Glossary of Terms

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Adjusting and Other Expenses
Expenses incurred by the insurance company to resolve claims which are not attributable to specific claims, such as rent, salaries, and utility costs. See also Unallocated loss adjustment expenses (ULAE).

Aggregate Limits
The amount of coverage that is purchased to cover indemnity amounts for the combined number of reported events/claims for each policy period, i.e. $1 million/$3 million.

Allocated Loss Adjustment Expenses (ALAE)
Allocated loss adjustment expenses include those expenses incurred by the insurance company in the investigation, adjustment, or defense of specific claims. Regulators are now referring to this as defense and cost containment expenses. See also Defense and Cost Containment Claim Expenses.

Alternative Dispute Resolution (ADR)
A method of claim resolution that is outside the normal court system, such as mediation or arbitration. The objective of ADR is to promote more expeditious resolution of claims. Claims resolved in this manner can be less costly on the system as high administrative fees can be avoided through this rapid resolution process. Most ADR programs are voluntary and are provided through mediation, arbitration, or settlement conferences.

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Bad Faith
Bad faith is alleged by the defendant when the insurance company refuses to expeditiously handle or settle a claim. If found to be valid, the court will enter a bad faith judgment against the insurer. The purpose of applying bad faith judgments is to protect the insured. The court usually applies bad faith judgments when the insurer fails or inappropriately refuses to enter into settlement negotiations or rejects the attorneys' advice to settle.

Basic/Primary Coverage
Primary insurance provides coverage for which liability attaches immediately upon the filing of a claim. It is "first dollar" coverage, often sold at $1million/$3 million policy limits.

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Catastrophic Coverage/Patient Compensation
Several states have laws that establish a patient compensation or medical professional catastrophic coverage fund which provides for an additional layer of coverage to the insured over the basic policy limits of the insurer, similar to excess coverage.

Claim Reserve
Estimated costs to fund claims that the insurance company is aware of but that have not yet been resolved. This does not take into account incurred but not reported claims.

Any written demand for compensation in the form of money or services, with no legal papers having been filed in court. Policy provisions require insureds to notify the insurance company immediately.

Claims-Made Policy
A policy coverage type that covers an insured against any claim made (reported) during the policy period.

Consent to Settle a Claim
A company may not settle a claim on an insured's behalf without first obtaining the insured's written consent.

Coverage Exclusions
A condition, loss, or act expressly not covered by the policy, which may appear on the declarations page or in the policy jacket. For example, coverage for the performance of certain extra-hazardous procedures may be excluded.

Covered Defense Costs
Any expenses paid in the process of adjudicating a claim. Costs generally include defense attorney costs, expert witness fees and other costs associated with court costs, securing medical records, etc.

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Losses incurred by the plaintiff.

• Economic Damages: Direct losses, such as medical expenses, lost wages and other expenses, incurred as a direct consequence of the injury resulting from the acts of the defendant.
• Non-economic Damges: A value determined to compensate the injured party for diminished personal enjoyment, pain and suffering, loss of consortium, and other hedonistic pleasures.

Declaration Page
Also referred to as Coverage Summary. This is a portion of an insurance policy that contains coverage data specific to the individual insured, such as a name, address, policy limits, and premiums charged.

Deductible Policy
A policy that requires the insured to assume partial payment of indemnity amounts, usually from the first dollar to a predetermined limit. For example, the insured is responsible to pay the first $10,000 of any amount due to the plaintiff.

Defense and Cost Containment Claim Expenses
Defense and cost containment expenses include those expenses incurred by the insurance company in the investigation, adjustment, or defense of specific claims.

Discovery Proceedings
After the reporting of an incident, claim or suit, this process focuses on the identification and disclosure of documents that are relevant to the allegation. The objective of the discovery process is to obtain any facts or relevant matters regarding the allegation. The discovery process is performed by an attorney assigned by the insurance carrier, and all of the attorney-client privileges exist during the process.

Dividends are paid to policyholders as a return of a portion of premiums paid by policyholders when it can be determined that the insurance company does not need these moneys to pay claims or operating expenses.

