Trafalgar International - Insurance Brokers and Consultants    

A Glossary of Insurance Terms
A to D

When insurers and loss adjusters quote those mysterious words and sadly shake their heads, you can sense there is a problem on that claim - if only you could understand what it was! Here is a glossary of some commonly used insurance terms but if you really need help with those problematic claims contact Trafalgar. Better still, contact us now and avoid those problems alltogether.

Just click on the initial letter of the term you are unsure of:

A B C D E to H I to L M to P Q to T U to Z


is for Auld Enemy – In Scotland the English are sometimes referred to as the Auld Enemy, especially nowadays in relation to sporting events. The phrase relates to the long and bitter conflict between the two countries which thankfully now is demonstrated only on the sports fields.

A is also for

Abandonment Accidents Act of God Actuaries
Additional Perils Adjustable Policies Advance Profits Insurance Agents
Aggregate Limits Aircraft Damage All Risks Arbitration Clause
Architects’, Surveyors’ and Consulting Engineers’ Fees Average    


In Marine insurance this is the right of an insured to abandon lost or damaged property and still claim full settlement from an insurer subject to certain restrictions.


In insurance terms, events that are not deliberately caused by the insured and that are not inevitable. Thus, if you deliberately cause damage by driving your car into a tree, the damage is not insured. Similarly, insurers may argue that if you carry out a large excavation in soft soil without appropriate bracing, damage to surrounding property is inevitable and you may not be able to claim any insurance.

Act of God

Natural occurrence such as earthquake or typhoon. These can be specifically included in most insurance policies contrary to popular opinion.


A professional usually involved in the life insurance industry, who applies mathematical theories of probabilities and statistical techniques in risk calculation. Actuaries are becoming increasingly involved in general insurance in relation to loss reserving and premium calculations.

Additional Perils

Sometimes called Special Perils, these may include losses caused by aircraft, explosion, earthquake, storm, tempest, flood, burst water pies, riot, strike, civil commotion, malicious damage. These are extensions that widen the scope of a basic fire insurance policy. Similar extensions may be available for other classes of insurance

Adjustable Policies

Often, the premium on certain policies is based upon estimates of the size of the risk. For example turnover, gross profit or average stock value on your premises over the next twelve months. Under an adjustable policy, these estimates can be adjusted appropriately, upwards or downwards, at the end of the period of insurance, when the actual figures are available.

Advance Profits Insurance

Business Interruption insurance arranged in advance of the commencement of the insured’s business usually in conjunction with a construction all risks insurance. Cover guards against the potential of a delay in putting a plant into operation, caused by loss or damage affecting the buildings or key items of machinery during construction, erection or testing and commissioning. This type of insurance is expensive and difficult to arrange. It is a core competency of Trafalgar. If you are looking to invest substantially in a business expansion, contact us now.


An insurance salesman linked specifically to a single insurance company.policies on behalf of insurers. Agents often obtain their clients from friends and relatives and therefore tend to have a personal knowledge of the client. Unlike insurance brokers, they rarely have high levels of professional expertise or access to worldwide markets. They also represent insurers and not their clients and can do little to assist in the event of a major claim.

Aggregate Limits

An aggregate total limit on claims during a policy period, which applies in addition to a limit per claim. Often this applies to liability and medical policies.

Aircraft Damage

See ‘Additional Peril’ under a Fire policy. Covers not only the unlikely prospect of a plane crashing into your building, but also damage caused by articles falling from aircraft.

All Risks

A misleading name for an insurance policy, which provides wide cover but does contain a number of exclusions. The term ‘All Risks’ should not be taken too literally and in some jurisdictions the term is no longer used.

This cover is often used for valuable items such as jewellery and other readily portable items. In Marine Cargo Insurance Institute Cargo Clauses (All Risks) has been replaced by a new easier to understand wording known as Institute Cargo Clauses (ICC) ‘A’

Arbitration Clause

This clause is often found in the Conditions of property insurance policies. Any dispute between insurer and insured in agreeing on the amount or quantum of a claim can be referred to independent arbiters. Most arbitration clauses only apply to dispute over quantum, not to disputes over liability. Arbitration is usually faster and cheaper than going through the Courts.

Architects’, Surveyors’ and Consulting Engineers’ Fees

Professional fees arising from repairing or reinstating damaged buildings are not always automatically covered by insurance policies. This is an extension to cover such costs in respect of building and machinery.


‘Average’ has several meanings in the insurance industry.

In Marine insurance, ‘average’ means loss and ‘particular average’ means partial loss. See also ‘General Average’.

