Glossary of Terms

This page contains definitions for terms commonly used in the insurance industry. You will also find terms in this list that are unique to the MN FAIR Plan. An underlined term will link to the definition or document highlighted.

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Abandonment: Giving the Insurer undamaged or partially damaged property for the purpose of claiming a total loss. Insurance policies prohibit the Insured from doing this unless agreed to by the Insurer.
Actual Cash Value: Some policies issued by the FAIR Plan are limited to the Actual Cash Value (ACV) of the property. Actual Cash Value is the amount of money needed to repair or replace damaged property less allowance for depreciation, obsolescence, or general wear and tear. Actual Cash Value is not the same as replacement cost.
Additional Coverages: The Additional Coverages provided are determined by the policy purchased. Additional Coverages common to many policies are: Debris Removal, Reasonable Repairs, Fire Department Service Charge, and Property Removed. Read your policy for details.
Additional Insured: An individual or organization with a financial interest in the real property that is named on the policy.
Additional Living Expense: This is found in the Farm Fire and Homeowners policies under Loss of Use, Coverage D. Additional Living Expense is coverage for the increase in living expenses that arise when an Insured must live away from the insured location due to a covered loss. Additional Living Expense Coverage covers only expenses actually paid by the Insured. This coverage does not pay all living expenses, only the increase in living expense that results directly from the covered loss, and having to live away from the insured location. If the covered loss does not make the residence unlivable, there will be no Additional Living Expense to claim. Coverage is provided for the shortest time required to repair the covered damage. Read your policy for details.
Adjuster: An adjuster is a person who settles claims. The FAIR Plan employs an Adjuster on staff for this purpose. When our Adjuster is unable to handle a claim, we will assign the claim to an Independent Adjuster. Independent Adjusters work for Insurers. A Public Adjuster is an individual hired by Insureds to represent them in handling their claim with the Insurer. Public Adjusters are normally paid a percentage of the final settlement amount, agreed to by both parties in advance. Public Adjusters usually require the Insured to sign a binding legal contract before beginning work on the Insured’s behalf. As with all contracts, the Insured retains the right to cancel the contract within 72 hours of its creation. The right to cancel the contract, and the proper steps to do so are controlled by Minnesota law. Minnesota law also requires Independent and Public Adjusters to be licensed. The Minnesota Department of Commerce regulates Independent and Public Adjusters.
Agent: Agents are persons trained and licensed to sell insurance products. Agents are normally considered to be representatives of Private Insurers. In the case of the FAIR Plan however, the Agent represents the Insured, and not the FAIR Plan. Agents do not have the power to bind FAIR Plan coverage. We cannot accept premium checks drawn on an Agency account. The Minnesota Department of Commerce licenses and regulates Insurance Agents. Agents must pass an examination to receive their license, and are required to take continuing education to maintain their license. Agents are required to assist anyone who needs the FAIR Plan for their insurance. You can find an Agent in your area by consulting the Yellow Pages. FAIR Plan employees are not allowed to have a valid Agent’s License.
Appeal: Any Applicant, Insured, or Member Company adversely affected by any action or decision of the staff of the FAIR Plan has the right to appeal that decision to the Governing Board of the FAIR Plan. The appeal must be made in writing, and must state the reasons why the Board should reconsider the decision. The Board will act upon the appeal promptly, and will provide its decision in writing. This right of appeal does not prevent an individual from filing a complaint directly with the Minnesota Department of Commerce, or suing the FAIR Plan.
Appraisal: If the Insurer and Insured are unable to reach an agreement as to the amount of a loss, the Appraisal clause of the policy outlines how the dispute will be resolved. Read the Conditions section of your policy for details.
Applicant: A person or organization that applies for insurance coverage.
Application: The form used to apply for insurance. There is a different application for each line of business. The application must be completed truthfully, and all questions must be answered. The application must include photos of the front and back of each building and structure you want to insure and property tax information showing the market value of the structures.
Arson: The willful and malicious burning of property. Arson is sometimes committed with the intent of defrauding an Insurer. Both arson and fraud are crimes in the State of Minnesota.
Assessment: The method we use to finance the operation of the FAIR Plan if the premiums collected from our Insureds are not enough to cover our costs. Our Assessments are paid by the Member Companies. Each Member Company’s share of the assessment is determined by the premium it collects, compared to the total premium collected in Minnesota by all Member Companies. For example, if a Member Company collects 10% of the premiums paid in Minnesota, it will owe 10% of the assessment amount.
Assigned Risk Pool: An assigned risk pool is one form of Residual Market Mechanism. The Minnesota Automobile Insurance is an example of an Assigned Risk Pool. The Automobile Plan accepts applications from persons who cannot find auto insurance and assigns the risk to Private Insurers. They use a formula similar to the one we use to determine Assessment shares to determine which Private Insurer will receive the assigned policy. Although FAIR Plans may be operated in this fashion, the MN FAIR Plan underwrites the coverage that we sell. We do not assign policies to the Private Insurers as the Minnesota Automobile Insurance Plan does.
