How to Read a Commercial Insurance Policy

by Preston Cavignac, PWCA
Most people find insurance policies difficult to navigate. It is nearly impossible to read through a 300-page policy. The style in which policies are written does not lend itself to be read like a book; they are contracts and require thorough navigation to order to determine coverage.The following article will inform you how to maneuver though a basic insurance policy and determine your coverage. Throughout this article, ‘property policy’ refers to a standard ISO property (CP 00 10) policy and ‘general liability policy’ refers to a general liability (CG 00 01) policy.The first item to determine is who qualifies as an insured. These qualifications can be found on the Declaration Page or in the coverage form under “Who is an Insured.” Note that additional insureds may be added via endorsements.

Once the insured is confirmed, look for the Insuring Agreement.  This portion of the policy promises to make payment to, or on behalf of, the insured.  Often insurance agreements outline a broad scope of coverage, which is then narrowed by exclusions and definitions, so it is important to read this portion once you have determined who the insured is. On property policies, this is on the first page of the coverage form under Subtitle A “Coverage.” On liability policies, this is on the first page of the coverage form under Subtitle 1 “Insuring Agreement.”

The next step is to review the exclusions to see if any apply. On property policies, the exclusions will be on the “Cause of Loss Form,” which is a separate form, generally found behind the coverage form. There are three types of Cause of Loss Forms:  Basic, Broad and Special. Basic and Broad forms specify perils for coverage, while Special forms exclude perils from coverage (all other perils not excluded are covered). The Special form offers the most comprehensive coverage and should always be chosen. On general liability policies, the exclusions will be listed within the coverage form under Subtitle 2 “Exclusions.” It is important to note that any word in quotations has a specific definition and those definitions can be found at the end of the coverage form.

After carriers outline exclusions, they often provide exceptions to those exclusions. These can be found in the same area as the exclusions, but often aren’t labeled as it is easier for the carrier to give coverage back by exception, than delete coverage using a long list of exclusions. This also allows carriers to control the amount of coverage they are willing to offer.

Next are the Endorsements. Endorsements change the policy, meaning they can take away or add coverage to your current policy. After determining who the insured is, reading the insuring agreement, looking at the exclusions and sifting through the endorsements, you should have a better idea of what the insurance company intends to cover.