Arson

The act of setting property alight deliberately for a gain or other malicious purpose.

For example, an insured may burn his property in order to claim his insurance, or a disgruntled employee may set his employer’s property alight out of sheer malice.

Assessor

A person appointed by an Insurer to investigate and report on the circumstances of a loss and to recommend the manner in which a claim should be settled or negotiated in terms of the relevant  policy.

Average

When a policy is said to be “subject to average” it will contain a Condition of Average which will stipulate that if, at any time of a loss, the property is insured for less than its true value the Insurer will only pay a ratable proportion of the loss and the Insured will therefore, have to bear the remaining portion himself, e.g

Value of property – USD 50,000  Insured for USD 30,000  Amount of loss USD 20000Amount Payable = Sum insured * Amount of loss/value of property

USD 30000 * USD 20000 = USD 12000

USD 50000

Average is applied for three main reasons:

(i) To avoid under-insurance

(ii) To obtain a full premium

(iii) To ensure that everyone bears a fair share of any loss

Betterment

If settlement of a claim for loss or damage to property would result in the Insured being in a better position than he was in before the event occurred, the extent of the improvement is termed “Betterment and he would be expected to take this factor into consideration when formulating his claim.

Looked at another way, Betterment is the extent by which the Insured’s position would improve if there is any measure of depreciation and if this is not taken into account.

For example, if a worn carpet is damaged by an Insured peril the Insured would be better off if he were to receive a new one on its place, or the cost of a new one.

Therefore, if the insurer were to elect or replace the carpet the Insured could be asked to make a contribution for “Betterment”. If, however, the Insurer were to elect to pay the Insured the amount of his loss this amount would probably be the cost of a new carpet less a deduction for “Depreciation”. Either way the Insured’s contribution should be the same (see DEPRECIATION)

Bill of Lading

A detailed receipt given to the shipper or consignor by the Master of a ship for goods taken on board

A bill of Lading is evidence that goods described therein have been loaded and, unless endorsed to the contrary, that such goods were outwardly in sound condition at the time of loading. It also serves as evidence of the existence of a contract for the carriage of the goods by sea and for delivery of such goods against surrender of the documents.

Blanket Cover

The allocation of a single sum insured to property at two or more situations instead of having a separate figure applicable to each situation.

The following is a conventional method of specifying sums insured:

SUM INSURED

Building      Plan & Machinery    Other Contents

1) Situation A 500 000                200 000                     300 000

2) Situation B 300 000                150 000                     200 000

3) Situation C 200 000                  50 000                     100 000

Total               1000000                  400 000             600000

If blanket cover is effected the specification would read:

(i) On all buildings at Situations A, B & C USD  1 000 000

(ii) On all Plant & Machinery at situations A, B & C USD 600000

(iii) On all Plant & Machinery at Situations A, B & C USD 600 000

This method reduces the number of Sum Insured items from nine to three and provided the overall sum insured by each item is adequate the Insured avoids the danger of under-insurance at any one situation.

Blanket cover is usually restricted to cover involving large sums insured and the previous is Spontaneous Combustion

Usually calculated on the average of the rates applicable to each situation.

Boiler Explosion see Engineering Insurance

Bond See Guarantee Business

Bonded property See Mortgagee

Bonded Warehouse See Approved Warehouse

Broker

Almost invariably an insurance broker is an agent of the Insured. He advises the Insured on the extent and nature of the cover he requires and acts for him in obtaining the best cover available. He is remunerated (brokerage) by the Insurer.

The important difference between an insurance broker and an insurance agent is that the broker acts for the insured who is entitled to rely on his specialized knowledge. The broker is liable to his client for mistakes and errors in giving professional advice. An agent, on the other hand, usually acts for the Insurer and whilst many agents are well versed in insurance matters the insurance cannot necessarily rely on this fact (see COMMISSION).

Burglary

This word is not recognized in South Africa Law where the term HOUSEBREAKING is used. However it is used in the insurance world to denote a particular class of Accident Insurance.

Business Interruption Insurance See Loss of Profits

Cancellation Condition

This gives the Insurer the right to terminate a contract mid-term subject to a specified period of notice being given and to a proportionate return of premium. Usually it also gives the Insured the right to cancel but in that event he does not necessarily get a pro rata return of premium.

Capacity

The maximum extent to which an Insurer is able to participate in an Insurance transaction. If, for example the required sum insured is USD 2000 000 and an Insurer is unable or unwilling to accept responsibility for more than USD 500 000 this latter figure is said to be its capacity. The balance would have to be insured with other Insurers (see RETENTION).

C.A.R. See CONTRACTORS ALL RISKS.

Cession

(i) Written record of an Insured having ceded the whole or part of his interest in a policy to some other party.  That party becomes a party to the contract as soon as the cession is recorded by the Insurer.

An example of this is when the Insured borrows money and pledges his property as security for the loan. The party lending the money will require the borrower’s interest in the policy

Covering the pledged property to be ceded to him.

a. A documentary entry transferring a portion of a risk from an Original Insurer to a

Reinsurer

C.I.F see COST INSURANCE & FREIGHT.

Civil Commotion See RIOT

Claim

A formal  application by the Insured to his Insurer for payment or compensation arising out of loss, injury or liability which has incurred caused by an event against which he insured.

Co-Insure

An Insurer who shares the insurance of a particular risk with other Insurers, each actingas a direct underwriter. This arrangement may be effected by each Insurer issuing its own policy for its own proportion or,as is more often the case, by participating in a COLLECTIVE POLICY (which see)

Collective Policy

When a risk is directly underwritten by two or more Insurers this is usually effected by means of a Collective Policy

One of the Insurers is nominated as the leading Office (usually the Insurer having the largest share) and that Insurer issues a policy on behalf of all the participatinginsurers. Each Insurer is named in the policy and its proportionate interest is recorded.

The Leading Office negotiates claims and policy amendments, but only after all the offices have agreed.

Commission

The remuneration by an Insurer to an Agent or a Broker (when it is usually called BROKERAGE). This is usually expressed as a percentage of the premium charged.

Common Law

An unwritten system of Law encompassing a heritage of customary rules andprinciples recognized by the community as binding and as being consistent with publicpolicy and the basic concepts of justice.

To a large extent Common Law is based on the principle that previous court decisions provided precedents to be followed in subsequent cases of a similar nature. As theattitude of the community changes over the years so precedents are overruled andnew ones created by the judiciary.

An entirely different system is STATUTORY LAW, which is the written law of the landestablished by the legislative body (parliament) and incorporated in formaldocuments known as Acts or STATUTES.

Common Law liability insurance See EMPLOYERS LIABILITY

Comprehensive policy See MOTOR INSURANCE

Compulsory Third Party Insurance See M.V.A

Concealment

Deliberate non-disclosure of a material fact (see NON-DISCLOSURE &MATERIAL FACT)

Conditions

Policy conditions comprise a set of terms which:

(i)Specify those things which must be done or which must not be done by the Insured either before or after the happening of event insured against;

(ii)Define the rights of the Insured and Insurer in certain circumstances, and

(iii)Generally draw attention to the law in relation to the basic principles of insurance

Consequential Loss

A loss which arises in consequences of or in addition to a loss which is covered by a particular policy. For example a Fire Policy will cover damage to buildings and contents caused by a Fire Policy but will not cover consequential expenses incurred in hiring a temporary vehicle. Someconsequential losses can be specifically insured, e.g. by means of a LOSS OF PROFITS policy (which see).

