Insurance Term Glossary

Supplement or Supplemental Estimate

A Supplement or Supplemental Estimate in insurance refers to an additional estimate of repair costs that becomes apparent after the initial assessment or after the repair work has begun. This is often used in auto and property insurance claims.

When an insurance claim is filed, an adjuster from the insurance company will inspect the damage and provide an initial estimate of the repair costs. This estimate is based on visible damage and the adjuster’s knowledge and experience. However, once the repair process begins, there may be additional hidden damage discovered that was not visible during the initial inspection. This could include internal damage or issues that only become apparent once other repairs have been made.

When such situations occur, a supplement is created to cover these additional costs. The repair shop or contractor will document the additional damage, the necessary repairs, and the associated costs and submit this information to the insurance providers. The insurance company will then review this supplemental estimate and, if approved, will provide additional funds to cover these costs.

It’s important to note that a supplemental estimate is not an adjustment or correction to the original estimate but rather an addition. It’s also not a guarantee of additional payment, as the insurance company must review and approve the supplemental estimate before additional funds are provided.

Tail Coverage

Tail Coverage, also known as Extended Reporting Period (ERP) Coverage, is a provision within a claims-made policy that allows the insured to report claims that are made against them after the policy has ended. This type of coverage is particularly relevant in liability insurance, where claims can be filed long after the actual event or incident that caused the claim to occur.

Tail Coverage is often used in professional liability policies such as Directors and Officers (D&O) liability, Errors and Omissions (E&O) liability, and medical malpractice insurance. It is designed to protect the insured from claims that arise from professional services provided while the policy was in force but reported after the policy has terminated.

For example, if a doctor retires and ends their malpractice insurance policy, a patient could still file a claim for an incident while the doctor was practicing. If the doctor has tail coverage, they would still be covered for this claim, even though it was filed after the policy ended.

It’s important to note that tail coverage does not extend the policy period or provide coverage for any new work performed after the policy expiration date. It only covers claims for incidents that occurred during the policy period but were reported after the policy ended. The length of tail coverage can vary, but it is often purchased for one, three, five, or ten years or even an unlimited period.

Theft

In insurance, theft refers to intentionally taking and removing someone else’s property or belongings without their consent and permanently depriving the rightful owner of its possession. This act is considered a crime and is punishable by law.

In insurance terms, theft is a peril that is often covered under various types of insurance policies, such as homeowners, renters, auto, and business insurance. The coverage typically compensates the policyholder for loss or damage to personal or business property due to theft.

However, what constitutes theft can vary from one insurance policy to another. Some policies may cover all forms of theft, including burglary (theft involving entry into a building illegally), robbery (theft involving force or threat of force), and larceny (simple theft without force). Other policies may only cover certain types of theft or may exclude certain situations, such as theft by a person lawfully on the premises.

Furthermore, insurance policies often require the policyholder to take reasonable steps to prevent theft, such as installing locks or security systems. Failure to do so may result in a reduction or denial of a claim.

It’s also important to note that insurance policies typically have a limit on the amount they will pay out for theft, and high-value items may require additional coverage. Policyholders may also have to pay a deductible before the insurance coverage.

In the event of a theft, the policyholder is usually required to report the incident to the police and the insurance company as soon as possible and to provide evidence of the theft, such as a police report, receipts, or photographs.

Third Party

In the context of insurance, a third party refers to an individual or entity that is involved in an insurance claim but is not the policyholder (first party) or the insurance company (second party). This term is most commonly used in liability insurance scenarios.

For instance, if you are involved in a car accident, and you are at fault, the other driver becomes the third party. If the third party files a claim for damages or injuries, your insurance company will handle the claim under your liability coverage.

In a broader sense, a third party can be anyone who suffers a loss, damage, or injury caused by the insured or, in some cases, by the property or activity of the insured. This could include pedestrians in a car accident, a customer who slips and falls in a store, or a neighbor whose property is damaged by a tree falling from your yard.

It’s important to note that third-party insurance coverage is designed to protect the insured from financial loss due to legal liability for injuries or damage caused to a third party. It does not provide coverage for the insured’s loss or damage.

Third Party Claim

A third-party claim is an insurance claim made by an individual, not the policyholder or the insurance company, but a third party involved in the incident that led to the claim. This claim is made against the policyholder’s insurance policy.

For instance, if you are involved in a car accident and you are not at fault, you would file a third-party claim against the at-fault driver’s auto insurance policy for damages to your vehicle or for any medical expenses incurred due to the accident.

In this scenario, the at-fault driver is the first party, the insurance company is the second party, and you, the claimant, are the third party. The third-party insurance claim is designed to provide compensation for injuries, damages, or losses incurred by someone who is not directly covered by the insurance policy.

It’s important to note that the process and rules for filing third-party claims can vary depending on the specific insurance policy, the nature of the incident, and the laws of the jurisdiction in which it occurred. Therefore, it’s often advisable to seek legal counsel or advice from an insurance professional when dealing with third-party claims.

Tort

A tort is a legal term that refers to a civil wrong that causes harm or loss, resulting in legal liability for the person who commits the tortious act. It is an act or omission, other than a breach of contract, which gives rise to injury or harm to another and amounts to a civil wrong for which courts impose liability.

