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 How to Read an Insurance Policy
All policies have four basic parts: declarations, conditions, insuring agreements, and exclusions. Multi-peril policies (like a car policy which covers both first and third party claims) will have conditions, insuring agreements and exclusions for each coverage included in the policy.
Declarations. This is the customized page of the policy. It identifies who is insured, what risks or property are covered, policy limits, and the effective dates of coverage. It contains a list of form numbers and endorsements, and this is where the fun starts.
These form numbers identify every portion of the policy. By carefully checking form numbers against the pages of the policy, you can tell if you have a complete policy. You can also find edition dates on the form numbers and compare them to edition dates on the policy pages, and to the effective dates on the policy.
Carriers often make mistakes in assembling certified policies. Unless you carefully analyze and compare form numbers, you will never know if your certified policy is complete or accurate. Over the years, I have found many instances where the certified policy was incomplete, or contained coverage forms which were published after the date of loss.
The Declarations also tell you the identity of the insurance company. Some of us have learned the hard way that Farmers Insurance Group is not an insurance company. To sue the correct entity, you need the proper name of the company. This will be found in the Declarations.
Conditions. Conditions are simply requirements the insured must fulfil to obtain coverage. You’ll find them in a separate section labeled "Conditions Applicable to Entire Policy," or "General Conditions." You will also find conditions within each coverage part – applicable only to the coverage part in which they are found (liability, PIP, UIM, collision, etc). Conditions often represent traps for unwary counsel.
Most property policies contain conditions which limit suit to within one or two years after the loss. Many policies require the insured to comply with all policy conditions before bringing suit on the policy. It can be difficult, then, to bypass examinations under oath, arbitration clauses, and similar conditions by filing suit. Counsel must read both general and specific conditions before planning prosecution of a case.
Definitions usually appear in general conditions, but can also show up in conditions applicable to specific coverages. Usually, the policy will show defined terms in bold face, so the reader knows to search for definitions of bold terms. Absent a definition in the policy, undefined words will be given their plain, ordinary and popular meaning. Always read policies with a stack of dictionaries close at hand. If common-usage dictionaries differ on the definition of a key term, the court can find the term ambiguous. If policy language is ambiguous, reasonably susceptible to more than one meaning, the Court must adopt the meaning favorable to the insured.
Insuring Agreements and Exclusions. Here is the meat of the policy. The insuring agreements state what is covered; the exclusions take coverage away from the insuring agreements. Read them with the following in mind: Exclusionary clauses are to be most strictly construed against the insurer in view of the fact that the purpose of insurance is to insure, and the contract should be construed so as to make it operative rather than inoperative. Put another way, insuring agreements should be read expansively, while exclusions are read strictly. These principles help create coverage out of chaos.
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