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Event/Incident Reporting
Any event that caused a possible error or omission that the policyholder feels is the potential for litigation. The policyholder should report such event and the surrounding circumstances to the insurance comapny as soon as practicable. The purpose of reporting such events is to create a file in the event that a claims is made and provides data to the insurer regarding potential problem areas.

Excess Coverage
Excess insurance provides coverage with liability attaching only after a predetermined amount of primary coverage has been exhausted. Excess coverage is only available if the insured maintains the underlying primary insurance coverage.

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Facultative Reinsurance
A type of reinsurance in which the insurance company cedes risks under individual policies to the reinsurer, rather than all risks used to reduce exposure to loss on an individual risk basis.

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Gross Written Premium
The collective value of all policy premiums written or sold during an accounting period, such as a calendar or fiscal year.

Group Coverage
This coverage is extended to multiple physicians with one policy, and covers incidents that are reported on behalf of any physician named on the declaration page of the policy.

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No terms


Incident/Accident Date
This is the date on which the alleged event took place. It is also referred to as the occurrence date. Claims-made coverage claims must be reported during the same policy period as the date the alleged incident occurred.

Incurred but not Reported (IBNR)
This term refers to an estimate of the number and/or value of claims that have occurred but not yet been reported to the insurance company. This projection is developed by the company's actuaries and is based on historic information of loss experience. IBNR values are estimated to indemnity amounts and allocated loss adjustment expenses.

Incurred Expenses
Expenses that have and may not yet have been paid by the insurance company in the defense of claims and suits. Includes the amounts already paid and those expected to be paid.

Incurred Losses
Losses that have occurred within a stipulated time period, whether paid or not.

Indemnity Payment
Moneys paid to plaintiff for damages incurred. The indemnity payment includes an amount equal to the economic recovery for expenses already incurred or expected to be incurred, and may also include non-economic damages. Non-economic damages are paid to compensate an individual for physicial and emotional pain, suffering, mental anguish, and other abstract non-monetary losses.

Individual Coverage
This is coverage rendered to one physician with one policy and covers the incidents only for that physician.

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No terms


Legal Expense Reimbursement Insurance Coverage
A comparatively new product offered by a growing number of insurance companies to cover defense expense costs associated with investigations or government proceedings related to fraud and abuse.

Locum Tenens Coverage
Coverage that is extended to an additional insured on a policy in cases in which that physician is providing temporary medical coverage for the policyholder.

Loss Ratio
The relationship of incurred losses and loss adjustment expenses to earned premiums.

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Medical Professional Liability Insurance
Medical professional liability insurance (also referred to as medical malpractice insurance) covers physicians, dentists and other healthcare professionals in the medical field for liability claims arising from their treatment of patients.

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Net Written Premium
The gross premium written by the insurance company minus the reinsurance ceded to other companies.

Nose Coverage
Also referred to as prior acts coverage. This coverage type provides coverage for claims that arise from acts or omissions of the insured that occurred during the time the insured was covered by another insurance carrier. Those acts took place before the retroactive date. The retroactive date is the date on which the current policy is first in effect. Policies include retroactive dates which preclude coverage for claims caused by errors that took place before the specified retroactive date.

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Occurrence Policy
A policy coverage type that covers an insured against any claim that arises from an event occurring during the policy period regardless of when the claim is reported.

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Partnership/Corporation Coverage
This policy type covers the liability of a partnership or corporation of which the insured is an owner or shareholder. Partnerships and corporations can be sued for the alleged failure to establish proper clinical practices or procedures and are often named as additional defendants in claims against the partners or shareholders in order to increase the amount of moneys potentially availble to the plaintiff.

Per Incident Limits
The amount of coverage that is purchased to cover indemnity amounts for each claim reported for a single injury during a policy period, i.e. $1 million/$3 million.

Policy Endorsement
Additions or modifications to the policy. Endorsements can be added to restrict or expand coverages for the person(s) insured by the policy. An endorsement can add additional insureds or corporations for an additional premium. It can also be used to reflect modification of specialty, territory, or scope of practice of an insured.

