CDL High-Level Flow

Losses to a subject comprise the main input to a contract. A subject is defined external to the contract itself, meaning that a contract does not determine its own subject nor how the contract payout is consumed.

Order of Operations

The subject of a contract flows first through any terms. Terms act to reduce the claims prior to the application of covers. The subject net of terms is the de facto subject of covers. Covers are what actually produce a payout from the insuring party to the insured party.

Terms

Each term also has its own subject, equal to or smaller in scope than the contract’s. Dimensions of scope are:

Sub-schedule of risks
Loss types
Causes of loss

Loss types and causes of loss each are described as a tree in settings and taken as input to the calculation. For example, Building and Contents might each be a child loss type of PD, while WSSU and WSWI might both be child causes of loss of Windstorm.

The order in which terms apply is determined by their scope. Terms to disjoint sets of the subject claim can be processed in parallel, while terms whose scope is a subset of another term’s go first and send their output to act as part of the term with larger scope’s input. A tree (or trees) of terms is thus implied, which can be determined once per contract (not once per event). If there is no one unique top of the tree, you can create a pseudo-term with contract-level scope that acts as the top but does not process the claims.

All terms are considered together for purposes of ordering. If there is a tie, the term type can sometimes break a tie. All else being equal, minimum deductibles apply before maximum deductibles, which apply before sublimits. See Deductibles for more information about minimum and maximum deductibles.

Covers

Covers of a contract can also form (their own) tree (which, like the term tree, is also a one-time determination). The only mechanism for this is explicit. Covers can be on all of or on a subset of the contract’s claims (net of terms). Or, covers can take (the sum or max of the payouts of) other covers as their subject. The contract payout is defined simply as the sum of all cover payouts from “top-level” covers. Top-level covers are those that are not the subject of some other cover in the contract. There can be no loops in the cover tree (A is on B, which is on A).