Picture yourself standing in the middle of a bustling market surrounded by signs and conversations you can’t seem to decipher. If you’ve ever been a foreign country and don’t speak the language, you understand what it’s like to rely on context clues and translation devices to navigate.

The legal world has its own language, often referred to as “legalese.” Familiarizing yourself with the legal terms associated with insurance defense can serve as your translating device to help demystify legal lingo. As a start, here are 10 common legal terms and phrases used in insurance defense:

1. Affirmative Defense: This is a defense that the defendant must assert, which introduces evidence to negate liability even if the allegations against the defense are proven to be true.[i] Common affirmative defenses in insurance defense lawsuits are contributory negligence, which reduces the defendants’ liability if the plaintiff’s own negligence contributes to the injury alleged, and statute of limitations, which prevents a party from filing a lawsuit after a certain amount of time has passed.

2. Bad Faith: The elements of bad faith vary widely by jurisdiction. At minimum, insureds have to demonstrate their insurer withheld benefits due under their policy without having a reasonable basis for withholding those benefits.[ii] The insured must establish that they had a valid claim under the terms of their policy and that the insurer denied their claim. Even in states where intent is not an element of bad faith, generally mere negligence or mistake is not enough to sustain a claim for bad faith.

3. Burden of Proof: This describes the standard that a party seeking to prove a fact in court must satisfy to have that fact legally established.[iii] In civil cases, the plaintiff has the burden of proving all elements of their case by a preponderance of the evidence, which we often hear at trials described as “more likely than not” or “51%.” This standard is a lot lower than the burden of proof in criminal cases, which must be established beyond a reasonable doubt.

4. Causation: Cause and effect are the relationship between an event and a result. Legal (or proximate) causation is a cause that produces a result in a natural and probable sequence and, without which, the result would not have occurred.[iv]In personal injury actions, an expert (usually a physician) is required to make the causal connection between a plaintiff’s alleged injuries and a specific event.

5. Compensatory Damages: This is the amount of money awarded to a party in a civil action to compensate for an injury or loss caused by another party.[v] The purpose of compensatory damages is to make the claimant “whole,” not to punish the wrongdoer. In civil lawsuits, compensatory damages include both economic and non-economic damages. Economic damages cover quantifiable losses such as the plaintiff’s medical expenses and lost wages, while non-economic damages cover unquantifiable losses like pain and suffering.

6. First-Party vs. Third-Party Claims: First-party claims are those brought by a person or entity asserting right to payment under an insurance policy, while third-party claims are those where a person or entity not on the insurance policy brings a claim against the insured.[vi]In insurance defense lawsuits, a first-party claim will name an insurance company as a defendant, while a third-party claim will name an individual or business.

7. Indemnity: In insurance contracts, the insurer agrees to compensate, or indemnify, the insureds for any potential damages or losses.[vii] Indemnity clauses are typically found in insurance contracts.

8. Liability: To be liable is to be held legally responsible or obligated for an action.[viii] When discussing liability in insurance defense, it is often used interchangeably with “fault.”

9. Punitive Damages: Unlike compensatory damages, which do not serve to punish a party, punitive damages do just that. [ix] They are used for punishment and are typically awarded at the court’s discretion when the defendant’s behavior is found to be especially egregious. This is sometimes seen when drivers in car accidents were distracted by cell phones or were driving under the influence.

10. Subrogation: This is the substitution of one party for another party with respect to the second party’s rights or claims.[x] The first party (the substitute party) is said to be “subrogated to” the rights of the second party and becomes entitled to enforce its rights and remedies in relation to the relevant claim. In insurance defense, this typically comes about when one insurance carrier pays a plaintiff’s medical bills but asserts a right of subrogation against another insurance carrier. A common example in accident cases is when the plaintiff’s health insurance pays medical costs and then demands repayment from the defendant’s insurance carrier.

Reading through insurance defense documents doesn’t have to be like watching a foreign film without subtitles. Demystify the practice by learning the essentials so you can understand the foreign language that is legal lingo.

Note On Citations

The Reuters links are behind a Westlaw paywall and, therefore, generally inaccessible to any reader that shouldn’t already be familiar with these terms. All citations in this article point to secondary sources that cite various statutory and case law. For a scholarly article, I would insist the that the cited law be reviewed and used as sources, rather than the secondary compilations of that law. For the newsletter, is this necessary?

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Sources

[i] Cornell Law School Legal Information Institute. https://www.law.cornell.edu/wex/affirmative_defense.

[ii] Thomson Reuters Practical Law. https://us.practicallaw.thomsonreuters.com/4-505-9149.

[iii] Cornell Law School Legal Information Institute. https://www.law.cornell.edu/wex/burden_of_proof.

[iv] Cornell Law School Legal Information Institute. https://www.law.cornell.edu/wex/legal_cause.

[v] Thomson Reuters Practical Law. https://us.practicallaw.thomsonreuters.com/0-501-5591.

[vi] Thomson Reuters Practical Law. https://www.law.cornell.edu/regulations/nevada/NAC-686A-625.

[vii] Cornell Law School Legal Information Institute. https://www.law.cornell.edu/wex/indemnity.

[viii] Cornell Law School Legal Information Institute. https://www.law.cornell.edu/wex/liable.

[ix] Cornell Law School Legal Information Institute. https://www.law.cornell.edu/wex/punitive_damages.

[x] Thomson Reuters Practical Law. https://us.practicallaw.thomsonreuters.com/w-004-2110.