CII IF8 key terms

The mutual duty on proposer and insurer to disclose material facts honestly and not mislead each other when a contract is formed. Breach can allow the innocent party to avoid the policy or claim damages.

A legal or financial relationship with the subject matter such that the insured benefits from its preservation and suffers loss from its damage or destruction. It must normally exist at inception and at the time of loss.

The principle that a property or liability claim restores the insured to the financial position held before the loss, no better and no worse. It limits recovery to the actual loss suffered.

The insurer's right, after paying a claim, to stand in the insured's shoes and pursue a negligent third party for the loss. Any recovery is limited to the amount paid and held for the insured.

The right of one insurer to recover a proportionate share of a loss from other insurers covering the same interest against the same peril. It prevents the insured recovering more than the loss.

The dominant, effective cause of a loss, determined by a common-sense judgment of the chain of events. Cover depends on whether that cause is an insured peril, regardless of earlier or later causes.

Information that would influence a prudent insurer's decision on whether to accept the risk, or on the terms and premium charged. The proposer must disclose it when arranging cover.

Failure by the proposer to reveal a material fact known or which should have been known before the contract was formed. The remedy depends on whether the omission was deliberate, reckless or innocent.

An untrue or misleading statement of fact made to the insurer during negotiations. If it induced the contract, the insurer may have remedies ranging from avoidance to adjusting the claim proportionately.

A term in the policy that must be complied with exactly; breach historically discharged the insurer from liability from the date of breach. Consumer insurance rules now soften this to a suspension of cover.

A policy term that must be satisfied before the insurer's liability arises or before a claim is payable, such as notifying a loss promptly or submitting proof of loss.

A clause applying to underinsured property risks that reduces a claim in the same proportion as the sum insured bears to the full value of the property at risk. It penalises inadequate sums insured.

The improvement in the insured's position where a claim payment provides new-for-old replacement of worn property. Insurers typically deduct for wear, tear and depreciation to avoid it.

A basis of settlement providing new-for-old replacement or repair of damaged property rather than its depreciated value. It usually requires the sum insured to reflect full rebuilding or replacement cost.

The first amount of each loss that the insured must bear before the insurer pays. It may be compulsory, imposed by the insurer, or voluntary, accepted in exchange for a reduced premium.

The residual value of damaged property that the insurer may sell to offset the claim, or the insured's duty to preserve and protect damaged property from further loss after an incident.

The insured's duty to tell the insurer promptly about a loss or circumstance that may give rise to a claim, giving sufficient detail for the insurer to investigate and reserve.

Documentary evidence the insured must supply to substantiate a claim, such as invoices, valuations, medical reports or repair estimates, enabling the insurer to verify the amount payable.

An independent specialist appointed by the insurer to investigate a claim, establish the cause and quantum of loss, and recommend settlement. They act for the insurer, not the insured.

Legal liability owed by the insured to another person for injury, death or property damage, which a liability policy indemnifies subject to policy limits and exclusions.

Cover protecting an employer against claims from employees for injury or disease arising out of employment. In the UK most employers must hold at least the statutory minimum cover.

Cover for the insured's legal liability to third parties, other than employees, for bodily injury or property damage occurring in connection with the business, typically on or near its premises.

Cover for liability arising from negligent acts, errors or omissions in the provision of professional services, including defence costs and awards for economic loss suffered by clients.

The maximum total amount an insurer will pay across all claims during a policy period, as opposed to a per-occurrence limit that applies afresh to each individual loss.

The maximum sum an insurer will pay under a policy for a single claim or occurrence, including defence costs unless stated otherwise. It caps the insurer's exposure regardless of the actual loss.

The amount declared as the value of the insured property or the maximum the insurer will pay under the policy. It forms the basis for calculating premium and any average reduction.

Cover compensating a business for lost gross profit and increased working costs following an insured physical damage event that interrupts trading, usually for a defined indemnity period.

The maximum period, starting from the date of damage, over which business interruption losses are payable. It should reflect the time needed for the business to return to its pre-loss trading level.

Financial loss flowing indirectly from damage, such as lost profits, rent or additional costs, rather than the physical damage itself. It requires specific cover, such as business interruption.

The process of evaluating a proposed risk, deciding whether to accept it, and setting the terms, conditions, exclusions and premium that reflect the likelihood and severity of loss.

The risk that an insured's attitude or behaviour, such as carelessness or intent to gain from a claim, increases the likelihood or size of a loss. It is assessed through claims history and circumstances.

The tendency for people with above-average risk to seek or retain insurance more readily than low-risk customers, leaving the insurer with a worse-than-expected pool unless risk is priced accurately.

The systematic identification and measurement of hazards, exposures and potential losses presented by a risk, forming the basis for acceptance decisions, rating and risk improvement recommendations.

A condition or characteristic that increases the chance of a loss occurring or worsens its severity, such as poor housekeeping, storage of flammables or an unsafe working practice.

The amount of risk an insurer or insured deliberately keeps rather than transferring, through an excess, deductible or reinsurance arrangement. It controls cost, capacity and exposure.

Insurance bought by an insurer to transfer part of its accepted risk to another insurer, protecting solvency, increasing capacity and smoothing the effect of large or numerous claims.

The consideration paid by the insured for cover, calculated from the rate applied to the sum insured or exposure base and adjusted for risk features, expenses and profit margin.

The situation where the same interest is insured against the same peril with more than one insurer. The insured may claim from any, but cannot recover more than the loss.