Insurance was created to spread risk from individuals tomultitudes. Spreading the risk from oneperson to many is the essence of insurance. The risk-spreadingmodel has taken many forms over the centuries.

In the days of sailing ships and galleys powered by slavespulling on oars, merchants found shipping to be inherently risky.The risks of shipping by sea were clearly too much for anindividual merchant to bear. The loss of one ship could bankrupt amerchant, so the merchants spread the risk of their businessenterprises among each other. With rudimentary insurance, the riskof shipping was equitably spread among those subscribing to theloan, and no single merchant suffered when a ship was lost atsea.

Originally, insurers were merely merchants who occasionallyinvested in insurance. As the volume of trade increased in theseventeenth century, some merchants specialized and became thefirst professional insurers.

Today, if you earn a living from insurance, language is important — for the sales process, duringunderwriting, and also at the point of claim. How well do you knowyour claims terminology? Keep reading to test your knowledge.

average: A term used in settlement ofclaims. Itmay have originally come from the French word avarie, meaning lossor damage. There are both general and particular average clauses.Average clauses are the precursor of co-insurance clauses. Theyrefer to any partial loss or damage due to insured perils. Itrequires the insured to maintain coverage equal to a statedpercentage of the actual cash value of the subject of theinsurance, otherwise the insured must pay a part of the loss.

bordereau(x): A detailed report ofinsurance premiums or losses affected by reinsurance orinsurance. A loss bordereau contains a detailed list of claims andclaims expenses outstanding and paid by the managing general agent,third party administrator or reinsured during the reporting period,reflecting the amount of indemnity applicable thereto.

cause of action: A statement in a lawsuitof a claim against the defendant. Modern lawsuits in the U.S.usually state multiple causes of action or “counts” against thedefendant. A multiple cause of action suit may seek damages fornegligence, intentional infliction of emotional distress, negligentinfliction of emotional distress, trespass, assault, battery, and breach of contract.

constructive total loss (CTL): An instancein which the cost of recovering and/or repairing damaged goodswould exceed the insured value.

Image: Burned-out vehicles stand in view of a housestill standing following a wildfire several days earlier, Tuesday,Sept. 15, 2015, in Middletown, Calif. The fire that sped throughMiddletown and other parts of rural Lake County, less than 100miles north of San Francisco, has continued to burn since Saturdaydespite a massive firefighting effort. (AP Photo/ElaineThompson)

ex gratia payment: A claim payment notnecessarily covered by the terms and conditions of an insurancepolicy but made as a commercial accommodation by the insurer to thepolicyholder.

fortuity doctrine: An insurance contractinsures against the risks of loss that are neither intended norexpected from the standpoint of the insured. Intentional acts done with the intent to recover insuranceproceeds are never insured. The fortuity doctrine requires that theloss be accidental to be covered. The rule embodies a fundamentaland significant public policy interest that in some contexts issufficiently important to preclude coverage claims even when thereare explicit agreements to the contrary.

Loss In Progress Rule: Insurance can onlyindemnify an insured against risks of loss that are both unkown and unexpected. If a loss isalready in progress at the time the policy is acquired, the loss isno longer fortuitous but is rather a certainty. The Loss InProgress Rule prohibits recovery for a non-fortuitous loss.

prima facie case: When a party establishesall of the evidence necessary to prove a case. The plaintiff, whoalways presents evidence first in a trial, must present a primafacie case before the defendant will be required to presentevidence to defeat the plaintiff's claim. If the plaintiff fails topresent a prima facie case the court will enter judgment in favorof the defendant and not require production of evidence to rebutthe evidence presented by the plaintiff.

subrogation: An equitable remedy where aperson who pays the debt of another is entitled to assume therights of the person whose debt he or she paid. In insurance, whenan insurer pays a claim, it assumes all of the rights of the personinsured, to sue and recover the amounts paid from any third partywho was responsible for the loss.

uberrimae fidei: A universally recognizeddefining characterization of insurance and reinsurance. Literally,utmost good faith. Among other differences from ordinaryrelationships, the nature of insurance and reinsurance transactionsis dependent upon a mutual trust and a lively regard for theinterests of the other party, even if detrimental to one's own. Abreach of utmost good faith, especially in regard to full andvoluntary disclosure of the elements of risk of loss, is acceptedas grounds for any necessary reformation or redress, includingrescission and tort damages in most jurisdictions.

These definitions were taken from Insurance Law, the most comprehensive, and yetpractical, insurance law authority available today. Written bynationally-renowned insurance coverage expert Barry Zalma, aninsurance coverage attorney, consultant, expert witness andblogger, InsuranceLaw introduces the new insuranceprofessional to the fundamental principles of insurance andprovides the experienced litigator analyses of today's leadinginsurance law decisions nationwide.