The basis upon which an insurer must contribute to loss when contribution applies. See INDEPENDENT LIABILITY METHOD.

ABI recommendations as to which of 20 groups each car model should be allocated as a factor in determining the premium. The allocation is based on car characteristics in terms of performance, design, safety, value and likely repair/replacement costs.

The evaluation of credit risk attaching to securities and institutions by established rating agencies such as Best’s, Standard and Poor’s, and Moody’s Investor Services. See CREDIT ENHANCEMENT.

The principle on which the case is decided. It makes the decision a precedent for the future development of the law.
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The principle of law on which a judgment in a lawsuit is based.

The following ratios are important for monitoring performance or calculating premiums: 1. Burning ratio. Insurance claims as a percentage of total premiums for current policies. 2. Claims (or loss) ratio. Incurred losses in relation to earned premiums. 3. Expense ratio. Insurers’ total expenses in relation to written premiums. 4. Combined or composite ratio. Sum of (2) and (3), a figure below 100 per cent indicating that an underwriting profit has been achieved.

Materials acquired for manufacturing purposes. The item on raw materials in a manufacturer’s fire insurance is valued at market value immediately prior to the loss. Once worked upon but not yet incorporated in a finished product, the materials become part of ‘work in progress’ which takes account of labour costs and other direct expenses incurred.

Condition requiring an insured to take reasonable precautions to prevent accidents and safeguard property. The clause is not usually construed as a warranty, enabling the insurer to repudiate the liability irrespective of a causal connection between the breach and the loss (Lane v. Spratt (1970)). A liability policy is triggered by the insured’s negligence and so it would be repugnant to avoid liability because of the insured’s lack of care except, depending on the facts, where lack of care amounts to recklessness.

A rule of construction to the effect that where there is ambiguity the reasonable construction is to be preferred.

Institute Cargo Clause making it a condition that the insured shall act with reasonable despatch in all circumstances under his control. Cover runs while the goods are in ordinary transit but if the insured chooses to interrupt the transit, the insurance terminates at the place of the interruption.

The objective test in negligence is based on the ‘acts or omissions’ of the reasonable man – the ‘man on the Clapham omnibus who does ‘not have to possess the wisdom of a Hebrew Prophet or the agility of an acrobat’. No person is an ‘insurer’ of his fellow men – there has to be fault, which, in negligence, means falling below the standard of the reasonable man.