Assignment: Assignment of a policy is the legal transfer of a policy to another person or organization. We do not allow assignment of the policy. In cases such as this, we require that the new Applicant complete a new application. Assignment of a claim is the legal transfer of one’s interest in a loss settlement arising from a covered loss. Assignment of a claim can be done by simply notifying us in writing of your intention. An example would be assigning the proceeds of your claim directly to the contractor performing the repairs. This would allow us to pay the contractor directly.
Bodily Injury: Injury to a person’s body including sickness and death. Personal Liability Coverage provides coverage for bodily injury resulting from an Insured’s negligence.
Broad Evidence Rule: A rule that has developed through court decisions. The rule states that all factors that could affect the value of an item must be considered, not just th e estimated market value. We use this principle to determine the coverage limit for a policy, as well as to determine the amount of a loss.
Business Interruption Coverage: A policy that provides coverage for losses that result if a business is forced to shut down as a result of a covered loss. Although available through Private Insurers, the FAIR Plan does not offer Business Interruption Coverage.
Cancellation: Cancellation is the termination of a policy. Non-payment of premium is a common reason for cancellation. To qualify for insurance through the FAIR Plan, you must first be rejected, cancelled or non-renewed by a Private Insurer. Our application requires you to tell us who your previous insurance company was, and why you were cancelled. We are required to collect this information. There are three types of cancellation: flat, pro-rata, and short rate.
Causes of Loss: Causes of Loss is the name given to the Commercial Fire form that outlines the covered causes of loss under the policy. The FAIR Plan uses the Basic Causes of Loss form. The covered causes of loss under the basic form are: Fire, Lightning, Explosion, Windstorm or Hail, Smoke, Aircraft or Vehicles, Riot or Civil Commotion, Vandalism, Sprinkler Leakage, Sinkhole Collapse, and Volcanic Action. Vandalism coverage can be excluded if you wish to reduce the amount of your premium. Causes of loss means the same as perils, a term used for personal lines policies such as Homeowner and Dwelling Fire coverage.
Civil Authority: Police and other Law Enforcement, Fire Marshals, Housing or Building Inspectors, are all considered Civil Authorities.
Claim: A claim is a request for coverage.To be payable, the claim must be covered under the policy, and both the Insured and Insurer must abide by the Conditions of the policy.
Claims Experience: Claims experience is a term used in the industry to describe how many claims an Insured has made. Private Insurers will cancel or non-renew a policy if the Insured has had too many claims. This term can also refer to a Insurer’s overall claims history for the entire company.
Claim Guidelines: The Claim Guidelines explain the procedures we use for handling claims.
Coinsurance: A provision in some policies that allows an Insured to carry lower coverage limits in return for a lower premium. In effect, the Insured is agreeing to pay some of a potential loss out of their own pocket, if that loss exceeds their limit of coverage. Although offered by most Private Insurers, the FAIR Plan no longer offers coverage under a coinsurance provision.
Commercial Fire Policy: Commercial Fire Policies cover business properties. The Commercial Fire Policy used by the FAIR Plan is the CP0099.
Commercial Lines: Insurance coverage designed for businesses, organizations, and institutions.
Commerce Commissioner: The Commerce Commissioner is the top executive at the MN Department of Commerce. The Commerce Commissioner is appointed by the Governor, subject to the approval of the Legislature.
Commission: Commission is paid to the Agent for policies they have sold. The FAIR Plan pays Agents 12% of the premium received during the first year the policy is in force. The FAIR Plan pays Agents 5% of the premium received during each additional year that the policy remains in force. The commission paid to the Agent does not increase the premium paid by the Insured.
Committee: A group of Board Members formed by the Governing Board to oversee specific areas of the FAIR Plan’s operation, such as Member or Officer Nominations.
Comprehensive General Liability Policy: A broad liability policy covering businesses. Although available through Private Insurers, the FAIR Plan does not offer Comprehensive General Liability (CGL) policies. Liability coverage for businesses can sometimes be obtained through the Minnesota Joint Underwriting Association (MN JUA).
Comprehensive Personal Liability Policy: A broad liability policy covering individuals. Although available through Private Insurers, the FAIR Plan does not offer Comprehensive Personal Liability or Umbrella policies. We do provide liability coverage (maximum limit of $100,000) to those Insureds that qualify for and purchase Homeowner coverage. Higher liability limits are available from Private Insurers.
Concealment: Failure to disclose material facts on an application for insurance, or in the presentation of a claim. Concealment on the application can result in rejection of the application, or cancellation of your policy. Concealment in the presentation of a claim can result in denial of the claim, as well as cancellation of the policy. Concealment with intent to defraud is a crime in the State of Minnesota.
Conditions: Provisions of the policy that place requirements on both the Insurer and the Insured.
