How to Read an Insurance Policy: Policy Form Edition Dates and Why They are Important

insurance blackboard

By John Eubank, CPCU, ARM

No matter how long you’ve been in the industry, it never hurts to review the more important details of policy analysis. This article focuses on ISO forms and endorsements, discusses how they have evolved, and highlights the critical words and dates that impact coverages and exposures.

The Insurance Services Office, Inc. (ISO) is an insurance advisory organization that provides actuarial, statistical, and policy language services for insurers. Commercial and personal lines forms and endorsements drafted by ISO are considered by many to be the standard forms of the industry. Some insurers elect to use the ISO forms verbatim for at least some of the policies that they issue, and most insurers base their own company forms on the language of ISO forms.

There are 23 ISO lines of business and accompanying forms. These range from AG forms (Agricultural Capital Assets – Output Policy) to PR forms (Professional Liability) with the usual CP (Commercial Property), HO (Homeowners), and CG (Commercial General Liability) scattered in between.

Just in case you commercial folk want to know, there are 2,115 forms and endorsements for Commercial General Liability! There are probably more right now; that count was a couple of days ago.

Why do we have all these forms?

Again, we are going to discuss only the forms issued by the ISO. Insurance is a complex topic, and many organizations have valuable data and interesting points of view. One of these organizations is American Association of Insurance Services (AAIS), a national insurance advisory and statistical organization that develops standardized policy forms and rates primarily for Homeowners, Artisan commercial, Businessowners, Farm, and Inland Marine. The other major insurance advisory organization is the National Council on Compensation Insurance (NCCI). They gather data, analyze industry trends, and prepare objective insurance rate and loss cost recommendations on Workers Compensation.

Why are there so many form changes?

Forms are changed by ISO to:

Broaden or reduce coverage

This is the main reason why the “edition date” is so very important. Unless you know which edition is being used, it is impossible to know what coverage is available. For example, the ISO 2004, 2007, and 2013 editions of the Commercial General Liability forms define “auto” differently from all the prior forms. This can cause a major difference in coverage.

Reflect a court case interpretation of the court’s analysis of the form

This can be done by a “mandatory” endorsement. This is an endorsement that is made mandatory by ISO and, according to the ISO rules, must be used under certain situations. This wording will later be incorporated into a revision of the coverage form. For example, an appeals court decision was made in California that has had a far-reaching impact on the Commercial General Liability Policy (CGL). The case is Montrose Chemical Corporation of California vs. Admiral Insurance Company.

ISO developed a mandatory endorsement, CG 00 57 Amendment Of Insuring Agreement—Known Injury Or Damage, to address the issue. This endorsement revised the Insuring Agreements so that commercial liability policies will not respond to any injury or damage known by the insured (or an “employee” of the insured who was authorized to give or receive notice of injury, damage, or claim), before the policy inception.

The Known Injury or Damage endorsements may be attached to the 1988, 1993, 1996, and 1998 editions of the CGL. When the CGL was revised in 2001, the language was incorporated in the form and the endorsement was no longer needed for subsequent editions. So, some edition dates must have the endorsement, and others do not need it.

Clarify previous language

Several years ago, ISO revised CG 20 10 11 85, but, even today, some contractors are required to have this exact edition date on their CGL.

Reflect changes in society

This could come in many forms, but just think of changes we have been experiencing with technology (computer viruses and property damage to electronic data) and gizmos (Segway, Hovercraft, Blackberry, etc.).

What are some other issues?

There are state-specific endorsements that may address such things as cancellation. These are called the Category 01 endorsements and are recognizable by the ISO numbering system.

Coverage and exclusions may be different in the various edition dates, but that should be clear when you read the forms.

There is another concern. Not all ISO forms and endorsements are used verbatim. The insured may change the language if they so desire. How can you tell if the form you are reviewing is an “unedited” edition? Look at the very bottom of a form page and if it says “© ISO Properties, Inc.,” or “Insurance Services Office, Inc.©” or, for some of the older editions, it might say “Copyright, Insurance Services, Inc.” However, if it says “Used With Permission of Insurance Services Office, Inc.,” then something has been changed and you need to look very closely to determine what has been altered.

Are there any “hidden” things to look for?

