Glossary

A limited severability provision in an application for directors and officers (D&O) liability insurance states that knowledge possessed by any insured persons, other than the signer of the application or certain executive officers (usually the CEO, COO, and CFO), will not be imputed to other insureds in a claim situation. For example, if an insured were aware that a coverage application contained false financial data, this knowledge—which would ordinarily bar coverage in a claim situation—will not be attributed to any other insureds who did not know that the financial statements were false. As a result, these so-called innocent insureds will have coverage under the policy. However, if either the signer of the application or one of the three executive officers had knowledge of the false data, their knowledge would be attributed to the innocent insureds, and coverage would be barred for the "innocent insureds" as well. A limited severability provision is much less favorable for insureds, compared to a full severability provision. However, only a minority of insurers' application forms contain limited severability provisions.

A limits reduction provision is used in connection with uninsured/underinsured motorists (UM/UIM) coverage referring to limit of insurance provisions that set out how UM/UIM coverage is affected by the existence of other types of coverage (e.g., auto medical payments, workers compensation) that may apply as well. Under limits reduction, the limit of insurance under UM/UIM is reduced by payments from other types of insurance, as specified in the applicable UM/UIM endorsement.

Limits under multiple policy years is an approach to structuring limits for insurance programs covering low-frequency but high-potential-severity exposures, such as excess liability (over commercial general liability (CGL) policies), pollution liability, and directors and officers (D&O) liability. Under this approach, a single aggregate limit remains in effect for multiple years as opposed to a series of separate policy limits, applicable to single years, as under a traditional approach. Since a single limit applies over several years, a higher limit than would typically be purchased in a single policy year can usually be obtained at a lower cost.

The limit of insurance is the most that will be paid by the insurer in the event of a covered loss under an insurance policy.

LIMRA International, Inc., is an international association that conducts market, consumer, economic, financial, manpower, and human resources research for life insurance and financial services companies. LIMRA and its fellow research association, LOMA, provide their members with research, training and development, consulting, assessment, compliance, and other benefits and services.

A line in an insurance context is a class of insurance, such as property, marine, or liability. In reinsurance, a line is an amount of risk retained by a ceding insurer for its own account.

A line of business in an insurance context is a general classification of insurance industry business, e.g., fire, life, health, liability.

A line sheet is a schedule showing the maximum limit of liability that can be written by an insurer for different classes of risks; also called a "line guide."

A line underwriter is an insurance professional responsible for evaluating, selecting, pricing, and accepting or rejecting risks within a particular line of insurance, such as property, casualty, auto, liability, or life insurance. To do so, line underwriters apply underwriting guidelines, loss experience, risk characteristics, and available capacity to determine whether coverage should be offered and on what terms, conditions, limits, and premium. They may also review renewals, endorsements, and changes in exposure to help maintain a profitable and balanced book of business.

Liquidated damages refers to a stipulated amount as agreed on in a contract. Liquidated damages are often used in lieu of actual damages, especially in construction contracts. For example, a contractor may be liable for $10,000 per day for each day required to complete a project beyond the agreed-upon completion date. Liquidated damages are not intended to be punitive and must have a reasonable correlation to anticipated actual damages. Most contractors prefer liquidated damages provisions (as opposed to being liable for actual damages) because they offer greater ability to quantify the risk.