Containerization

A means by which goods are transported within large uniform units called containers by different modes of transport.

These containers are reusable and are constructed to international specifications. To a rapidly increasing extent ships,cranes,port facilities and trucks are being specifically designed to carry or store them.

Contents

This usually refers to moveable property contained in a building.

Stock would fall under the generic heading of Contents, as would Furniture. Machinery and plant, or Household Goods,                                                       some policies merely refer to “All Contents” which would embrace all moveable property.

The terms “Building Insurers” and “Content Insurers” are often used and premium rating on a building sometimes differs from that on the contents.

Contractor’s All Risks Insurance (CAR)

Insurance of contract work including contractors’ plant and equipment against accidental loss or damage.

This is a specialized field embracing as it does a wide variety of contracts ranging from erection of buildings to roads and railroad construction and the building of bridges,tunnels and dams. The most important exception is damage due to faulty design.

Cover Note

Contract Guarantees

There are two types of contract guarantees:

(i) Builders’ Contract Guarantees, which are furnished by builders and other contractors guaranteeing completion of a contract within a specified time in accordance with the term of the contract;

(ii) Supply contract Guarantees furnished by persons or firms who contract to supply goods in certain quantities or within certain period.

These are known as performance Bonds and in both instances they must be backed by an approved surety, such as an Insurer (See GUARANTEE BUSINESS).

Contribution

A contribution condition provides that if, at the time of loss of damage, there is any other insurance in force effected by or on behalf of the Insured and covering him against such loss or damage or any part of it, the Insurer shall not be liable for more than its ratable proportion of such loss or damage;e.g.:

Value of property                                USD 100 000

Insured with Company A for   USD 60 000

Insured with Company B for            USD 40 000

Amount of Loss                    USD 10 000

Company A liable for          USD 6 000

Company b Liable for         USD 4 000

Contributory Negligence

A Common Law defense in an action for damages is that the Plaintiff(the person claiming damage) contributed towards the injury of damage by himself committing some negligent act.

For example, two cars collide at an open intersection. If A sues B for damages B is certain to reply inter alia, that there was contributory be negligence on the part of A whose claim must therefore be reduced by the degree to which he was negligent(See NEGLIGENCE).

Counter Indemnity

Before agreeing to sign a Bond as Surety an Insurer will often demand some form of counter protection which will provide compensation in the event of it (the Insurer) being called upon to honor the undertaking.

This may be provided by the principal in the form of a deposit of some security such as title deeds to property or share certificates or by some third party to the contract by way of a Counter Indemnity.

The third party would usually be a person or firm whose financial standing has been investigated by the Insurer.  The Counter Indemnity would be in the form of an undertaking to indemnify the Insurer (surety) against any loss which it may sustain as the result of failure by the Principal to honor his obligations(see GUARANTEE BUSINESS)

Court Bond See GUARANTEE BUSINESS).

A formal acknowledgement by an Insurer that a proposer for insurance is being held covered.

This is usually issued pending receipt of a proposal form or further particulars or pending issue of a policy.

Customs and Excise Bonds

Customs Duty is a tax or levy which is payable on arrival of most goods imported into the country.

Excise Duty is a tax or levy which is imposed on certain articles which are manufactured locally such as Beer,Wine,Spirits and Tobacco.

Importers and certain manufacturers are required to furnish guarantees to the Department of Customs and Excise for payment of Duty and for the due observance of the regulations framed under relevant Acts. These guarantees must be backed by approved Sureties such as Insurers (see GUARANTEE BUSINESS).

Damages

A sum of money claimed or awarded for compensation for a loss or injury.

Declaration

(i) A statement at the foot of a proposal form which is signed by the Proposer and by which he warrants the truth of the answers he has given, declares that he has not suppressed or misrepresented any material fact, and agrees that the proposal together with the Declaration shall be the basis of the contract.

(ii) A statement rendered to an Insurer by the insured giving any details which may be required to enable the Insurer to adjust the premium on a policy when the initial premium was a provisional one, or to raise premium was a provisional one, or to raise a premium when no initial premium was charged (see DECLARATION POLICY and OPEN POLICY).

Declaration Policy/Conditions

In many instances the initial premium on a policy is a provisional one based on an estimate of Value or Wages or Turnover or Output,etc. This provisional or deposit premium is subject to adjustment at the end of a stated period when the actual value,etc. is known.

Such policy would be made subject to “Declaration Conditions” which set out the manner in which the Insured is to “Declare” the required information and how the premium is to be adjusted.

Deductible

An agreed amount which must be borne by the Insured for his own account when loss occurs. This amount may be imposed by Insurers as the result of adverse loss experience and such imposition may either be an alternative to or in conjunction with an increase in the premium.

It may also be a form of self-insurance accepted by the Insured with a view to obtaining a reduction in premium or to avoiding an increase in premium. When the amount is not deducted from each and every loss but from the total of all losses over a specified period it is known as an AGGREGATE DEDUCTIBLE.

There is no difference between a DEDUCTIBLE and an EXCESS but the former term is often preferred where very large amounts are involved.

Depreciation

The extent to which something has diminished in value due to age, wear and tear,market conditions,etc.(see BETTERMENT).

Disclosure

An Insured must disclose to his Insurer all material information concerning the subject matter of the insurance.  Failure to disclose such information (or NONDIS CLOSURE)gives the Insurer the right to declare the contract void (see MATERIAL FACT)

Due Date

The expiry date of a policy when it may then become due for renewal

Electricity Supply Bond

Guarantees furnished to Local Authorities or Electricity Supply Commission by large consumers of electricity guaranteeing payment of monthly accounts. These must be backed by approved sureties such as Insurers (see GUARANTEE BUSINESS)

E.M.L (Estimated Maximum Loss)

Also referred to as M.P. L (Maximum Probable loss), it is an estimate of the maximum amount of loss or damage which is likely to result from the happening of an insured event. This information is of vital importance to an Underwriter as it enables him to decide on the amount of insurance the Insurer should retain for its own account and the amount which it should reinsure. The ability to estimate this with any degree of accuracy is one of the hallmarks of a good Underwriter and it is acquired from a combination of sound technical knowledge and considerable experience.

Employer’s Liability Insurance

Also known as COMMON LAW LIABILITY (C.L.L) this insurance indemnifies an Employer against his legal liability to his employees arising out of occupational injury.

An injured employee who falls within the definition of ‘workman" in the “workmen’s Compensation Act is debarred from taking action against his employer at Common Law but all other employees have that right.

Endorsement

An insurance contract can be amended either by cancelling the policy and issuing a new one for the remaining period or, more simply, by means of an Endorsement. This is a supplementary document which forms part of the policy.

Engineering Insurance

A specialized branch of short term insurance dealing with insurance of plant, machinery ,boilers and pressure vessels whilst in use, in transit, or whilst in the course of dismantling,erection or testing.

