Conditions that apply to all insurance coverages

Liberalization Clause

As is included in the current ISO HO 3 homeowners policy, this condition has two parts. The first part is historical and, with varying verbiage, has long been a part of insurance policies. The first part of this condition provides that if the insurer makes a change in coverage that broadens coverage without an additional premium charge, the change will automatically apply as of the date on which the insurer implements the change.

The second portion of the liberalization clause adds a number of qualifications that are largely the product of the consequences of insurers making changes in the policies, some of which arguably may have broadened coverage and others of which may have narrowed coverage.

This part of the clause states that it does not apply to policy changes that are implemented within a general program revision that includes both broadenings and restrictions in coverage. This is true regardless of whether the general program revision is implemented by means of a new edition of the policy or by a mandatory endorsement. This provision is so broad in its sweep that it is difficult to imagine what remains of the original intent of the liberalization clause that has not been subsumed by this new language.

Waiver or Change of Policy Provisions

This condition is pretty straightforward and informs the insured that any waiver or change in the policy's provision must be in writing to be effective. As a general rule, this provision actually helps to prevent misunderstandings and protects the interests of both the insured and the insurer. It limits the ability of either to claim there was an agreement to change policy terms without written evidence of the agreement.

This provision is not ironclad. Agents of an insurer (insurance agents, claim representatives, and attorneys employed by insurers) can and do bind the insurer to changes in the terms of policies. Whether a waiver of a policy provision has occurred as the result of conduct by an agent, employee, or representative of an insurer is a highly fact-dependent inquiry and no general rule can be stated.

The concluding sentence of this condition states that the insurer's demand for appraisal or an examination under oath does not waive any of the insurer's rights. This means that the insurer's investigation of a claim should not be regarded as a waiver of its right to contest coverage if the consequence of its investigation leads the insurer to the conclusion that no coverage for the loss exists.

Under the insurance statutes of most states, the insurer must promptly investigate claims and make a claim decision. The fact, for example, that there may be issues as to the amount of a loss may well be independent of the question whether the cause of a loss is covered or whether the property in question constitutes covered property. Thus, an insurer may need to demand appraisal in order to set the amount of a loss even in the case of claims in which the existence of coverage may be questionable. The fact that an insurer demands appraisal when there is a dispute as to the amount of a loss does not, without more, constitute an admission by the insurer that coverage exists.

Similarly, in order to adequately investigate various aspects of a loss, it may be necessary for an insurer to demand an examination under oath of the insured. A potential consequence of an examination under oath may be a partial or total denial of coverage. This provision simply makes clear that by exercising its right to demand an examination under oath, the insurer is not in any way communicating an admission or concession that coverage, in fact, exists.

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