Common Terms

Claims Made – a type of coverage form or contract (policy) in which the carrier agrees to pay, on behalf of the insured, all sums which the insured becomes legally obligated to pay as damages and claims expenses as a result of claims first made against the insured (and reported in writing to the carrier) during the policy term but only if the insured did not give or was not required to give notice of the claim under any policy which expired prior to the expiration date of the policy. The claim must result from a wrongful act which happened on or after the prior acts/retroactive date shown on the declarations page.>

Prior Acts Limitation Date (Retroactive Date) – means the date before which no wrongful act which occurs prior to that date is covered even if a claim resulting from the wrongful act is first made and reported during the policy period/year. Once a prior acts limitation date (retroactive date) has been established it is generally always maintained, even if the risk moves their insurance to another carrier.

Deductible – the dollar amount the insured must contribute to damages and claim expenses. Sometimes the deductible is per claim – which means each time a claim is reported the stated deductible is due. There are also annual aggregate deductibles – which means the deductible amount is due on an annual basis, not a per claim basis. First Dollar Defense – the deductible (retention) does not apply to claim expense, it applies only to damages.

Defense Outside The Limits – means expenditures the company incurs (which may include amounts charged by the attorney hired to defend the insured, costs to investigate, expert witness fees, court costs, etc.) in the investigation, defense of, appeal of or adjustment of a claim or suit above or in addition to the stated per claim limit of liability. There is a premium charge to place the defense of claims outside the limits. The stated per claim limit is the amount available to pay damages (indemnity). If the defense is not outside the limit, the stated per claim limit is then reduced by the incurred expenses thereby reducing the available limit to pay damages (indemnity).

Damages – means a monetary judgment, award or settlement.

Named Insured – the party with whom the insurance contract is made and who is specifically named as such. Most commonly identified on the declarations page. May include predecessor firms.

Predecessor Firm – caution should be used when comparing different coverage or policy forms. Generally, it means any professional (i.e. accountant, lawyer), firm (again accounting or law firm) or professional legal corporation engaged in practice (i.e. of accounting or law) in whose financial assets and liabilities the named insured is the majority successor in interest. Other carriers may define a predecessor firm as a firm which has undergone dissolution, a defined term, and from which at least two-thirds of the dissolved firm’s shareholders, partners or employees have joined the Named Insured meets the definition of predecessor firm. Others define it as a firm which has undergone dissolution, and from which at least 50% of the dissolved firm’s shareholders, owners, partners or officers have joined the Named Insured will meet the definition of predecessor firm.

"Tail" Coverage or "Extended Reporting Endorsements" – most claims made policies provide that some form of extended reporting endorsement, or so-called "tail" coverage, may be purchased upon the termination of the current policy. Such an endorsement will extend the time in which to report any future claim arising out of a covered act, error or omission that occurred while the firm carried claims made coverage with the insurer which has since expired. A "tail" policy will not provide coverage for acts, errors or omissions occurring after a specific date (the policy termination date). "Tail" coverage may be provided in yearly increments in which to report a claim (three and six year options are common) or as unlimited "tail" coverage. These provisions vary from insurer to insurer.