Lawyers often create problems by misusing legal jargon, but we can be really dangerous when we try to use the terms of art of other specialties—and get those terms wrong. Nowhere is this more apparent than in the “required insurance” clauses we draft into our leases and other contracts. Insurance companies have changed their forms over the years, including the defined, substantive terms used in those forms. Big surprise! They too have lawyers, and if changing a term used in their forms may reduce their liability, they change the term. As a consequence, lawyers who reuse old insurance clauses without thinking about them (and there are a lot of really old clauses out there) are asking for trouble. Here are a few of the insurance terms that are commonly used—and misused—in contracts:
Liability Insurance—Insurance that protects the insured from defense costs and liability arising from claims made by third parties (also called third party coverage).
Property Insurance—Insurance that pays the insured the cash value or replacement cost of damaged property in which the insured holds an interest (also called first party coverage).
Casualty Insurance—Although this term is thrown around in many insurance clauses, it has no reliable meaning. Real property lawyers generally use it to mean property insurance, but insurers think it means liability insurance. It can mean either. So don’t use this term; instead use property insurance or liability insurance to describe the type of insurance coverage you are seeking.
Named Insured—This is the party who pays the premiums and is identified as the insured in the base policy. Insurers do not add parties as named insureds if they are outside the entity family; however, even if an unrelated party could be a named insured, it does not want to be one because the insurer can deny coverage to all named insureds if the policy is breached.
Additional Insured—This term describes a third party with whom the named insured contracts and for whom the named insured is required to provide insurance coverage. A landlord should require that its tenant name the landlord as an additional insured—not an additional named insured—on the tenant’s liability policy. An endorsement may add an additional insured, but it can happen automatically if the tenant’s insurance policy automatically covers parties that the named insured is contractually required to add as additional insureds and if the lease contract so requires.
Comprehensive General Liability Insurance—Many lease and contract clauses use this term to describe the type of liability insurance that the other party is required to maintain, but this form of insurance was replaced by commercial general liability insurance in 1986 (this insurance is also referred to as CGL coverage). Let’s face it, comprehensive sounds way too, well, comprehensive, and the industry clearly felt that commercial was more descriptive of modern policies with their many limitations and exclusions.
All Risk Insurance—Many leases require the tenant to maintain this type of property insurance on the landlord’s building. Like liability policies once called comprehensive general liability insurance, the insurance industry stopped calling property policies all risk coverage many years ago; after all, even property insurance policies that cover the broadest range of risks cover only some risks, not “all risks.” The current Insurance Services Office, Inc. (ISO) policy corresponding to an all risk policy is called a causes of loss—special form policy, and this is the term that should be used to describe the other party’s required property insurance coverage.
Personal Injury—We transactional types see a lot of ads for “personal injury” lawyers and tend to require indemnity for “personal injury” on the assumption that personal injury means physical injury to persons that slip and fall in our clients’ buildings. But that’s not what it means in an insurance policy. Instead, in the standard ISO liability policy, bodily injury means physical injury to or death of a human being, property damage means physical damage to or loss of tangible property, and personal and advertising injury means other described types of damage. So in your contracts, require indemnity for bodily injury to ensure coverage for physical injuries to persons.
These commonly misused insurance terms demonstrate the danger of using terms of art that we don’t understand. And there’s no excuse for misusing terms today, in the age of the internet. We may not be able to rely on internet information completely, but it does give us a general idea of the accepted current meaning of a term. And when there is a reliable internet source of information for a particular industry’s terms of art, then we can and should use that source to make ourselves comfortable that the terms we are using are correct. For insurance terms, that source is the International Risk Management Institute, Inc. (IRMI). IRMI’s online glossary, found at https://www.irmi.com/glossary, is a valuable resource for lawyers who use insurance terms. It’s dangerous to rely on the jargon of other industries, but we can protect ourselves and our clients by confirming that we’re using that jargon correctly.