Reading an insurance policy: schedule of forms and endorsements

In my last post I began discussing how to read an insurance policy, beginning with the coverage selection page. The next thing you should understand is the order in which you should read a policy. (Hint: it's not necessarily front to back.)


The coverage selection page of many policies includes a section called "Schedule of forms and endorsements" or some variation of that. That section will contain a list of names of forms referred to by a combination of numbers and letters that make no sense to anyone who is not an underwriter (a person who puts together insurance policies). An example from a malpractice policy I had a few years ago:


U-PL-871-A CW (4/98)


The schedule identifies the forms and endorsements (which, for practical purposes are the same thing) that make up your policy. Some policies, such as a motor vehicle policy, may contain only a coverage selection page and the main policy form. Others, such as commercial general liability policy, will contain a coverage selection page and up to a couple of dozen forms, some as short as one page and others quite lengthy.


Generally the form identification, corresponding to the entries in the schedule of forms and endorsements, is at the bottom of each form. Each listing on the schedule of forms and endorsements should correspond to a matching form, and vice versa. If you have a form that is not listed on the schedule, or an entry on the schedule without a corresponding form, you should follow up with your insurer to see if the mistake is on the schedule or (more likely) in the insurer putting together the forms.

Reading an insurance policy: The first step

An insurance policy consists of several sections, and to understand what coverage you have purchased you need to understand what each section means.


The "coverage selection page," also called the "declarations page" or "dec page" is created for you personally when you purchase or renew your insurance. It indicates how much insurance you have bought ("the limits," discussed in a previous post) and any other information unique to the policy your policy. For example, the dec page of an auto policy will indicate what cars are included in the policy. A Commercial General Liability policy will indicate what premises are covered in the premises liability portion of the policy. A dec page may also indicate the names of the people or businesses that are covered under the policy.


Each and every time that you purchase or renew insurance, you should review the dec page to make sure that the insurer has issued to you the policy that you meant to purchase. In an auto policy it is not unknown for an insurance agent to raise your insurance limits (and your premiums) without discussing that with you. If your policy renews automatically, it is a good time to consider if the limits you chose still meet your needs.


In future posts I will discuss other parts of an insurance policy, beginning with the "insuring agreement."

How much insurance should you have?

The amount of insurance coverage you purchase is called the "limit" of the insurance--the maximum amount the insurance will pay. Most policies have two limits, the per person limit and the aggregate limit. The per person limit is the most that will be paid to any single person. The aggregate limit is the total amount the insurance policy will pay. If you have an auto policy with limits of $20,000/$40,000, and you injure three people in a car accident, the most any single person can recover from your insurer is $20,000. The total all three people can recover from your insurer is $40,000.


Of course, if you have severely injured someone, they can seek amounts in excess of your policy limits. If they win at trial, that excess amount will come from you.

In deciding the amount of insurance you should have, you should consider:


* The amount of damages you may cause if you are negligent. For example, in attorney malpractice insurance, the common advice is to have enough insurance to cover the full value of the largest cases you work on.


* What your own assets are. In a typical case, the plaintiff's attorney will not encourage the plaintiff to seek amounts in excess of the policy limits if you have limits that are reasonable in light of your personal situation. If you are rich, or even comfortably middle class, and you have the minimum auto policy coverage of $20,000, and you severely injure someone in an accident, it is likely that the injured person will seek to go after your personal assets. If you have very little income, savings, or assets, the injured person may seek a small contribution from you as a matter of principle, but the plaintiff's attorney will understand there is little to gain by forcing you into bankruptcy.


* The moral issues. How would you feel if, for example, you severely injured a person so that he is disabled, unable to work, and unable to take care of his kids, and the most he could get from your insurer is $20,000? A large financial settlement from your insurer obviously won't give him his health back, but it will help make his post-accident life easier. Such a settlement is only possible if you have higher coverage.

