INTRODUCTION
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APPICATION FORMS
As the insurance market changes, the use
of application forms for commercial business is increasing. They
have always been required for certain types of insurance, but the
insurance industry has traditionally been satisfied with verbal or
written communications summarizing the salient underwriting
information. The traditional approach leaves a lot to be desired,
since it lacks uniformity and does not seem to elicit the same degree
of accuracy that applications with supplementary information does.
Wordings
Wording are constantly changing to respond
to new legal developments, changes in reinsurance supply, changes in
consumer expectations which fuels competition and the introduction of
new products by creative individuals.
When developing a new wording or simply
researching what the market norm is, it is useful to have access to
internet sources. The most valuable sources are not available
for free on
the net; you must subscribe to the service; sometimes on-line and
sometimes on CD ROM or floppy.
Terminology
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Some of the terms used with applications
and insurance contracts are as follows:
Acceptance
The expressed agreement or assent to an
offer; one of the elements needed to form a legal contract, with an
offer, consideration, competence of the parties, and a legal purpose.
In an insurance transaction, acceptance occurs when an applicant
indicates agreement to the terms of a binder or policy, usually by
paying the premium.
Aleatory contract
A contract whose value to either or both
of the parties depends on chance or future events, or where the
monetary values of the parties' performance are unequal. An insurance
policy is an aleatory contract because the insurer's obligation to pay
a loss depends on uncertain events, while the insured must pay a fixed
premium during the policy period.
Ambiguity
Uncertainty of meaning; a lack of
clarity in an insurance policy's provisions, allowing the policy to be
interpreted in more than one way. In coverage litigation, courts
generally construe ambiguity in a policy against the insurer and in
favor of the insured.
Reasonable expectations doctrine
A legal principle that insurance policy
provisions capable of more than one interpretation should be construed
in accordance with the objectively reasonable expectations of the
insured.
Application
A printed form developed by an insurer
that includes questions about a prospective insured and the desired
insurance coverage and limits. It provides the insurer's underwriter
with information for accepting or rejecting the prospective insured
and rating the desired policy. Some policies--especially life, health
and professional liability policies--make the application part of the
policy, and misrepresentations in the application can void the policy.
Attestation clause
The final clause of an insurance
contract where an officer or officers of an insurance company place
their signature(s) to officially authenticate it as a binding
contract.
Binder
An agreement issued usually in writing,
but occasionally orally, by an agent or an insurer providing temporary
coverage until a policy can be issued. A binder should include a
specified effective time limit, be in writing, and clearly designate
the company to which the agent is binding the coverage. The amount,
the perils insured against, and the type of insurance must also be
included.
A temporary record of a reinsurance
agreement's provisions, used while the formal reinsurance contract is
being drawn.
Certificate of reinsurance
An abbreviated documentation of a
reinsurance transaction, usually incorporating standard terms and
conditions by reference.
Commercial package policy (CPP)
A coverage plan that includes a wide
range of essential liability and property coverages for a commercial
enterprise. The package policy usually features common policy
conditions, common declarations, and two or more coverage sections.
Concealment / non-disclosure
The intentional withholding of
information that will result in an imprecise underwriting decision.
For example, concealment of an existing medical condition by an
insured when applying for life or health insurance can be grounds for
an insurer to void the policy or reduce the benefits.
Consideration
For purposes of the insurance
transaction, the consideration is the premium paid by the insured for
the insurer's promise to pay claims in accordance with the terms of
the policy.
Contract
A legally enforceable promise made by
agreement between two or more parties to create reasonably specific
mutual obligations. Required elements of a contract are legally
competent parties, a purpose that is not illegal or against public
policy, an offer, an acceptance of the offer within a reasonable time,
and consideration (which is any value or benefit acquired by a party,
or actions undertaken or a sacrifice by a party with the purpose of
fulfilling an obligation).
Contract of adhesion
A contract drafted by one party and
offered on a take-it-or-leave-it basis or with little opportunity for
the offeree to bargain or alter the provisions. Contracts of adhesion
typically contain long boilerplate provisions in small type, written
in language difficult for ordinary consumers to understand. Insurance
policies are usually considered contracts of adhesion because they are
drafted by the insurer and offered without the consumer being able to
make material changes. As a result, courts generally rule in favor of
an insured if there is an ambiguity in policy provisions.