If a policy is ‘subject to average’, then, if the sum insured at the time of a loss is less than the actual value of the property insured, then the amount of claimed under the policy will be reduced in proportion to the underinsurance. In mathematical terms:

Allowable Claim =

Loss x Sum Insured
Value at risk

If you do not insure for the full values at risk, then you may not be able to obtain a full settlement of any loss. See also “First Loss”.



is for Bawbee – Originally a Scottish coin worth sixpence, a bawby later came to mean a half-penny, a coin long since fallen into disuse. Now the word means any small amount of money, especially in any term implying miserliness or shortage of cash.

B is also for

Bailee’s Liability Banker’s Blanket Bond Bloodstock Insurance Boilers and Pressure Plant
Bonds Book Debts Insurance Broker Builders Risks

Bailee’s Liability

Bailee’s Liability insurance covers the bailee’s legal liability for loss, destruction or damage to property whilst in the bailee’s care. As an example, clothes being cleaned are under the temporary control of the bailee (laundry). The bailor (owner) expects the clothes to be returned in good condition. If the clothes are stolen from the cleaners, the bailee’s Liability insurance would cover the liability of the laundry for the loss.

Banker’s Blanket Bond

A wide form of insurance for Banks, which covers Theft and Fidelity risks.

Bloodstock Insurance

Livestock insurance for horses kept for racing and breeding purposes providing ‘life and health’ cover.

Boilers and Pressure Plant Cover

Boilers and other vessels such as economisers, super-heaters and steam piping are subject to internal pressure and can explode or collapse. A boiler policy can cover explosion and collapse or be extended to cover any type of breakdown. Cover is often extended to cover damage to surrounding property and third party liability arising from explosion or collapse.


These are a guarantee issued by a bank or insurance company that an individual or company will meet various obligations.

Under a construction contract a contractor may be required to obtain:

A bid bond. - This will protect the developer against the failure of the contractor to proceed with a project at his bid price.

Prepayment bond. – This guarantees any advance payment made by the developer for the contractor’s mobilisation.

Performance bond. – This guarantees that the contractor carries out the project properly and the developer will be compensated for any breach of contract.

Retention bond. – Often a developer will retain a small amount from the contract price for a period to ensure that any defects in the project discovered after completion are corrected in a timely manner. This can adversely effect the contractor’s liquidity. A retention bond will guarantee that any corrective work is carried out and allow the developer to settle in full with the contractor immediately the project is complete.

Other bonds may also be required in business, such as customs bond.

Book Debts Insurance

Also known as Accounts Receivable insurance, this covers any debit balances that you are unable to collect because the books have been destroyed. Backup records obviate the need for this cover.


In insurance, a professional intermediary representing the client’s interests, not the interests of the insurance company. The professional standards of insurance brokers varies from country to country and from firm to firm. For truly professional advice, some research regarding their levels of expertise and experience may be necessary.

Trafalgar is among the largest insurance brokers in Thailand and can offer truly professional advice to clients on a wide spectrum of risk related issues.

Builders Risks

A marine policy that covers a ship during construction until possession passes to owners.


An outdated legal term refering to theft involving forcible or violent entry to or exit from the premises.

Bursting or Overflowing of Water Tanks, Apparatus and Pipes

See ‘Additional Peril’ under a fire policy. This covers damage resulting from a plumbing accident but does not strictly cover the cost of repairing the burst tank or pipe. Often household insurers will settle a claim in full, including the damage to the tank or pipe.


An insurance policy covering a business will only provide cover in respect of the ‘businesses’ described in the policy.

Business Interruption Insurance

See also ‘Consequential Loss’ or ‘Loss of Profits’ insurance. This insurance is intended to maintain the profit from your business at budgeted levels even though revenue may be adversely effected an insured catastrophe. For example, if a factory is badly damaged in a fire, the owner may expect insurers to pay the cost of replacing the building and equipment. However, work may take 12 months or more to complete and during this period, the factory will not be able to continue production and will produce no revenue. Costs such as payroll, etc may well continue and shareholders will still wish to receive a dividend from their investment. A business interruption policy will ensure that ongoing expenses are paid and profits are maintained.

Correctly setting up a business interruption policy can be complicated. Premiums will vary greatly with the ability of a business to function after a loss has occurred. Professional advice from Trafalgar is essential to ensure appropriate protection and competitive premiums

Business Travel Insurance

Travel insurance, provides companies and their employees with a variety of covers raging from damage to baggage, loss of deposits on flights and hotels, liability, loss of cash, tickets or passports to the cost of further airfares to send a replacement if an executive travelling abroad falls ill.


is for Caber – In Scottish highland games, a heavy section of trimmed tree trunk is thrown so that it lands away from the thrower on its heavy end. The tree trunk is known as a “caber” and the sport is known as “tossing the caber”.