* The cost of the premiums. Until this year all personal auto policies in Massachusetts cost the same for whatever level of coverage you were purchasing, no matter which insurer you used. With deregulation you will need to shop around for the best price. While you're at it, compare prices for different levels of coverage.

Does your optional collision coverage cover rental cars?

Tom Raftery, a fantastic bankruptcy attorney who has answered many questions for me over the years, http://www.rafterylaw.com/, wondered whether he should sign the loss/damage waiver when he rents a car, or pay the extra charge for insurance. I too always have that concern before I hope for the best and initial the waiver at the car rental counter.

Judy Bearfield at DeGuglielmo Insurance Agency in Medford (my own insurance agent, who I highly recommend) told me that the standard Massachusetts auto policy covers rental cars in the United States and Canada. Other countries, including Mexico, are not covered.

I confirmed this by reviewing the current standard Massachusetts Auto Policy ("the Seventh edition" for those in the know). The optional collision coverage provides coverage for "collision damage to other private passenger autos while being used by you or a household member with the consent of the owner." This would include rental cars.

So the bottom line is that your auto policy provides collision coverage on a rental car to the same extent as it does on your own car. Keep in mind that collision coverage is optional; if you have a low-value car you may not have purchased it. In addition, the rental car company may argue that it suffered damages (for example, loss of the rental value of the car while it is being repaired) that may not be covered by the collision coverage of your policy.

Following up on Judy Bearfield's comment that rental cars are covered only in the United States and Canada, the "Where You Are Covered Provision" of the auto policy states that the Compulsory Bodily Injuries To Others (providing $20,000 in coverage if you injure someone else in a car accident) applies only to accidents in Massachusetts. All other coverages apply only to accidents in the United States or Canada.

I should add that with the recent deregulation of auto policies in Massachusetts, as of April 1, 2008 each auto insurer can file its own endorsements that change the optional portions of the policy.

Finally, some credit card companies provide coverage for rental cars--but, given the constant changes to credit card terms, even if you think your card provides coverage you should double check, and ask closely about the terms.

Change In Citation Rule Can Have A Big Impact

An issue that comes up frequently in construction defect litigation is whether a contractor's General Liability policy provides coverage for damages to the building itself caused by the contractor's faulty construction. Many such cases have to do with weatherproofing: for example, if a building's windows are not weathertight because the contractors made a mistake, will their insurance cover the cost of repair?

I have been personally involved in several such cases, bringing one to the United States Court of Appeals. (B & T Masonry Constr. Co., Inc. v. Public Serv. Mut., Inc., 382 F.2d 36 (1st Cir. 2004).) The issue has always been whether approximately six exclusions apply, separately or together, to exclude all or some of the damages. The analysis can never be a quick one because each exclusion has to be analyzed separately under the facts of the case. The exclusions vary in the timing of when the damages had to be discovered, where in the building the damages were, whether the work was done by the insured or a subcontractor, and other factors. The exclusions overlap but don't always exclude all damages.

If a new citation rule announced in February by the Massachusetts Appeals Court had been in effect just a few months earlier, though, the entire exclusion analysis would arguably be unnecessary. The Massachusetts Appeals Court has stated in at least two unpublished Rule 1:28 decisions that a construction defect is not an occurrence. Mello Constr. Inc. v. Acadaia Ins., 70 Mass. Ap. Ct. 1004 (2007); Davenport v. U.S. Fidelity & Guar. Co., 56 Mass. App. Ct. 1109 (2002).

Rule 1:28 is a rule of the Appeals Court that allows a panel of Appeals Court judges to decide a case without circulating it to all the judges on the court. The theory is that such cases are so clear-cut that additional work by the court is unnecessary. Until February, citation to Rule 1:28 decisions was prohibited by the Appeals Court.

In a footnote in Chace v. Curran, the Appeals Court announced that Rule 1:28 decisions issued after February 25, 2008 "may be cited for their persuasive value but . . . not as binding precedent."

