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Glossary 

The definitions below come from the Glossary of Insurance Terms, published by BISYS, and are used with their permission.

A     B     C     D    E     F     G     H     I     J     K     L     M     N     O     P     Q     R     S     T     U    V     W     XYZ

A

Absolute Liability. A type of liability that arises from extremely dangerous operations. An example would be in the use of explosives: A contractor would almost certainly be liable for damages caused by vibrations of the earth following an explosive detonation. With absolute liability it is usually not necessary for a claimant to establish that the operation is dangerous.

Accounts Receivable Insurance. Insurance against the loss that occurs when an insured is unable to collect outstanding accounts because of damage to or destruction of the accounts receivable records by a peril covered by the policy.

Act of God. An event arising out of natural causes with no human intervention which could not have been prevented by reasonable care or foresight. Examples are floods, lightning, and earthquakes.

Actual Cash Value. An amount equivalent to the replacement cost of lost or damaged property at the time of the loss, less depreciation. With regard to buildings, there is a tendency for the actual cash value to closely parallel the market value of the property.

Additional Insured. A person other than the named insured who is protected under the terms of the contract. Usually, additional insured's are added by endorsement or referred to in the wording of the definition of the "insured" in the policy itself.

Advertising Injury. Injury arising out of libel or slander, violation of the right to privacy, misappropriation of advertising ideas, or infringement of copyright, title or slogan committed in the course of advertising goods, products, or services.

Agreed Amount Clause. Under this clause, the insured and the insurer agree that the amount of insurance carried will automatically satisfy the coinsurance clause. The effect is to eliminate the necessity of determining whether or not the amount carried is equal to the stated percentage of the actual cash value indicated in the coinsurance clause.

Arbitration Clause. The provision in a Property Insurance contract which states that if the insurer and insured cannot agree on an appropriate claim settlement, each will appoint an appraiser, and these will select a neutral umpire. A decision by any two of the three prescribes a settlement and binds both parties to it.

Attractive Nuisance. The law states that an individual owes no duty of care to someone trespassing upon that individual's property. This is an exception to that rule since it does state that a special duty of care is required of a person with respect to conditions which attract children.

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B

Bobtailing. Using the truck-tractor after unloading the trailer and not driving for trucking purposes.

Bodily Injury Liability. Legal ability that may arise as a result of the injury or death of another person.

Boiler and Machinery Insurance. Insurance against the sudden and accidental breakdown of boilers, machinery and electrical equipment. Coverage is provided on (1) damage to the equipment, (2) expediting expenses, (3) property damage to the property of others, and (4) supplementary payments; and (5) automatic coverage is provided on additional objects. Coverage can be extended to cover consequential losses and loss from interruption of business.

Bond. A three-party contract guaranteeing that if one person, the principal fails to perform as a specified or proves to be dishonest, the person to whom the duty is owed, the obligee, will be financially protected by the issuer of the bond, the surety.

Business Income Coverage Form. A commercial property form providing coverage for "indirect losses" resulting from property damage, such as loss of business income and extra expenses incurred. It has replaced earlier Business Interruption and Extra Expense forms.

Business ownersPolicy. A policy similar to the Special Multi-Peril policy. It provides Broad Property and Liability coverage in a single contract and is designed for small and medium-sized mercantile, office, or apartment risks.

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C

Care, Custody and Control. Most Liability Insurance policies exclude coverage for damage to property in the care, custody, or control of the insured. In some cases this type of coverage is not available; in other cases it can be purchased through certain forms of Inland Marine Insurance, like Installation Floaters, and in some cases this exclusion can be made less restrictive by adding a Broad Form Property Damage Endorsement.

Certificate of Insurance. (1) A statement of the coverage and general provisions of a master contract in group insurance that is issued to individuals covered in the group. (2) A form which verifies that a policy has been written and states the coverage in general, often used as proof of insurance in loan transactions and for other legal requirements.

Claim. A demand made by the insured, or the insured's beneficiary, for payment of the benefits provided by the contract.

Claim Expense. The expense of adjusting a claim, such as investigation and attorney's fees. It does not include the cost of the claim itself.

Claims Reserve. Amounts set aside to meet costs of claims incurred but not yet finally settled. An example might be a Workers Compensation case where benefits are payable for several years. At any given point in time, the reserve would be the funds kept based on the estimate of what the claim will cost when finally settled.

Coinsurance Clause. A clause under which the insured shares in losses to the extent that he is underinsured at the time of loss. The insurer grants a reduced rate to the insured providing he carries insurance 80, 90 or 100% to value. If, at the time of loss, he carries less than required, he must share in his loss.

