policy period; therefore, a deductible needs only to be met once during that policy period, not on an annual basis (unless otherwise stipulated in the insurance policy).

Defense Clause

A provision in a casualty insurance policy that provides additional coverage for defense costs.

Defense Costs

Legal costs, charges, and expenses incurred in the investigation, defense, or the adjustment of a claim.

Defined Excluded Liabilities

A risk allocation tool used in property transactions that identifies and allocates between seller and buyer particular risks associated with the business and some or all of the assets and liabilities and specifies whether they are included in or excluded from the risks allocated in the transaction.

Due Diligence

Due Diligence is a term of art in the business community that refers to the combination of procedures and investigation undertaken before a business transaction (e.g., acquisition of real property or granting a loan in order to assess potential liabilities and problems). In particular, information is gathered to gauge the level of environmental risks associated with the proposed transaction so that parties may mitigate or allocate such risks, as well as qualify for any special liability relief available (e.g., innocent landowner defense, secured creditor protection). In order to qualify for any special liability relief, a party must often meet a test called "all appropriate inquiry," which is a standard that is normally consistent with good commercial practices that a person exercises for his own protection.

Effective Date

The date on which an insurance policy goes into effect.

Endorsement

An addition, not a part of the original contract, which cites certain terms and which becomes a legal part of that insurance contract. Typically, it is an amendment to the policy used to add or delete coverage. It is also referred to as a "rider."

Entity

Property owners, property purchasers, developers, investors, municipalities, and other groups that may have a financial stake in a property and/or insurance policy.

Environmental Impairment Liability (EIL) Policies

Insurance policies introduced in the early 1990s designed to cover environmental liabilities. Due to high premiums and limited coverage, EIL policies were soon discontinued.

Excess Limits Coverage

Provides coverage against losses in excess of a specified dollar limit or attachment point.

Expiration Date

The date (often shown on the Declarations Page of the policy) when coverage will stop. It may be a specific date or a statement that coverage is continuous until cancelled.

Exposure

Degree of hazard threatening a risk because of physical conditions (external or internal). In the insurance field, this term may have several meanings: 1) possibility of loss; 2) possibility of a loss to a risk caused by its surroundings; or 3) extent of risk (e.g., one car insured for one year).

Extended Reporting Period

Lengthens the period in which a claim may be made against the insured and reported to the insurer, however claims must arise out of pollution conditions that commenced prior to the end of the policy period.

First Party Claim

A claim made by the policyholder for reimbursement by his or her insurance company.

Hazard

A specific situation that increases the probability of the occurrence of loss arising from a peril, or that may influence the extent of the loss. For example, accident, sickness, fire, flood, liability, burglary, and explosion are perils. Slippery floors, unsanitary conditions, shingled roofs, congested traffic, unguarded premises, and uninspected boilers are also hazards.

Indemnification

A risk allocation tool used in property transactions which typically involves an agreement that provides for one party to bear the costs, either directly or by reimbursement, for damages or losses incurred by a second party. Typical costs may include costs of investigations and cleanup actions, third party personal injury claims, etc.

Indemnify

To restore the victim of a loss, in whole or in part, by payment, repair, or replacement.

Indemnity

In general, means the reimbursement for a loss, but also can be used to mean a benefit provided by a policy.

Indirect Loss (or Damage)

Loss resulting from a peril but not caused directly and immediately thereby. For example, loss of property due to fire is a direct loss, while the loss of rental income as the result of the fire would be an indirect loss.

Insurability

Acceptability of an applicant for insurance by an insurance company.

Insurance Archeology

The reconstruction of an organization's insurance policy history (e.g., CGL policies) for the purpose of filing claims based on those policies.

Insurance Policy

Legal document issued to the insured setting out the terms of the contract of insurance in order to transfer the risks from insured to insurer.

Insured

The person or persons (a.k.a., the policyholder(s)) whose risk of financial loss from a peril covered by the insurance policy is protected by an insurance policy.

Insurer

The insurance company offering insurance coverage.

Known Conditions

Conditions existing (e.g., on a property) prior to the inception of an insurance policy.

Legal Defense Costs

See Defense Costs

Liability

Broadly, this is any legally enforceable obligation to another party (e.g., legal responsibility, duty, or obligation). This liability may arise from contracts either expressed or implied or in consequence of torts committed.

Liability Limits

The sum or sums beyond which an insurance company does not protect the insured on a particular policy (i.e., the maximum amount a policy will pay).

Litigation

The process of a lawsuit.

Loss

An occurrence that is the basis for submission and/or payment of a claim. Losses can be covered, limited, or excluded from coverage, depending on the terms of the policy.

Manuscript

To individually tailor policies to suit each insured. Unlike "boilerplate" policies for vehicle or workers' compensation coverage, environmental insurance policies are generally always manuscripted.

Moral hazard

1) Relates to an increased probability of a loss through moral lapse of the owner (e.g., an insured previously convicted of arson, "Burn down the house to collect the insurance."). 2) Relates to an increased probability of a loss arising from an apathetic insured or an insured who is indifferent to loss because of the existence of insurance to cover the loss (e.g., "Let it burn because it is insured", failure to repair faulty wiring which is considered more expensive than insurance premiums to cover the risk).

