Have you ever read your entire insurance policy? Probably not. Have you understood every word of what you have read? Again, probably not. The insurance industry tends to use words that are unique to only the insurance industry. I thought we might take some time to look at some of the terminology used in the insurance industry that matters to your coverage. I’m not trying to teach you a new language, but knowing some of the lingo can make it quicker and easier for you to understand your coverage. We’ll look at a few commonly confused terms from Property coverage here.
Special or All Risk coverage
When you insure your building and/or your contents against damages, chances are pretty good you bought what the industry calls a “Special” or “All Risk” form. In actuality we don’t use the term “All Risk” much anymore but you still might hear it. A “Special” form covers your property for any direct physical damage except for what we specifically state is excluded.Those exclusions are listed right there in the same coverage form. We have all those exclusions for a number of reasons:
- Some things are just uninsurable, like war.
- We don’t want to cover morally unacceptable losses such as those that result from intentional acts, for instance, if you burned down your own building.
- We don’t want to cover things that are better covered on another type of policy. For instance, your Property policy excludes vehicles, which we expect to be insured on an Auto policy.
- Many coverages aren’t needed by everyone, so we offer them for sale separately. Earthquake and Flood coverage are good examples.
- If we didn’t have exclusions you wouldn’t be able to afford a policy that covered everything.
If you don’t have a Special form, then you have something that’s referred to as a “Named Perils” form. That simply means that the form lists only those causes of loss that we’ll pay for. It’s kind of the opposite of the Special form. Incidentally, if you have a “Named Perils” form, it would be worth asking your agent why. Special form coverage is the norm for small businesses.
Replacement Cost vs. Actual Cash Value
Somewhere on your insurance policy where the coverage for your Building and/or your Contents is listed you’ll probably find “RC” or “ACV”. These two valuation theories work pretty simply: if you have Replacement Cost coverage, the intention is to replace the damaged property without any deduction for depreciation. If you have Actual Cash Value coverage, when we determine the value of your loss, we’re going to subtract depreciation.
There are several reasons why we have both of those options, the two largest being:
- It costs more to buy Replacement Cost coverage, so we want you to have the option to buy something that is more affordable for you.
- There may be occasions when you wouldn’t want to actually replace the property that was damaged. For example, you have machinery that supports a product line that you are de-emphasizing or have stopped producing altogether. The machinery may still be in your shop, but you know you’d never replace it if it was damaged.
There are other methods for valuing a loss, but they’re more infrequently used and apply to much more specific circumstances. If you don’t find an “RC” or “ACV” on your policy, ask your independent agent what valuation method applies.
Here’s an interesting one. Any normal person would think that the words “Inland” and “Marine” don’t seem to fit together. Or they might guess that the term refers to things that float on a river or lake as opposed to the ocean. Inland Marine actually refers to a wide range of specialty risk insurance policies that primarily cover property that is expected to be in transit or otherwise regularly moved. Yes, you can load your office copier in the back of the van and take it for a road trip but that’s not what we’re talking about. The term comes from the earliest origins of insurance: coverage for cargo on wooden sailing ships. The owners of the cargo wanted coverage for their goods once they were unloaded from the ship and were in transit to their final destination. So the “Marine” underwriters of the time extended their coverage and we then had the concepts of “Ocean Marine” and “Inland Marine”. Over time this coverage for goods in transit inland expanded to other types of property that regularly moved.
The industry today often refers to these as “floater” policies because the coverage they provide is not centered around a physical location. When you insure your building and/or contents, we’re very interested in the address, and your coverage is limited to some distance (like 500 or 1,000 feet) of that address. But if you have things covered on an Inland Marine floater, the coverage moves or “floats” with the equipment. Examples include:
- Construction equipment such as backhoes, bulldozers, trailer-mounted generators, etc.
- Construction materials that haven’t yet been installed.
- Camera equipment.
- Medical equipment (mobile x-ray units or something like that).
- Miscellaneous equipment in transit (think salespeople with samples).
There are lots of other interesting policies that come under the heading of Inland Marine like Fine Arts, Jewelry, buildings under construction and others. This is a rich and varied part of the insurance industry. If you have property that is regularly on the move, or is not regularly housed at your business address, you should discuss with your agent whether Inland Marine coverage may be right for you.
I took a look at an online insurance glossary from the Insurance & Risk Management Institute (IRMI) and they have over 3,200 terms defined. We just scratched the surface here, but hopefully a look at some of the common terms that you might see or hear will give you more of a chance to understand what kind of coverage you have.
Acadia is pleased to share this material with its customers. Please note, however, that nothing in this document should be construed as legal advice or the provision of professional consulting services. This material is for general informational purposes only, and while reasonable care has been utilized in compiling this information, no warranty or representation is made as to accuracy or completeness. Distribution of this information does not constitute an assumption by us of your obligations to provide a safe workplace. Maintaining a safe workplace in accordance with all laws is your responsibility. We make no representation or warranty that our activities or recommendations will place you in compliance with law, relieve you of potential liability or ensure your premises or operations are safe. We exercise no control over your premises or operations and have no responsibility or authority to implement loss prevention practices or procedures.