In the context of insurance, torts are essential because they are the basis for most liability insurance claims. The person who suffers a loss or injury may sue the person who committed the tort to recover damages. The purpose of tort law is to restore the injured party to the position they would have been in had the tort not occurred.

Torts can be classified into three main categories: intentional torts, negligent torts, and strict liability torts.

1. Intentional torts are intentionally committed by someone who knows his actions could cause harm. Examples include assault, battery, false imprisonment, trespass, and defamation.

2. Negligent torts refer to a failure to exercise the care that a reasonably prudent person would exercise in like circumstances. This could include a driver not paying attention and causing a car accident or a business owner not correctly maintaining their premises, leading to a customer’s injury.

3. Strict liability torts are those where the person committing the tort is held liable regardless of intent or negligence. This is often applied in cases involving abnormally dangerous activities or defective products.

In the insurance industry, liability policies are designed to cover claims of damage or injury caused by the insured. These policies can cover legal costs associated with defending against a tort claim, as well as any damages awarded to the injured party.

Tortfeasor

A tortfeasor is a legal term used to describe an individual or entity that commits a tort. A tort is a civil wrong that causes harm or loss, resulting in legal liability for the person who commits the act. It is an act or omission, other than a breach of contract, which gives rise to injury or harm to another and amounts to a civil wrong for which courts impose liability.

In insurance, a tortfeasor is a party found to be at fault or responsible for causing an accident or injury. This could be a person, a business, or any other entity. The tortfeasor is typically the party that the injured party (the plaintiff) seeks to recover damages from in a lawsuit.

For example, in an auto accident, the tortfeasor is the driver who caused the accident. In a medical malpractice case, the tortfeasor could be a doctor or other healthcare professional who acted below the standard of care and whose negligence harmed a patient. In a product liability case, the tortfeasor could be the manufacturer of a defective product that caused injury to a consumer.

In insurance, the tortfeasor’s liability insurance policy is typically the one that pays for the damages caused by the tortfeasor’s actions. This can include medical expenses, property damage, monetary damages, and other costs associated with the injury or harm caused.

Total Loss

Total Loss is an insurance term that refers to a situation where the cost of repairing a damaged property, such as a car or a house, exceeds its actual cash value (ACV) or is close to its insured value. In such cases, the insurance company considers the property a “total loss” or “insurance write-off”.

This term is most commonly used in auto insurance. For instance, if a car gets severely damaged in an accident, the insurance company will calculate the cost of repairs. If the repair cost is higher than the car’s current market value or if it is not safe to repair, the insurance company will declare it a total loss.

In such scenarios, the insurance company typically compensates the policyholder with a payout or loss settlement equivalent to the actual cash value of the property before the damage occurred, minus any applicable deductible. This means the policyholder will receive an amount allowing them to replace the lost property with a similar one in the current market.

It’s important to note that the criteria for declaring a total loss can vary from one insurance company to another and may also depend on state regulations. Some companies may declare a total loss if the cost of repairs exceeds a certain percentage (for example, 80%) of the vehicle’s actual cash value.

In the case of property insurance, a home could be considered a total loss if it is destroyed by a covered peril such as a fire or a natural disaster to the extent that it is uninhabitable and beyond repair.

Vehicle Identification Number (VIN)

A Vehicle Identification Number (VIN) is a unique code, including a serial number, used by the automotive industry to identify individual motor vehicles, towed vehicles, motorcycles, scooters, and mopeds. It is a 17-character alphanumeric identifier that is assigned to a vehicle at the time of its manufacture.

The VIN serves several purposes, kind of like a vehicle history report. It tracks recalls, registrations, warranty claims, thefts, and insurance coverage. It can also serve as a vehicle descriptor since it can provide information about its manufacturer, year of production, engine type, model, and more.

The VIN is typically located on the driver’s side dashboard, visible through the windshield or the side door jamb. It can also be found on insurance cards, vehicle titles, and registration documents.

International standards regulate the structure of the VIN. Each character or set of characters within a VIN indicates specific vehicle information, including the vehicle’s unique features, specifications, and manufacturer. The VIN does not include the letters I (i), O (o), and Q (q) to avoid confusion with numerals 1 and 0.

In essence, a Vehicle Identification Number (VIN) is a vehicle’s fingerprint, as no two vehicles in operation have the same VIN.

Warranty

In the insurance context, a warranty is a promise or guarantee made by the policyholder to the insurer that certain conditions, facts, or circumstances exist or will be fulfilled. It is a statement of fact or a stipulation considered material to the risk of being insured.

There are two types of warranties in insurance: affirmative and promissory. An affirmative warranty is a statement regarding a fact at the time the policy is issued. For example, a policyholder may warrant that a building is equipped with a certain fire alarm system. If the statement is untrue, the insurer can deny coverage, even if the false statement was not related to a loss.

A promissory warranty is a promise that a certain condition will remain true for the duration of the policy. For example, a policyholder may promise to maintain a certain level of security measures in a business. If the policyholder fails to do so and a loss occurs, the insurer may deny the claim.

In both cases, the warranty must be material to the insured risk. This means that the fact or condition guaranteed by the warranty would have influenced the insurer’s decision to issue the policy or set the premium. If a warranty is immaterial, it cannot be used as a basis for denying a claim.

It’s important to note that warranties in insurance are different from warranties in other contexts, such as product warranties. In insurance, a warranty is a condition of the policy, not a guarantee of the policy’s performance or the quality of the insured item.