When did you last read the entire commercial general liability policy, commercial property policy or any insurance policy from beginning to end as a refresher? Yeah, me too. Rarely does any insurance practitioner, even hard core ones, undertake to read an entire policy; generally there is a specific answer being sought or problem being researched requiring review of only individual parts of the form and its applicable endorsements to develop an answer or opinion.
Insurance professionals realize that answering a coverage question or providing an opinion without first reviewing the policy (and applicable endorsements) is errors and omissions quicksand. But once the complete policy is in-hand, certain "rules" can be applied in reading the form to make finding the needed answer easier and quicker. These are not shortcuts to reading the policy, just pointers to make finding the most correct answer easier.
Links to two spreadsheets follow the policy-reading guidelines presented below. One allows the user to confirm whether a specific loss or claim is covered. The second spreadsheet walks the user through the coverage limits to define the amount of coverage available for a specific loss or claim.
Rules for Reading the Policy
Twelve "rules" for reading an insurance policy:
- Find out who qualifies as an insured. If the person or entity suffering or causing the loss, injury or damage is not an insured, there is no reason to go any further, there is no coverage. Remember, there are four levels of insureds: 1) named insured(s); 2) additionally listed (named) insureds; 3) automatic insureds; and 4) additional (endorsed) insureds.
- Annotate the policy form by highlighting the areas changed by an endorsement and list which endorsement changes that section. When reading that part, apply the endorsement wording directly.
- Compare the forms and endorsements listed on the declarations page with the forms and endorsements attached to make sure the entire policy is available. This includes confirming that the edition dates match.
- Read the Insuring Agreement first to make sure the loss or occurrence is contemplated. This is the broadest the coverage is ever going to be - so start here.
- After the insuring agreement, read the exclusions. In most liability and special form property policies, coverage is created when not excluded. Treat named peril property policies and the "personal and advertising injury" section of the commercial general liability policy differently, read the list of covered perils (that which causes a loss) first, then the exclusions.
- Read the exceptions to the exclusions. Exceptions give coverage back in specific amounts. As was discussed in "Six Reasons the Loss is Excluded," it's easier for the carrier to give coverage back by exception than to delete by a long list of exclusions.
- When the policy refers to another section, read that section immediately.
- Pay attention to the conjunctions used in a list. "And" is inclusive; "Or" is exclusive. If there is a list of five qualifiers, the use of "and" means that all five must be satisfies. "Or" means that if any of the five apply, coverage is granted or excluded (or whatever the list provides).
- Pay attention to key words and phrases. There are certain key words that must be underlined or highlighted when reading the policy. These words and phrases create, delete or alter coverage and limits (this may not be an all-inclusive list):
- "Not" as in "does not apply to…" or "does not include…." This changes or limits whatever grant or denial of coverage preceded it.
- "Greater than…," "lesser than…," "Greater of…," "lesser of…," "no more than," "the most…," "all" or any other quantifying phrase. "The insured receives the 'lesser of'…" is a quantifying phrase indicating that of the upcoming values, the insured will get the least or lowest amount.
- "Unless," "except," "only if…" or "subject to…" each connotes a change in condition, added requirement or an alternative.
- "However" discounts everything before it. This is a qualifying term that creates coverage or condition parameters.
- "Includes," as the name suggests, is an inclusive term that broadens the provision to which it applies.
- "Must" and "regardless." There is no alternative and surrounding circumstances are of no consideration in meeting the requirement.
- "First" is an order of sequence term. Some policy provisions list the order of events or actions. Particular attention must be given to the order of events prescribed by these sequencing terms.
- Read and understand the definitions of specifically defined terms. The insurance carrier desires to control the meaning of certain words and phrases and does so by specifically defining them in the policy. Such definitions can limit or explain the breadth of protection. Words not defined are given their common, everyday meaning.
- Understand and make sure all the policy conditions have been met. Failure to meet the policies conditions can result in the denial of coverage.
- Confirm the coverage limits are adequate for the loss (see spreadsheet attached).
Does Coverage Exist
Applying these policy-review rules will allow quicker coverage determinations, subject, of course, to the specific situation and surrounding laws. Attached is a loss/claims worksheet to guide the user through the policy to determine the availability of coverage. This can be printed and kept for future reference.
How Much Coverage is Available
A coverage limit guide is attached as well. While not necessarily usable in every loss situation, this guide will walk the user through the steps necessary to determine the potential coverage amount available to pay a specific loss. When there is a loss combining special/sub-limits and non-limited loss (subject to total policy limits), it's best to complete two forms; one for the non-limited loss and the second involving the special/sub-limit claim.
Remember, for property losses this form generates the maximum payable. Property policies generally state that the insurance carrier will pay the least of some list of amounts such as the value of the damaged property, the cost to repair or replace or some other value. Again, this is intended as a guide only.
Also, pay close attention to the application of the deductible. As footnoted, the deductible is subtracted from the amount of loss in a property claim, not the policy limit. If the loss is greater than the policy limit, the insured may receive the entire policy limit (provided a coinsurance penalty does not negate this provision).
This is only a simplified worksheet that requires general knowledge of the policy language covering the particular loss. It can be printed for future use.