Policy Jacket
Also referred to as Policy Form. This is the portion of an insurance policy that contains policy provisions common to all insureds, such as covered acts, methods of indemnification, and claims reporting requirements.

Premium to Surplus Ratio
The ratio of premiums written to policyholders' surplus. The ratio is one measure of the adequacy of the company's financial strength. The lower the ratio, the greater the company's financial strength.

The amount of an insured is charged which reflects his/her expected loss or risk. In professional liability coverage, the premium can be based on specialty, geographic region of practice, prior claims history, performance of high risk procedures, and other underwriting parameters.

Professional Liability Insurance
A policy of insurance that covers "professional services" rendered from which an act or omission must arise for coverage to be applicable. Policies typically include all services rendered in the insured's professional capacity. Professional liability policies generally have exclusions for "any dishonest, fraudulent, or criminal act or omission," as well as general exclusions for bodily injury, property damage, or sexual misconduct.

Punitive Damages
Punitive awards by the court intended to punish the defendant for flagrant or willful misconduct, rather than to compensate the patient. Punitive damages are rarely awarded in medical liability cases, but are commonly used as a threat by the plaintiff attorney to force a settlement.

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No terms


Insurance purchased by the primary insurance carrier to protect against excess losses. The reinsurer agress to indemnify a primary company against all or part of the loss that the company may sustain under the policy(ies) issued. For example, a primary insurer may issue a policy for $1 million per incident, $3 million annual aggregate. Under a reinsurance treaty, the reinsurance company may agree to pay all losses above $500K per incident, $1.5 million annual aggregate, in return for premium paid by the primary insurer.

Report Date
This is the date the alleged injury was actually reported to the insurance company. This can be in the form of an event, claim, or suit.

Reporting Endorsement
Also known as tail coverage. This coverage type provides coverage for claims caused by errors or omissions that occurred during a policy period but are reported after a policy has expired or been canceled.

Retroactive (Retro) Date
First date of coverage for a claims-made policy.

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Slot Coverage
This is a type of coverage that is offered to group practices and institutions and covers the risk of a "block" of exposures, i.e. several physicians rotating through one full-time equivalent position. In a big group practice, there may be several physicians that rotate in and out of the office, but perform as only one full-time physician and fill the "slot" on a rotating basis.

Formal litigation that alleges an error omission on the part of one or more defendants, who demands money or services to claimant.

The aggregate assets the company has in excess of its direct financial obligations. The surplus is equivalent to the capital and retained earnings or net worth. It is the amount by which assets exceed liabilities.

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Tail Coverage
Also known as a reporting endorsement. This coverage type provides coverage for claims caused by errors or omissions that occurred during a policy period but are reported after a policy has expired or been canceled.

The geographic area in which the physician practices. Professional liability premiums can vary greatly between geographic regions of the same state. It is critical that the insured inform the insurer of all regions in which he/she practices, within or outside of one state.

Total Premium Earned
The portion of premium dollars collected by the company which has been allocated to the insurance company's loss experience, expenses, and profit year-to-date. For an insurance policy with an annual premium of $365, one additional dollar of premium is earned with the passage of each day.

Treaty Reinsurance
A type of reinsurance in which a reinsurer underwrites part or all of a ceding company's book of business.

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Unallocated Loss Adjustment Expenses (ULAE)
Expenses incurred by the insurance company to resolve claims tha are not attributable to specific claims, such as rent, salaries, and utility costs. See also Adjusting and Other Expenses.

Underwriting Expenses
Expenses incurred by insurance companies to market, sel, and produce insurance policies.

Unearned Premium
The part of the premium applicable to the unexpired part of the policy. It has not yet been earned by theinsurance company and is therefore due to thepolicyholder if the policy should be canceled. Unearned premium is carried as a liability on the company's balance sheet.

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Vicarious Liability
Liability imposed upon a person even though he is not a party to the specific occurrence. Insurance coverage can be provided for other health professional when they are working under the direct supervision of the insured physician. For example, an anesthesiologist may have a "vicarious liability" exposure for CRNA's under their supervision or employ.

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No terms


No terms


No terms


No terms


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