Combined Ratio. The sum of an expense ratio and loss ratio. An underwriting profit occurs when the combined ratio is under 100% and an underwriting loss occurs when the combined ratio is over 100%.

Commercial General Liability (CGL) Coverage Part. General liability coverage which may be written as a monoline policy or part of a commercial package. "CGL" now means "commercial" general liability forms, which have replaced the earlier "comprehensive" general liability forms. The latest forms include all sublines, provide very broad coverage, and two variations are available.

Commercial Package Policy (CPP). A commercial lines policy that contains more than one of the following coverage parts: Commercial Property, Commercial General Liability, Commercial Inland Marine, Commercial Crime, Boiler and Machinery Insurance, Commercial Automobile Insurance, and Farm Coverage.

Comparative Negligence. In some states the negligence of both parties to an accident is established in proportion to the degree of their contribution to the accident. Several states have comparative negligence laws, and each one varies somewhat from the others. This is in contrast to contributory negligence, which is a general common law rule.

Compensatory Damages. Damages recoverable or awarded for injury or loss sustained. In addition to actual loss or injury, this term may include amounts for expenses, loss of time, bodily suffering and mental suffering, but does not include punitive damages.

Consequential Loss (or Damage). (1) An indirect loss arising out of the policyholder's inability to use the property over a period of time, as opposed to a direct loss that happens almost instantaneously. Business Interruption, Extra Expense, Rents Insurance, and Leasehold Interest are the most common coverages included under the category of Consequential Loss coverages. (2) A loss not directly caused by a peril insured against, such as spoilage of frozen foods caused by fire damage to the refrigeration equipment.

Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986. Legislation providing for a continuation of group health care benefits under the group plan for a period of time when benefits would otherwise terminate. Continuation rights apply to enrolled persons and their dependents. Coverage may be continued for up to 18 months if the insured person terminates employment or is no longer eligible. Coverage may be continued for up to 36 months in nearly all other cases, such as loss of dependent eligibility because of death of the enrolled person, divorce, or attainment of the limiting age.

Contributory Negligence. If an injured party fails to exercise proper care and in some way contributes to his injury, the doctrine of contributory negligence will probably negate or defeat his claim, even though the other party is also negligent.
(14/29)

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D

Deductible. The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.

"Deep Pockets" Liability. A term used to describe the legal doctrine of joint-and several liability, under which recovery can be sought from any of several co-defendants based on ability to pay, rather than the degree of negligence.

Depreciation. A decrease in the value of any type of tangible property over a period of time resulting from the use, wear and tear, or obsolescence.

Directors and Officers Liability Insurance. Insurance that protects directors and officers from liability claims arising out of alleged errors in judgment, breaches of duty, and wrongful acts related to their organizational activities.

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E

Earth Movement. A peril including landslide, mudflow, earth sinking, rising or shifting, and earthquake. Usually excluded on homeowners' and commercial property policies.

Earthquake Insurance. Insurance covering damage caused by an earthquake as defined in the contract.

Employers Liability Coverage. This is coverage B of the standard Workers Compensation policy. It provides coverage against the common law liability of an employer for injuries to employees as distinguished from the liability imposed by a Workers Compensation law. Employers Liability applies in situations where a worker does not come under these laws.

Exclusion. A contractual provision that denies coverage for certain perils, persons, property, or locations.

Experience Rating. A method of adjusting the premium for a risk based on past loss experience for that risk compared to loss experience for an average risk.

Extended Coverage (EC). A common extension of property insurance beyond coverage for fire and lightning. Extended coverage adds insurance against loss by the perils of windstorm, hail, explosion, riot and riot attending a strike, aircraft damage, vehicle damage, and smoke damage. At one time EC was added by endorsement. In recent years, it has been included on many forms as either an optional coverage or as part of the minimum coverages provided.
(10/39)

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F

FAIR Plan. Fair Access to Insurance Requirements. A pooling plan reinsured by the United States government that makes insurance available to those in inner-city or other high risk areas who cannot obtain insurance through normal channels. Coverages for fire and allied perils are available, with considerably high limits, after inspection of the premises.

Fidelity Bond. A bond that will reimburse an employer, the insured, for loss due to the dishonest acts of a covered employee.

Fine Arts Floater. Covers fine arts, such as antiques, leaded glass, and other art work of all types, usually on an all-risk basis.

Fire. Combustion which is rapid enough to produce a flame or glow. A fire, for purposes of Property Insurance, must be "hostile," which means it is not in a place in which it is intended to be. Fires in their proper contained area are called "friendly fires" and are not covered under the most basic Property Insurance policies.

