Policy Provisions and Contract Law
Domain 3 examines the policy as a contract and the legal rules an adjuster uses to decide coverage. Questions commonly give you a loss plus an endorsement or exclusion and ask what is owed, or ask who bears the burden of proof on a disputed issue.
Anatomy of the policy
- Declarations identify insureds, limits, deductibles and dates. The insuring agreement grants coverage. Conditions set duties the insured must satisfy. Exclusions remove coverage. Definitions and endorsements modify all four, and endorsements control over conflicting printed text.
- Work in order: insuring agreement, then exclusions, then conditions, then limits and deductibles. Reading exclusions first is the most common analytical error.
Burden of proof and conditions
- The insured must show a loss within the insuring agreement. The insurer must prove that an exclusion applies. The insured must then prove any exception back into coverage.
- Conditions typically include prompt notice, cooperation, sworn proof of loss, examination under oath, appraisal and a contractual suit limitation. Fire forms commonly impose a one-year suit limitation; enforceability depends on compliance with Delaware law and on whether the insurer was prejudiced.
- Waiver and estoppel can defeat a condition: an adjuster who grants an extension of time for a proof of loss, acting with apparent authority, may not later rely on the missed deadline.
Interpretation and formation
- Unambiguous policy language is enforced as written; genuine ambiguity is construed against the drafter and in favor of coverage.
- A binder creates temporary coverage pending issuance of the policy. A material misrepresentation in the application makes the contract voidable, allowing rescission; non-material statements do not.
- Public policy limits what can be excluded, and statutorily mandated provisions override contrary form language.
Worked example
A pipe bursts, water damages a finished basement, and mold develops. The insuring agreement covers accidental discharge. The mold exclusion bars mold, but its exception allows up to $10,000 for mold resulting from a covered water loss. Result: pay the water damage to limit, plus mold remediation capped at $10,000, less one deductible. The order of analysis produces the answer.
Traps that cost marks
- Reading exclusions before the insuring agreement.
- Assuming an endorsement is optional or subordinate.
- Treating an insured's breach of a condition as automatically fatal when prejudice is required.
- Confusing void and voidable.
- Quoting a form without checking its Delaware amendatory endorsement.