Condition Charges: Condition charges are premium surcharges intended to encourage repair and maintenance of the insured location. Condition charges can be eliminated by fixing the problem(s), and informing us of the repair. We may perform an inspection to verify correction of the problem. If an inspection is performed, it will be done at no cost to the Insured.
Consequential Loss: An indirect loss resulting from direct loss to the covered property. Generally speaking, policies do not cover indirect or consequential losses, although Additional Living Expense (Homeowner and Farm Fire) and Fair Rental Value (Dwelling Fire), Homeowner, and Farm Fire) are common exceptions.
Construction Class: Construction class is one of several factors that determine the premium. The two most common construction classes are Frame (Wood) and Masonry (Brick, Stone, Concrete).
Contract: A legally binding agreement between two competent parties. A policy is a legal contract between the Insured and the Insurer.
Contract for Deed Holder: A Contract for Deed Holder is someone that has sold property to a Contract Purchaser on a Land Contract. If you pay your monthly house payments to an individual, you are most likely a Contract Purchaser. The person you pay is your Contract for Deed Holder. They have a financial interest in the property, and for this reason must be listed on your policy. They must also be named as a payee on any payment for damage to the real property.
Contract Purchaser: A person who buys a property on a Land Contract.
Coverage A: The coverage provided for the primary building or residence. Also known as the real property. Read your policy for details.
Coverage B: The coverage provided for ‘Other Structures’ such as sheds, garages, and other real property, like a fence, or flagpole. Read your policy for details.
Coverage C: This is the coverage provided for personal property. Coverage C: Personal Property covers items owned or used by an Insured that are not real property. Read your policy for further information on the causes of personal property losses that are limited or excluded, as well as the kinds of personal property that are limited or excluded from coverage.
Coverage D: In Homeowner and Farm Fire policies Coverage D is called Loss of Use. In Dwelling Fire policies it is called Fair Rental Value. Read your policy for details. Coverage D is a consequential loss coverage that begins when the insured location is made unlivable due to a covered loss. Coverage is provided for the shortest time required to repair the covered damage.
Coverage E:Personal Liability coverage provided in Homeowner Policies, or Scheduled Farm Personal Property provided by the Farm Fire Policy. These two coverages are very different. Read your policy for details. Dwelling Fire policies do not contain this section.
Coverage F:Medical Payments to Others coverage provided in Homeowners policies. This also refers to Unscheduled Farm Personal Property Coverage provided by the Farm Fire Policy. These two coverages are very different. Read your policy for details. Although available from Private Insurers, the FAIR Plan does not offer Coverage F for Farm Fire Policies. Dwelling Fire policies do not contain this section.
Coverage G: Other Farm Structures, found in the Farm Fire Policy. No other policy sold by the FAIR Plan contains Coverage G. Read your policy for details.
Coverages: The section of the policy that outlines the types of coverage provided for different categories of property, and types of losses. It includes exclusions, restrictions or limitations on the coverage provided. It also includes the Additional Coverages provided for certain property.
Covered Damage: Damage caused by a covered loss. Read your policy for details.
Covered Loss: A loss covered under the terms and Conditions of the policy. Read your policy for details.
Covered Peril: The perils for which coverage is provided by the policy. Read your policy for details.
Covered Property: Property covered under the policy. Read your policy for details.
Debris Removal Coverage: Coverage for the expense to remove debris of covered property resulting from a covered loss. Debris Removal is one of the Additional Coverages. Read your policy for details.
Declaration Page: The part of the policy that contains information about the Insured, the insured location, the coverage limits provided, the term of the contract, the deductible, the premium charged, and the other parties to the contract such as a Mortgagee or Contract for Deed Holder. We send a new Declaration Page each year when the policy renews.
Deductible: The part of a covered loss that the Insured is required to pay. This is also a factor that determines the premium. You can reduce your premium by selecting a higher deductible amount.
Definitions: The section of the policy contract that explains the meaning of the terms used in the policy. Read your policy for details.
Denial: The refusal of an Insurer to provide coverage for a loss, for reasons supported by the circumstances of the loss, and the terms and Conditions of the policy.
Depopulation Program: This is the term used for our effort to return our Insureds to the private insurance market. Private Insurers provide better coverage than we do, and usually at a lower cost. One of our goals is to help our customers return to a Private Insurer for their coverage. We do this by encouraging our Insureds to find an Agent if they do not have one. We encourage repairs and maintenance of the property. We re-inspect and photograph insured properties to determine if they appear to be acceptable to Private Insurers. We offer advice and assistance to Insureds who wish to leave the FAIR Plan for better and cheaper coverage from a Private Insurer. We will share some Insured’s names and phone numbers with our Member Companies to see if our Insureds are eligible to return to the private market. Go to: Privacy Policy.
Depreciation: The decrease in the value of property over a period of time due to use, wear and tear, exposure to the elements, lack of maintenance, or obsolescence.