C is also for

Cancellation Captive Cargo Certificate of Insurance
Chartered Insurance Inst. Co-Insurance Collision Damage Waiver Computer Insurance
Computer Systems Records Condominium Insurance Consequential Loss Constructive Total Loss
Contingent Liability Contract of Indemnity Contribution Contributory Negligence
Cost Insurance and Freight Coupon Insurance Crop Insurance Counter Guarantee


With a few exceptions, notable construction insurance policies, insurers have the right to cancel a policy at any time. If they do so they must give the period of notice required stated in the policy and refund a pro-rata premium. If the insured cancels, then insurers may charge short period rates which will cost considerably more.


This is an in-house insurance company used by a corporation to insure the risks of the parent company. There may be significant tax advantages in locating a captive off-shore or the parent company may experience difficulty with the traditional insurance market’s reluctance to underwrite certain hazardous types of risk.


This is usually covered under a Marine Insurance policy, whether for domestic or international journeys, by sea, air or land. There are three internationally recognised types of cover, known as ‘Institute Cargo Clauses A, B and C’. These have replaced three old covers with antiquated wordings known as All Risks, With Average (WA) and Free of Particular Average (FPA).

Certificate of Insurance

A piece of paper not to be confused with an insurance policy. It is issued mainly to comply with certain statutory requirements as evidence of cover. A certificate is issued to motor vehicle owners and also to employers under Workman’s Compensation laws. Another type of certificate can be issued under a Marine Cargo Open Cover as evidence that Cargo insurance has indeed been arranged.

Chartered Insurance Institute

The UK based insurance education body, which also operates through world-wide affiliates. This is the main professional examining body for the insurance industry outside the USA. Insurance personnel who have passed their insurance examinations can qualify as Associates or Fellows of the Institute.


In many British-type insurance markets, co-insurance means the sharing of one insurance policy between two or more insurers. Usually, this entails each insurer paying directly to the insured their respective share of the loss. In other words, the insured has an insurance contract with more than one insurer. This arrangement is cumbersome to administer and is used only on very large risks.

Collision Damage Waiver

Cover that can be purchased by someone renting a car where the rental company waives any right to recover the amount of damage to the car from the individual regardless of fault.

Computer Insurance

A relatively new type of insurance specially geared to cover delicate and high value computer equipment. Cover is usually on an All Risks basis and can be extended to include the costs of reinstating data, and business interruption cover such as increased costs of working, or loss of revenue/gross profit.

Computer Systems Records

Cover for these is often not available under basic Fire and Burglary policies. You can either extend your cover specifically to protect such records or, alternatively take out a special Computer insurance.

Condominium Insurance

A special policy taken out by owners or management corporations designed to cover the buildings of a condominium, sometimes carrying other benefits, such as Liability insurance for the management corporation or committee, plus Errors and Omissions cover.

Consequential Loss

An alternative name for Business Interruption or Loss of Profits insurance.

Constructive Total Loss

Partial loss of such significance that the cost of restoring damaged property would exceed its value after restoration. For example, a car is so badly damaged by fire that repairing it would cost more than the repaired vehicle would be worth.

Contingent Liability

This is where a liability is incurred by a business for acts other than those of its own employees. If an independent contractor is hired to carry out some work, then the business may be held liable for the negligent acts of the contractor if the contractor is acting under the direction or control of an employee of the business.

Contract of Indemnity

Property insurance that restores the insured to his original financial condition after suffering a loss. The idea is that the insured cannot profit by his misfortune. Personal Accident insurance, where a pre-agreed lump sum payment is made, is not a Contract of Indemnity.

Contractor’s All Risks

Sometimes called ‘Contract Works Insurance’, this is an insurance policy which covers contract works, such as new buildings in the course of construction, and engineering projects, on an All Risks basis. This policy would usually include Public Liability cover as well. It is often arranged in the joint names of the principal and the contractors.


Where someone is holding two or more insurance policies covering the same interest in the same property for the same peril, and if the policies are contracts of indemnity, then the law does not allow the insured to recover a loss under both policies and so make a profit out of the misfortune he has insured against. Instead, the insurers concerned share in the loss proportionately. This is known as contribution.

Contributory Negligence

A principal of law recognising that injured persons may have contributed to their own injury. For example, by agreeing to be a passenger in a car being driven by someone that you know to be drunk. If you are subsequently injured you may be said to have been contributorily negligent.

