1.4 Policy Structure: Declarations, Insuring Agreement, Conditions, Exclusions
Key Takeaways
- Standard policies are built from Declarations, Insuring Agreement, Conditions, Exclusions, and Definitions (mnemonic DICED).
- The Declarations page is the personalized data: named insured, address, limits, premium, deductible, and policy period.
- The Insuring Agreement is the insurer's core promise; it can be 'named perils' (only listed perils covered) or 'open/all-risk' (everything except what is excluded).
- Exclusions narrow coverage; common ones are war, flood, earth movement, wear and tear, intentional acts, and nuclear hazard.
- Conditions are the rules of the contract - duties after loss, cancellation/nonrenewal, and how disputes are resolved.
The Building Blocks: DICED
Nearly every ISO-style policy is assembled from five standard parts. Remember DICED:
- Declarations
- Insuring Agreement
- Conditions
- Exclusions
- Definitions
Many state outlines test which section of the policy answers a given question.
| Question on the exam | Section that answers it |
|---|---|
| Where is the deductible / limit / policy period? | Declarations |
| Is this loss covered at all? | Insuring Agreement |
| What is specifically NOT covered? | Exclusions |
| What are the insured's duties / appraisal / cancellation rules? | Conditions |
| What does a quoted term legally mean? | Definitions |
Learning to map a fact pattern to the correct section is half the battle on policy-structure questions.
Declarations and Definitions
Declarations (the 'Dec page')
The front page that personalizes the contract. It lists:
- The named insured and mailing address
- The policy period (effective and expiration dates, typically 12:01 a.m. standard time at the address shown)
- A description of covered property or autos
- Limits of insurance and the deductible
- The premium
- Endorsements/forms attached and any mortgagee or loss payee
Definitions
A glossary that gives precise meaning to terms - often bolded or in quotation marks in the policy. 'You' and 'we' are defined here; in the ISO Personal Auto Policy (PAP), 'your covered auto' and 'insured' are tightly defined and decide many claims.
Insuring Agreement: Named Perils vs. Open Perils
The Insuring Agreement is the insurer's central promise to pay. Two coverage triggers dominate the exam:
| Trigger | Burden of Proof | Example Forms |
|---|---|---|
| Named Perils | The insured must prove the loss came from a peril listed in the policy | ISO HO-2 (broad), Dwelling DP-1/DP-2, ISO CP 10 10 basic/broad causes of loss |
| Open Perils (all-risk) | The insurer must prove an exclusion applies to deny the claim | ISO HO-3 (dwelling on open-perils), HO-5, CP 10 30 Special causes of loss |
Trap: Open-perils coverage is broader because anything not specifically excluded is covered, and the burden shifts to the insurer. Under named-perils the insured carries the burden of proving the cause is on the list.
Under an open-perils (special form, e.g., ISO HO-3 dwelling or CP 10 30) property policy, who has the burden of proof when a loss occurs?
Exclusions
Exclusions carve coverage back out. Insurers exclude losses that are uninsurable, catastrophic, better covered elsewhere, or within the insured's control. The most-tested standard exclusions:
- War and military action
- Flood / surface water (covered separately via the NFIP)
- Earth movement (earthquake, landslide - bought back by endorsement or a separate policy)
- Nuclear hazard
- Wear and tear, deterioration, inherent vice (maintenance items, not fortuitous)
- Intentional/criminal acts by the insured
- Ordinance or law (extra cost to rebuild to current code, unless added back)
Trap: Two perils - flood and earthquake - are excluded from standard homeowners forms and must be added by endorsement or written separately. They are catastrophic and violate the non-catastrophic element.
Conditions
Conditions are the rules both parties must follow for the contract to function. Frequently tested conditions:
- Duties After Loss - give prompt notice, protect property from further damage, and file a proof of loss (commonly within 60 days on ISO forms).
- Cancellation / Nonrenewal - written notice required, often 10 days for nonpayment and 30+ days otherwise (verify on the state portion).
- Appraisal - if the parties disagree on the amount of loss (not coverage), each picks an appraiser, the two select an umpire, and any two of the three set the amount.
- Subrogation / Salvage / Other Insurance (pro-rata) - enforce indemnity.
- Loss Settlement - states whether ACV or RC applies.
Quick Answer: Conditions govern duties after a loss, cancellation, appraisal, and how multiple policies share. Exclusions say what is not covered; Conditions say how the contract operates.
Endorsements, Riders, and Reading a Policy
The five DICED parts are modified by attachments:
- Endorsement (rider) - a form that adds, deletes, or changes coverage. On ISO homeowners, examples include HO 04 90 (earthquake), HO 04 16 (premises alarm credit), and scheduled personal property endorsements for jewelry or fine art above the special internal limits.
- Internal (sub) limits - caps inside an otherwise broad coverage, e.g., the ISO HO-3 special-limit of roughly $1,500 on jewelry/watches for theft and $2,500 on business property on premises. These are tested constantly.
When forms conflict, a specific endorsement controls over the general policy, and handwritten or typed terms control over printed terms. Reading order on the exam: start with the Insuring Agreement (is it covered?), check Exclusions (is it carved out?), then Conditions (are the rules met?), confirming Definitions and the Declarations limits throughout.
An insured and insurer agree that a kitchen fire is covered but disagree on the dollar amount of the damage. Which policy provision resolves this dispute?
Coinsurance, Other-Insurance, and How Parts Interact
Reading a policy means assembling all its parts in order: the Declarations identify the specific insured, property, limits, and deductibles; the Insuring Agreement states the broad promise; Definitions fix the meaning of bolded/quoted terms; Conditions impose the insured's duties (notice, proof of loss, cooperation); and Exclusions carve out what is not covered.
Endorsements then override the base form where they conflict. When a question gives conflicting language, the endorsement controls over the base policy, and specific wording controls over general — the hierarchy the exam expects you to apply when resolving a coverage dispute.
Self-Insured Retentions vs. Deductibles
A deductible is the insured's first-dollar share that the insurer subtracts before paying; the insurer still handles the whole claim. A self-insured retention (SIR) requires the insured to pay and often administer losses up to the retention before the policy responds at all — common on umbrellas and professional forms. The exam distinguishes the two because they affect who controls early claim handling and when the insurer's limit attaches.