Airport Insurance Coverage and Risk Management Practices (2011)

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29 GLOSSARY Airport Operator: An airport operator is an organization responsible for the direction and management of one or more airports. Benchmarking: The act of comparing a measurement with a standard. It shows you where you are and helps you decide where you want to go. Builders’ Risk: A property insurance policy that is designed to cover property in the course of construction. There is no single standard builders’ risk form; most builders’ risk policies are written on inland marine (rather than com- mercial property) forms. Coverage is usually written on an all-risk basis, and typically applies not only to prop- erty at the construction site, but also to property at off- site storage locations and in transit. Builders’ risk insurance can be written on either a completed value or a reporting form basis; in either case, the estimated com- pleted value of the project is used as the limit of insurance. Business Interruption: Insurance covering loss of income suffered by a business when damage to its premises by a covered cause of loss causes a slowdown or suspension of its operations during the time required to repair or replace the damaged property. There are two Insurance Services Office, Inc., business income coverage forms: the busi- ness income and extra expense coverage form (CP 00 30) or the business income coverage form without extra expense (CP 00 32). Previously referred to as “business interruption coverage.” Carrier: An insurance or reinsurance company that insures or “carries” the insurance or reinsurance. Claim: Used in reference to insurance, a claim may be a demand by an individual or corporation to recover, under a policy of insurance, for loss that may come within that policy. Consolidated Insurance Program: See Controlled Insur- ance Program. Controlled Insurance Program (CIP): A centralized insurance program under which one party procures insurance on behalf of all (or most) parties performing work on a project or a site. Typically, the coverages pro- vided under a CIP include builders’ risk, commercial general liability, workers’ compensation, and umbrella liability. CIPs are most commonly used on single con- struction projects, but other uses include contract mainte- nance on a large plant or facility (maintenance wrap-up) or on an ongoing basis for multiple construction projects (rolling wrap-up). CIPs offer a number of benefits, including greater control of the coverage, potentially lower costs, and reduced litigation. Can be owner con- trolled (OCIP) or contractor controlled (CCIP). See also Partner controlled insurance program at http://www. irmi.com/online/insurance-glossary/terms/p/partner- controlled-insurance-program-pcip.aspx. Crime Coverage: A crime insurance policy that is designed to meet the needs of organizations other than financial institutions (such as banks). A commercial crime policy typically provides several different types of crime cover- age, such as employee dishonesty coverage; forgery or alteration coverage; computer fraud coverage; funds transfer fraud coverage; kidnap, ransom, or extortion coverage; money and securities coverage; and money orders and counterfeit money coverage. Cyber (Cyberspace Liability) Coverage: A term used to describe the liability exposures encountered when com- municating or conducting business online. Potential liabil- ities include the Internet and e-mail. Online communication tools could result in claims alleging breaches of privacy rights, infringement, or misappropriation of intellectual property; employment discrimination; violations of obscenity laws; the spreading of computer viruses; and defamation. Media liability policies are available to cover these exposures. Deductible: A portion of covered loss that is not paid by the insurer. Employment Liability: A form of liability insurance cover- ing wrongful acts arising from the employment process. The most frequent types of claims alleged under such policies include wrongful termination, discrimination, and sexual harassment. The forms are written on a claims-made basis and generally exclude coverage for large-scale, companywide layoffs. In addition to being written as a stand-alone coverage, employment liability insurance is frequently available as an endorsement to directors’ and officers’ liability policies. Errors and Omissions: An insurance form that protects the insured against liability for committing an error or omis- sion in performance of professional duties. Generally, such policies are designed to cover financial losses rather than liability for bodily injury and property damage. Exposure: The state of being subject to loss because of some hazard or contingency. Fiduciary Liability: The responsibility on trustees, employ- ers, fiduciaries, professional administrators, and the plan itself with respect to errors and omissions in the adminis- tration of employee benefit programs as imposed by the Employee Retirement Income Security Act.