Boiler and Pressure Vessel policies cover specified apparatus as well as other property belonging to the insured against damage (other than damage which can be covered by a normal life policy) directly arising from explosion or collapse of the apparatus whilst it is in the ordinary course of working. They also indemnify the Insured against liability to third parties for personal injury or damage to property arising from such explosion or collapse.

Machinery Breakdown policies cover other specified plant and machinery against sudden and unforeseen damage. “Wear and Tear” is excluded. An important feature of both policies is the provision of a periodical inspection service carried out by experts who are often members of the Insurer’s technical staff.

Other forms of cover under this heading are for damage during the process of dismantling,transit, erection or testing and cover for consequential loss arising from events insured by the above policies.

Exceptions

That portion of the Operative Clause of a Policy which sets out what the Policy does not cover. For example, the Operative Clause of an All Risks Policy may state that the insured articles are covered against “loss or damage of any kind”. However, the “Exception" will state that loss or damage resulting from certain specified causes (such as Wear and Tear,etc.) is not covered.

It is of the utmost importance that policy exceptions are clearly understood both by the insurance official and the Insured.

Excess See DEDUCTIBLE  and FRANCHISE

Excise Bond See CUSTOMS and EXCISE

Ex Gratia

Literally" Act of grace” or more broadly “out of a desire to please, or out of a feeling of mercy or sympathy”.

This is a term used by an Insurer when a claim is met which, strictly speaking, does not fall within the scope of a policy or when the amount paid may be more that to which the Insured is entitled.

Ex Gratia payments are usually made to preserve a good relationship with an Insured or intermediary, or to avoid undue friction, or simply out of a genuine feeling of sympathy for the insured.

It is advisable that such payments are stated to be made" without prejudice” in order to avoid a precedent being created.

Insurance or Reinsurance contracts where the Insurer or Reinsurer has the option of accepting or rejecting each case as and when it is submitted.

Fidelity Guarantee Insurance See GUARANTEE BUSINESS.

Fire

In order to establish the happening of a fire within the meaning of a policy covering loss or damage b fire it must be shown that there was not fire, or damage caused by fermentation is not covered.

It must,however,be borne in mind that as long as it can be established that there was a fire, damage directly flowing from that fire would be covered. Thus, damage by water used to fight the fire, or damage by smoke, or damage caused in an attempt to salvage property or to prevent further loss would all constitute fire damage.

Fire, Collision and Overturning (F.C&O)

Transit cover restricted to loss of or damage to property in transit resulting from fire or from the carrying vehicle coming into collision with another object or overturning .Theft and other forms of accidental damage are not covered.

Fire Extinguishing Appliance (F.E.A)

Fire fighting installations an equipment which ,when installed in an approved manner will usually result in an insured allowing a discount off a fire insurance premium, e.g Sprinkler Installations, Hose reels, Portable Fire Extinguishers,etc.

First Loss Cover

A form of deliberate under-insurance whereby mutual agreement, the sum insured only represents a proportion of the “value at risk”, i.e of the full value of the property.

This type of contract is usually entered into when the probability of total loss or loss above a certain amount is remote, and it is frequently sought in Burglary Insurance. When and to what extent first loss cover should be effected depends largely on the nature and value of the commodity to be insured.

For example, in the case of storage of bulky machinery valued at USD 500 000 the owner may consider it highly unlikely that any burglary could result in a loss greater than say USD 50 000. He would accordingly seek first loss cover for USD 50 000 but would disclose the fact that the total value at risk is greater than that recorded in the policy the Insurer will only be liable to pay a proportionate amount of the loss,subject,of course, to a maximum of USD 50 000(see AVERAGE).

Flash point

The lowest temperature at which gases emitted from a combustible solid or liquid will ignite.

F.O.B See FREE ON BOARD

F.P.A See PARTICULAR AVERAGE

Franchise

A procedure which is usually adopted to eliminate small claims.

A loss for an amount equal to or less than the Franchise stated in the policy is not covered. A loss for an amount greater that the Franchise is covered in full. Thus it differs from an EXCESS which is deducted from all losses,e.g.

Franchise USD 100                  Excess USD 100

Loss USD 75      Policy pays             nil                                                  nil

Loss USD 101 Policy pays         USD 101                                       USD 1

Loss USD 1000:Policy pays       USD 1000                                     USD 900

Free on Board (FOB)

A contractor of sale where the seller is responsible for the goods and for all costs and expenses incurred up to the time that the goods are placed on board ship, at which stage responsibility passes to the buyer.

When goods are purchased FOB insurance cover arranged by the buyer would only commence when the goods are received on board.

When goods are railed instead of shipped the term FREE ON RAIL (F.O.R) is used.

General Average(G.A)

Like Particular Average this is a Marine term where the word “Average”means “Loss”.

The law of General Average goes back to the beginning of maritime trading and is based on the principle that if nay extraordinary measures have to be taken during a voyage in order to safeguard the ship or its cargo in time of peril then any loss suffered as the result of such measures should be contributed to proportionately by all interest parties participating in the voyage who have benefitted from such measures other than passengers and crew.

Any such measure which may be taken is known as a General average Act which is defined (York-Antwerp Rule A) as follows "There is a General Average Act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure”.

A Marine insurance policy reimburses the Insured for any contribution he may be called upon to make as the result of a General Average Act.

Example of General Average Acts were:

i) Running ashore in order to prevent sinking;

ii) Jettison(throwing overboard) of ships’ gear or cargo in order to lighten ship or to avoid serious damage to the ship or other cargo.

iii) Flooding a hold in order to extinguish a fire.

General Removal Bonds

These must be furnished to the Department of Customs and Excise by Shipping agents,warehousemen and merchants in respect of goods removed in bond from aship or store to another destination where such goods will be cleared by Customs.

The Bond guarantees that duty will be paid, and must be   backed by an approved surety such as an Insurer (see GUARANTEE BUSINESS).

Good Faith

It is a basic principle of insurance that a duty of the utmost good faith must exist between the parties to an insurance contract.

This means that on the one hand an Insurer must not deceive a proposer by misrepresenting or concealing the terms of the policy which it intends issuing. On the other hand a Proposer or an Insurer must not fail to disclose nor must he misrepresent to an Insurer material facts concerning himself or the subject matter of the contract. Latin terms which are frequently used are:

BONA FIDES (good faith)

UBERRIMA FIDES (utmost good faith)

UBERRIMAE FIDEI (of the utmost good faith)

Gross Negligence See NEGLIGENCE

Gross Retention See RETENTION

Guarantee Business

This may be defined as “any contract whereby, in return for a premium, an Insurer assumes an obligation to discharge the debts or other obligations of any person in the event of the failure of that person to do so”

In other words, Guarantee Business concerns contracts which provide protection to a party who stands to lose as the result of default by some other party. Such default may be the result of dishonesty, insolvency or even incompetence. The contact may be in the form of an Insurance Policy or in the form of a Guarantee or Bond which may be backed by an Insurer or any other approved Surety

It is important to understand the difference between a Policy and a Bond.

A Policy represents a contract of insurance between the Insured and the Insurer. In guarantee business it is known as a Fidelity (or Commercial Fidelity) Guarantee policy and is issued when an Employer seeks protection against defalcations by employees.