Direct Loss: Actual physical damage or destruction of real property or personal property.
Distribution: If the FAIR Plan were to end the year with a profit, that profit may be given back to the Member Companies in the form of a Distribution. It can also be returned in the form of a lower Assessment the following year. A Member Company’s share of the Distribution would be computed in the same way that we compute their Assessment share.
Dwelling Fire Policy: The DP-1 Policy is the only Dwelling Fire Policy sold by the FAIR Plan. It is used for residential properties that do not qualify for Homeowner coverage. Non-owner occupied property, vacant property and cabins are some examples of property we insure under a DP-1 Policy. The premium for the FAIR Plan DP-1 Policy will be higher than a Private Insurer would charge. The DP-1 Policy does not provide coverage for theft or liability losses.
Earned Premium: The amount of the premium that has been ‘used up’ during the time that the policy has been in force. For example, if a one-year policy were cancelled after six months, half of the premium would be earned.
Effective Date: The starting date of a policy.
Endorsement: An attachment to a policy that changes, broadens or restricts coverage. It is important to read the endorsement(s) attached to your policy.
Evaluator: An individual trained to perform inspections of properties.
Examination Under Oath: The Examination Under Oath (EUO) is used by an Insurer to investigate a claim. Claim investigations rarely include an EUO. If the Insurer requests an EUO however, the Insured is required by the Conditions section of the policy to cooperate.
Excess Insurance: A policy or endorsement that provides coverage once all other similar coverage has been paid in full.
Exclusions:Perils, causes of loss, property, or conditions listed in the policy that are not covered. Read your policy for details.
Expiration Date: The day that coverage under the policy ends. For policies sold by the FAIR Plan, the Expiration Date is one year after the Effective Date.
Extended Coverage: Sold as an optional part of the Dwelling Fire Policy (DP-1) . The additional perils covered under Extended Coverage are: Wind and Hail, Explosion, Riot or Civil Commotion, Aircraft, Vehicles, Smoke, and Volcanic Action. Under the DP-1 Policy, the Extended Coverage perils can also include Vandalism and Malicious Mischief, for an additional premium. The Declaration Page will show whether the policy includes Extended Coverage, as well as Vandalism coverage. Each peril can have special provisions, read your policy for details.
Extra Expense Coverage: A commercial coverage that provides for the extra expense a business incurs to continue in operation after a covered loss. Although available from Private Insurers, the FAIR Plan does not sell this type of coverage.
FAIR Plan: FAIR Plans were created in response to federal legislation. FAIR stands for Fair Access to Insurance Requirements. FAIR Plans are a form of Residual Market Mechanism.
Fair Rental Value: The name used for Coverage D of the DP-1 Policy. This is also provided as part of Coverage D in the Homeowner and Farm Fire Policies. This is a consequential loss coverage that begins when the insured location is made unlivable due to a covered loss. Coverage is provided for the shortest time required to repair covered damage. Read your policy for details.
Farm Fire Policy: The Farm Fire Policy sold by the FAIR Plan is the FP0010. The Farm Fire Policy provides coverage very similar to the DP-1. For an additional premium, the Farm Fire Policy can also provide coverage for Scheduled Farm Personal Property (Coverage E) and Other Farm Structures (Coverage G). The Farm Fire Policy does not provide coverage for liability losses. The Declaration Page will list the property and/or structures included under the policy.
Farm Scheduled Personal Property: Found in the Farm Fire Policy, Farm Scheduled Personal Property itemizes the property covered with a description and a limit for each item.
Fire Coverage: This is the minimum coverage available under the DP-1 Policy. Fire coverage includes the perils of Lightning and Internal Explosion. Each peril can have special provisions, read your policy for details.
Fire Department Service Charge Coverage: Found in the Additional Coverages section of the policy. This coverage will reimburse you up to the specified limit, if you are charged by the Fire Department to protect your property from damage by a covered peril. Read your policy for details.
Flat Cancellation:Cancellation of insurance coverage as of the Effective Date, with a refund of all premium paid.
Flood Insurance: :You can buy flood insurance from the National Flood Insurance Program (NFIP). Licensed Agents can sell flood insurance on behalf of the Federal Government, if you qualify under the Federal Flood Insurance Program (fema.gov/nfip). Ask your Agent about flood insurance if you believe you need it. If you do not have an Agent, the phone book provides an excellent listing of Agents. The FAIR Plan does not provide assistance in obtaining flood insurance.
Fraud: Intentionally misleading someone to part with or pay for something through false representations. Fraud on the application can result in rejection of the application or cancellation of the policy. Fraud in the presentation of a claim can result in denial of the claim, as well as cancellation of the policy. Fraud is a crime in the State of Minnesota.
