1.4 Policy Structure: Declarations, Insuring Agreement, Conditions, Exclusions
Key Takeaways
- Policies follow the DICE structure: Declarations, Insuring agreement, Conditions, Exclusions, plus Definitions and Endorsements.
- The declarations page lists the named insured, location, policy period, limits, deductible, premium, and mortgagee — the limit caps recovery.
- Named-perils forms cover only listed perils (insured proves the cause); open-perils/special forms cover all but exclusions (insurer proves the exclusion).
- Conditions impose duties — notice, proof of loss, cooperation, subrogation, appraisal — and breaching them can defeat an otherwise covered claim.
- Coinsurance penalizes underinsurance: Payment = (Carried ÷ Required) × Loss − Deductible, capped at the limit.
The Standard Policy "DICE" Framework
Most ISO property and casualty policies are organized into the same parts. A widely used mnemonic is DICE: Declarations, Insuring agreement, Conditions, Exclusions (plus definitions and endorsements). Knowing where each provision lives is the difference between a quick correct answer and a guess.
| Part | What it contains |
|---|---|
| Declarations | The "who/what/where/how much" — named insured, address, policy period, limits, premium, deductibles, mortgagee |
| Insuring Agreement | The insurer's core promise of coverage |
| Conditions | The rules/duties both parties must follow |
| Exclusions | What is not covered |
| Definitions | Defined terms (often in bold or quotes) |
| Endorsements | Forms that add, delete, or modify coverage |
Declarations Page
The declarations (the "dec page") is the customized front page. It identifies the named insured, the insured location, the policy period (effective and expiration dates, typically 12:01 a.m. standard time at the insured's address), the coverage limits, the deductible, the premium, and listed mortgagees or loss payees. It is the page an examiner references when asking "how much will the policy pay" — the limit always governs the maximum recovery.
Insuring Agreement and Coverage Triggers
The insuring agreement is the heart of the policy — the insurer's promise. Two coverage formats define how perils are triggered:
- Named-perils (specified-perils): covers only the perils listed. The burden of proof is on the insured to show the loss was caused by a listed peril. Example: ISO DP-1 dwelling form, HO-8.
- Open-perils (special / "all-risk"): covers all direct physical loss except what is excluded. The burden of proof shifts to the insurer to prove an exclusion applies. Example: HO-3 Coverage A, the ISO CP 10 30 Special causes-of-loss form.
Trap: "All-risk" does not mean everything is covered — exclusions still apply. The advantage is the broader scope plus the shifted burden of proof.
Under an open-perils (special form) policy, when a loss occurs the burden of proof regarding coverage generally falls on:
How Limits Apply
The declarations express limits in formats the exam tests directly. A single limit is one amount for a coverage. A split limit in auto liability is written as three numbers — for example 100/300/50 means $100,000 bodily injury per person, $300,000 bodily injury per accident, and $50,000 property damage per accident. A combined single limit (CSL) lumps bodily injury and property damage into one figure (e.g., $300,000 per accident).
Worked split-limit example: A driver with 100/300/50 limits causes an accident injuring three people — claims of $80,000, $90,000, and $150,000. The per-person cap of $100,000 reduces the third claim's payable amount to $100,000, so the insurer offers $80,000 + $90,000 + $100,000 = $270,000, which is within the $300,000 per-accident cap. Property damage is handled separately under the $50,000 limit.
Conditions
Conditions are the rules of the game — the duties each party owes. Common P&C conditions tested on the exam include:
- Duties after loss: prompt notice, protect property from further damage, file a proof of loss, cooperate, submit to examination under oath.
- Cancellation and nonrenewal rules and notice periods.
- Subrogation / transfer of recovery rights against others.
- Loss settlement (ACV vs. replacement cost), appraisal, and the other-insurance clause.
- Assignment (requires insurer consent) and the liberalization clause.
Failure to meet a condition can give the insurer grounds to reduce or deny a claim, even if the loss itself is covered.
The Appraisal Condition
When the insurer and insured agree a loss is covered but disagree on the amount, the appraisal condition provides a resolution path short of a lawsuit. Each party selects a competent, impartial appraiser; the two appraisers select an umpire. An agreement by any two of the three (the two appraisers, or one appraiser and the umpire) sets the loss amount. Appraisal settles value disputes only — it cannot decide whether coverage applies.
Exclusions and the Coinsurance Condition
Exclusions narrow coverage, control catastrophic exposure, and remove coverage better handled elsewhere. Classic property exclusions: flood, earth movement (earthquake), war, nuclear hazard, wear and tear, and intentional acts.
The coinsurance clause is a property condition that penalizes underinsurance. The formula:
Payment = (Carried ÷ Required) × Loss − Deductible, capped at the limit.
Worked example: A building has $500,000 replacement cost and an 80% coinsurance clause, so the required limit is $400,000. The insured carries only $300,000. A $100,000 loss occurs (no deductible):
- Recovery = ($300,000 ÷ $400,000) × $100,000 = 75% × $100,000 = $75,000.
The insured absorbs the remaining $25,000 as a coinsurance penalty for being underinsured.
Reading the Policy: The DICE Framework
Most property-casualty policies follow the DICE structure, a reliable exam mnemonic:
| Part | Contains |
|---|---|
| D — Declarations | The 'who/what/how much' page: named insured, address, policy period, limits, deductibles, premium, scheduled property/autos |
| I — Insuring Agreement | The insurer's core promise to pay; defines the scope of coverage (named-peril or open-peril) |
| C — Conditions | The rules of the deal: duties after loss, cancellation, subrogation, other-insurance, appraisal |
| E — Exclusions | What is not covered; carves losses out of the broad insuring agreement |
Endorsements then modify any of these parts. When reading a policy, work top-down: the insuring agreement grants coverage broadly, exclusions take it away, and endorsements/conditions adjust the result.
How the Parts Interact — and Definitions
The parts are read together, not in isolation. A loss is covered only if it is (1) within the insuring agreement, (2) not removed by an exclusion, and (3) the insured satisfies the conditions. Definitions (often set off in bold or quotation marks in the form) control the meaning of key terms like occurrence, insured, and property damage throughout the policy.
Worked example: a homeowner files a water-damage claim. The insuring agreement covers accidental discharge of water (Coverage), but the exclusion for flood/surface water removes it, and even a covered claim requires the insured to give prompt notice (Condition). If the loss is surface flooding, the exclusion controls regardless of the broad insuring agreement. Trap: candidates stop reading at the insuring agreement; the exclusions and conditions decide the outcome.
A commercial building has a replacement cost of $1,000,000 with a 90% coinsurance clause. The insured carries $630,000. A $200,000 covered loss occurs with a $5,000 deductible. How much does the insurer pay?