Every term on a policy schedule, defined by the claim that decided what it means.

The words that decide who pays

Duty of fair presentation

The duty on a business taking out or renewing commercial insurance to disclose every material circumstance it knows, or ought to know after a reasonable search, whether or not the insurer asked about it directly. It comes from the Insurance Act 2015, s.3, and applies to commercial policies; consumer policies follow a different regime under the Consumer Insurance (Disclosure and Representations) Act 2012. A business renews its cover without mentioning that it has started using a first-floor room for spray painting. Whether that omission breaches the duty turns on whether a prudent insurer would have wanted to know.

Condition precedent

A policy term that has to be met before the insurer's obligation to pay arises at all, unlike an ordinary term where breach might only reduce what's paid. Written as a condition precedent, a breach unconnected to the loss can still let the insurer decline the whole claim. A policy makes it a condition precedent that a burglar alarm is set whenever the premises are unattended. If it wasn't set the night of a break-in, the insurer can refuse the claim even though setting it might not have stopped that particular burglar.

Indemnity period

The maximum length of time a business interruption policy will pay for lost income and increased costs after a covered loss, fixed when the policy was arranged. A twelve-month indemnity period pays for twelve months of interruption, however long the business actually needs to get back to normal. A fire closes a shop for fourteen months while it's rebuilt. If the indemnity period is twelve months, the last two months of lost trading fall to the business.

Average (underinsurance)

The rule an insurer applies when the sum insured is lower than the true value of the property at the time of loss, cutting the payout in the same proportion as the shortfall. Insuring stock or premises for half their real value can reduce the claim payment to roughly half, whatever the size of the actual loss. Stock worth £200,000 is insured for only £100,000. A fire destroys £80,000 of stock. Applying average, the insurer pays roughly half of that figure, because the sum insured was half of what it should have been.

Excess

The amount a policyholder carries on every claim before the insurer pays anything above it, set as a fixed sum or a percentage of the loss. A higher excess usually brings the premium down, because the insurer is settling fewer small claims. A policy carries a £500 excess. A repair bill comes to £2,000. The insurer pays £1,500 and the policyholder pays the first £500.

Claims-made versus occurrence

Two different ways a policy decides which claims it covers. A claims-made policy covers claims notified while the policy is live, whenever the underlying act happened; an occurrence policy covers events that happened during the policy period, whenever the claim is eventually made. Professional indemnity cover is usually written on a claims-made basis, so a policy has to be in force, or its retroactive date has to reach back far enough, when a client eventually complains about advice given years earlier.

Subrogation

The insurer's right, once it has paid a claim, to step into the policyholder's shoes and pursue whoever actually caused the loss to recover its money. It's why an insurer that pays for damage caused by a contractor or supplier can then bring a claim against them in the policyholder's name. An insurer pays a shop owner for water damage caused by a plumber's faulty work. Having settled the claim, the insurer can pursue the plumber to recover what it paid out.

Retroactive date

The earliest date from which a claims-made policy, most often professional indemnity, will respond to a claim, whenever it's notified. Work carried out before that date isn't covered even if a complaint about it arrives while the policy is running. A retroactive date of 1 January 2020 means advice given in 2018 isn't covered, even if the client doesn't complain about it until 2024 while the policy is in force.

Loss adjuster

An independent professional appointed, usually by the insurer, to investigate a claim: establishing what happened, what the policy covers and what a fair settlement figure looks like. A loss adjuster is not the same as a loss assessor, who is instructed by the policyholder to argue the claim from the other side. After a fire, the insurer sends a loss adjuster to inspect the damage, review the policy wording and recommend a settlement figure before the insurer decides what to pay.

Aggregate limit

The maximum an insurer will pay across all claims in a single policy period, as distinct from the limit that applies to any one claim. Once the aggregate limit is used up, no further claims are met that year, however many are still outstanding. A policy has a £1 million limit per claim and a £2 million aggregate limit. Three claims at £800,000 each would total £2.4 million, but the insurer pays no more than £2 million across the year.

Warranty

A promise written into the policy that a fact is true or that something specific will be done, breach of which can discharge the insurer from liability from the moment of breach, whether or not the breach caused the loss. It's a stricter form of term than an ordinary condition. A policy warrants that a sprinkler system will be maintained under a service contract. If that contract lapses, the insurer can treat itself as no longer liable from that date, even for a loss that had nothing to do with the sprinklers.

Betterment

The principle that an insurer isn't obliged to leave a policyholder better off than before the loss, so where a repair necessarily improves on the original condition, the policyholder may be asked to contribute the difference. It comes up most often when an old part is replaced with new because a like-for-like replacement isn't available. A ten-year-old roof is damaged and can only be replaced with new materials. The insurer may deduct an amount for betterment, reflecting that the business now has a newer roof than the one it lost.

Reinstatement value

Cover based on the cost of rebuilding or replacing property as new. It's the basis most commercial property policies use, but it depends on the sum insured being kept in line with actual rebuilding costs. A warehouse insured on a reinstatement basis is rebuilt to an equivalent standard after a fire, provided the sum insured was high enough to cover the rebuild.