A Bond is not a contract of insurance but is a contract of guarantee or suretyship. It is completed by two parties, the one who acknowledges the existence of a debt or an obligation(the principal),and the other who stands surety and guarantees that the debt or obligation will be honored (the Guarantor or Surety). The Insurer assumes this latter role.

There are many types of Bonds and they can be classified under three broad headings: Court Bonds, Government Bonds and Private Bonds:

Court Bonds

These are irrevocable guarantees (backed by approved sureties) furnished to the Master of the Supreme court by persons appointed by him in terms of:

i) The Administration of Estates Act,which governs the administration of

a)Deceased estates, by Administrators and Executors

b) Estates of Mental Patients, by Curators Bonis

c) Estates of Minors and absent persons, by Tutors or Curators.

ii) The insolvency Act, which governs the administration of all insolvent estates (other than those of deceased persons and Companies registered under the Companies Act) by Curators Bonis, Provisional Trustees or Trustees.

iii) The Companies Act, which, inter alia, governs the liquidation or judicial management of limited liability companies by Liquidators or Judicial Managers

A) Government bonds

These are Guarantees furnished to certain Government and Local Government Departments and to Quasi Government undertakings by person or firms who deal with them.  Again they must be backed by approved sureties but unlike Court Bonds they are not irrevocable (except for Contract Guarantees).

There are many kinds of Government Bonds and the following is a lost of the more usual ones which are described in greater detail under individual headings:

Approved Warehouse Bonds

Auctioneers Bonds

Contract Guarantees

Customs and Excise Bonds

Electricity Supply guarantees

General Removal Bonds

Railway Ledger Bonds

B) Private Bonds

These are Guarantees furnished to Non-Government organizations and usually relate to Contract Guarantees for due payment of accounts.

Hazard

A condition which may create or increase the probability of a loss arising from given a peril.

When an Underwriter considers a risk in order to decide whether, or to what extent, to insure it he has to take two basic factors into account:

i)The physical Hazard, which is the physical or visible feature affecting the probability of loss, such as the construction or situation of a building, the presence or lack of adequate burglar protection, or the health of the insured.

ii) The Moral Hazard, which is often much more difficult to recognize as it embraces such factors as dishonesty,inefficiency,carelessness,bad housekeeping and a host of similar failings.

Generally speaking one can say that an Underwriter can usually contend with a physical hazard by premium loading, restrictive terms, insistence on protective devices or improved construction.  However, it is seldom that he is able to find an acceptable solution to an unsatisfactory Moral Hazard other than to decline the insurance (see PERIL and RISK).

Housebreaking

Forcible entry to premises with intent to commit a felony (see BURGLARY)

Household Goods

A wide term which is intended to embrace all domestic possessions which are usually to be found in a home, such as furniture, furnishings, electrical equipment, linen, crockery, cutlery, ornaments, musical instruments, clothing, jewellery, cameras, sporting equipment, etc.

Households' policy

A composite insurance covering the CONTENTS (Household Goods) of a dwelling or apartment against a wide variety of perils such as fire, explosion, storm, earthquake,riot,theft,etc. there are usually a number of extensions which provide cover for rent, personal accident, Householders’ Liability,etc.

Houseowners’ policy

A composite insurance covering the BUILDING S comprising a private dwelling against a variety of perils such as fire, explosion, storm, earthquake, riot, theft(of landlord’ fittings),etc, with extensions to cover Houseowners Liability loss of rent, breakage of glass and sanitary ware,etc.

Indemnity

Most policies include swimming pool and all domestic outbuildings in the definitions of a dwelling. Most short-terms insurances are contracts of indemnity in that the insurer undertakes,as far as possible, to indemnify the Insured, i.e,to put his back in the same financial position after an insured loss as he was in before the loss occurred. Under a non-indemnity contract the amount payable by an Insurer need not necessarily bear any relation to the financial loss suffered by the Insured. An example of this is a personal Accident Policy when the amount payable in the event of say, loss of a limb or temporary disablement is an agreed figure which is not necessarily related to the amount of the Insured’s loss.

Indemnity period

A term used in Loss of profits insurance which may be defined as “the period beginning with the occurrence of the damage during which the results of the business shall be affected inconsequence of the damage,but not exceeding the maximum Indemnity Period stated in policy.”

It is important to note that the maximum extent of the Insurer’s potential liability is known as the maximum Indemnity Period.  The Indemnity period on the other hand,is that period during which the insured may seek indemnity until such time as the Maximum Indemnity period has been absorbed.

Inferior Construction

A term used in Fire Insurance underwriting to refer to a building which does not conform to “standard” or “Massive” Construction i.e a building which does not have walls constructed of concrete,asbestos,slate, tile or metal.

For example a wood and iron building or a building with brick walls under a malthoid roof would be classified as being of Inferior Construction.

Inherent vice

An adverse quality or characteristic which exists in a commodity.

For example, certain commodities undergo a chemical change when they become wet resulting in the generation of heat which may give rise to spontaneous combustion. Other commodities become rotten or sour as the result of internal decomposition without any external influence. Loss of or damage to a commodity due to its inherent vice is normally excluded from insurance cover.

Insurable Interest

It is a basic principle of insurance that the Insured must have an Insurable interest in the subject matter of the contract. That is, he must stand to benefit from its continuous undamaged existence or to be prejudiced by its loss or damage or by any liability which may be incurred.

A contract of insurance where there is no insurable interest would constitute a wager which is legally unenforceable and would therefore be invalid.

Examples of Insurable Interest are:

a. A person in his life or health or property;

b. A Bailee in property in his safekeeping;

c. A Contractor in property on which he is working;

d. A Mortgagee in property mortgaged to him;

e. A Person in his legal liability to other.

Insurance

An agreement between two parties whereby in return for a consideration (PREMIUM)

one party (the INSURER) undertakes to render a sum of money or its equivalent to the

other party (the INSURED) upon the happening of a specified uncertain even in with the

Insurer has an insurable interest.

The important features are:

(i) A consideration (premium)

(ii) An undertaking (or promise) to render money to its equivalent

(iii) The happening of a specified uncertain event (i.e., uncertain wither when it will happen or whether it will happen).

(iv) Insurable interest.

The documentary evidence of Insurance is a POLICY

Larceny

Petty theft, or theft which does not involve forcible entry.

Latent Defect

A hidden or concealed fault in an article.

Leading Office See COLLECTIVE POLICY.

Letter of Credit See BILL OF EXCHANGE

Liability of insurance

Also known as PUBLIC LIABILITY or THIRD PARTY INSURANCE it provides indemnity to the Insured in respect of his legal liability arising out of accidental bodily injury to or damage to the property of others.

The term THIRD PARTY INSURANCE is usually confined to insurance of liability arising out of the use of motor vehicles which is dealt with either under a section of a motor policy or in terms of the Motor Vehicle Insurance Act (See M.V.A and BALANCE OF THIRD PARTY).

Loss

An unintentional decline in or disappearance of value arising from a contingency. (i) A claim.

Loss of Profits Insurance

Also known as “CONSEQUENTIAL LOSS” or “BUSINESS INTERRUPTION INSURANCE” this class of insurance sets out to indemnify the Insured against financial loss suffered by his business consequent upon damage to his property by an insured peril.