Governing Board: The Governing Board is made up of five Private Members and four Public Members. The Governing Board meets at least four times per year. The Governing Board oversees all operations of the FAIR Plan. All meetings of the Governing Board and its Committees are public. Meeting notices and agendas are posted at the MN FAIR Plan office a minimum of seven days prior to any meeting. If you are interested in upcoming meetings of the Board, contact us for additional information. The minutes of every meeting are available for persons wishing to review them. In addition to the Governing Board Members mentioned, a representative of the MN Department of Commerce regularly attends all meetings of the Board and its committees.
Hazard: Something that increases the possibility of a loss.
Homeowner Policy: A policy that provides homeowners, condominium owners, and renters with real property, personal property, and liability coverage. The property must be owner occupied to qualify for Homeowner coverage. The Homeowner policies sold by the FAIR Plan are the HO-4, HO-6, and HO-8. Homeowner coverage sold by Private Insurers normally provides Replacement Cost coverage. All Homeowner coverage sold by the FAIR Plan, however, is non-replacement coverage.
Indemnification: Restoring the victim of a loss by payment, repair, or replacement, to the same financial condition that existed immediately before the loss (no better, no worse). Indemnification under your policy is subject to the terms, Conditions, and limitations of the contract.
Independent Adjuster: A person or organization hired by an Insurer to represent them in the settlement of a claim.
Inspection: In some cases, we will require an inspection of the property. A member of the FAIR Plan Staff, or an independent Evaluator will perform the inspection. Failure to cooperate with our effort to inspect your property will result in the rejection of your application, or cancellation or non-renewal of coverage. We also do inspections to verify that repairs have been made (Condition Charges), and as a part of our Depopulation Program. Inspections are done at no cost to the Insured, or Applicant.
Inspection Policy: This policy explains how we determine which properties will be inspected.
Insurable Interest: If you suffer a loss when covered property is damaged, you have an insurable interest in that property. If you do not have an insurable interest in something, you cannot insure it against loss. Ownership is an example of insurable interest. Insurable interest can also be created as the result of a contract, such as a rental agreement or a mortgage agreement.
Insurable Value:: Determined by the coverage provided under the contract. Private insurers generally provide coverage for the Replacement Cost Value of the property insured. Insurable Value however, can also equal the Repair Cost Value, Actual Cash Value, or the Market Value of the property.
Insured: The person or organization shown on the Declaration Page, and covered by the policy. ' Insured' can include others not named on the Declaration Page. Read your policy for details.
Insured Location: The premises or property described in the policy. Also known as the insured premises. Read your policy for details.
Insurer: The person or organization that agrees to indemnify the Insured (provide coverage) for losses covered under the policy. Also known as an Insurance Carrier. The FAIR Plan is an Insurer.
Insuring Agreement:: The section of the policy that contains the Insurer's agreement to indemnify the Insured in the event of a covered loss, in return for the Insured's premium payment, and their compliance with the provisions of the policy.
ISO: A company organized for the purpose of aiding Insurers by providing rating data, policy forms, manuals, and other related services in exchange for a participation fee. The FAIR Plan is an ISO participant, and uses ISO rating data and standard ISO Policy forms. We also use ISO personnel to perform some of our inspections.
Land Contract: An agreement between two individuals for the sale of real property. The Contract for Deed Holder remains named on the title deed for the property until the terms of the Land Contract are satisfied. The Contract Purchaser is also named on the deed, and is allowed possession and control of the property as long as the terms of the Contract are met by the Contract Purchaser.
Land Value: Part of the purchase price paid for a property is the value of the land. The value of the land is not included in the limit of coverage for the property because land is excluded from coverage. T he amount of a person’s Mortgage frequently includes the value of the land. For this reason, it is not always possible to provide coverage limits equal to the amount of the Mortgage on the property.
Liability Coverage: Coverage offered under the Homeowners Policy (Coverage E and F) for losses that arise out of ownership or occupancy of the insured location, or out of the negligence of the Insured. See Personal Liability and Medical Payments to Others for more information. The Homeowners Policy is the only policy offered by the FAIR Plan that includes liability coverage.
Limit: The maximum payable under the policy for a type of property, or type of loss. Also known as the limit of liability.
Line of Business: A term used in the insurance industry to describe different types of policies. Homeowner coverage is a line of business. Dwelling Fire coverage is a different line of business. Farm Fire is yet another line of business. L ines of business are further divided into commercial lines (for businesses) and personal lines (for individuals).
Loss of Use: Also known as Coverage D under the Homeowners and Farm Fire policies. In addition to Additional Living Expense, this coverage also provides for Fair Rental Value, and losses that arise if a Civil Authority prohibits you from using your premises due to a covered loss. Read your policy for details.
Market Value: Market value refers to the value of the property on the open market. The estimated market value used to set coverage limits is determined by the county tax assessor based on prior sales for similar properties
Material Fact: Information that is needed to make a claims or underwriting decision that directly effects the decision.
