Insurance Contracts and Policy Provisions
Anatomy of a policy
A policy requires offer, acceptance, consideration (premium), legal purpose, and competent parties. It is a contract of adhesion (drafted by the insurer and construed against the drafter only where genuinely ambiguous), aleatory (unequal exchange of values), unilateral (only the insurer makes an enforceable promise once premium is paid), and conditional (benefits depend on the insured's compliance). Read it in order: declarations, insuring agreement, conditions, exclusions, definitions, then endorsements, which control over conflicting printed text.
Key conditions include prompt notice of loss, proof of loss, cooperation, examination under oath, appraisal for valuation disputes, and a contractual suit limitation period. The duty to defend is broader than the duty to indemnify: if any allegation in the complaint could fall within coverage, the insurer defends, and a reservation of rights letter preserves coverage defenses without waiving them. Cancellation ends coverage mid-term (usually for nonpayment or, after a set period, any reason); nonrenewal ends it at expiration.
Traps
- Mixing up exclusions (which remove coverage the insuring agreement otherwise grants) with conditions (which the insured must satisfy).
- Assuming late notice defeats coverage automatically - many jurisdictions, Alabama included in practice, require the insurer to show prejudice.
- Overlooking concurrent causation and anti-concurrent causation wording.
- Forgetting that an agent with binding authority can bind coverage before the policy issues.
Rule of thumb
Work top-down: does the insuring agreement grant coverage? If yes, is an exclusion triggered? If yes, does an exception restore coverage? Only then apply conditions and endorsements.