For example, in the event of a fire the Insured’s fire policy would pay for the amount of damage  to his buildings,plant,stock,etc. but it would NOT pay for any (consequential)loss resulting from a reduction in the volume of his business transactions.

This protection is given by a “profits” policy.

Machinery Breakdown Insurance See ENGINEERING INSURANCE

Malicious Damage

Policies which are extended to cover Riot and Strike perils may be further extended to cover damage caused by malicious acts; e.g, by the act of a disgruntled employee.

Marine Insurance

A contract which indemnifies the Insured against:

(i) Loss or damage to any vessel;

(ii) Loss of or any damage to goods during their conveyance by land, air or water or whilst being stored, handled, or treated in connection with such conveyance;

(iii) Loss of Freight for any such conveyance;

(iv) Any other Loss in connection with any such vessel or goods or freight against which an insurance my lawfully be effected.

(v) N.B.:Insurance of goods being conveyed solely on land is often effected by means of a non-marine transit policy.

Material Fact

A fact or circumstance which would influence the judgement of a prudent Insurer in fixing a premium or deciding on the terms of a contact or determining whether it will accept a risk.

All material facts must be disclosed to the Insurer before the contract is concluded and the duty of an Insured to disclose such facts remains throughout the duration of the insurance(see GOOD FAITH,MISREPRESENTATION and NON-DISCLOSURE).

Misrepresentation

When a Material Fact is misrepresented to an Insurer(i.e incorrectly described or stated) this may amount to fraud and the Insurer would have the right to repudiate the contract.

Even when misrepresentation is innocent or not intended, an Insurer may avoid the contract if it can show that it has been prejudiced.

Money Insurance

Provides indemnity against loss of money:

(i) Whilst in transit within defined territorial limits;

(ii) Whilst on the Insured’s premises during business hours;

(iii) From locked safe or strong room (including damage to safe or strong room)on the Insured’s premises after business hours;

(iv) Whilst at premises other than those of the insured or whilst out of safe or strong room after hours (usually limited to a relatively small amount).

Cover is against any form of loss other than War Risks and losses due to Accounting errors. Loss due to dishonesty of employees is usually covered provided such loss is discovered within a specified period (usually seven or fourteen days.)

The definition of Money is usually fairly wide and includes cash, bank notes, cheques, postal orders, postage and revenue stamps. Etc.

Moral hazardsee HAZARD

Mortgagee /Mortgagor

A mortgagee is the party who lends and accepts conveyance of property (by means of a mortgage Bond)as security for the debt;e.g a Building Society.

A mortgagor is the party who borrows the money and pledges his property assecurity for the loan.

On repayment of the debt the Mortgage Bond is cancelled and full title to the property reverts to the owner.

Motor Insurance(Comprehensive Cover)

Insurance against accidental damage to a motor vehicle, legal liability for damage to the property of third parties, and injury to passengers in the Insured’s vehicle Liability for injury to persons outside the Insured’s vehicleand to certain categories of the insured’s passengers is dealt with by means of M.V.A  insurance(which see).M.P.L see E.M.L

M.V.A (Motor Vehicle Act) Insurance

Also known as COMPULSORY THIRD PARTY INSURANCE

The motor vehicleInsurance Act No. 29 of 1942 obliges the owner of any motor vehicle to insure the liability of the driver for death or injury to persons arising out of the use of that vehicle.

The form of cover and the premiums are prescribed and only certain Insurers are authorized to transact this class of insurance. These “Authorized Insurers” administer the scheme on behalf of the State and retain a portion for the premiums for handling charges. Claim payments are recovered from the state.

Multi-Peril Policy

A combination of a number of classes of insurance in one policy. For example, instead of giving an Insured separate policies for Fire,Profits,public Liability and Burglary cover a single document would be issued which would embrace all these classes.

Negligence

The best known definition of negligence is “The omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs would do, or doing something which a prudent and reasonable man would not do.”

Each individual has a duty to avoid injury to persons or damage to the property of others and a breach of that duty usually constitutes negligence.

A negligent act resulting in personal injury or damage to property renders the person responsible for the act liable at Common law to the person suffering the injury or damage.

The ultimate degree of negligence is known as GROSS NEGLIGENCE and in law this is usually equated with willfulness and deliberation. Some case definitions of gross negligence are:

i) Recklessness and an entire failure to give consideration to the consequences of a particular action; total disregard of duty.

ii) The state of mind not caring what may happen a mental attitude bordering wilfulness.

iii) Whilst ordinary negligence consists entirely in inadvertence, Gross Negligence consists in the deliberate and wilful taking of a risk which involves possible damage to persons or property. (See COMMON LAW and CONTRIBUTORY NEGLIGENCE).

No Claims Bonus(N.C.B)

A bonus or discount allowed to the Insured as a reward for not having

Claimed under his policy for a certain period. Motor insurance bonuses

range from 15% to over 50% for claims free periods of from one to five

years (see CFG)

Non-Disclosure see DISCLOSURE

Non-Proportional Reinsurance See REINSURANCE

This is usually sought when the Insured knows which perils he wishes to insure against but precise details of the subject matter of the insurance (e.g the sum insured) are not available until the last minute or even until after the risk commences. It is more often sought in Marine Insurance.

For example, an importer of goods may not be able to obtain full details of individual shipments until the goods have been loaded or until the ship is well on its way or even until after they have arrived. In these circumstances an Open Policy is issued which sets out details of the cover provided, given a general description of the type of subject matter to be insured and imposes a limit on the amount of cover on any one shipment.

As each transaction (shipment) takes place the Insured submits a Declaration giving full details and a Certificate or some similar document is issued by the Insurer acknowledging and giving effect to the insurance. A premium is raised against each declaration.

Operative Clause see POLICY

Particular Average

A marine Insurance term where the word “Average” has an entirely different meaning form when it is used in other classes of insurance.

In marine parlance Average means “Loss” and Particular average means “Partial Loss.” It can be defined as a “partial Loss of the insured subject matter caused by a peril insured against and which is not a General Average Loss” (which see).

The important feature is that the loss must have been fortuitously caused by an insured peril and thus it differs from a General Average loss which is a deliberate and voluntary sacrifice and therefore not fortuitous.

It follows that the term FREE OF PARTICULAR AVERAGE (F.P.A) indicates that the insurance does not cover partial loss but only total loss of the subject matter. There is an exception to this in that FPA cover does include partial loss if the vessel has been stranded, sunk or burnt (see GENERAL AVERAGE).

Party and party costs

Those costs which have been incurred by a party to legal proceedings and which may be claimed from the other party to the proceedings.

They do not include all costs which may have been incurred but only such charges, costs and expenses as are necessarily incurred in the actual litigation proceedings. They do not ,for example ,include costs incurred in putting a party into a position to litigate, such as costs of obtaining Counsel’s opinion on the chances of success in contemplated action .or attorney’s fees for disbursements or professional services.

These latter costs are known as “Attorney and Client Costs”(which see).

