TWFG Commercial Business School

TWFG Commercial Business School

Glossary

Insured:This is the person/entity that is named in the insurance policy. This is usually the buyer of the policy.

Insurance Contract: Insurance policies are contracts. With only a few exceptions, insurance contracts are two party contracts. The two parties are the insured and the insurer. Although third parties (those who file claims against the insured) may benefit from the insurance contract, the insurer’s primary duty is to the insured. The insurer either acts on behalf of the insured in situations where the insured would be legally liable for damages, or pays the insured directly for damage to the insured’s property.

Liability:This term appears often in the titles of different types of commercial insurance. It refers to acts for which the insured is held legally liable. These acts are what “trigger” coverage under many policies. Most liability insurance contracts today are open peril, meaning that all causes of loss are covered except those specifically excluded. So, if the insured does something that causes harm or damage to others, and that “something” is not an excluded act, then the insurance policy will respond.

First party coverage:This refers to coverage for things that the insured owns. When these are damaged, the insurer pays the insured (first party) directly. Typical examples are building and business personal property.

Third party coverage:This refers to liability claims. The third party is the individual/entity that is damaged due to the insured’s acts. They are also known as the “claimant”, as they bring a claim against the insured. Note that the third party is not a party to the insurance contract, but does benefit.

Who is the Second party?The insurer is the second party. So, the insurance contract is a two party contract between the insured (first party) and the insurer (second party). When there are liability claims, a claimant (third party) may be paid for damages.

Property & Casualty (P&C)Property and Casualty Insurance (P&C) refers to the primary exposures covered by the most common commercial insurance policies. Property refers to physical property such as building and contents or auto physical damage. Casualty refers to liability, such as auto liability or commercial general liability.