Endorsements - What are They?
An Endorsement May Add, Remove or Modify Coverage
In property/casualty insurance an endorsement is 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.
Purpose of Endorsements
An endorsement typically serves one or more of the following purposes:
- Remove coverage. Many endorsements serve as exclusions, removing coverage for certain types of claims. An example is an endorsement added to a general liability policy that excludes bodily injury or property damage arising out of any exposure to asbestos.
- Add coverage. Endorsements are frequently used to add coverage not provided by the basic policy. An example is the Voluntary Compensation Endorsement that may be added to the standard workers compensation policy for an additional premium. This endorsement is used to extend workers compensation benefits to workers who aren't covered by the state workers comp law.
- Modify coverage. Some endorsements modify the scope of coverage rather than adding or removing it. For example, a margin clause may be added to a commercial property policy that includes a blanket limit. When this clause is included, the amount you receive for a loss at a single location may be less than the blanket limit.
- Editorial Changes. Some endorsements clarify the intent of the policy without altering the coverage. For example, an insurer accidentally omits a word in a newly-published policy form. The insurer corrects the error in an endorsement that adds the missing word.
- Administrative Changes. Endorsements may be added for administrative purposes, such as changing the insurer's mailing address or updating the name of the policyholder.
Standard or Non-standard
Many endorsements used in the insurance industry are standardized. Standard endorsements are drafted and published by insurance advisory organizations such as ISO or AAIS. Insurers can use these endorsements if they have purchased a subscription from the publisher. Standard endorsements are widely used in the marketplace. Many have been analyzed by the courts so insurers can predict how they are likely to be interpreted in future litigation. For this reason, standard endorsements may be less risky for insurers than endorsements they have drafted themselves.
Non-standard endorsements are devised by insurers. An insurer may draft an endorsement to achieve a purpose for which no standard endorsement is available. Insurers also create endorsements to gain a competitive advantage. For instance, many insurers offer a "broadening" endorsement that can be attached to a general liability or commercial auto policy. Many endorsements created by insurers are simply variations of standard endorsements. The insurer uses an ISO endorsement as a template and then alters the wording as it chooses.
Some non-standard endorsements are drafted for a specific policyholder. Called manuscript endorsements, these are designed to be used on a single policy. Manuscript endorsements are intended to address unique situations. For instance, an insurer drafts a manuscript composite rating endorsement for a business auto policy purchased by a large contractor.
Many of the endorsements attached to workers compensation policies are 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. Defense Base Act insurance is also added as an endorsement for those companies who need it.
Mandatory or Voluntary
Some endorsements are added to a policy voluntarily, at the option of the insured or the insurer. An example is a liquor liability endorsement added to a general liability policy at the policyholder's request. Other endorsements are elected by the insurer. For instance, an insurer attaches an asbestos exclusion to a policyholder's liability policy so it can avoid paying asbestos-related claims.
Some endorsements are mandated 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 mandated by 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.