Perfect party wall

A party wall is a common wall shared by two buildings. To qualify as a perfect wall (PPW) it must be constructed of brick, stone or concrete; it must not be less than 225 mm thick, and itmust extend through the roof for at least 225 mm. It must not have any openings other than small ones for belts,shafts,pipes,etc. Doorways are allowed if protected by approves fire doors.

Allowed it protected by approves fire doors.

A perfect Wall establishes separation between two buildings for fire insurance purposes (see COMMUNICATION)

Peril

A potential cause of loss,e.g Fire, Storm, Explosion, Burglary,etc.

The word RISK is frequently used in place of PERIL (see HAZARD and RISK)

Personal Accident and Sickness Insurance

This provides for payment of specified sums in the event of death or disablement as the result of an accident or of disablement as the result of illness. Death from illness is not covered.

This form of insurance is not a contract of Indemnity in that the amount paid does not necessarily have any bearing on the financial loss suffered by the Insured or his dependants.

An example of the cover given by the policy is

a) In the event of an accident causing:

i) Death…………………………………………………………..USD 10 000

ii) Loss of limbs…………………………………………………..USD 10 000

iii) Permanent total disablement……………………......................USD 10 000

iv) Temporary total disablement…………………………….USD 100 per week

b) In the event of illness causing temporary total disablement…USD 100 per week

c) Medical expenses incurred as the result of accident illness max…..1 000

Personal Effects

A term used mainly in All Risks, Householders’ and Travellers’baggage insurances.

They may be defined as "clothing,baggage,watches,jewellery,and other personal

articles normally worn or carried on or by a person”.

Personal Liability

The legal liability of a private individual to others arising out of accidental injury or damage to property.

Physical Hazard see HAZARDPolicy

Documentary evidence of a contract between an Insurer and an Insured. It usually

comprises several parts, the main ones being:

i) The Preamble, for Recital Clause which names the parties to the contract and makes reference to a proposal form and payment of or agreement to pay a premium.

ii) The Operative Clause which specifies the circumstances in which the Insurer will be liable to the Insured and also sets out the exceptions to the cover.

iii) The conditions, which specify the things which must be done by the Insured before and after the happening of the event insured against. They also set out certain rights of the Insurer,address, occupation, etc) the period of insurance and the first and annual premiums. It also describes the subject matter and specifies the sum insured by each item.

P.M.L see E.M.L

Preamble see POLICY

Premium

The “consideration” in return for which Insurer undertakes to indemnify or compensate an Insured in terms of a policy.

Prescribed period

The period within which action must be instituted by one party against another to recover damages or any other amount due, failing which the right of action falls away.  This period may be Statutory or Contractual. In other words, laid down by law or embodied in a contract.

Priority see REINSURANCE

Products Liability

Legal liability of a Producer,Manufacturer,seller or supplier of goods for injury caused by such goods to the persons or property of others (see LIABILITY INSURANCE)

Professional Indemnity Insurance

Provides indemnity to a professional person (such as a Doctor,Accountant,Attorney, Insurance Brokers,etc.)in respect of his legal liability arising out of error, omission or neglect in the conduct of his profession.

Profits Insurance see LOSS OF PROFITS

Proportional Reinsurance see REINSURANCE

Proposal Form

A written application to an Insurer for insurance.

An application can be verbal but Insurers frequently required the Proposer to complete a questionnaire which seeks material information such as his name, age, address and occupation, his previous insurance and loss history, and details of the subject matter of the proposed insurance. A Declaration at the foot of the Proposal binds the Prosper to the truth of his answersand directs his attention to the requirement that all material facts must be disclosed (see DECLARATION and MATERIAL FACT).

Proximate Cause

A maxim, or rule, which lays down that a loss must have been caused directly and not remotely by the peril insured against. The standard definition is:”Proximate Cause means the active efficient cause that sets in motion a train of events which brings about a result without intervention of any force started and working actively from a new and independent source”

Public Liability see LIABILITY INSURANCE

Quantum

Amount e.g Quantum of loss; Quantum of damages; Quantum of liability

Quota Share see REINSURANCE

Railway Ledger Bond

Rail transport charges are payable before goods are railed but the Railway Administration will allow approved firms to operate a credit (or ledger) account provided acceptable security is given.

This type of Bond is furnished to the Administration and guarantees payment of outstanding charges. It must be backed by an approved surety such as an Insurer(see GUARANTEE BUSINESS).

Rate

A measure employed by Insurers for calculating premiums.  It is usually expressed as a percentage (or as a rate per mile) of the Sum Insured by the policy or of some other factor such as Turnover, Wages, output, etc. Thus whilst the rate may remain constant the premium will fluctuate with the rise or fall of the factor to which it is applied.

Recital Clause See POLICY

Reinstatement

In most policies covering loss of or damage to property the Insurer has the option of reinstating the property which has been lost or damaged or of making a payment to the Insured by the way of compensation.  The Insured has no say in the matter.  If an Insurer elects to reinstate it must, as nearly as possible, restore the property to the condition it was in before the loss or damage occurred, either by replacing it if it were lost or by repairing it if it were damaged.

Reinstatement Value Conditions

In spite of the fact that insurance of property is based on the principle of Indemnity (which see) Insurers will, in certain cases, agree to insure property for its new replacement value instead whereby the Insurer agrees that in the event of damage the amount payable “shall be the cost of replacing or reinstating on the same site property of the same kind or type but not superior to or more extensive than the insured priority:

In excess of Loss Reinsurance this is the bottomProperty when new”. This would be subject to the property having been insured for its full new replacement value and subject to the actual work of replacement or reinstatement beingundertaken within a specified time. In other words the Insured cannot take the money for a new article and then not replace it.

Reinsurance

A means of spreading the burden of risks between Insurers in order to avoid any one Insurer being too heavily involved in any single loss or series of losses arising out of any one event, or series of losses over a given period.

Reinsurance is effected by means of a contract between Insurer and a party known as a Reinsurer. The Reinsurer agrees to accept responsibility for a certain share of an insurance or insurances underwritten by the Insurer in return for a certain share of the premium. In these transactions the Insurer is referred to as the ORIGINAL INSURER or the CEDENT. The Insurer remains fully answerable to him in terms of the original contract.

Any Insurer may accept business from another by way of reinsurance but there are some companies who specialize in and confine themselves to reinsurance transactions.

They are known as Professional Reinsurers.

Here are some common reinsurance terms with brief explanatory notes:

Offer:     See facultative Reinsurance

Slip:        A Memorandum from insurer to Reinsurer setting out all salient details of the    proposed transaction in terms of the original offer. If acceptable the original (or                 Master)slip is initialed and dated by the Reinsurer and returned to Insurer.

Bordereau: A form(invoice) submitted by Insurer to Reinsurer setting out details

of the reinsurance which has been effected i.e, name of insured, period of insurance, sum insured and premium.

Cession: The transfer of a share of a risk from Insurer to Reinsurer.

Retrocession: The transfer of a share of a risk from one Reinsurer to another.

Retrocessionaire. A Reinsurer who accepts a share of a reinsurance from another reinsurer.

Facultative Reinsurance: Transactions where risks are offered one by one the original insurer being free to offer and the Reinsurer free to accept of reject depending on the merits of each case.

