Insurance Academy

5 Quick Questions Before I Read a Commercial Policy

By Patrick Wraight | November 28, 2018

It’s that time of year at the Academy. I’m pouring over spreadsheets and schedules. I’m emailing instructors and planning classes. Yeah. I’m trying to look ahead and work ahead, all while looking at today’s numbers and wondering how we’re going to hit the numbers that we want before the end of the year, but let’s be honest with one another for a moment. You don’t care a bit about my numbers and the stuff I’m concerned about. You don’t have to apologize. I don’t hold it against you. I only bring it up because I’m working on the classes that I plan to teach next year. That’s where this week’s topic came from.

I’m working on a session about how I read an insurance policy. It may not be the perfect method, but it’s mine and I like it. Let’s look at how I read a policy, especially when someone asks me a coverage question. I always used to love it when an agent called me and started with, “So, what if…” I always knew that a coverage question might be coming. Of course, my response always started with, “If a claim is possible based on this what if question…”

What policy are you talking about?

Anyway, before answering any coverage question, I always make sure that I know what policy you’re asking about. By that, I mean specifically what policy are you talking about? I don’t just want to know the base ISO form that you might be looking at, I want to know all about the policy. It was easy when I worked as an underwriter. Agents only called me about our policies. So, I just needed the policy number, and year. Then I could go back and look at the specific policy.

No. It really isn’t enough to know which form number you’re thinking about. That’s not enough information. I really need to know all of the details about the policy. What endorsements are attached? What edition dates are you using? Can I see all of the declaration’s pages? If it’s a package policy, I need to know which forms could apply to multiple lines of business. Sorry. I got a little ahead of myself. Let me back up.

Is it an ISO based policy?

That narrows a few things down because there is consistency about how the forms read. It’s easier to find out what endorsements should be attached to the coverage form. It also helps because if there’s an endorsement that should be there and it isn’t, we can address that and make sure that we’re aware how that missing endorsement affects coverage.

The great news about the ISO forms is that they are usually well written. Sure, there are issues with some forms, but in general, at least they’re predictable. They use similar language among different forms. They even do a fairly good job of writing forms in a complementary way. That is, that one liability form will exclude liability coverage that is provided on another liability form.

It’s also helpful because much of the ISO policy language has been fought over in courts and many courts have ruled on much of the language. Policy wording that is tested by courts over time is helpful in providing reasonably known boundaries. Is it possible that another court will come up with a different decision about policy language? Of course, but we can’t live in the world of what if. Let us keep running forward.

OK, now what proprietary endorsements are attached?

I have to see those because they can significantly alter coverage. I remember a time when an underwriter was asked if Increased Cost of Construction was included on a commercial property policy. The underwriter answered yes, which would have been correct, except for the company endorsement that deleted that provision from the form. You have to watch those company endorsements. They really can make what you think you know very wrong.

Another time, I was with a carrier that provided an endorsement that (simply put) provided that the aggregate limit on the CGL policy applied by named insured and by location. That’s right. If that policy had a $5 million aggregate limit covering 10 locations, each location had access to that total amount. It was not split among them. Rather than diluting coverage to a possible $500,000/location, it created a total possible aggregate of $50 million. Yeah. That’s a big change.

Alright, is it a package policy?

This lets me know that I’m not just looking for line of business specific endorsements, but I have to see the interline endorsements (ISO uses IL for these) that apply. They may be attached anyway, but it never hurts to know that the package is there. It also lets you know that one coverage part may have a term defined one way and the coverage part that you’re looking at has it defined differently. That makes a difference.

One more before we go; can I see the declaration’s page?

Why is it important to look at the declarations’ (dec) page? On some coverage parts, the dec page will provide you some additional information. Consider the commercial property dec page. Doesn’t it list the specific causes of loss form that applies to each item of covered property? Is it then possible that the buildings are covered by a special causes of loss form while the business personal property is covered by a broad causes of loss form? Adding one more element, could there be coverage for personal property of others and that coverage could be limited even more to basic causes of loss? I’m not saying that it’s likely, but it’s the unlikely changes that will trip us up.

Beyond those, the question might apply to a building that isn’t listed specifically on the policy. In that case, it doesn’t matter how provisions you quote, that location might not have any coverage. Beyond that, you need to be familiar with all of the items that could be indicated on a dec page. They are full of great information that will help you to read and interpret the policy in question.

Alright, that’s enough for now. I have other pieces to talk about, but we’ll get to them in time. This is enough for now. Now go out and get used to reading policies. You will learn something, and I’m interested to find out what you learn when you pick up a policy. I especially love to pick up a new kind of policy because they use different terms and define terms differently than I’m used to.

You and I both know that things are winding down this time of year. In a couple of weeks, you could be wondering what to do next, or you could be reading policies and learning what they actually say, rather than leaning on others to tell you.

About Patrick Wraight

Patrick Wraight, CIC, CRM, AU, is director of Insurance Journal's Academy of Insurance. He can be reached at pwraight@ijacademy.com.

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