Cost Insurance and Freight

If you import or export your goods on a ‘CIF’ basis, then insurance is included in the deal. ‘C & F’ excludes insurance - in this case, the buyer has to make his own insurance arrangements.

Crop Insurance

Covers various growing crops in the event of loss or damage caused by insured perils, notably fire, flood or hailstorm. In many countries this is available through government bodies.

Counter Guarantee

If an insurance company issues a Bond, then it will usually ask for either cash collateral or a counter guarantee from a surety or directors of the company to whom it issues the Bond. If insurers make payment, then redress will be sought against such sureties under a counter guarantee.


is for Deifie – In Glasgow “to sling a someone a deifie" is to ignore them or disregard what they have to say or simply to pretend not to have heard them. At Trafalgar we listen to our clients and throw no deifies.

D is also for

Debris Removal Clause Declaration Policies Deductible Demurrage
Denial of Access Defective Design Difference in Conditions Insurance Difference in Limits Insurance
Directors and Officers Insurance Driving Under the Influence of Driving Under the Influence of Drugs Dual Basis Payroll

Debris Removal Clause

The basic cover under a fire or industrial all risks policy does not automatically extend to include the cost of removing debris, shoring up buildings or dismantling machinery. These costs are insured under a separate “debris removal” clause. It is important to note that the standard debris removal clause does not extend to cover the removal of stock debris.

Declaration Policies

See adjustable policies


The amount of any claim which is the responsibility of the Insured and which the insurer will deduct from any claim payment. Often this is referred to as an excess. Sometimes deductibles are voluntary and a premium discount allowed. Sometimes they are imposed by insurers as an underwriting requirement to avoid large numbers of small claims and their associated administration costs.


Demurrage is the loss of use a vessel owner incurs if his vessel is restricted to port as a result of damage to the vessel or delays in loading or unloading.

Denial of Access

A company’s business could be affected by a nearby fire (or other loss) which restricts access to the company’s premises. As a result, although the company’s own premises are undamaged, they suffer a reduction in turnover and a loss of gross profit. This type of loss is not covered under a basic business interruption policy but can be covered if the policy is appropriately extended.

Defective Design

A public liability policy provides cover for liabilities an Insured may incur as a result of business activities. This policy may be extended to include “goods sold or supplied” or “products liability”. Even when so extended, a basic policy will not cover losses incurred by third parties due to the defective design in the products. To provide such defective design cover a further design extension is required.

Difference in Conditions Insurance / Difference in Limits Insurance

Multi-national companies often arrange their insurance programme centrally on a global basis so that the risk manager will know exactly what levels of cover operate and can ensure these offer appropriate cover for the organisation. However, the legislation in individual countries, the existence of joint venture partners or other circumstances may require local insurance to be arranged. In such circumstances, the global programme will cease to operate for those risks covered by the local policy, but will continue to operate for those areas not covered by the local programme but included in the global programme. If the standard of the cover is different, then the “top-up” cover provided by the global programme is called Difference in Conditions Insurance. If the sum insured or policy limits are different, then the “top-up” cover provided by the global programme is called Difference in Limits Insurance.

Directors and Officers Insurance

Legislation in many countries makes directors and senior officers personally responsible for wrongful acts they commit as representatives of the company. If poor management decisions are made and the company loses business, if investors are given inaccurate information or if an employee believes he has been unfairly dismissed, personal action may be taken and the company may be prohibited from paying costs or damages on the directors behalf. Extremely large personal claims have been seen in the USA and they are becoming more frequent in Asia. For more information on Directors and Officers Insurance, see our separate article.

Driving Under the Influence of Alcohol or Drugs

Although laws vary greatly, it is now a criminal offence in most countries to drive while under the influence of alcohol or drugs. However, not only do you commit a criminal offence, but if you should have an accident while driving under the influence of alcohol or drugs you will find your insurer will refuse to settle your insurance claim.

Dual Basis Payroll

See Business Interruption. Payroll is normally included as part of the Gross Profit insured under a business interruption policy. In some cases however, an Insured may feel it unnecessary to insure full payroll and wish to insure on a more restricted basis. Dual basis payroll cover allows the Insured to cover 100% of payroll for an agreed initial period say three months with cover then dropping to say 25% of payroll. This allows the Insured to perhaps pay all appropriate redundancy money to staff as they are laid off following a catastrophic loss, but to retain certain key staff (in this case up to 25% of the payroll) until the business is fully recovered. Dual basis also allows an “option to consolidate”. If this option is elected, the Insured can extend the initial period of full cover by a small additional period after which all cover for payroll ceases.

Dual basis cover provides a flexible and low cost method of insuring payroll. It does however provide only partial cover.


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