Endorsements - What are They?

Cartoon of confused man wearing a hat and surrounded by question marks

In property/casualty insurance the term endorsement means a document attached to an insurance contract that amends the policy in some way. An endorsement may add, remove or alter the scope of coverage under the policy. In life insurance, an endorsement is referred to as a rider.

Add, Eliminate or Modify Coverage

Endorsements can be divided into categories based on their purpose. Most fall into one of the following groups:

  • Exclusion Many endorsements are intended to exclude coverage for certain types of claims. An example is the nuclear energy liability exclusion cited above.
  • Added Coverage Endorsements are used to add a type of coverage that is not provided by the basic policy. An example is an endorsement adding family auto coverage to a commercial auto policy.
  • Modification of Coverage Some endorsements expand the existing coverage. An example is an endorsement added to a commercial property policy that increases the Business Personal Property limit to $250,000 from $100,000. Other endorsements reduce the scope of coverage. For instance, an insurer attaches an endorsement to a general liability policy that replaces the standard contractual liability exclusion with one that is more restrictive.
  • Editorial Changes Some endorsements are added to clarify the intent of the policy without altering the coverage. The insurer uses an endorsement to replace one word or phrase with another.
  • Administrative Changes Endorsements may be added for administrative purposes, such as changing the insurer's mailing address or correcting the name of the policyholder.

Standard or Non-standard

Endorsements may be standard or non-standard. Standard endorsements are issued by an insurance service organization like ISO. These endorsements are widely used in the insurance industry. Insurers like them because they are readily available. Also, many standard endorsements have already been tested by the courts. Insurers can look to previous court decisions to gauge how a particular endorsement might be interpreted in the future.

Non-standard endorsements are drafted by insurers. Insurers create their own endorsements to set themselves apart from their competitors. An insurer may also draft an endorsement for a particular purpose for which no standard version is available. Many endorsements created by insurers are actually variations of standard endorsements. An insurer may use an ISO endorsement as a template and then broaden or narrow the coverage as it chooses.

Some non-standard endorsements are drafted for a specific insured. Called manuscript endorsements, these are designed to be used on a single policy. Manuscript endorsements are intended to address unique situations. Thus, insurers often draft them "from scratch" (without relying on a standard endorsement).

Most workers compensation policies include one or more endorsements published by the NCCI. These qualify as standard endorsements. A workers compensation policy may also include state-specific endorsements. These have been drafted by the workers compensation bureau in a particular state and apply only in that jurisdiction. A workers compensation policy may also include non-standard and manuscript endorsements.

Mandatory or Voluntary

Some endorsements are added to a policy voluntarily, at the option of the insured or the insurer. For example, a policyholder requests Auto Medical Payments Coverage under a commercial auto policy. The insurer complies with that request by adding the appropriate endorsement to the insured's policy. Other endorsements are added to a policy at the insurer's option. For instance, an insurer wants to avoid covering any claims involving asbestos. Thus, the insurer attaches an asbestos exclusion to a policyholder's general liability policy.

Other endorsements are mandatory. When an endorsement is mandatory, the insurer must include it in the policy. Some endorsements are required by state law. For instance, many states have drafted an endorsement that amends the cancellation condition found in the standard general liability policy. This endorsement may restrict the insurer's ability to cancel a policy. It may also require the insurer to notify the insured 45 or 60 days in advance of a pending cancellation, rather than 30 days as stated in the standard policy.

Some endorsements are mandatory based on ISO rules rather than state law. ISO's underwriting  rules may require a particular endorsement on all policies providing a certain type of coverage. For instance, ISO dictates the addition of a nuclear energy liability exclusion to all general liability policies. Other endorsements are required on policies covering certain types of operations. For example, if an architectural or engineering firm is insured under a general liability policy, the policy must include a professional liability exclusion.