Glossary

Coinsurance hammer clauses provide for a sharing of defense and indemnity costs (between the insured and the insurer) incurred after the insured refuses to consent to a settlement proposed by the insurer. The most common sharing percentage is 50/50 but can sometimes go higher (e.g., 70 insurer/30 insured). The effect of such clauses is to reduce the amount of indemnity and defense costs that an insured could potentially incur if it refuses to consent to a settlement amount recommended by an insurer. This clause is an alternative to the standard hammer clause found within professional, directors and officers (D&O), and errors and omissions (E&O) policy forms.

A coinsurance provision is defined as a property insurance provision that penalizes the insured's loss recovery if the limit of insurance purchased by the insured is not equal to or greater than a specified percentage (commonly 80 percent) of the value of the insured property. The coinsurance provision specifies that the insured will recover no more than the following: the amount of the loss multiplied by the ratio of the amount of insurance purchased (the limit of insurance) to the amount of insurance required (the value of the property on the date of loss multiplied by the coinsurance percentage), less the deductible. The amount of the loss that is not payable to the insured as a result of failure to comply with the coinsurance provision is commonly referred to as a coinsurance penalty. In commercial property insurance policies, it is sometimes possible to avoid the possibility of a coinsurance penalty with an agreed value provision. In health insurance and some casualty lines, a coinsurance provision is the percentage share of losses that an insured retains. It is a form of deductible.

A coinsurer is one that shares the loss sustained under an insurance policy. This usually refers to an insured property owner that fails to purchase enough insurance to comply with the coinsurance provision and that, therefore, suffers part of the loss itself.

Collapse additional coverage is coverage under the Insurance Services Office, Inc. (ISO), broad and special causes of loss forms (CP 10 20 and CP 10 30) for collapse of a building and collapse of personal property within a building due to specified causes (e.g., weight of snow, ice, or rain). There is no coverage for collapse due to design error or to collapse due to faulty workmanship or materials if the collapse occurs after construction is complete.

Collapse: homeowners policy is additional coverage provided by the homeowners policy. Collapse is not treated as a peril per se but as an additional coverage with separate treatment, language, and restrictions. For coverage to apply, the proximate cause of the collapse has to be a covered peril. For example, if the faulty design of the home (an excluded peril under the homeowners form) results in the collapse, no coverage is provided.

A collar is an agreement to receive payments as the buyer of an option, cap, or floor and to make payments as the seller of a different option, cap, or floor.

Collateral refers to assets that are provided as security to ensure satisfaction of a future liability. It is often required by ceding companies to minimize their credit risk or offset a nonadmitted balance. A direct writing captive writing deductible reimbursement coverage may provide collateral to the insurance company that has issued a deductible policy to the captive's insureds. The most common form of collateral posted by captives or captive insureds or captive shareholders is the bank letter of credit (LOC), but insurance trust funds may be used.

A collateral agreement transfers all or some of the rights of the owner of personal property (including a life insurance policy) to another party (the assignee) as security for the repayment of an indebtedness. Once the debt is repaid, the assigned property rights usually revert back to the assignor (the original property owner).

Collateral documents are additional documents that are often incorporated into a policy by physical attachment or by reference. Examples include the application, the insurer's bylaws, endorsements, and a schedule of covered locations, inspection reports, and operating manuals referencing safety procedures or equipment.

Collateral estoppel is a doctrine under which an earlier decision rendered by a court in a lawsuit between parties is conclusive as to the issues or controverted points so that the issues cannot be relitigated in subsequent proceedings involving the same parties. For example, a truck is shown to be defective in design due to placement of its fuel tank. Collateral estoppel might prevent this same issue of defect being litigated over and over again in subsequent trials.