30 General Liability Insurance: A standard insurance policy issued to business organizations to protect them against liability claims for bodily injury and property damage arising out of premises, operations, products, and com- pleted operations; and advertising and personal injury liability. The policy was introduced in 1986 and replaced the “comprehensive” general liability policy. Insurance Broker: An insurance intermediary who/that represents the insured rather than the insurer. Because they are not the legal representatives of insurers, brokers, unlike independent agents, often do not have the right to act on behalf of insurers, such as to bind coverage. Although some brokers do have agency contracts with some insurers, they usually remain obligated to represent the interests of insureds rather than insurers. For exam- ple, some state insurance codes impose a fiduciary responsibility to act on behalf of their customers or pro- vide full disclosure of all their compensation from all sources. See also Agent at http://www.irmi.com/online/ insurance-glossary/terms/a/agent.aspx. Large Airport: Airports reporting operating revenue in the last fiscal year of more than $600 million. Law Enforcement Errors and Omissions: Provides errors and omissions coverage for police departments. Unlike most professional liability coverage, such policies are often written on an occurrence (rather than on a claims- made) basis. Some of the more important covered acts include false arrest, excessive force, and invasion of pri- vacy. This coverage can sometimes be provided on a lim- ited basis in the general liability policy but must usually be purchased separately. Common exclusions are crimi- nal/intentional acts, claims for injunctive relief, and motor vehicle operations. Liability Limits: 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 above the limits. Loss: The basis of a claim for damages under the terms of a policy. Medium Airport: An airport reporting operating revenue between $251 million and $600 million. Owner-Controlled Insurance Program (OCIP): See Controlled Insurance Program. Pollution: The contamination of an environment by sub- stances regarded as pollutants. Liability from pollution is normally excluded to some degree by the general, auto, and umbrella liability policies. In recent years, insurers have attempted to introduce strict exclusionary language into these policies, making it necessary for insureds to seek coverage under separate “environmental impair- ment liability” policies. Primary Coverage: The policy that responds first to an insured loss, either on a first-dollar basis or after allowing for a deductible. When the primary coverage limits are paid, any remaining loss is covered by whatever excess layer of insurance may be in place. Professional Liability: Coverage designed to protect tradi- tional professionals (e.g., physicians) and quasi-profes- sionals (e.g., real estate brokers) against liability incurred as a result of errors and omissions in performing profes- sional services. Although there are a few exceptions, most professional liability policies cover economic losses suffered by third parties, as opposed to bodily injury and property damage (which is typically covered under com- mercial general liability policies). The vast majority of professional liability policies are written with claims- made coverage triggers. Property Insurance: First-party insurance that indemni- fies the owner or user of property for its loss, or the loss of its income-producing ability, when the loss or damage is caused by a covered peril, such as fire or explosion. In this sense, property insurance encompasses inland marine, boiler and machinery, and crime insurance, as well as what was once known as fire insurance, now sim- ply called property insurance: insurance on buildings and their contents. Public Officials’ Errors and Omission: Provides liability coverage for the errors and omissions of public officials. In effect, such policies serve the same function for elected/appointed officials of state and local government as directors’ and officers’ (D&O) insurance serves for the directors and officers of corporations. However, one major difference is that under public officials’ liability forms, employees and the public entity itself are insureds, whereas this is not the case with D&O policies. Exclu- sions under this policy include losses owing to fraud or dishonesty, bodily injury or property damage, false arrest, assault and battery, defamation, and fiduciary liability. Renewal Policy: An insurance policy issued to replace an expiring policy. Request for Proposals: A document used to secure propos- als for insurance or risk management services. Retention: Assumption of risk of loss by means of noninsur- ance, self-insurance, or deductibles. Retention can be intentional or, when exposures are not identified, unintentional. Risk Identification: The qualitative determination of risks that are material, i.e., that potentially can impact the orga- nization’s achievement of its financial and/or strategic objectives. This is often done through structured inter- views of key personnel by internal (e.g., internal audit) or external experts. In some cases, the organization’s busi- ness process maps are used to guide the risk assessment.

31 Self-Insurance: A system whereby a firm sets aside an amount of its monies to provide for any losses that occur—losses that could ordinarily be covered under an insurance program. The monies that would normally be used for premium payments are added to this special fund for payment of losses incurred. Self-insurance is a means of capturing the cash flow benefits of unpaid loss reserves and also offers the possibility of reducing expenses typically incorporated within a traditional insurance program. It involves a formal decision to retain risk rather than insure it and is distinguished from nonin- surance or retention of risks through deductibles, by a formalized plan or system to pay losses as they occur. Small Airport: An airport reporting operating revenue between zero and $250 million. Terrorism: The use of violence to produce terror for politi- cal or ideological purposes. Terrorism is distinct from war in that it need not be the act of a military force or be directed by a sovereign power. Foreign acts of terrorism may be certified as an insurable loss exposure under the Terrorism Risk Insurance Act (TRIA). See also Terror- ism Risk Insurance Act (TRIA) at http://www.irmi.com/ online/insurance-glossary/terms/t/terrorism-risk-insur- ance-act-tria.aspx/ War Exclusion: A provision found in nearly all insurance policies that excludes loss arising out of war or warlike actions. The loss can result from either declared or unde- clared war, but must be related to actions of a military force directed by a sovereign power. Before the Septem- ber 11, 2001, terrorist attacks, the war exclusions in most liability insurance policies applied only with respect to contractually assumed liability, on the theory that private persons and organizations could not otherwise incur lia- bility in connection with war. Following the September 11, 2001, terrorist attacks, “war and terrorism” exclusions that broadened the war portion of the exclusion beyond contractually assumed liability were quickly added to liability policies. That broadened war exclusion is now standard, regardless of whether terrorism is insured or excluded in the policy. War Risk Insurance: Insurance against loss or damage to property resulting from the acts of war. It is freely written on marine exposures but is virtually unobtainable on property exposures. Workers’ Compensation: The system by which no-fault statutory benefits prescribed in state law are provided by an employer to an employee (or the employee’s family) owing to a job-related injury (including death) resulting from an accident or occupational disease.