Despite the many gaps and restrictions on coverage we see in insurance contracts today that we have to endorse around, it’s worth bearing in mind that most major policies forms with multiple perils and coverage grants were originally separate policies, often issued by separate insurance companies.
Look at the modern homeowner’s insurance policy and the commercial property policy. We still sometimes refer to them as “fire policies,” because that is originally all they covered, the peril of fire, nothing else.
The basic fire insurance form can be traced back to 1660 in London and shortly after that in Germany. The form as we know it has its origins in the Massachusetts insurance statute in 1873. New York specified the form in 1886 known as the Standard Fire Policy, then made a few changes in 1918. The 1886 form was drafted by the insurance companies form, “but during its use it was found unfair to policyholders in some respects and unworkable in others,” wrote textbook authors S. Huebner, Kenneth Black, Jr. and Bernard L. Webb in Property And Liability Insurance, (4th Ed. 1996, page 6). New York revised the form in 1943 by statute, which became the New York Standard Fire Policy and adopted in most states.
There were good reasons for the development of a standard, regulated policy: the early fire policies were often little more than fraud in their bulk of provisions to avoid paying a loss. A famous and often quoted New Hampshire court decision of 1873, De Lancey v. Rockingham Farmers’ Mut. Fire Ins. Co., 52 N.H. 581, 587, trashed such a policy:
Forms of applications and policies (like those used in this case), of a most complicated and elaborate structure, were prepared, and filled with covenants, exceptions, stipulations, provisos, rules, regulations, and conditions, rendering the policy void in a great number of contingencies. These provisions were of such bulk and character that they would not be understood by men in general, even if subjected to a careful and laborious study: by men in general, they were sure not to be studied at all. …. The compound, if read by him, would, unless he were an extraordinary man, be an inexplicable riddle, a mere flood of darkness and confusion.
The 1943 New York Standard Fire Policy was drafted by the National Association of Insurance Commissioners, and is still the standard form. The perils insured in the New York Standard Fire Policy against were – and remain – fire and lightning. The statute specified perils not insured, including insurrection, rebellion and revolution, which replaced the narrower riot or civil commotion exclusion. The statute (New York Ins. Law §3404 (f)(1)) then allows insurers to abandon the form entirely if the policy provides insurance “solely against the peril of fire or which insures against the peril of fire in combination with other kinds of insurance, … provided: (A) the policy contains, with respect to the peril of fire, terms and provisions no less favorable to the insured that those contained in the standard fire policy; …”
As exposures and market interest developed, coverage for other perils was offered in separately-sold policies, Windstorm policies developed in the Mid-west during the 1860 through 1880s; these could be bought separately or in some states be added to the fire policy; a standard windstorm policy was approved in 1905, and a rider for the peril of hail was added. The peril of explosion was offered as a rider to the fire policy starting in 1908, but was not until 1914 that this hazard had much importance. Loss due to the fall of aircraft and airships became available in 1921 under a separate policy; rates varied with proximity to airports, and by 1929 this coverage was expanded to include loss against motor-vehicle damage.
A small book in 1930 entitled Where Fire Insurance Leaves Off dealt exactly with these omitted perils and exposures available by separate insurance: tornado and windstorm, blanket mortgage interest, explosion, riot and civil commotion, falling aircraft, sprinkler leakage, demolition, and others particular to commercial accounts.
Bundling of these separate policies began in 1930 when New Jersey approved a supplemental contract to the fire policy to cover aircraft damage, explosion, hail, riot, civil commotion and windstorm. Pennsylvania approved a similar form that year which added damage by motor vehicles not owned by the insured; New Jersey then modified its form to the Pennsylvania variety, and other states soon followed. The result was these three integrated policies were now available for less than half the premium that three policies sold alone would cost.
In 1937 a more expansive form, the “Extended Coverage Endorsement,” added perils of windstorm, hail, explosion, riot, riot attending a strike, civil commotion, aircraft, vehicles, and smoke, and could include vandalism and malicious mischief, earthquake, or the various ‘Broad Form’ or ‘All Risk’ perils. But the endorsement excluded “frost, ice, snow or sleet” and interior damage from “sonic boom, electrical arcing, water hammer, and rupture of water pipes, which are often confused with explosion.” Extensions with sublimits were added for appurtenant structures, property off-premises, “fair rental value” while the premises is being re-built, and debris removal.
Further coverages were available by adding the Additional Extended Coverage Endorsement, which became the Broad Form Endorsement, which added falling objects; weight of ice, snow or sleet; collapse; sudden and accidental tearing asunder, cracking etc. of hot water equipment; breakage of glass, freezing of plumbing, heating and air condition systems, and sudden and accidental injury from artifi¬cially generated current in electrical appliances, and theft (although theft could be added separately without the Additional Extended Coverage Endorsement). This is what we recognize as the modern HO-2 form for homeowner’s insurance.
In 1942 this extended coverage endorsement was widely used and became known as the Dwelling and Contents form, which we recognize as an early version of the homeowners policy (minus the liability coverage) we deal with today, and which continued to evolve with more coverages.
The “Special Form” is the “all risk” form, first developed in the 1950s, which became the HO-3 form.
Liability for homeowners, previously sold separately by a separate casualty company, was later brought into the homeowners policy under one insurer, when regulators in 1920 began to allow insurers to write both property and casualty insurance. The trend moved to common practice in 1949 when New York, the foremost regulator of insurers, allowed multi-line insurers.
We can trace similar developments in the general liability insurance lines and the automobile lines.
Even as insurers carve out new exclusions and sublimits in existing policies, these exposures get covered in endorsements, separate policies or coverage grants. These Difference in Conditions policies will probably in the future be stitched to some package as a common cluster of coverages, as former separate insurance coverages have been bundled into the package policies we see today. Perhaps the future employer’s policy will comprise the now separate workers’ compensation and companion employer’s liability cover, plus employment practices cover, plus fiduciary liability cover. The future insurer will consider it ridiculous that these employer covers remained separate for so long, as ridiculous as we with the CGL now look back on the separate elevator liability, owner’s premises liability, and manufacturers liability insurance policies that were necessary stand-alone components for the commercial enterprise cover.
This is adapted and excerpted from “A la Carte Coverage. Unbundling Causes of Losses and Coverage Grants to Allow Consumer-Insured Selection,” that will be published in the Rutgers Journal of Law and Public Policy later this year, and used with permission here.