Fire Legal Liability. An insurance policy which protects the insured against liability incurred when his negligent actions result in the destruction of property which is in his care, custody or control.

Flood. A general and temporary condition of partial or complete inundation of normally dry land areas from (1) overflow of inland or tidal waters, (2) the unusual accumulation and runoff of surface waters from any source, or (3) abnormal, flood-related erosion and undermining of shorelines. Flood also means inundation from mud flows caused by accumulation of water on or under the ground, as long as the mud flow and not a landslide is the proximate cause of loss.
(5/44)

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G

Garage Coverage Form. A commercial Automobile Insurance coverage form used to insure automobile dealers, repair shops, service stations and garage risks. Garage liability, garage keepers coverage, and physical damage coverages may be included.

Garage Keepers Legal Liability Insurance. An insurance contract that protects a garage keeper against liability for damage to vehicles in his care, custody, or control caused by specific perils.

General Liability Insurance. A form of insurance designed to protect owners and operators of businesses from a wide variety if liability exposures. These exposures could include liability arising out of accidents resulting from the premises or the operations of an insured, products sold by the insured, operations completed by the insured, and contractual liability.

Guaranteed Cost. A premium charged on a prospective basis, fixed or adjustable, or on a specified rating basis, but never on the basis of loss experience. In other words, the cost is guaranteed to the extent that it will not be adjusted based on the loss experience of the insured during the period of coverage.

Guaranty Funds. Funds created by state law from contributions by insurance companies operating in the state which are used to make good any unpaid claims or otherwise to make money available to insolvent companies. Each state which has a fund has a different plan.
(5/49)

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H

Hazard. A specific situation that increases the probability of the occurrence of loss arising from a peril, or that may influence the extent of the loss. For example, accident, sickness, fire, flood, liability, burglary, and explosion are perils. Slippery floors, unsanitary conditions, shingled roofs, congested traffic, unguarded premises, and uninspected boilers are also hazards.

Hold Harmless Agreement. A contractual arrangement whereby one party assumes the liability inherent in a situation, thereby relieving the other party of responsibility. Such agreements are typically found in contracts like leases, sidetrack agreements, and easements. For example, a typical lease may provide that the lessee must "hold harmless" the lessor for any liability from accidents arising out of the premises. The effect of such an agreement is that the lessee must provide a defense for the lessor, and if any judgment is rendered against the lessor, the lessee would have to pay.

Hull Policy. A contract that provides indemnification for damage sustained to or loss of an insured vessel or airplane.

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I

Increased Cost of Construction Insurance. Insurance that covers the additional cost of reconstructing a damaged or destroyed building where ordinances require rebuilding with more expensive materials, services or techniques.

Incurred But Not Reported. This refers to losses which have occurred during a stated period, usually a calendar year, but have not yet been reported to the insurer as of the date under consideration. For instance, the insurance company statements prepared after the end of the calendar year would have to include an estimate of losses that occurred during that year but have not yet been reported.

Incurred Losses. The losses occurring within a fixed period, whether or not adjusted or paid during the same period. As an example, in Workers Compensation claims, losses occur during a given policy period, but benefits may continue to be paid for many years. The estimated value of the total claim would be an "incurred cost" for the policy period during which the loss occurred.

Indemnify. To restore the victim of a loss to the same position as before the loss occurred.

Insurable Risk. A risk which meets most of the following requisites: (1) The loss insured against must be capable of being defined. (2) It must be accidental. (3) It must be large enough to cause a hardship to the insured. (4) It must belong to a homogeneous group of risks large enough to make losses predictable. (5) It must not be subject to the same loss at the same time as a large number of other risks. (6) The insurance company must be able to determine a reasonable cost for the insurance. (7) The insurance company must be able to calculate the chance of loss.

Insurance. A formal social device for reducing risk by transferring the risks to several individual entities to an insurer. The insurer agrees, for a consideration, to assume, to a specified extent, the losses suffered by the insured.

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J

Joint and Several Liability. A legal doctrine permitting recovery from any of several co-defendants based on ability to pay, rather than the degree of negligence.

Jones Act. The federal act which provides for the covering of ships' crews under Workers Compensation plans.
(11/60)

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K

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L

Longshoreman's and Harbor Workers' Act. A federal act that stipulates compensation levels for injured longshoremen and harbor workers.

Loss. Generally refers to (1) the amount of reduction in the value of an insured's property caused by an insured peril, (2) the among sought through and insured's claim, or (3) the amount paid on behalf of an insured under an insurance contract.

Loss Control. Any combination of actions taken to reduce the frequency or severity of losses. Installing locks, burglar or fire alarms and sprinkler systems are loss control techniques.

