If an Endorsement Is Missing from a Policy’s Schedule of Forms, Is It Enforceable?

My new favorite quotation:

“Insurance rarely fails loudly. It fails quietly, through definitions, territorial carve-outs, and endorsements hiding in plain sight.” – Yehuda Daniel Katz

I wrote in my April 2019 column that there are three primary sources of coverage gaps that can lead to claim disputes. First is the failure to identify and/or quantify exposures. Second is the failure to insure or risk manage known exposures. Third is the failure to quality-control policy deliverables and risk information. It’s the third category that I return to this month.

There’s an expression, “Be careful what you ask for.” In this case, a more cautionary phrase is, “Be careful what you DON’T ask for.” When placing coverage, there are certain forms and endorsements you will request from the carrier. However, there are probably far more endorsements the insurer will provide that you didn’t ask for, many of them disadvantageous to policyholders.

All too often, when an agent quality controls policy deliverables, they focus on the schedule of forms usually included with the policy package. What happens, though, if there are endorsements included in the package but not listed in the schedule?

This very issue came up in a LinkedIn discussion about three months ago.

Yehuda Daniel Katz of RiskRemedy was asked to review a contractor’s insurance program. The contractor had operated exclusively in Colorado for nearly 25 years with a clean loss history. The Schedule of Forms, at first glance, looked typical, and there were no listed trade exclusions. However, applying the “RTFP!” principle, buried deep in the policy on page 126 was an endorsement that did not appear on the Schedule of Forms.

The heading of this CGL endorsement in bold capital letters was “CONTRACTORS EXCLUSION – COLORADO EXCLUDED FROM COVERAGE TERRITORY.” Need I say more? The contractor arguably (or not) had no general liability coverage in the only state where they operated. Apparently, this form was not included in the original issuance of the policy but was added at the first renewal and had remained on the policy ever since–but without listing on the schedule of forms.

To me, this makes his CGL coverage illusory though, as I wrote in my March 2022 column, the courts seem to think that, if the policy covers something, coverage isn’t illusory. In his LinkedIn post, Katz makes an astute and true observation that, “Insurance rarely fails loudly. It fails quietly, through definitions, territorial carve-outs, and endorsements hiding in plain sight.”

The first response to Katz’s post was from a risk management consultant who raised the question of whether there is any case law addressing a scenario where an endorsement is not listed on the schedule of forms but included in the policy. The question is whether an unlisted form is still part of the policy and enforceable. This issue has been litigated (more on that momentarily).

Another poster questioned whether notice of the attachment of this form was ever sent to the policyholder. If not, could that effective reduction in coverage without notice violate the state’s notice requirement? Could it make the endorsement unenforceable on the renewal policy? What about subsequent renewals where notice and reasons have never been provided and the form still is not listed on the form schedule?

The answers to these regulatory questions can be researched by reviewing Colorado law, but a cursory look at Colorado § 10-4-110.5 gives me doubts as to enforceability, especially given that we know nothing about why this form was attached.

‘All too often, when an agent quality controls policy

deliverables, they focus on the schedule of forms …. What happens, though, if there are endorsements included in the package but not listed in the schedule?’

But to wrap this issue up, let’s consider whether there is any case law addressing the question of whether an endorsement–especially one this exclusionary–is enforceable if it is not listed in the schedule of forms. And, even if not listed, must there be some reference IN the policy itself to indicate the endorsement modifies the policy?

In an attempt to answer these questions from the perspective of looking FOR coverage, I found several precedent-setting court cases relating to these issues.

These cases include Allstate Insurance Co. v. Dean (Cal. Ct. App. 1969), National Union Fire Insurance Co. v. Lumbermens Mutual Casualty Co. (U.S. Ct. App., 1st Cir. 2004), and Lawrence A. Smith v. Dodgeville Mutual Insurance Co. (Wis. Ct. App. 1997).

National Union is of particular interest. The Colorado endorsement referenced in the LinkedIn post says, “THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.” Apparently, the endorsement in National Union also purported to form a part of the policy, but the policy itself did not refer to the endorsement. According to the court, the policy’s declarations page said: “ENDORSEMENTS ATTACHED TO THIS POLICY: SEE ATTACHED SCHEDULE.” Like the Colorado situation, the endorsement itself was not included in the forms schedule.

The court concluded that, even though the endorsement itself purported that it was part of the policy, the endorsement was “not incorporated by reference in the policy.” The court cited several other federal cases that reached similar conclusions. According to the National Union court, a statement on an endorsement that it is part of the policy does not govern coverage unless the primary policy form confirms that.

This issue about forms modifying the policy can also involve forms other than coverage-related endorsements such as applications, declarations pages, and even driver exclusion agreements on auto policies, as was the case in Allstate Insurance Co. v. Dean.

In addition, aside from the specific wording in these forms, or lack thereof, insurance statutes and regulations may govern. For example, the Lawrence A. Smith v. Dodgeville Mutual Insurance Co. case references a Wisconsin statute that the court determines supports their interpretation of the law.

The moral of the story this month is that simply scanning a list of forms included in the policy is insufficient to identify limiting or exclusionary endorsements. The “RTFP!” doctrine is real.

Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of six books, including “When Words Collide…Resolving Insurance Coverage and Claims Disputes,” which BookAuthority ranks as the #1 insurance book of all time. He can be reached at Bill@InsuranceCommentary.com.