How To Read Insurance Coverage: A Beginner’s Guide to Policy Understanding

When it comes to how to read insurance coverage, isn’t straightforward for most people; it’s not like enjoying a good book that you can simply curl up with and read from start to finish.

Insurance policies are known for being confusing and complicated.

They often refer to other sections in a tangled way, making it hard to follow.

Surprisingly, insurance companies try to make their policies as clear as possible.

This clarity matters because, in a legal dispute over coverage, any unclear language will be interpreted in favor of the insured, not the insurer.

 

Reasons For Reading Insurance Coverage

You need to understand and know your public entity’s insurance policies for a few good reasons.

First off, each policy is like a deal between your organization and the insurance company.

You gotta make sure the policy covers what you need it to, including specific stuff your organization does and the important people involved.

Also, you need to be on top of any special reporting things after your organization goes through a loss, so you know what needs to be done and when.

Claims get paid and defended by strictly following what’s in your written insurance policies.

And don’t think the insurance company will cut you some slack if you don’t stick to the policy’s reporting rules usually, they won’t.

So I Have Insurance, Now What?

This article presents five steps to simplify the intricate structure of your insurance policy.

Organizations in the insurance industry that specialize in drafting typically create many policies using standard forms.

These forms intentionally have a broad scope to be applicable in most states and for various types of organizations.

Sometimes, these organizations consolidate multiple forms into a single policy, resulting in a lengthy document.

Keep in mind that all insurance policies consist of basic components, usually arranged as follows:

1. Declarations Page
2. Insuring Agreements
3. Exclusions
4. Conditions
5. Definitions

Liability policies also include a section on “Who Is Insured,” and almost all insurance policies come with a few automatic endorsements that modify coverage.

1. Confirm the Essentials

The Declarations, commonly referred to as the Dec page, is the initial section of your insurance policy.

While it may extend beyond a single page, it succinctly presents crucial details about the specific policy:

1. Type or name of the coverage provided.
2. Identification of your organization as the “Named Insured,” the entity covered by the policy.
3. Policy duration.
4. Endorsement names or numbers included.
5. Dollar limits of coverage and associated deductibles.

Thoroughly check the Declarations page for a sneak peek into the policy narrative.

Confirm accurate entity details in the Named Insured section, and verify coverage limits and deductibles align with your instructions to the agent.

If you spot errors or worry about inadequate coverage, contact your agent promptly for resolution.

2. Read the Policy Definitions

Even though we often use certain words every day, their specific meanings in insurance contracts can be very narrow.

This means that if there’s a disagreement about whether your nonprofit is covered, the specific definition in the insurance contract will be used.

The Definitions section in insurance policies has evolved, partly because of a legal principle called “contra proferentem,” which means “against the offeror” in Latin.

This principle says that if there’s a disagreement in a contract and one party has more power, the courts will favor the interpretation of the party that didn’t write the contract.

For example, in a 2013 case, an insurance company didn’t clearly define the term “occupant,” leading to a court deciding that a pedestrian hit by a car while walking her dog was considered an “occupant” of the vehicle (Bennett v. State Farm Mutual Automobile Ins. Co., No. 13-3047 (6th Cir. 2013)).

So, it’s a big mistake to read a commercial insurance policy without understanding the defined terms.

To avoid relying on common meanings that could be unclear, insurance policies have a Definitions section.

You can easily identify defined terms because they are usually capitalized or in bold, italics, or “quotation marks.

3. Analyze The Policy Insuring Agreements

The Insuring Agreements in your insurance policy explain what’s covered.

They set the limits of coverage, narrowed down by exclusions.

Some policies, like General Liability and Directors’ and Officers’ Liability, cover a lot.

For instance, a Directors’ and Officers’ (D&O) policy might cover any “wrongful act.” Others, like automobile liability, are more specific, covering only vehicle ownership and use.

If your policy has different parts, each part has its agreement.

A standard Commercial General Liability (CGL) policy, for example, has separate agreements for bodily injury, property damage, personal and advertising injury, and medical payments.

Remember, your policy might call Insuring Agreements something else, like Policy Coverages.

These agreements often use emphasized words—bold, italics, or in quotation marks. T

his means these words have specific meanings in the policy.

Here’s a simpler example of an Insuring Agreements section from a directors’ and officers’ liability policy for a public entity:

The insurance company pays for losses from claims made against Individual Insureds for D&O Wrongful Acts during the policy period (or extension, if any), reported as per this policy.

It doesn’t cover cases where the Organization has already compensated the Individual Insureds.

The insurance company also pays for the Organization’s losses from claims made against Individual Insureds for D&O Wrongful Acts during the policy period (or extension, if any), reported as per this policy, but only if the Organization has compensated the Individual Insureds.

The insurance company covers losses from claims made against the Organization during the policy period (or extension, if any), reported as per this policy, for a D&O Wrongful Act.

 

4. Closely Review The Exclusions, Limitations And Conditions

After the part that talks about what the insurance covers, there’s a section called “Exclusions.

This part tells you what the insurance doesn’t cover.

It’s interesting because some important things not covered are listed in different places!

For instance, the part that says the insurance won’t pay for fines and penalties is usually found in the “loss” definition section, not in the Exclusions part.

Other things not covered are often in the Policy Conditions section.

Some policies also have “Exceptions to the Exclusions,” which might sound odd.

But it’s done to avoid making a long list of what’s not covered and what is covered.

The “Policy Limitations” tell you the maximum amount of money you can get from the insurance.

It could be a fixed amount a percentage of the total loss, or a mix of both.

There’s also a part called “Conditions.” This part talks about things you have to do or limits on what the insurance will pay for.

It mentions what you need to do if you make a claim, how the insurance works if there’s other insurance, whether they can check your policy, and when they can cancel it.

5. Don’t Skip The Small Stuff

Even seemingly small details in your policy matter.

When a section references another, check it right away to ensure no significant changes.

Watch out for absolute (always, never) or inclusive (and, or) language.

Reporting a loss to both law enforcement and the insurer within 24 hours isn’t the same as reporting it to either within that time frame.

Misreading this could lead to a loss of coverage.

Conclusion

Understanding commercial insurance policies is complex, unlike reading a book.

Despite their confusing nature, insurance companies aim for clarity to favor policyholders in legal disputes.

It’s crucial to grasp your organization’s policies, ensuring they cover activities and individuals properly.

Follow the five steps outlined here to simplify policy comprehension and avoid coverage pitfalls.

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