Treaty Reinsurance: An arrangement whereby the Reinsurer agrees to accept a certain share of any risk of a specified nature ceded by the original Insurer without considering the individual merits of any particular risk.

Proportional Reinsurance: Any reinsurance transaction where the Reinsurer’s share of the premium is in direct proportion to its share of the risk, e.g, If a Reinsurer accepts liability    for 15% of a risk it is entitled 25% of the premium.

Non-Proportional Reinsurance: Transactions where the Reinsurer’s share of the premium is not in direct proportion to its share of the risk. A good example of this is excess of loss reinsurance(which see).

Excess of Loss Reinsurance: This is a non- proportional contract where the Reinsurer agrees to pay losses for amount which are in excess of a stipulated figure up to an agreed maximum. Thus, a Reinsurer may accept liability for that amount of a loss which exceeds USD 100000 up to a limit of USD 500000 for a premium which         is not in proportion to the Reinsurer’s share of the risk.

Figure in excess of which the Reinsurer’s liability commences. In the above example the priority would USD 100000.

Stop Loss Reinsurance: Another form of Excess of Loss Reinsurance. Here the Reinsurer becomes involved when the aggregate of all losses     of a specified nature during an agreed period (usually one year)exceeds an agreed limit, such as a percentage of the Cedent’s gross premiums for the relevant class of business. For example, an Insurer may reinsure motor, losses when their total exceeds 90% of its annual gross motor premiums.

Quota Share Treaty: A proportional treaty where the Reinsurer agrees to accept, and the Original Insurer to cede, a fixed share of every risk of a specified nature, e.g 10% of every thatched dwelling.

Line: A unit of retention. Thus an Original Insurer may decide to           retain USD 10000 of a sum of USD 100000 on a particular risk for its own account. This would be its Net Line and it        could then reinsure the remainder either facultatively or in multiples of its Net Line through a Surplus

Treaty.

Surplus Treaty: This, too is a proportional reinsurance but unlike Quota Share transactions the Original Insurer is not bound to cede a fixed share of every relevant risk. It may take its own decision on which risk to reinsure and then, within the limits of the Treaty, it may reinsure either the whole or a portion of the surplus of its net retention in multiples of Net Lines.                 For example ,a 5 line on any fire insurance contract to be retained by the Original insurer who, if it so desires, may then reinsure up to few times that amount under the treaty.

If renewal cover is still required after the expiry date of a policy this can be arranged by issuing a new policy or by renewing the original contract for a further period.  The latter is a less cumbersome method. The expiry date then becomes the Renewal Date and on payment of the Renewal Premium cover continues for a stated period. Insurers usually issue Renewal Notices, reminding the Insured of the approaching expiry date and inviting renewal. However, they are under no legal obligation to do this.

Retention:

(i)Net Retention is that portion of its total commitment to an insurance which an Insurer retains for its own account.               The balance is reinsured facultatively or by means of treaties.

(ii)Gross Retention is an Insurer’s net retention plus the amount which is reinsured by means of treaties. The balance            is reinsured facultatively.

Salvage

Example:

Total sum insured…………..USD 1 000 000

NET Retention………………50 000

Treaty Reinsurance………….500 000

GROSS Retention…………...550 000

Facultative Reinsurance………450 000

Total Capacity…………………USD 1 000 000 (see CAPACITY)

Retrocession (see Reinsurance)

Riot, Strike and civil commotion

Most policies exclude these perils but in most cases they can be extended to include them on payment of an additional premium.

Any such extension would,however,be subject to the exclusion of War and Political perils such as Civil War.Insurrection,Popular Risings, or the act of any person acting on behalf of or in connection with any organization with activities directed towards the overthrow of influencing of any government by force, terrorism or violence (see MALICIOUS DAMAGE)

Risk

This word can be confusing as it has a variety of applications,viz

i) As the degree of the probability of a loss,e.g. a good risk; a bad risk; an inferior risk.

ii) As a classification of a potential loss e.g. A fire risk; a burglary risk; a transit risk.

iii) A combination of (i) and (ii);e.g. an inferior fire risk; a good burglary risk.

iv) As an indication of the person or thing which is insured. E.g The risk is a blanket factory or a private dwelling (in this context it would be more correct to refer to the person or thing as the "subject matter”)

v) As a substitute for :Hazard “ or “peril” e.g.

a)The main risks arises from the storage of inflammables (meaning “Hazard”)’;

b)The risk insured against are Fire. Explosion and Earthquake (meaning ‘perils)

vi) When used with "at” or “on” (e.g. At Risk or On Risk) the inference is that insurance cover has commenced or is in existence.

The following rather clumsy paragraph embraces all the above uses of the word:The risk which is a blanket factory(iv) is in Benoni.It is a good fire risk (iii) and the Insurers have confirmed that they are now on risk(vi).The risks insured against; Fire Explosion and Earthquake(v(b) and the greatest risk arises from the storage of inflammables(v(a))”.

(see HAZARD,PERIL,SUBJECT MATTER).

Risk Management

A comparatively recent development based on the premise that risk, as the probability of loss, must be recognized and, as far as possible,quantified.Having done this, steps must then be taken to reduce the probability to a minimum and then to Decide how much of an insurable potential loss to accept by way of self-insurance and how much to insure.

A Risk Manager may be an independent consultant or he may be employed by the business undertaking concerned property which is saved or rescued from an accident either in an undamaged or partially damaged state.

When an Insurer includes the value of salvaged property in the settlement of the loss it is entitled to take over such salvage for disposal for its own account. Salvage charges are costs incurred in rescuing property from being lost or damaged.

Schedulesee POLICY

Short Period Premium

When a policy is issued for a period of less than twelve months the premium charged is not always calculated pro rata to the annual premium.  One reason for this is that the probability of the occurrence of the even insured against is not necessarily in proportion to the period of cover. In these cases Insurers usually load a premium,(as against a Pro Rata Premium where there is no loading).

Short Term Insurance

This is defined in the Insurance Act as “any insurance business other than long term insurance business or compulsory third party insurance business”

Long Term insurance is defined as “any life business, industrial business, funeral business or sinking fund business”. However, in general use “short term Insurance” applies to all insurances not falling under the general heading of life Insurance. It is so named because it usually concerns contracts of twelve months duration or less.

Sickness and Accident see PERSONAL ACCIDENT AND SICKNESS INSURANCE

Slip The Location of a risk or subject matter.

Solvency Guarantee

Any Guarantee or bond where the surety is most likely to be involved by the Principal becoming insolvent.  For example,Warehouse,Customs,Excise, and Railway Ledger Bonds are all essentially Solvency Guarantees as are many Contract Guarantees(see GUARANTEE BUSINESS)

Specification see POLICY

“Special Perils”

An extension of a File or Profits policy adding certain specified or special perils,such as:

(i) Storm,Wind,Water ,Hail or Snow

(ii) Aircaraft,Aerial devices, or articles dropped therefrom

(iii) Impact by animals or vehicles.

Spontaneous Combustion

Self ignition caused by an article or product engendering heat by undergoing some chemical change;e.g rapid oxidation of oil waste or wet coal.

Most fire polices exclude damage to any article as the result of its own spontaneous combustion, but in certain cases this exclusion may be cancelled.