Medical Payments to Others Coverage: Medical Payments to Others provides coverage for medical expenses of a third party (someone who is not an Insured under the policy) who is injured at the insured location regardless of whether it is the result of the Insured’s negligence. Read your policy for details.
Member Companies: A Member Company is any Private Insurer that collects premium for policies insuring property in the State of Minnesota. The FAIR Plan Act requires the participation of Member Companies in the financial loss or gain of the FAIR Plan. Losses and gains are shared through the processes of Assessment and Distribution. There are over 300 Member Companies.
Minnesota Automobile Insurance Plan: The organization that provides automobile insurance to individuals and organizations that do not qualify for insurance from a Private Insurer. Applications are assigned to Private Insurers according to their market share (similar to how we compute Assessment and Distribution). The Private Insurer then issues and services the policy.
Minnesota Department of Commerce: The department of State Government that regulates the activities of Private Insurers and the FAIR Plan. Go to: MN Dept of Commerce home page.
Minnesota FAIR Plan office: We are located at 1201 Marquette Ave in Minneapolis, Suite 310. Our office is open to the public Monday through Thursday, 8:00 A.M. to 4:00 P.M. and on Friday from 8:00 A.M. to 12:00 noon. Go to: Contacting the FAIR Plan.
Minnesota Fair Claim Practices Act: Minnesota Chapter 72A.201 is commonly known as the Fair Claim Practices Act (FCPA). This law sets forth time standards and standards of behavior that Insurers must follow. It also identifies practices that are considered unfair, and therefore illegal. The MN Department of Commerce enforces the MN FCPA. Violations of the MN FCPA should be reported to the Commerce Department, Insurance Enforcement Division (651-296-2488). It is the stated goal of the FAIR Plan to adhere to the MN FCPA at all times.
Minnesota Joint Underwriting Association: The Minnesota Joint Underwriting Association (MN JUA) is very similar to the MN FAIR Plan, except that it was created to provide liability coverage to those businesses and organizations unable to obtain such coverage from a Private Insurer. If you need liability coverage the MN JUA may be able to help. They can be reached at 651-222-0484 or 800-552-0013.
Misrepresentation: The use of written or oral statements that do not reflect the true facts. Stating that a property is owner occupied when it is actually vacant is an example of misrepresentation. Misrepresentation on the application can result in rejection of the application, or cancellation of the policy. Misrepresentation in the presentation of a claim can result in a denial of coverage for the loss, as well as cancellation of the policy. Misrepresentation with intent to defraud is a crime in the State of Minnesota.
Mobile Home Fire Policy: This is a Dwelling Fire Policy DP-1 sold to owners of mobile homes. Mobile homes require different rates than a standard dwelling. This policy does not provide coverage for theft or liability losses.
Mortgagee: The financial institution that has granted a mortgage on a property. The Mortgagee has a financial interest in the property, and must be named on the policy. The Mortgagee must also be named as a payee on any payment for damage to the real property.
Mortgage Clause: A provision in the policy that grants certain rights to your Mortgagee. One of those rights is to be included as a payee on any payment for damage to the real property.
Mortgage Value: The outstanding balance on a mortgage or Contract for Deed. Mortgage value is not necessarily the Insurable Value of a property. Your Insurer is under no obligation to provide coverage equal to the amount of your mortgage balance.
Named Insured: The person or organization named on the policy. Also known as the policyholder.
Negligence: The failure to show the appropriate degree of care expected from a reasonable person. Intentional acts are not negligent acts.
Non-Renewal: The refusal of an Insurer to renew a policy for another term. A common reason for non-renewal is claims experience. Failure to pay the renewal premium on time is another common reason for non-renewal. Minnesota law controls the circumstances under which policies can be non-renewed. To qualify for insurance through the FAIR Plan, you must first be rejected, cancelled or non-renewed by a Private Insurer. Our application requires you to tell us who your previous insurance company was, and why you were non-renewed. We are required to collect this information.
Payment Plans: The FAIR Plan offers four payment plans. Full pay, 2 pay, 3 pay and 4 pay. If your Mortgagee pays your premium through an escrow account, full pay is the only payment option.
Perils: Perils are things that cause losses, such as fire or windstorm.Read your Declaration Page and policy to see which perils are covered under the contract.
Personal Liability Coverage: Personal Liability provides coverage in cases where the Insured’s negligence results in harm to a third party (someone who is not an Insured under the policy). Read your policy for details.
Personal Lines: Insurance coverage designed for individuals.
Personal Property: Personal property is defined by most policies as property that is not permanently attached to the land. Your policy has limitations and restrictions on personal property coverage. Read your policy for details.
Plan of Operation: The document that explains the FAIR Plan, and provides the general guidelines for the operation of the Plan. The Commerce Commissioner must approve changes to our Plan of Operation before they take effect. Go to: Plan of Operation
Policy: A legal contract that includes a Declaration Page, Insuring Agreement, Definitions, Coverages, Perils or Causes of Loss, Exclusions, and Conditions. The policy can also contain endorsements that further modify the terms of the contract. The policy contract sets forth the agreement between the Insurer and the Insured. The contract is legally binding on both parties, so it is important to read your policy and endorsements.
