Chapter 5
four steps to DICE (declarations, insuring agreements, conditions, and exclusions)
1. examinations of the declarations page determines whether the info provided precludes coverage 2. analysis of the insuring agreement determines whether a provision in an insuring agreements precludes coverage (if precluded--claim denied and vice versa) 3. analyzing conditions can help the insurance professional clarify important points 4. analysis of policy exclusions and any other provisions determine whether they would preclude coverage
endorsements
1. form part of a policy 2. two general rules of policy interpretation for endorsements: takes precedence over any conflicting terms in the policy in which it is attached; handwritten endorsements supersedes a computer printed or typewritten one (handwritten alterations tend to reflect true intent more accurately than preprinted policy terms 3. certain states require state-specific endorsements to be included with every policy sold in that state
nontransferrable policies
1. insured cannot transfer the contact to a third party (such as a buyer of the insured's property) without the insurer's written consent; transfers with permission often happen during mergers and acquisitions; may be additional or refunded premium required 2. ocean marine hull policies allow transfer of the policy to a new owner if the insured vessel is sold while at sea
contract of adhesion
1. insurer chooses the exact wording in the policies it offers and the insured has little choice but to accept it (take it or leave it) 2. courts interpret ambiguities in such insurance contracts in the insured's favor 3. states regulate the content of insurance policies to protect consumers
conditional policies
1. insurer is obligated to pay for losses only if the insured has fulfilled all of the policy conditions 2. insurer must be willing to waive some policy conditions (such as requiring the insured to make the damaged property available for inspection); in some cases, the insured may pay the claim without taking the inspection
reasonable expectations doctrine
protects an insured when policy provisions are ambiguous
indemnity
a contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of loss; the insured should be "made whole" but should not make a profit
standard forms
accompanied by portfolios of coordinated endorsements that apply necessary state variations or customize coverage; typically easier to evaluate during policy analysis and have been more consistently interpreted by courts
fortuitous losses
accidental or unexpected losses
nonstandard forms
aka company-specific or proprietary form; often adopted for high-volume lines of insurance or for coverages in which the insurer specializes; all manuscript forms; include provisions and often contain coverage enhancements not found in standard forms
comprehensive insuring agreements
provide extremely broad grant of unrestricted coverage that is both clarified and narrowed by exclusions, definitions, and other policy provisions
preprinted forms
can be used in multiple insurance policies without customization; significantly reduces the paperwork necessary for an insurance policy; typically interpreted as contracts of adhesion; courts tend to interpret any ambiguities in policy language in favor of the insured
self-contained policy
contains, within one document, all the provisions needed to make up a complete insurance policy; endorsements can be added to a self-contained policy to provide additional, optional coverages or to exclude unnecessary coverages; appropriate for insuring loss exposures that are similar among many insureds (homeowner's policies); can either be monoline (one type of risk) or package policy (multiple types)
modular policy
combines a set of individual components, such as one or more coverage forms, one or more causes of loss forms, and one or more conditions forms; often used in commercial insurance because the insured's loss exposures are typically unique and require more customization of the insurance policy than with other lines of insurance; can be monoline or package; minimal coverage gaps and overlaps; consistent terminology, definitions, and policy language
declarations
contain standard information that has been declared by the insurer and the insured and information unique to the particular policy; includes policy number, policy period, insurer's name, insured's name; mailing address, policy limits, deductibles, policy premium
manuscript forms
custom forms developed for one specific insured--or for a small group of insureds--with unique coverage needs; often referred to as a manuscript policy; generally not considered contracts of adhesion
miscellaneous provisions
deal with the relationship between the insured and the insurer or help to establish working procedures for implementing the policy
insurance application
documented request for coverage, whether given orally, in writing, or electronically; can be used to provide evidence of misleading or false material information supplied by the insured
inspection reports
documents incorporated in insurance policies
exceptions to indemnity
does not pay because of: 1. policy limits, deductibles, other policy limitations 2. inconvenience, time, or other nonfinancial expenses 3. some valued policies pay a pre-established dollar amount in the event of an insured loss that may be more or less than the value of the insured loss
conditions
if the insured does not comply with conditions, then the insurer may be released form any obligation to perform some or all of its otherwise enforceable promises
definitions
included in most insurance policies for certain terms used throughout the entire policy or form; everyday words are given ordinary meanings; technical words are given technical meanings
utmost good faith
parties act with complete honesty and disclose all relevant facts; insureds must provide information without concealment or misrepresentation, and insurers must fulfill promises as outlined in the contract
premium notes
promissory notes that are accepted by the insurer in lieu of a cash premium payment
pre-loss policy analysis
relies on scenario analysis to determine the extent of coverage the policy provides for the losses generated by a given scenario; the primary source of info for insureds is their past loss experience; one limitation is that the number of possible loss scenarios is theoretically infinite
limited insuring agreements
restrict coverage to certain causes of loss or to certain situations; exclusions, definitions, and other policy provisions serve to clarify and narrow coverage but can also broaden it
exlcusions
state what the insurer does not intend to cover; eliminate coverage for ininsurable loss exposures (i.e. loss exposures related to war); assist in managing moral and morale hazards (to ensure that the insured remains responsible for certain types of loss); reduce likelihood of coverage duplications (having two insurance policies coering the same loss is usually unnecessary and inefficient); eliminate coverages not needed by the typical insured (i.e. the typical auto owner or homeowner does not own or operate private aircraft, so homeowners policies typically exclude coverage for such loss exposures; eliminate coverages requiring special treatment (i.e. commercial liability policies issued to professionals are usually endorsed to exclude their professional liability exposures); assist in keeping premiums reasonable
exchange of unequal amounts
tangible amounts exchanged by the insured and the insurer are unequal; premium is directly proportional to the insured's expected losses on an actuary sound basis; insured's premium is commensurate (in line with/proportional to) the risk it presents to the insurer
post-loss policy analysis
the insurer must determine whether the loss triggers coverage and its extent
manuscript policies
when insureds contribute to the precise wording of the contract; courts generally do not apply the standards that are common under contracts of adhesion