Named Insured

The person (or persons) in whose names the insurance policy is issued.

Negligence

Failure to use the degree of care which an ordinary person of reasonable prudence would use under the given circumstances.

Non-Admitted Policy

An insurance policy that does not require the insurer to transact business under the confines of local insurance laws, allowing the insurer greater flexibility in the design of the policy and the coverage.

Occurrence

An event that results in an insured loss.

Occurrence Based Coverage

The trigger of insurance coverage is the occurrence, not the claim; therefore, the claim can be made anytime during or after the policy period.

Owned Property

Property that is owned or leased by the insured.

Personal Property

Any property of an insured other than real property (i.e., land and any structures or minerals associated with the land).

Policy

See Insurance Policy

Policy Period (or Term)

The period during which the policy contract provides protection (e.g., six months or one or three years).

Policyholder

See Insured

Pooled Insurance

An insurance pool refers to a group of organizations that insures certain risks, sharing premiums, losses, and expenses among themselves. Generally, "pooling" is used when a single entity does not have significant enough liabilities or resources to attain insurance and/or is not large enough to self-insure.

Portfolio

Refers to insurance coverages for a combined set of sites, whether or not there is more than one insured organization.

Post-Signing and Pre-Closing Conditions

A risk allocation tool used in property transactions which involves the requirement that some act be performed by a party to an agreement before closing the transaction. It establishes certain conditions that must be met, typically by the seller, prior to closing, and it may allow a party to "back out" of deal or adjust purchase price or other terms, if conditions not met

Premises

The particular location of property or a portion thereof as designated in a policy.

Premium

The amount of money charged a policyholder for an insurance policy.

Product Liability Insurance

Provides protection against financial loss arising out of the legal liability incurred by a manufacturer, merchant, or distributor because of injury or damage resulting from the use of a covered product.

Property Damage

This can have a number of meanings: 1) physical injury to or destruction of tangible property, including the personal property of third parties; 2) loss of use of such property that has not been physically injured or destroyed; or 3) diminished third party property value provided that such physical injury or destruction and/or loss of use are caused by pollution conditions.

Property Insurance

Property insurance indemnifies an insured whose property is stolen, damaged, or destroyed by a covered peril.

Protection

Term used interchangeably with the word "coverage" to denote the insurance provided under the terms of a policy.

Quote

An estimate of the cost of insurance supplied by the insurance company.

Rate

The per unit cost of insurance. See Premium

Reinsurance

A procedure by which an insurance company insures its risks (e.g., those liabilities associated with its policyholders) with another insurance company. It is an arrangement by which one insurer transfers all or a portion of its risk under a policy or group of policies to another insurer or reinsurers. Thus, reinsurance is insurance purchased by an insurance company from another insurer to reduce risk for the original insurer.

Remediation Expense

Expenses incurred for or in connection with the investigation, monitoring, removal, disposal, treatment, or neutralization of pollution conditions, including replacement costs. Often, to be covered under insurance, such activities would need to be required by: 1) federal, state, local or provincial laws, regulations or statutes, or any subsequent amendments thereof, enacted to address pollution conditions; 2) a legally executed state voluntary program governing the cleanup of pollution conditions; or 3) determination or settlement of a lawsuit.

Re-opener Coverage

Coverage that insures for the costs of additional remediation ordered by environmental regulators or compelled by law after a cleanup has been completed and a state agency has provided an assurance such as a "No Further Action" letter.

Replacement Cost

May include: 1) the cost of replacing property without deduction for depreciation; and/or 2) costs necessarily incurred by the insured to repair or replace real or personal property damaged during the course of remediation expense in order to restore the property to the condition it was in prior to remediation expense. Within the insurance field, it is often required that these costs shall not exceed the net present value of such property prior to the investigation, removal, disposal, treatment, or neutralization of pollution conditions.

Representations and Warranties

A risk allocation tool used in property transactions which involves statements of fact (representations) and promises (warranties) that a seller makes to a buyer. Typically provided by seller to disclose environmental risks associated with acquisition of business or some or all of its assets.

Rider

See Endorsement

Risk

A chance of loss with respect to person, liability, or the property of the insured.

Risk Management

Management of the pure risks to which a company might be subject. Typically, it involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through such practices as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, often by insurance.

Self-Insurance

A form of risk financing through which an entity assumes all or a part of its own losses. Self insurers may purchase insurance to cover excess losses.

Self-Insured Retention (SIR)

Threshold(s) on an annual basis that must be met before coverage will be applied.

Surrogation

The right of an insurance company to step into the role of the party whom they compensate and sue any party whom the compensated party could have sued.

Term

A period of time for which a policy is issued.

Third Party

A party that is not a party to the insurance policy. Parties to the policy are typically the insurer and the insured. Third parties may include private parties and government entities enforcing regulations. A claim (e.g., a lawsuit) by an entity against a policyholder of another company and the payment, if any, will be made by the policyholder's company or insurance policy.

Third Party Insura

Glossary of Environmental Insurance Terms