Premium: The cost of coverage under a policy of insurance. The premium charged is determined by several factors including: the protection class, the construction class, the limit of coverage, the deductible chosen, the type of policy, the occupancy (owner-occupied/tenant occupied/vacant), and sometimes the conditions found on the premises.
Private Insurer: A stock or mutual Insurance Company that sells to consumers, organizations, businesses and farms. All Private Insurers that collect property insurance premiums in Minnesota are Member Companies of the FAIR Plan, with the exception of Surplus Lines Carriers.
Private Member: The Governing Board is made up of five Private Members and four Public Members. The Member Companies determine which five companies will represent them on the Governing Board as Private Members. Member Companies may attend the meeting and vote in person, or visit our web site and vote on-line. The Member Companies selected to serve as Private Members determine which of their employees will attend the Governing Board meetings. Member Company representation can change on a yearly basis.
Producer: A person who sells insurance, also known as an Agent.
Proof of Loss: Information needed by the Insurer to establish the circumstances and amount of a claim.
Proof of Loss Form: A formal notarized statement, made by an Insured as to the circumstances and amount of a claim. The Proof of Loss Form is completed at the request of the Insurer. The MN Fair Claims Practices Act requires the Insurer to request completion of the Proof of Loss Form, if one is desired, within 10 business days of the report of the claim..
Property Damage: Physical injury to, destruction of, or loss of use of tangible property.
Property Insurance: Insurance which protects the physical (tangible) property of an individual. Fire insurance is one example.
Property Removed: A coverage found in the Additional Coverages section of the policy. This provides coverage for property that has been removed from the insured location to protect it from damage due to a covered peril. Read your policy for details.
Pro-Rata Cancellation: Pro-Rata cancellation provides a refund of the entire unearned premium, as of the date of cancellation.
Protection Class: A factor used in determining the premium to charge for coverage. The protection class reflects the level of fire protection present. Better fire service means a lower rate for coverage.
Public Adjuster: A person or organization hired by an Insured to represent them in the presentation of a claim.
Public Members: The Governing Board is made up of four Public Members and five Private Members. The Public Members are appointed by the Commerce Commissioner, and serve for a term of two years. The Commissioner can renew a Public Member’s appointment to the Board at the end of his or her two-year term.
Rate: The charge per $1 of coverage that makes up the premium charged for the policy. The rate is determined by factors other than the limit of coverage. The rate is then multiplied by the limit of coverage to determine the premium. Selecting a higher deductible will result in a lower rate per $1 of coverage. An occupied structure has a lower rate for Vandalism coverage than a Vacant structure. A brick building has a lower rate than a wood building. The rates we use must be approved in advance by the MN Department of Commerce. The rates used by the FAIR Plan are based on the rates charged by Private Insurers. Rate changes are announced a minimum of 60 days before they take effect. The Rate Tables show the rates approved by the MN Department of Commerce, and currently in use by the FAIR Plan.
Real Property: Real property is defined by most policies as the structures and buildings that are permanent additions to the land.
Reasonable Repairs: This coverage is found in the Additional Coverages section of the policy. It provides reimbursement for temporary repairs done by the Insured to protect covered property from damage by a covered peril. Read your policy for details.
Rejection: The act of refusing an application for coverage. Private Insurers have many reasons why an Applicant does not qualify to purchase their insurance. claims experience, poor credit, excessive distance from the Fire Department, the condition of the property, are some of the reasons given by Private Insurers for rejection of an application. To qualify for insurance through the FAIR Plan, you must first be rejected, cancelled or non-renewed by a Private Insurer. Our application requires you to tell us which Private Insurer rejected your application for coverage, and why. We are required to collect this information. Not all Applicants are accepted for coverage by the FAIR Plan. There are some persons, as well as some properties, that do not qualify for coverage.
Renewal: Putting a policy that has expired back into force for another 12 month period. Renewal takes place only after the renewal premium is paid. FAIR Plan renewal notices are sent 35 days prior to the renewal premium due date.
Repair Cost Coverage: Defined in the Homeowners 8 policy as: the necessary amount actually spent to repair or replace the loss to the building structure but no more than the cost of using common construction materials and methods where functionally equivalent to and less costly than obsolete, antique or custom construction materials and methods. Repair cost is not the same as Replacement cost:. Repair cost provides coverage for a functionally equivalent replacement for covered property, not like kind and quality replacement.
Replacement Cost Coverage: Property insurance that provides coverage up to the current cost to replace damaged property with property of like kind and quality, without a reduction for depreciation. The FAIR Plan does not provide Replacement Cost Coverage, although it is commonly available from Private Insurers.
