Glossary

Contract of adhesion is a legal concept wherein a contract is offered intact to one party by another with the stipulation that the second party accept or reject the contract in total without the opportunity to bargain over the wording. When interpreting contracts of adhesion, the courts will construe any ambiguities against the drafter of the contracts. Insurance policies are contracts of adhesion and are therefore construed strictly against insurers.

Contract ratification indemnity is a type of political risk insurance that pays a proportion of the contractor's start-up costs that may not be recoverable from the purchaser/employer in the event that an overseas contract is not finalized for reasons outside the contractor's control. It is common practice for contractors/sellers to place orders and mobilize a plant at site as soon as a foreign contract is signed. If, at this stage, certain conditions remain to be fulfilled before a contract becomes binding on both parties, the contractor/seller could be liable for all expenses so incurred should the conditions precedent not be met, and the contract is never ratified. Contract ratification indemnity coverage is designed to insure this exposure.

Contract repudiation indemnity provides coverage for economic losses arising out of the unilateral cancellation of a contract as a result of direct or indirect actions of a foreign government or its agents under circumstances in which the insured is not in breach of contract. The coverage is usually purchased by importers, exporters, and contractors.

The contra proferentem rule is a universally applied rule that ambiguities in an insurance policy will be strictly interpreted against the insurer. Application of this rule is a three-step process: (1) The court examines the policy language to determine whether it is ambiguous. (2) If the language is unclear, the court will admit extrinsic evidence to clarify the policy and determine the parties' intent at the time they entered into the contract; if the extrinsic evidence dispels the ambiguity, the contract is applied in accordance with its true meaning as ascertained by the extrinsic evidence. (3) If the extrinsic evidence does not clarify the ambiguities, the contra proferentem rule is applied, and the ambiguous language is construed in favor of the insured and against the insurer.

Where there is more than one reinsurer sharing a line of insurance on a risk in excess of a specified retention, each such reinsurer shall contribute toward any excess loss in proportion to its original participation in such risk. Example: Retention $100,000, Reinsurer A accepts one-half contributing share part of $1 million in excess of said $100,000. Reinsurer B accepts remaining one-half contribution share part of $1 million.

Contribution, as used in the insurance industry, is the principle holding that two or more insurers each liable for a covered loss should participate in the payment of that loss. Having paid its share of a loss, an insurer may be entitled to equitable contribution—a legal right to recover part of the payment from another insurer whose policy was also applicable. Many insurance policies stipulate the formula under which contribution among multiple insurers will take place. Two standard methods are contribution by limits and contribution by equal shares.

Contribution by equal shares is a method of apportioning loss among multiple insurers. Under the contribution by equal shares apportionment method, the loss is shared equally among all the insurers that have valid insurance on the risk, up to the limit of liability of the insurer with the lowest limit of liability. After that, if the judgment or settlement has not been satisfied, all insurers that still have unexhausted limits will split the loss equally until the next insurer exhausts its limit or the loss is paid. This will continue until the judgment or settlement is fully paid or all insurers exhaust their limits.

Contribution by limits is a method of apportioning loss among multiple insurers. Under contribution by limits, any participating insurer's share of the total loss is the percentage of that loss that the insurer's policy limit represents as part of all insurers' applicable limits.

Contributory negligence is the negligence of a plaintiff constituting a partial cause or aggravation of their injury. This doctrine bars relief to the plaintiff in a lawsuit if the plaintiff's own negligence contributed to the damage. Contributory negligence has been superseded in many states by other methods of apportioning liability.

A controlled foreign corporation is an offshore captive whose US shareholders own more than 25 percent (50 percent for European companies) of voting control.