Contra proferentem
The legal principle that if the meaning
of a contractual provision is ambiguous, that meaning is preferred
which operates against the party who drafted the contract or supplied
the particular provision. (Latin for "against the proffering person.")
In lawsuits involving insurance contracts, most courts construe
ambiguities against the insurer and in favor of the insured, because
it is assumed that the insurer could have written the contract more
plainly. Some courts are reluctant to apply this rule in cases where
the insured equals or surpasses the insurer in business
sophistication, knowledge of possible risks, and assistance of legal
counsel.
Coverage form
Those portions of an insurance policy in
which the insuring agreement and exclusions are contained.
Coverage part
Those portions of an insurance policy
that make up a specific line of insurance, including conditions,
declarations, coverage forms, causes of loss forms, endorsements, and
any other mandatory parts.
Declarations
A form provided by an insurance company
to insureds for reporting payments under an open cargo policy when no
marine insurance certificates are issued.
Ejusdem generis
"If
the contract provision lists specific items and ends with a general
term, the meaning of the general term may be limited to the same
general class as the specific items."
Endorsement
A written amendment to a policy that is
part of the insurance agreement. In case of conflicting provisions, an
endorsement supersedes the main part of the policy. If two
endorsements contradict each other, the one with the latest date
prevails.
Estoppel
A legal principle that when an
individual represents a material fact to another, who alters his
position in reasonable reliance on the representation, the first may
not deny that the condition or fact exists. Examples: An insurer may
be estopped from denying a claim submitted after the policy expired if
the insurer (or its agent) acted as though the policy had been or
would be renewed.
Exclusion
An insurance policy or bond provision
that eliminates coverage for specific hazards, perils, property or
locations. It designates what the insurer does not intend to cover
under the contract. There are generally six recognized legitimate
purposes for exclusions: 1. to eliminate coverage for uninsurable loss
exposures; 2. to assist in the management of moral and morale hazards;
3. to reduce the likelihood of coverage duplications; 4. to eliminate
coverage not needed by the purchaser; 5. to eliminate coverage
requiring special treatment; 6. to assist in maintaining premiums at a
reasonable level.
Face
The first page of an insurance policy,
which usually includes the policy declarations.
Implied warranty
Courts have sometimes ruled that a
warranty exists, even though it is not explicitly stated, when the
warranty is implied or inferred from the nature of the transaction and
circumstances. Example: For the purposes of an ocean marine contract,
a vessel is implicitly warranted to be seaworthy by the vessel
owner/insured even if the warranty is not stated on the face of the
policy.
Insurance contract
An aleatory contract between an insured
and an insurer, who agrees to indemnify the insured for loss caused by
specified events.
Insuring agreement
The section of an insurance contract
containing the obligation of the insurer to pay covered claims,
subject to specified conditions and exclusions.
Line
A class of insurance. Most insurers may
be classified as either life and health or property and casualty.
Sometimes three categories are used: life and health; fire and marine
(which includes most property risks); and casualty (which includes
most liability risks). Lines can also be classified according to
whether the insured risks are primarily related to individuals and
families (personal lines) or to businesses (commercial lines). State
insurance regulators may employ any of these broad classes for some
purposes, but more specific lines--automobile, homeowners, workers'
compensation, life and annuity, health and accident, commercial
liability, etc.--define the covered risks more clearly.
Manuscript policy
An insurance policy designed or tailored
for a large commercial insured; a unique coverage written at the
request of a broker or a risk manager.
Material misrepresentation
The intentional concealment, distortion
or fabrication of a material fact.
Misrepresentation
A false oral or written statement made
with an intent to deceive.
Monoline policy
An insurance policy that provides
coverage for a single line of insurance.
Multiple line policy
A policy that insures more than one line
of insurance, such as property and casualty. A package policy or the
Insurance Services Office commercial lines policies are multiple line.
Non-waiver agreement
A document signed by an insured shortly
after a claim has been filed, stating that the participation of a
claims adjuster in a loss adjustment does not waive the insurer's
continued ability to deny coverage under the policy.
Noscitur a sociis
"If the contract provision enumerates
specific items, a person or thing will fall within the list if the
person or thing is associated with the items on the list." This was
the basis most often cited for the war exclusion not applying to the
WTC attacks and it was used in the oft cited case of Pan American
World Airways v. Aetna Casualty & Surety Co., 505 F.2d 989 (2ndCir.