Loss Conversion Factor. A term used in a retrospective rating plan. It is a factor applied to the losses in the formula to give the insurer the funds needed to handle the investigation of claims.

Loss Development Factor. This is a recent development under retrospective rating plans. It was designed to give the insurer additional money to allow for the subsequent development of losses and to reimburse for claims, which are late in being reported. The factor was introduced primarily because of the effect of inflation on losses which take a long time to settle.

Loss Prevention Service. Engineering and inspection work done by an insurance company or independent organization with the aim of removing or reducing dangerous conditions in order to prevent losses.

Loss Ratio. The losses divided by the premiums paid. The numerator (losses) can be losses incurred or losses paid, and the denominator (premium) can be earned premiums or written premiums, depending on what use is going to be made of the loss ratio.

Loss Reserve. The estimated liability for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR), losses due but not yet paid, and amount not yet due. The above describes a loss reserve as it would appear in an insurer's financial statement. As to individual claims, the loss reserve is the estimate of what will ultimately be paid out on that case.
(8/68)

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M

Marine Insurance. A form of insurance primarily concerned with means of transportation and goods in transit. Marine used alone refers to ocean transportation, and Inland Marine refers to transportation and goods in transit by land.

Mobile Equipment. A term defined in General Liability policies as land vehicles, including machinery and apparatus attached thereto, whether or not self-propelled, and (1) not subject to motor vehicle registration, or (2) used exclusively on the insured's premises, or (3) designed principally for use of public roads, or (4) designed or maintained for the sole purpose of providing mobility for permanently attached equipment such as cranes, loaders, pumps, generators, or welding equipment.
(2/70)

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N

Named Insured. Any person, firm, or corporation, or any member thereof, specifically designated by name as the insured(s) in a policy. Others may be protected as insureds even though their names do not appear on the policy. A common application of this latter principle is in Automobile policies where, under the definition of insured, protection is extended to cover other drivers using the car with the permission of the named insured.

Negligence. Failure to use that degree of care which an ordinary person of reasonable prudence would use under the given or similar circumstances. A person may be negligent by acts of omission or commission or both.

No-Fault Insurance. Many states have passed laws permitting the individual automobile accident victim to collect directly from his/her own insurance company for medical and hospital expenses regardless of who was at fault in the accident. There are many variations in the laws of those states which have no-fault statutes. Most states do allow the individual to sue the negligent party if the amount of damages exceeds a certain stated limit.

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O

Occurrence. An event that results in an insured loss. In some lines of insurance, such as Liability, it is distinguished from an accident in that the loss does not have to be sudden and fortuitous and can result from continuous or repeated exposure which results in bodily injury or property damage neither expected nor intended by the insured.
(4/74)

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P

Peak Season Endorsement. An endorsement which provides increased amounts of coverage on inventories during peak seasons, beginning and ending on dates specified in the endorsement.

Personal Injury. Injury other than bodily injury arising out of false arrest or detention, malicious prosecution, wrongful entry or eviction, libel or slander, or violation of a person's right to privacy committed other than in the course of advertising, publishing, broadcasting or telecasting.
Premises and Operation Liability Insurance. Liability coverage for exposures arising out of an insured's premises and business operations. One of the two major sublines of general liability.

Products and Completed Operation Insurance. A major general liability subline which provides coverage for an insured against claims arising out of products sold, manufactured, handled, or distributed, or operations which are complete. Claims are covered only after a product has been sold and possession relinquished, or operations have been completed or abandoned by the named insured. Manufacturers and contractors have a need for this coverage.

Protection Class. The grading of fire protection, determined by the Grading Schedule of Cities and Towns, for a given area. This designation is used for all fire rating except for dwellings, in which case the Dwelling Class is used.

Punitive Damages. Damages awarded over and above compensatory damages to punish a negligent party because of wanton, reckless, or malicious acts or omissions. General Liability policies cover punitive damages when included with compensatory damages in a lump sum, but it is up to the courts to decide whether or not they are to be awarded.
(6/80)

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Q

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R

Retrospective Rating. A plan for which the final premium is not determined until the end of the coverage period and is based on the insured's own loss experience for that same period. It is subject to a maximum and minimum. A plan of this type can be used in various types of insurance, especially Workers Compensation and Liability, and is usually elected by only very large insureds.

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S

Second Injury Fund. Special funds set up by each state to pay all or part of the compensation required when a partially disabled employee suffers a subsequent injury. Because the compound effect of two injuries can be greater than the effect of the same two injuries in isolation, employers might be reluctant to hire the handicapped if they had to bear the full burden for a second injury. Second injury funds relieve employers of some of this burden.

