1.4 Policy Structure: Declarations, Insuring Agreement, Conditions, Exclusions
Key Takeaways
- Every policy has four parts: Declarations (the who/what/how-much), Insuring Agreement (the promise to pay), Conditions (the rules of the deal), and Exclusions (what is not covered)
- Use the mnemonic DICE — Declarations, Insuring agreement, Conditions, Exclusions
- Named-perils forms cover only listed perils (burden on insured to prove); open-perils/special forms cover all perils except those excluded (burden on insurer)
- Endorsements amend the base form; when an endorsement conflicts with the policy, the endorsement controls
- Common exclusions exist to avoid catastrophic, non-fortuitous, or duplicate coverage: war, nuclear, intentional acts, wear and tear, flood, and earth movement
The DICE Framework
Every property and casualty policy, regardless of line, is built from four parts. Remember DICE:
| Part | What it contains | Exam cue words |
|---|---|---|
| D — Declarations | Named insured, address, policy period, limits, deductibles, premium, covered property/forms | "Who, what, how much" — the front page |
| I — Insuring Agreement | The insurer's core promise to pay for covered losses | "We will pay..." |
| C — Conditions | The rules both parties must follow (duties after loss, cancellation, subrogation, appraisal) | "Duties," "in the event of loss" |
| E — Exclusions | Perils, property, and losses not covered | "We do not cover," "this policy does not apply to" |
Quick Answer: Declarations identify the deal, the Insuring Agreement makes the promise, Conditions set the rules, and Exclusions carve out what is not covered.
Named Perils vs. Open Perils
How the Insuring Agreement grants coverage drives where the burden of proof falls — a heavily tested point.
| Coverage trigger | How it works | Burden of proof | Example forms |
|---|---|---|---|
| Named (specified) perils | Covers only the perils explicitly listed | On the insured to show the loss was caused by a listed peril | DP-1, HO-2, basic CGL |
| Open perils ("special"/all-risk) | Covers all direct physical loss except what is excluded | On the insurer to prove an exclusion applies | HO-3 dwelling, HO-5, DP-3 |
The Broad Form named perils familiar from HO-2 and DP-2 are remembered with the mnemonic WCSHAVVFRRR: Windstorm/hail, Civil commotion/riot, Smoke, Hail, Aircraft, Vehicles, Vandalism, Fire/lightning, Riot, plus the broad-form additions (falling objects, weight of ice/snow, accidental discharge, freezing, artificially generated current). Open-perils forms simply flip the logic — everything is covered unless the Exclusions section removes it.
Conditions, Endorsements, and the Common Exclusions
Conditions are the operating rules. Watch for these recurring ones:
- Duties after loss — prompt notice, protect property from further damage, file sworn proof of loss, cooperate.
- Appraisal — either party may demand it to resolve a valuation dispute (not a coverage dispute); each side picks an appraiser, who select an umpire.
- Cancellation/Nonrenewal — notice periods set by state law.
- Assignment — the policy cannot be transferred without insurer consent.
- Mortgage clause — protects the lender's interest separately from the insured's.
Endorsements (riders) add, delete, or modify coverage. The rule: when an endorsement conflicts with the base policy, the endorsement controls because it is the more recent, specific expression of intent.
Why Exclusions Exist
Exclusions are not arbitrary; each serves a purpose the exam expects you to recognize:
| Common exclusion | Reason |
|---|---|
| War, nuclear hazard | Catastrophic — uninsurable in a pool |
| Flood, earth movement | Catastrophic; covered by separate policies (NFIP, DIC) |
| Intentional acts | Loss is not fortuitous (accidental) |
| Wear, tear, deterioration | Maintenance, not a sudden accidental loss |
| Ordinance or law | Avoids extra-contractual code-upgrade cost (can be bought back) |
| Business/auto liability in HO | Avoids duplicate coverage handled by other policies |
Many exclusions can be restored with an endorsement and added premium — for example, an Ordinance or Law endorsement or earthquake endorsement. The order of priority in a coverage dispute is: read the Declarations, confirm the Insuring Agreement grants coverage, apply any Exclusions, then check whether a Condition or Endorsement modifies the result.
The Declarations Page in Detail
The Declarations (dec) page is the first place an examiner expects you to look, because it personalizes the standardized form to one insured. A typical P&C dec page lists:
- Named insured(s) and mailing address, and the policy number.
- Policy period — the inception and expiration dates and times (coverage runs 12:01 a.m. standard time at the insured's address in most ISO forms).
- Limits of insurance for each coverage (e.g., Coverage A dwelling $300,000).
- Deductibles, including any separate wind/hail or hurricane percentage deductible.
- Forms and endorsements attached, by edition date.
- Rating information and premium, plus the mortgagee/loss payee.
Quick Answer: If a question asks where to find the policy limit, deductible, or which endorsements apply, the answer is the Declarations page.
Conditions That Control Claim Outcomes
Beyond the duties already listed, three conditions decide many claim scenarios:
| Condition | What it does |
|---|---|
| Loss settlement | Sets ACV vs. replacement-cost basis and any coinsurance |
| Appraisal | Resolves amount disputes; each party names an appraiser and the two pick an umpire — agreement by any two binds the amount, not coverage |
| Salvage and abandonment | The insured may not abandon damaged property to the insurer; the insurer keeps salvage rights after paying |
Pair clause vs. set clause is a frequent property wrinkle: if one item of a pair or set (a single earring, one dining chair) is lost, the insurer may pay the difference between the ACV of the whole set and the ACV of the remaining pieces, or restore the set — it does not simply pay for a total loss of the set.
Putting DICE to Work on a Question
When a scenario stumps you, walk DICE in order: confirm the loss falls within the Declarations (right insured, in force, adequate limit); verify the Insuring Agreement promises to pay for this type of loss; scan the Exclusions for a carve-out; then apply any Conditions or endorsements that expand or restrict the result. This disciplined sequence converts vague coverage questions into a checklist and is the single most reliable test-taking habit for the property sections.
A homeowner with an HO-3 (open perils on the dwelling) suffers an unusual loss the insurer wants to deny. Under an open-perils form, who bears the burden of proof and what must they show?
An endorsement attached to a commercial property policy states a coverage term that directly contradicts the printed base form. Which provision governs?