Glossary

A lessee is the person to whom a lease is granted, the tenant. When used in connection with the motor carrier industry, and in particular in connection with owner-operator situations, the term refers to the entity that holds operating authority to operate as a motor carrier for hire.

Lessees of Safe Deposit Boxes Coverage Form I is an outdated commercial crime insurance form used to insure against the loss of securities (not money) and property (other than money and securities) from within a safe deposit box in a vault at a financial institution. Coverage on property kept in a safe deposit box in a bank or other depository premises is now insured using a Lessees of Safe Deposit Boxes (CR 04 09) endorsement to a commercial crime policy.

A lessor is the person granting a lease, the landlord. When used in connection with the motor carrier industry, and especially in connection with owner-operator situations, the term refers to the owner of a commercial motor vehicle who contracts with the entity that holds operating authority for the use of his or her motor vehicle (with or without a driver) in the motor carrier's business.

Less than truckload in the motor carrier industry means the motor carrier consolidates loads from multiple shippers into one cargo load.

A letter of credit (LOC) is a legal commitment issued by a bank or other entity stating that, upon receipt of certain documents, the bank will pay against drafts meeting the terms of the LOC. LOCs are frequently used for risk financing purposes to collateralize monies owed by an insured under various cash flow programs such as incurred but not paid losses in paid loss retrospective rating programs, fulfillment of the capitalization requirements of captives, satisfaction of the security requirements of the excess insurer in "fronted" deductible or retention programs. For captives, LOCs serve two possible purposes: they may be used in lieu of or in addition to cash or other securities as capital and/or to securitize the fronting insurer's reinsurance receivable created by a nonadmitted reinsurer (i.e., the captive).

Leverage traditionally refers to the employment of funds for which a firm pays a fixed cost or return. When revenues associated with the employment of these funds exceed the fixed cost or returns, the firm is positively leveraged. Leverage as used in the insurance and reinsurance industries has a similar meaning. However, due to the unique nature of the insurance transaction, insurance and reinsurance companies are able to take advantage of extreme leverage positions. For example, an insurer's capital and surplus are usually only a fraction of the total amount of insurance limits that it can comfortably sell to insureds. This extreme position can only be sustained as long as the premiums received and the investment income earned on loss reserves are adequate to contain ultimate losses and expenses.

Liability is the term for any legally enforceable obligation. Within the context of insurance, the obligation to pay a monetary award for injury or damage caused by one's negligent or statutorily prohibited action.

Liability insurance is a form of insurance that applies to the obligation of the insured to pay damages arising out of legal liability to others.

Liability limits are the stipulated sum or sums beyond which an insurance company is not liable for payments due to a third party. The insured remains legally liable for sums above the policy limits.

The federal Liability Risk Retention Act (LRRA), enacted by Congress in 1986, was an expansion of the Product Liability Risk Retention Act of 1981 and addressed availability needs of commercial liability insurance in the market in the 1980s. The Act utilizes both risk retention groups (RRGs) and purchasing groups (PGs) to accomplish its purpose. Also of note is that the Act preempts some state functions. For example, the Act does not allow a state insurance regulator to prohibit risk retention groups (RRGs) domiciled in other states from operating within the regulator's state, thus eliminating the need for a fronting company.