Self-Insurance. Making financial preparations to meet pure risks by appropriating sufficient funds in advance to meet estimated losses, including enough to cover possible losses in excess of those estimated. Few organizations are large or dispersed enough to make this a sound alternative to insurance.

Self-Insured Retention (SIR). That portion of a risk or potential loss assumed by an insured. It may be in the form of a deductible, self-insurance, or no insurance.

Sinkhole Collapse. The peril of a sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or similar rock formations. This peril is now covered by the latest commercial property forms. Other forms of earth movement continue to be excluded in most cases.

Statement of Values. Sometimes property is written using blanket rate and one single limit of liability applying to all locations. In order to determine the blanket or average rate, a rating bureau or company requires an insured to submit a declaration of the amounts of value at each separate location on a Statement of Values form.

Strict Liability. Usually used when referring to Product coverage. The liability that manufacturers and merchandisers may be subject to for defective products sold by them, regardless of fault or negligence. A claimant must prove that the product is defective and therefore unreasonably dangerous.

Subrogation Clause. A clause giving an insurer the right to pursue any course of action, in its own name or the name of a policy owner, against a third party who is liable for a loss which has been paid by the insurer. One of its purposes is to make sure that an insured does not make any profit from his insurance. This clause prevents him from collecting from both his insurance and a third party. It is never part of a Life Insurance policy.

Subrogation Waiver. A waiver by the named insured giving up any right of recovery against another party. Normally an insurance policy requires that subrogation (recovery) rights be preserved. In commercial property insurance, a written waiver of subrogation rights is permitted if it is executed before the loss occurs.

Surety Bond. A bond guaranteeing that a principal will carry out the obligation for which he is bonded. A surety bond is most often issued to a contractor, a person seeking a license or permit, or someone involved in a court case.

Surplus Lines. A risk or a part of a risk for which there is no market available through the original broker or agent in its jurisdiction. Therefore, it is placed with non-admitted insurers on an unregulated basis, in accordance with the surplus or excess lines provisions of the state law.
(11/91)

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T

Threshold Level. The point at which the insured may bring tort action under a modified No-Fault Auto Plan. Many of these plans prohibit tort action for pain and suffering unless medical bills exceed some figure, or if disfigurement or death occurs.

Time Element Insurance. Insurance which covers expenses consequent to damage or destruction by an insured peril that continue over a period of time. The amount paid depends on the length of time during which the expenses accumulate.

Tort. A private wrong, independent of contract and committed against an individual, which gives rise to a legal liability and is adjudicated in a civil court. A tort can be either intentional or unintentional, and it is mainly against liability for unintentional torts that one buys Liability Insurance.

Transfer of Risk. Shifting all or part of a risk to another party. Insurance is the most common method of risk transfer, but other devices, such as hold harmless agreements, also transfer risk. One of the four major risk management techniques.

Transportation Insurance. Usually an open form policy which covers the insured's property in the course of transportation. It can include all modes of transportation, including ocean vessels, required to carry the property from the originating location to the final destination.

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U

Umbrella Liability Policy. A coverage basically affording high limit coverage in excess of the limits of the primary policies as well as additional liability coverages. These additional coverages are usually subject to a substantial self-insured retention. The term "umbrella" is derived from the fact that it is a separate policy over and above any other basic Liability policies the insured may have.

Underinsured Motorists Coverage. A coverage in an Automobile Insurance policy under which the insurer will pay damages up to specified limits for bodily injury damages, it the limits of liability under the liable motorist's policy are exhausted and he cannot pay the full amount he is liable for.

Unearned Premium. That portion of the written premium applicable to the unexpired or unused part of the period for which the premium has been paid. Thus, in the case of an annual premium, at the end of the first month of the premium period, eleven-twelfths of the premium is unearned.

Uninsured Motorists Coverage. A coverage in an Automobile Insurance policy under which the insurer will pay damages to the insured for which another motorist is liable if that motorist is unable to pay because he is uninsured. This coverage usually applies to Bodily Injury damages only. Injuries to the insured caused by a hit-and-run driver are also covered.

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V

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W

Wrap-Up. A package plan of a broad type, usually found only in large situations, which is coordinated in such a way as to be applicable to all Liability risks. An example would be a wrap-up policy covering all contractors working on a specific job.

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XYZ

XCU. Explosion, Collapse, and Underground Damage. This term is used in Business Liability Insurance to indicate that certain types of construction work involve these hazards. Many Liability policies exclude them. They can be added by endorsement for an additional premium charge.

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