Representation: A statement made by an Applicant for insurance, or an Insured presenting a claim. False representation on the application can result in rejection of the application or cancellation of the policy. False representation in the presentation of a claim can result in the denial of coverage, as well as the cancellation of the policy. False representation with intent to defraud is a crime in the State of Minnesota.
Residual Market Mechanism: The term used within the Insurance Industry to describe organizations such as the MN FAIR Plan or the MN Automobile Insurance Plan, that provide insurance to persons and organizations that do not qualify for insurance with Private Insurers.
Salvage: It is the right of the Insurer to take possession of property (salvage) for which it has paid. Some Insurers, if agreed to by the Insured, will ‘sell the salvage back' by deducting the salvage value from their settlement amount, and allowing the Insured to keep the property.
Section I Coverage: The Homeowner forms have two sections. Section I provides coverage for direct loss to the covered property. (Coverage A, B, C, and D)
Section II Coverage: The Homeowner forms have two sections. Section II provides coverage for Personal Liability (Coverage E) and Medical Payments to Others. (Coverage F)
Scheduled Property Coverage: Scheduled Property coverage is provided as an endorsement to the policy. It describes each item of covered property, with a specific limit of liability for each item, and the covered perils. The most common Scheduled Property Coverage is that purchased to cover jewelry, furs, artwork, and other high value personal property. Scheduled Property coverage can take other forms however, such as policies that cover specific locations (Commercial Lines). Although Scheduled Property Coverage is available through Private Insurers, the only Scheduled Property coverage sold by the FAIR Plan is Farm Scheduled Personal Property. The FAIR Plan does not sell Scheduled Property Coverage under Homeowners, Dwelling Fire or Commercial policies.
Short Rate Cancellation: Short rate cancellation is the refund of unearned premium less the cost of handling the request. Private Insurers use this method when the Insured requests the cancellation. The FAIR Plan does not use this form of cancellation.
Special/Open Peril Coverage: Although commonly sold by Private Insurers, the FAIR Plan does not offer Special or Open Peril Coverage. Special or Open Peril Coverage provides payment for any loss that is not Excluded. It is most commonly available for real property, although there are some open peril coverages sold for personal property. The FAIR Plan provides only Named Peril Coverage. Named Peril coverage requires that the cause of loss be included in the list of perils covered.
Subrogation: If an Insurer provides payment to the Insured for a covered loss caused by the negligence of another, the Insurer can pursue the negligent party for repayment of the loss. Subrogation is the act of exercising this right. The right of subrogation is a transfer of the Insured's right to sue the guilty party to their Insurer. The Insurer in return, is required to demand repayment of the Insured's deductible and any other losses not covered under the policy. The Insured has the right to any proceeds the Insurer receives up to the amount of their uninsured loss.
Surplus Lines: Can be described as the ‘non-standard’ insurance market, although Surplus Lines Carriers are Private Insurers. Products not commonly sold in the standard market can sometimes be obtained through a Surplus Lines Carrier. Surplus Lines Carriers will also accept higher risk Insureds just as the FAIR Plan does. Sometimes a better product than that offered by the FAIR Plan can be purchased from a Surplus Lines Carrier.
Term: The length of time that the policy remains in force. All policies sold by the FAIR Plan have a term of one year.
Theft: Theft is stealing, or taking the property of another without permission.
Umbrella Liability Insurance: Liability policies that provide high limits of coverage, as excess insurance. Although available from Private Insurers, the FAIR Plan does not offer Umbrella Liability Insurance.
Underwriting: The process of classifying properties according to the probability of having a loss, so that appropriate rates can be applied. The process also includes rejecting risks that do not meet the minimum Underwriting Guidelines of the organization.
Underwriting Guidelines: Our Underwriting Guidelines set forth the minimum underwriting requirements of the FAIR Plan, based on the lines of business sold (Dwelling Fire, Mobile Home Fire, Homeowners, Farm Fire, and Commercial Fire). Underwriting Guidelines provide the standard used to determine if the property and Applicant qualifies for the coverage requested.
Unearned Premium: The amount of premium that has not been ‘used up’ during the time that the policy has been in force. For example, if a one-year policy were cancelled after six months, half of the premium would be unearned.
Unscheduled Farm Personal Property: Although available from Private Insurers, the FAIR Plan does not sell Unscheduled Farm Personal Property coverage. Unscheduled Farm Personal Property covers types or classes of property such as ‘tools’ for an overall limit. This coverage does not require the itemization of each item of covered property as Scheduled Farm Personal Property does.
Vacant: Vacant means that no one is residing at the insured location, and the personal property has been removed to the point that the property is not habitable in the normal sense.
Vandalism: Vandalism is the intentional destruction of property. Also known as malicious mischief.
Workman’s Compensation Insurance: Commercial coverage required by law, that provides coverage for on-the-job injuries, regardless of whether the employer is negligent. Although available through Private Insurers, the FAIR Plan does not sell Workman’s Compensation coverage.