Accident (1) In common usage: an unforeseen and unplanned event or circumstance; or an accident caused, inter alia, by negligence or ignorance (Webster’s Dictionary). In insurance language, a term that is included in the insurance contract for many types of civil liability insurance. In some cases, the word “accident” is a defined term in politics. However, in most cases, the common law becomes the determining factor of what is and is not an accident for the purposes of initiating insurance coverage. (2) In boiler and machine insurance (BM), “accident” is defined in the policy as a sudden and accidental breakdown of equipment that causes damage to the equipment and requires repair or replacement. BM coverage covers loss or damage to the insured object as a result of an accident. (3) In liability insurance, especially in older forms, insurance contracts usually covered injury or loss caused by an accident that was not the result of a deliberate intentional act (even if the intentional act produced an unexpected result). The term “accident” was not defined in such policies. The trigger of coverage in the insurance agreement of modern liability policies, such as the commercial civil liability (CGL) policy, applies to an “incident”, which is defined as an accident, involving persistent or repeated exposure to substantially the same general harmful conditions. . Unlike most other modern day liability policies, the commercial motor third party liability insurance agreement still applies to injury or damage caused by an “accident”. In this case, the policy includes a kind of definition of the term “accident”, i.e. “accident” includes constant or repeated exposure to the same conditions resulting in “injury” or “property damage”. The Personal Automobile Policy (PAP) Liability Agreement states that the insurer will indemnify for bodily injury or property damage for which any insured person becomes legally liable due to a car accident. In this type of policy, the term “accident” is used in its usual sense, without including it as a specific term.
Insurance is a contractual relationship that arises when one party (the insurer), for a fee (premium), agrees to compensate the other party (the insured) for losses caused to a certain subject (risk) caused by certain unforeseen circumstances (hazards or dangers). The term ‘guarantee’, commonly used in England, is considered synonymous with ‘insurance’.
The 10/10 Rule is a matter of analyzing and demonstrating the transfer of risk as a precondition for the use of reinsurance accounting, which was codified in the early 1990s with the adoption of Financial Accounting Standard (FAS) 113 (and its statutory counterpart, SSAP 62). FAS 113 itself was a response to alleged abuses and set the standard for testing whether something should be called an insurance contract. FAS 113 required that the transfer of risk be demonstrated by comparing the present value of the cash flows associated with the contract and, in particular, by exceeding certain thresholds of “significance” of risk. The thresholds, often referred to as the 9a and 9b tests, are: 9a. The reinsurer assumes significant insurance risk under the reinsured parts of the underlying insurance contracts. 9b. It is possible that the reinsurer could suffer a significant loss from the transaction. While neither “significant” nor “reasonably possible” was defined in this context, standard rules of thumb quickly emerged in the implementation of FAS 113. The most commonly cited is the “10/10 Rule”. This rule states that a contract reaches a threshold if there is at least a 10 percent chance that it will suffer a loss of 10 percent or more in present value (expressed as a percentage of the contract premium ceded).