1.3 Policy Structure & Common Provisions

The Parts of a Policy (DICE)

Nearly every property and casualty policy is assembled from the same standard components. A common analysis tool is the acronym DICE:

Many policies also begin with a Definitions section (so DICE is sometimes shown as a five-part list with definitions), and add Endorsements at the end. Endorsements (also called riders) are attachments that add, delete, or modify the base policy. When an endorsement conflicts with the standard policy language, the endorsement controls, because it represents the more specific, later agreement of the parties.

Named-Peril vs. Open-Peril Coverage

How a policy triggers coverage is one of the most frequently tested distinctions:

• Named-peril (specified-peril) coverage lists each covered cause of loss. If a peril is not on the list, it is not covered. The burden of proof is on the insured to show the loss was caused by a listed peril. Examples include basic dwelling forms and the "broad" homeowners contents coverage.
• Open-peril ("all-risk" or special) coverage covers all causes of loss except those specifically excluded. Because everything not excluded is covered, the burden of proof shifts to the insurer to prove an exclusion applies in order to deny a claim. Open-peril coverage is broader and generally costs more.

A quick rule: with a named-peril policy you read the list of covered perils; with an open-peril policy you read the list of exclusions.

The Parties to the Contract

Several defined parties appear in P&C policies, and the exam expects you to keep them straight:

• Insurer (the company) — the party that promises to pay covered losses; also called the carrier or underwriter.
• Insured — the party (or parties) protected by the policy.
• Named insured — the person(s) or entity specifically listed on the declarations. The named insured has the broadest rights and responsibilities, including the duty to pay premium and the right to make policy changes. The first named insured typically receives notices and acts on behalf of others.
• Additional insured — a party added to the policy (frequently by endorsement) who receives limited protection, usually for a specific interest. A common example is a landlord or lender named as an additional insured to protect its interest in the property.

Policy Period, Cancellation, Nonrenewal, and Assignment

The policy period is the span of time, shown on the declarations with effective and expiration dates, during which coverage applies. A loss must occur within the policy period (for occurrence-based coverage) to be covered.

Cancellation is the termination of a policy before its expiration date. Both the insured and the insurer may have cancellation rights, but the insurer's right is sharply limited by the policy and by state law:

• The insurer must usually give advance written notice (commonly 10 days for nonpayment of premium and a longer period, often 30 to 45 days, for other reasons; specific timeframes are set by state law).
• After a policy has been in force beyond an initial period, an insurer typically may cancel only for limited reasons such as nonpayment of premium, material misrepresentation/fraud, or a substantial increase in the hazard insured against.
• Any unearned premium must be refunded—usually pro rata when the insurer cancels.

Nonrenewal is the insurer's decision not to continue coverage at the end of the policy period. Unlike cancellation, it takes effect at expiration, but the insurer must still provide advance written notice (often 30 to 45 days) so the insured can find replacement coverage.

Assignment is the transfer of policy rights to another party. Because property and casualty policies are personal contracts, the insured generally cannot assign the policy to a new owner of the property without the insurer's written consent—the insurer underwrote the original insured, not a stranger. (Once a covered loss has already occurred, the right to the claim payment can often be assigned, which is a different matter.)

Putting It Together

Reading a policy in DICE order—declarations, insuring agreement, conditions, exclusions, then endorsements—lets a producer or adjuster determine quickly who is covered, for what, subject to which conditions, and what is carved out. Layer on whether coverage is named-peril or open-peril, identify the named versus additional insureds, confirm the loss falls within the policy period, and check the cancellation, nonrenewal, and assignment rules, and you have a complete framework for analyzing virtually any P&C contract.

A few additional provisions appear across most policies and are worth knowing by name. The deductible is the amount of a loss the insured retains before the insurer pays; it reduces premium and discourages small claims. Other-insurance conditions (such as pro rata or excess clauses) coordinate payment when more than one policy covers the same loss, preventing the insured from collecting more than the actual loss.

Subrogation lets the insurer, after paying a claim, step into the insured's shoes to recover from a responsible third party—another expression of the principle of indemnity, since it stops the insured from being paid twice. The liberalization condition automatically extends a broadening of coverage to existing policyholders at no added charge, while the mortgagee (loss payable) clause protects a lender's interest in financed property even if the insured's own acts would otherwise void coverage.