How to Read a Policy

This article was published in Trial News December, 2000. 

 

How to Read an Insurance Policy

Insurance policies are the most ignored documents of commerce. Our clients certainly donít read them, either before or after a loss. They expect us to unravel the most arcane policy terms, yet few lawyers have the training, experience, or patience to do so. Indeed, lawyers unfamiliar with coverage disputes seem to avoid reading policies. Instead, they call friends or post messages on the internet asking questions which cannot be answered without a careful reading of the policy.

Lawyers donít read policies because they donít know how. Here is a short primer. Reading policies is a kind of treasure hunt, once you know where to look.

Get the Complete Policy

Sometimes just obtaining the policy is a challenge. The client probably misplaced vital portions of the policy, or may not have a copy which corresponds to the loss date. Always demand a certified copy of the policy from the carrier. This is simply a copy which the carrier assembles and swears is accurate as of the date of loss. That said, the certified copy may or may not be accurate.

The certified policy was created by a clerk at the company. The clerk looked at a computer printout of coverage and form numbers, then assembled a new policy from specimens. Compare the certified policy with whatever the insured can furnish. If some coverages vary from year to year, find out why. Sometimes the insured will keep the little pamphlets and explanatory notes which come with renewals. These can help explain policy terms and changes.

Understand the Policy Structure.

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. Youíll find them in a separate section labeled "Conditions Applicable to Entire Policy," or "General Conditions." You will also find conditions within each coverage part Ė 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. This clause has been upheld in Washington. Simms v. Allstate Ins. Co., 27 Wn. App. 872, 621 P.2d 155 (1980); RCW 48.18.200. Many policies require the insured to comply with all policy conditions before bringing suit on the policy. See, Tran v. State Farm, 136 Wn.2d 214, 228, 229, 961 P.2d 358 (1998). 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. Greer v. Northwestern National., 36 Wn. App. 330, 674 P.2d 1257 (1984); Crunk v. State Farm, 39 Wn. App. 501, 686 P.2d 1132 (1984).

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. Government Employees Insurance v. Titus, 18 Wn. App. 208, 566 P.2d 990 (1977); McDonald Industries v. Rollings Leasing Corp., 95 Wn.2d 909, 631 P.2d 947 (1981); Boeing v. Aetna, 113 Wn.2d 869, 784 P.2d 507 (1990).

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. Phil Schroeder, Inc. v. Royal Globe Ins. Co., 99 Wn.2d 65, 68, 659 P.2d 509 (1983), modified on reconsideration, 101 Wn.2d 830, 683 P.2d 186 (1984). Put another way, insuring agreements should be read expansively, while exclusions are read strictly. These principles help create coverage out of chaos.

Is the Policy Filed with the Commissioner?

RCW 48.18.100 provides:

(1) No insurance policy form . . .shall be delivered, or used unless it has been filed with and approved by the commissioner. This section shall not apply to policies, riders or endorsements of unique character designed for and used with relation to insurance upon a particular subject.

Most policy forms, then, have been approved by the Commissioner before the policy is issued. Sometimes the approval seems to have been automatic, while in other cases it is subject to some debate. When an officer at the Insurance Commission takes issue with a policy form or endorsement, the result will be a series of letters between the carrier and the Commissionerís office discussing what the form is intended to accomplish. This written debate can be useful, particularly when the carrier is asking the Commissioner to approve a form because it will provide broad coverage. This material is available from the Commissioner.

Does the Policy Comply with the Law?

In property insurance, every policy must comply with RCW 48.18.120, which authorizes the Insurance Commissioner to adopt rules promoting uniformity in property insurance. Pursuant to that authority, the Commissioner promulgated the following:

(3) Except for the provisions of the next succeeding three paragraphs, no company shall issue any basic contract of fire insurance covering property or interest therein in this state other than on the form known as the 1943 New York Standard Fire Insurance Policy, herein referred to as the 'standard fire policy': . . ..

(c) As an alternative form, a form written in clear,

understandable language, which provides terms, conditions and coverages not less favorable to the insured than the 'standard fire policy,' may be used. . . ."

WAC 284-20-010(3). The use of standard policies in fire insurance can be traced to the establishment of the National Board of Fire Underwriters, in the nineteenth century. The board drafted the first standard policy in 1886, the New York Standard Policy, colloquially called the "112 line" policy. Since then, New York has drafted and adopted two new standard contracts: the 1926 "200 line" policy and the 1943 "165 line" policy. Forty_two states have adopted the 1943 "165 line" policy. Borman v. State Farm, 521 N.W.2d 266, 269 (Mich. 1994). See, also, Fireman's Fund Ins Co v Dean, 212 Ga.App. 262; 441 S.E.2d 436 (1994); Osbon v National Union Fire Ins Co, 632 So. 2d 1158 (La App, 1994), both holding that carriers cannot offer less coverage than that required in the Standard Policy. This is true even when the policy filed has been approved by the commissioner. Ponder v Allstate Ins. Co., 729 F. Supp 60, 62 (ED Mich., 1990). If some coverage or condition in the policy is less consumer-friendly than the Standard Policy, the court should reform the policy for the benefit of the insured.

Underinsured motorist coverage is regulated by the legislature. RCW 48.22.030 defines the term "underinsured motor vehicle," and sets out various coverage and condition requirements.

The statute becomes a part of and should be read into the insurance policy. Touchette v. Northwestern Mut. Ins., 80 Wn.2d 327, 494 P.2d 479 (1972). Any policy term or clause which contradicts the statute is void. Again, the statute reforms portions of the policy which may not comply with the law.

Compare the Policy Ė with Itself

Often the battle is over the meaning of a word or two. If the dispute concerns liability coverage, does the key word appear elsewhere in the policy? In what context? By reading the entire policy, the disputed portion often appears in context for the first time. Courts will expect the policy to read as a consistent, integrated document.

Look for other policies by the same carrier. Words like "caused by" and "arising from" can have disparate meanings, especially if the carrier uses them differently in different policies. As the court said in Boeing v. Aetna, "[T]he industry knows how to protect itself and it knows how to write exclusions and conditions." 113 Wn.2d at 887. Nothing the carrier writes into a policy should be ignored, or considered accidental.

Conclusion

Go ahead, enjoy the hunt. Get a complete, accurate, certified copy of the policy.

Understand the structure of the policy, and read it with dictionaries at hand. Review the basic tenets of policy interpretation as you comb the fine print for treasure.

 
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