1974) where the court found that the hijackers' acts were criminal
rather than military and that they were the agents of a radical
political group rather than a sovereign government.
Offer
A proposal to enter into a reasonably
specific agreement, inviting another person's consent; a contingent
promise in exchange for another's act (e.g., making payment),
forbearance, or return promise. It is one of the elements needed to
form a legal contract, with acceptance, consideration, competent
parties, and a legal purpose. An offer is not made merely by
advertising or soliciting customers. Asking a prospective insured to
complete an application is a solicitation. The offer of insurance
consists in issuing a binder, which invites the insured's acceptance
by paying the premium.
Policy
The written forms, endorsements, riders
and attachments that make up an insurance contract between an insured
and insurer. A policy includes the terms and conditions of the
coverage, the perils insured or excluded, the limits of insurance
provided, the interests insured, the effective dates of the coverage,
etc.
Policy conditions
The section of a policy or provisions in
various places in the policy that indicate the general rules or
procedures that the insurer and insured agree to follow under the
contract.
Policy declarations
The section of an insurance policy
containing basic underwriting information, such as the insured's name,
address, a description of insured locations or receipts.
Policy jacket
The outer covering of an insurance
policy, which often contains common provisions of the policy.
Representation
A response to questions or a statement
made on an application for insurance that the applicant indicates as
true and the underwriter relies upon to issue a policy.
Reservation of rights
An insurer's written notification to the
insured stating its right to affirm or deny coverage for a claim that
appears questionable. However, the insurer agrees to defend the
insured.
Risk classification
An underwriting function of determining
the characteristics of an insurance applicant or the applicant's
property or activities that have value in determining the probability
of loss. Classification is the basis for determining whether a risk
should be accepted for insurance and at what premium. Insurers modify,
drop or add classifications according to their claims experience,
striving for homogeneity of risk within each class while keeping the
number of classes to a practical limit.
Unconscionability
Unfairness or one-sidedness in a
contract to such a degree that it is legally unenforceable or its
validity is limited by a court to the provisions that are fair and
reasonable.
Void
A contract that does not have and never
had legal force; null. Such a contract creates no legal obligations by
either party and is treated as if it never existed.
Warranty
1. A statement to the insurer by an
insured upon which the validity of the policy depends. The insurance
contract is not binding unless the warranty statement is literally
true. This is called an affirmative warranty. Traditionally,
warranties appear either expressly or by reference on the face of the
policy, and noncompliance is a complete defense for the insurer
because a warranty is presumed to be material (of such substance or
importance that the insurer relied upon it). On the other hand,
representations may appear in documents collateral to or supporting
the policy or may be oral; they are required to be substantially true
but not absolutely so; and they must be proved to be material to
relieve the insurer of its policy obligations. The strict rules of
warranty have been modified in many states. Some statutes require that
an insurance applicant's statements be deemed representations rather
than warranties; or a court may interpret a description of insured
property as a general identification rather than a warranty, so the
insurer may not deny a claim only because the property did not
continue to meet the description in every detail.
2. A promise by an insured as to a future
event or condition during the policy term, such as maintaining fire
sprinklers or burglar alarms in working order. This is called a
promissory warranty.
GENERAL SOURCES OF FORMS & RESOURCES
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-
Acord - Source of
industry forms (U.S.)
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American Association of
Insurance Services (AAIS) - U.S. forms
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IBC (Insurance Bureau of
Canada) - For a price you can obtain up-to-date Canadian
property and casualty sets of wordings.
- Gen Re - Policy Wording Matters
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Informco - Canadian
standard Insurance forms and wordings can be purchased
on-line.
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MARKET
WORDINGS DATABASE (MWD) - The
database is an electronic source of over 10,000 of the most commonly
used wordings, clauses and policy forms in the London market. It
is a dynamic database and is continually growing to keep pace with
changes in insurance documentation.
-
Policy Express -
From Griffin Communications - Policy Express is an
exclusive service that allows subscribers to view, print and
download hundreds of policy comparison worksheets.
- WordingsPLUS - WordingsPLUS is a specialist London Insurance market wordings service.
APPLICATION FORMS
& WORDINGS
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