If the new rule had been in effect when Mello was issued, I would be much more likely to recommend that an insurer deny coverage outright based on the theory that a construction defect is not an occurrence, rather than relying on exclusions which, after a long analysis, may not exclude all damages.

So, although citation rules may seem picayune, they have far-reaching consequences.

New SJC Decision Holds Medpay Provides Coverage Before Health Insurance

Mike Tracy at Rudolph Friedman, http://www.rflawyers.com/, has forwarded to me a decision handed down on May 12, 2008 by the Supreme Judicial Court of Massachusetts, upholding a clause of a health insurance contract that requires Medpay to be exhausted before the health insurer is required to pay. Metropolitan Property and Casualty Ins. Co. v. Blue Cross and Blue Shield of Mass., Inc. (I should note that Mike, who is on top of everything relating to insurance coverage issues, actually forwarded this decision to me on the 12th.)

MedPay is an optional coverage of motor vehicle insurance. It is not part of the PIP scheme, but provides medical coverage to an insured after PIP payments have been exhausted. I haven't run into MedPay issues very often. I think the main reason is that most people who have health insurance don't bother to purchase it, even though it can cover health insurance copayments or other gaps in medical insurance coverage. People who don't have health insurance, I imagine, tend not to purchase any optional coverages as they raise the price of their auto insurance.

In Metropolitan, Rice was injured in a motor vehicle accident. He had PIP and Medpay coverage under a Metropolitan auto policy and had health insurance with Blue Cross. Met paid the first $2,000 of his medical bills under PIP coverage. Rice submitted the remaining bills to Blue Cross.

Blue Cross denied coverage on the grounds that its subscriber certificate stated, "Unless required by law, coverage under this contract will be secondary when another plan [defined elsewhere to include MedPay coverage] provides you with coverage for health care services." Metropolitan brought a declaratory judgment action, seeking a declaration that it was not obligated to provide medical benefits to Rice after his PIP coverage was exhausted.

The SJC noted that by statute a health insurer may not deny coverage because of the existence of PIP benefits, but that no statute prohibits a health insurer from denying coverage because of the existence of MedPay benefits.

The SJC rejected Met's argument that if health insurance would not cover the additional medical bills, Met would cover it under PIP, not MedPay. The SJC stated that such an action would be illogical and contrary to the intent of the PIP statute of keeping the costs of compulsory PIP insurance low. The SJC went further and stated that when a health insurer denies coverage because of the existence of MedPay benefits, the motor vehicle insurer must cover those medical costs under MedPay, not PIP.

A thumbnail sketch of PIP

In theory, PIP, or Personal Injury Protection, is a simple concept. It is Massachusetts' version of no-fault automobile insurance. Every insured driver's own insurance company will cover up to $2,000 in medical bills for that driver if he or she is in an motor vehicle accident, regardless of whose fault the accident is. If the driver doesn't have medical insurance, PIP will cover up to $8,000 in medical expenses. PIP can also cover lost wages and other expenses.


The counterpart to PIP is the "tort threshold", under which someone who has been injured in an automobile accident cannot bring a lawsuit against the other driver unless the injured person's medical bills exceed $2,000. If the person goes to trial and wins, the verdict will be reduced by the amount that was paid in PIP. That 's called the "PIP setoff."


There is also a scheme by which insurance companies reimburse each other for PIP payments, so that the insurer of the negligent party ultimately ends up paying. If X and Y are both injured in an accident and their respective insurers pay each of their medical bills through PIP, the insurers will decide who is at fault. If the insurers can't agree on who is at fault they will arbitrate the issue. If they decide, on their own or through arbitration, that X is at fault, X's insurer will reimburse Y's insurer the amount that Y's insurer paid on Y's behalf in PIP.


That's PIP in nutshell. In a future post I'll discuss what lawyers call "the PIP morass" (the complicated issues in this seemingly simple statute) and the related issue of why many top-notch personal injury attorneys can't answer seemingly basic questions about PIP.