Sprinkler Installation

An automatic fire fighting system activated by heat, and providing a drenching spray of water over the affected area.

Insurers will usually allow considerable discount off fire Insurance premiums where premises are protected by approved sprinkler systems.

Sprinkler Leakage Insurance

Cover against damage caused by accidental discharge of water from a sprinkler system.

Sprinkler installation

An automatic fire fighting system, activated by heat, and providing a drenching spray of water over the affected area.

Standing Charges

A Loss of Profits insurance term referring to those business charges or expenses which would probably continue or which would not necessarily reduce in proportion to a reduction in the turnover of a business following the occurrence of an insured event.

For example,a fire may cause the turnover of a business to reduce, but in spite of this “interest on loans “would continue to be payable in full and whilst”wages”may reduce they may not do so proportionately. These would be termed standing (or Continuing)charges.

Expenses which are likely to fall away or to reduce proportionately are know as VARIABLE CHARGES

Stated Benefits Insurance

Also known as Employers' Personal Accident Insurance (EPA). Cover effected by an Employer on his employees against accidental death or disablement.

The amount payable (or benefit)is stated in the policy as a fixed sum in the event of death or permanent disablement or as a multiple of weekly or monthly earnings in the event of temporary disablement.

Statutory Law See COMMON LAW

Stock-in-trade stock which is usual to the insured’s business

Strike cover see RIOT AND STRIKE.

Subject matter

The person or thing which is the subject of the insurance often referred to as the Risk.

Subrogation

A condition of most policies of Indemnity which draws attention to the legal right of an Insurer to assume any rights or remedies which the Insured may have against a third party in the event of his having suffered an insured loss.

This follows the principle of indemnity in terms of which the Insured cannot recover more than the amount of his loss. If ,then, he is indemnified in terms of his policy his insurer must be entitled to benefit by any recovery which may be obtained from some other party..

The principle of Subrogation does not apply to non-indemnity contracts such as personal accident or life insurances (see INDEMNITY and THIRD PARTY).

Supply Contract Guarantees see CONTRACT GUARANTEES

Surety Bond see GUARANTEE BUSINESS

Surplus Treaty see REINSURANCE

Survey Report

A written report following upon a detailed inspection or examination of the subject matter on an insurance. This assists an underwriter to assess a risk and to decide upon the terms and conditions of the proposed insurance.

Tenant’s Liability Cover

A Liability policy will indemnify the Insured against sums which he becomes legally liable to pay in the event of accidental damage to property other than property belonging to him or property in his custody or control.

That portion of a building which is occupied by a tenant is “in the custody or control” of that tenant and his Liability policy would not protect him if it was damaged as the result of his negligence. His ability to the owner for any damage to the remainder of the building would, however, be covered.

The tenant can protect himself by having his Liability policy extended to cover his Liability as a tenant. The extent and the cost of such cover would depend on the value of that portion of the building occupied by him.

Third Party

Normally there are two parties to an insurance contract:the Insured and the Insurer. Any other person who may acquire an interest in the contract is referred to as the “third party” , but this term is most commonly used to refer to a person whose interest is acquired by operation of law,e.g a person who has a legal claim on an insured arising out of personal injury or damage to property. Obviously his interest in the contract arises out of any indemnity the Insured may receive from the Insurer.  The term "Third Party” is also applied to any person (other that the Insurer)against whom the Insured may have a legal claim arising out of any insured loss (see SUBROGATION).

Definitions:

i) A private or a civil wrong;

ii) A wrongful act committed by one person against another person, or his property;

iii) A wrong other than a breach of contract;

iv) A breach of the personal duty which each individual owes to others.

Treaty seeREINSURANCE

Trustee

A person appointed by the Master of the Supreme Court to handle the compulsory sequestration of an estate other than the estate of a limited liability company.

A trustee’s duties are to wind up the estate on the satisfaction of the Creditors and

He is responsible to them as well as to the Master and the Insolvent.

He must account to the Master and must satisfy him that his duties have been carried out in a proper manner. He is obliged to furnish the Master with a Bond backed by an approved surety such as an Insurer(see GUARANTEE BUSINESS):

A person appointed by the Master of the Supreme Court to act as a Guardian to a minor who is known as a Ward. If nominated in the Will of the deceased he is called Tutor Testamentary – otherwise, Tutor Dative.

A Tutor’s duties are to lodge an inventory of his ward’s assets with the Master and to maintain his ward as far as possible in accordance with the station of the Ward’s parents and/or in accordance with the direction of the Will.

He is obliged to furnish the Master with a Bond backed by an approved Surety such as an Insurer (see GUARANTEE BUSINESS).

Uberrima Fides/Uberrimae Fidei see GOOD FAITH

Underwriter

i) An insurer;

ii) An insurance official who “underwrites” a risk for an Insurer,i.e who considers all factors material to the risk and decides or advises on the term and conditions of acceptance(see RISK)

Usufruct

The right to enjoy the use of another’s property subject to it being maintained as faras possible in an altered state.

In insurance this word appears most often in Guarantee business when,in terms of a will, a person(such as a surviving spouse) is given usufruct over the whole or a portion of an estate during his or her lifetime after which the proceeds are distributed to the beneficiaries (see ADMINISTRATOR)

Valuation Certificate

Before issuing an All Risk Policy covering articles of value such as jewellery,Furs,pictures,Antiques,etc,most Insurers will insist on the proposer submitting some evidence of value. This helps to prevent under-insurance, or. for that matter, deliberate over-insurance, and it also assists both Insurer and Insured when it comes to a claim.

This evidence may be an invoice reflecting the purchase price of the article or it may be in the form of a Valuation Certificate completed by an expert such as a jeweller,Furrier, Antique Dealer etc.

Variable Charges see STANDING CHARGES

War Risks

By International agreement no Insurer may cover property or goods on land or any interest arising out of such property or goods against War Risks.  With certain exceptions this prohibition includes contingency risks.

The term “war Risks” extends much further than formal warfare and embrace: declared or not),civil war,mutiny, military or popular rising, insurrection,rebellion,revolution,military or usurped power, martial law or state of siege or any of the events or causes which determine the proclamation or maintenance of martial law or state of siege.”

Warehouse Bond see APPROVED WAREHOUSE BOND

Warranty

As used in insurance this term refers to a statement or a stipulation. Warranties may be divided into two classes,viz:

i) Affirmative Warranties, which are statements of actual fact such as a warranty by a proposer that the answers to questions in a proposal form are true and correct;

ii) Promissory Warranties,which stipulates things which the Insured must or must not do such as daily removal of waste materials from premises or not storing inflammables.

The important feature of a Warranty is that it must be strictly and literally complied with. Non-compliance, even if unintended or whether or not it is material to the loss gives the Insurer absolute right to repudiate liability. In other words the literal interpretation of a Warranty is a condition precedent to an insurer’s liability.

Wear and Tear

Depreciation in the value of an article as the result of use.

Workmen’s Compensation Act (W.C.A)

A statute which provides for payment of  compensation to workmen for disablement resulting from Accidents occuring,or industrial diseases contracted, in the course of and arising out of their employment. A “workman” is defined in the Act and it is compulsory for employers to insure all" workmen”.