You Don’t Need To Be A Lawyer To Read And Understand An Insurance Policy
Reading an insurance policy can be a daunting task for just about anyone. Even lawyers with years of experience under their belts do not feel comfortable reviewing a client’s policy to determine whether there might be coverage. Fear not. While it’s certainly a good idea to have an experienced insurance lawyer review a policy, you should start by reviewing it yourself. This is particularly true if you are reviewing a new policy, or are purchasing coverage for the first time.
One advantage we have in this process is that practically every insurance policy is constructed the same way. Because policies have a common anatomy, we can take a systematic approach to reading a policy.
Anatomy of an Insurance Policy
Practically any policy you come across will have the same component parts, which operate in the same way. The parts you will see by flipping through just about any policy are:
- The Declarations Page
- The Insuring Agreement(s)
- Exclusions from Coverage
The order in which the parts are listed above is the order they should be reviewed and understood. As we move from the top to the bottom of the list, you will find that items lower on the list must be considered in conjunction with items higher up on the list. For example, to understand the Insuring Agreement(s), you will first need to read any definitions of terms that are used in that portion of the policy. The same goes for Exclusions, which must be read in the context of the Definitions and the Insuring Agreements, and so forth.
The Declarations Page
The most important page of any policy is the Declarations Page. It’s usually found on top or just after a cover page or two. It generally looks like a chart with different categories of information laid out from top to bottom.
The Declarations Page provides a wealth of critical information you need to know about the policy, whether you are preparing to make a claim, or are buying coverage for the first time. Some of the most important facts about the policy you will find there are:
Policy Number: The unique number that identifies the policy.
Identity of the Insurer: This may seem obvious, but with commercial policies in particular, it often is not. Different entities (brokers, agents, underwriters, claims administrators, etc.) are involved in selling and underwriting the policy, collecting premiums and handling claims. They are not necessarily (and usually not) the insurance company itself. Sometimes a policy is issued by more than one insurer.
Identity of the Insured(s): Who the insured(s) (i.e., the policyholder(s)) is (or are) under the policy is absolutely critical. Only people or businesses that are insureds are entitled to coverage and can make claims. If you are buying coverage for multiple people or business entities, you must confirm that all the right names are identified as “insureds.”
Type of Insurance: An also seemingly obvious, but equally critical piece of information. Confirm that the policy is the type of policy it should be (i.e., commercial general liability, professional liability, auto, etc.).
Policy Period and Effective Dates: The policy will generally be deemed in force only during the policy period. Check effective dates to avoid lapses in coverage, especially when purchasing a new policy.
Coverages Included: Most policies will include multiple coverages with different coverage limits for each. Review these to confirm that the coverages and limits listed are what you or your business need.
Deductible or Self Insured Retention: Amounts the insured is responsible for paying if a claim is made or before benefits will be available.
Endorsements: Declaration Pages will often list the Endorsements included at the end of the policy by title or number. Sometimes, commercial policies with many endorsements will list them on a separate page.
The next part of the policy you should identify and at least review, if not read word-for-word, is the definition section. Insurance policies are definition intensive and definitions often restrict or limit coverage, so it’s important to consider them. Defined terms in the body of the policy can usually be identified because they appear in bold text or are capitalized. Whenever you come across a capitalized or bolded word or phrase in the policy, make sure you check the definitions section to see how that word or phrase is defined.
The Insuring Agreement
The Insuring Agreement(s) or insuring clause(s) (sometimes there is more than one) determine what risks are insured under the policy. Sometimes the Insuring Agreements are clearly identified under the heading “Insuring Agreement.” Sometimes they are not. Some policies, such as commercial general liability policies, will identify Insuring Agreements under headings like “Coverage A – Bodily Injury and Property Damage,” “Coverage B – Advertising Injury” etc.
Insurance policies are structured so that the policy first states what is covered in the broadest sense. This is accomplished by the Insuring Agreement. Subsequent portions of the policy, (exclusions and endorsements) create carve-outs from the Insuring Agreement resulting in narrower coverage than would exist if the policy contained only an Insuring Agreement.
Exclusions from Coverage
Every insurance policy will have Exclusions, which are policy provisions that create carve-outs from the Insuring Agreement by eliminating coverage for specific risks. Most policies will have a section labeled “Exclusions.” That is not always case however, and in reality, Exclusions can appear anywhere in the policy. An exclusion is any provision that takes away coverage granted by the Insuring Agreement.
Exclusions often have exceptions, which serve to give back coverage taken away by the exclusion. For example, many CGL policies contain an exclusion for “Bodily injury” or “property damage” the insured is obligated to pay for under a contract. The exclusion also contains exceptions that exempt certain types of obligations and contracts from the exclusion.
An exemption is something of a “give back” after the exclusion “takes away” coverage.
After reviewing the policy’s Exclusions, you will want to identify any important Conditions.
A condition in a contract is an act or circumstance that must happen before a contractual obligation will arise. For example, practically any insurance policy will condition the insurance company’s obligation to provide coverage on payment of premiums. In policies with a “self insured retention,” the policy will condition satisfaction of the retention amount before coverage is triggered.
Conditions can be critical because the insurance company may rely on a failure to satisfy a condition as a reason to deny coverage.
Most policies contain Endorsements, which you will find at the back of the policy form. Endorsements are often numbered numerically or have codes insurance companies use to identify them.
Each Endorsement changes the main body of the policy in some way. Endorsements can add coverage, they can modify a definition or an Insuring Agreement, or they can create additional or broader exclusions from coverage. Any time you are reviewing a policy to determine whether a particular risk is covered, you must check the Endorsements to see whether coverage is affected by an Endorsement.
What to Look For
Any time you receive a new policy from an insurance company, you should review it. Insurance companies often issue policies with errors or that contain incorrect or missing coverages. Other common errors include failing to properly identify the insureds, stating the wrong policy limits, and incorrect spelling. It is always best to address mistakes up front before a claim arises. When the time comes, the insurance company might end up using their mistake to deny the coverage you paid for.
When reviewing the policy to see whether it covers the types of claims important to you or your business, you might try imagining a situation in which you anticipate a claim arising, such as an office fire, a theft, a negligence lawsuit, etc. and then examine the policy to see whether that event would be covered.
Thinking about the following questions can be helpful:
- Are the policy limits adequate?
- Is the risk covered by the Insuring Agreement(s)?
- Is the risk excluded by any Exclusion?
- Is coverage for the risk restored by an exception to an Exclusion?
- Does any Endorsement relate to the risk, and if so, how does it affect coverage?
An Orange County Insurance Lawyer Can Help
If you need commercial litigation assistance reviewing an insurance policy or have found yourself on the wrong side of a denial letter from your insurance company, contact the Orange County based Law Offices of Corbett H. Williams at 949-679-9909. You can also contact us using the form below and we will respond promptly.