Yes, there are, and they are very subtle. I call these the “seven deadly words.” When they are found in a policy (insurance contract), you must pay careful attention to how they are used. Once again, without knowing the specific form edition, it can be impossible to know what the form says and—more importantly—what it may mean.

All insurance policies are contracts of adhesion. The hallmark rule for these types of contracts is that any doubt or ambiguity is construed against the party who wrote the contract language.

What are the “seven deadly” words?

They are:

1) and

2) an

3) but

4) if

5) however

6) or

7) the

It is important to be aware of these words and the problems they may create. These seven words are used 1,502 times in the 16 pages of the 9,826-total-word 2013 Commercial General Liability form (that is 15.8%). The most often used word is “or,” which comprises 676 of the 1,502; “the” is used 476 times, with the other words being used any where from 19 to 184 times.

Here is an example of how these little words are used in insurance forms. The use of a definitive article (adjective) can impact coverage. The following is from the “intentional acts” exclusion from the Homeowners Policy (HO 3 – Special Form, 2000/2011 editions):

Section II Exclusions

  1. Coverage E – Personal Liability And Coverage F – Medical Payments To Others

    Coverages E and F do not apply to the following:

    1. Expected Or Intended Injury

      “Bodily injury” or “property damage” which is expected or intended by an “insured” even if the resulting “bodily injury” or “property damage”…

      However, this Exclusion E.1. does not apply to “bodily injury” resulting from the use of reasonable force by an “insured” to protect persons or property;

The 1991 edition of the Homeowners 3 – Special Form says:

  1. Coverage E - Personal Liability and Coverage F - Medical Payments to Others do not apply to “bodily injury” or “property damage”:

    1. Which is expected or intended by the “insured”…

The 1991 form said “the insured” and several courts have ruled that the exclusion applied only to injury committed by the “Named Insured” on the declarations page. For example, if the Named Insured was John Doe, then the exclusion would not apply to Mr. Doe’s wife, assuming she was a resident of the household. Therefore, the insurer would have to defend the wife in a suit by the daughter claiming the wife had failed to prevent sexual abuse of the daughter.

The 2000 edition of the Homeowners form changed the word “the” to “an,” thus, this edition tries to make it clear the exclusion applies to any insured, whether they are the Named Insured or any other person qualifying as such under the form.

It is worth noting, the Intentional Acts Exclusion in the Commercial General Liability form and the Commercial Auto form also says “…from the standpoint of the insured.”

In the CG 28 05 Personal Injury Liability endorsement, ISO changed an exclusion for “a criminal act committed by or at the direction of any insured” to read “a criminal act committed by or at the direction of the insured.” In their Explanatory Memorandum, ISO stated this was a broadening in coverage, as there will now be coverage for the vicarious liability of other insureds who have no knowledge of a criminal act. In this memo, ISO acknowledges that the word “any” will encompass “all” insureds under the policy, while “the” is only a specific insured.

Thus, the use or changing of one of the seven words can have a major impact on coverage. We could go over many more examples of how changing these words can alter the coverage, but we will leave that for another article. Again, if you don’t know which edition date (in our example the 1991 vs. 2000/2011 Homeowners) is being used, there is a great possibility of misinterpretation of the form language.

“Everyone knows what an accident is until the word comes up in court. Then it becomes a mysterious phenomenon and, in order to resolve the enigma, witnesses are summoned, experts testify, lawyers argue, treatises are consulted and, even when a conclave of twelve world-knowledgeable individuals agree as to whether a certain set of facts made out an accident, the question may not yet be settled and it must be reheard in an appellate court.” —Brenneman v. St. Paul F. & M. Ins. Co. (Pa. Sup. Ct. 1963).

Learn More, Earn More

Insurance Essentials

The National Alliance offers a variety of resources to help you learn about the exposures and coverages for personal and commercial lines. The CIC Program includes the CIC Personal Lines and Commercial Lines Institutes, and the CISR Program also offers several courses related to commercial and personal lines. And be sure to get a copy of P&C Insurance Essentials for handy reference

John Eubank, CPCU, ARM, is CEO and President of Professional Insurance Education, Inc. He was previously employed by Insurance Services Offices, Inc., as the Regional Operations Manager for its subsidiary, ISO Commercial Risk Services, Inc. John has served as a National Faculty member for The National Alliance since 1976.

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