Under Alabama Code (1975) § 27-14-1, an insurance policy is comprised of a “written contract of, or written agreement for, or effecting, insurance, by whatever name called, and includes all clauses, riders, endorsements, and papers attached, or issued and delivered for attachment thereto and made a part thereof.” In order for an endorsement to be effective, it must be either (1) attached to the policy, or (2) sufficiently referenced in either the policy or the endorsement to be identified as related to the policy.[1]

Signing the Insurance Policy Endorsement (or Not)

An insurance policy endorsement does not have to be signed in order for the insured to be bound by it; stated differently, an unsigned endorsement is not invalid.[2] “An unsigned endorsement is valid if it is attached to the policy and is referenced in the policy.”[3] “Under state-law principles of contract interpretation, parties may be bound by documents incorporated by reference.”[4]

Attaching the Endorsement to the Policy

When it is undisputed that an endorsement was attached to an insurance policy from the outset, the endorsement is a valid part of the policy and must be enforced.[5] Additionally, when a policy contains language referring to the endorsement setting forth the “policy with any attached papers in the entire contract” between the insurer and insured, the endorsement is a valid part of the policy and must be enforced.[6]

Assenting to the Insurance Policy Endorsement

“An application for insurance is an offer to enter into an insurance contract, and if the insurer issues a policy materially different from the policy applied for, the policy is a counter-offer which becomes binding only when accepted by the applicant.”[7] Therefore, even if the inclusion of an endorsement were a material alteration of the policy the insured applied for, the insured will have accepted the counter-offer by not returning the policy but rather paying the premiums on it, and it will not matter that the application did not mention the endorsement.[8]

Under Alabama law, an insured may manifest its assent to a provision of an insurance policy in several ways: (1) by failing to exercise its right to cancel the policy; (2) by paying its premiums, indicating its acceptance of the entire policy; or (3) by submitting a claim under the policy.[9]

Ambiguity of the Endorsement

Like any other aspect of an insurance policy an endorsement must be unambiguous. “The test to be applied by a court in determining whether there is ambiguity is not what the insurer intended its words to mean, but what a reasonably prudent person applying for insurance would have understood them to mean. In determining whether an ambiguity exists, a court should apply the common interpretation of the language alleged to be ambiguous. This means that the terms of an insurance policy should be given a rational and practical construction.”[10] An unambiguous endorsement or exclusion in a policy is enforceable.[11]

Any endorsement must conform to the reasonable-expectations doctrine, whereby “the insured is entitled to the protection which he may reasonably expect from the terms of the policy he purchases.”[12]

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[1] See African Methodist Episcopal Church, Inc. v. Smith [Ms. 1141100, 1141101, 1150055, 1150156 Aug. 19, 2016] — So.3d —, 2016 WL 4417268 (Ala. 2016); see also Greene v. Hanover Ins. Co., 700 So.2d 1354 (Ala. 1997); Ex parte Rager, 712 So.2d 333 (Ala. 1998).

[2] Ex parte Rager, 712 So.2d at 335.

[3] Crews v. Nat’l Boat Owners Ass’n Marine Ins. Agency, Inc., 46 So.3d 933, 938 (Ala. 2010).

[4] Homes of Legend, Inc. v. McCollough, 776 So.2d 741, 746 (Ala. 2000).

[5] Ex parte Rager, 712 So.2d at 335; see also Philadelphia American Life Ins. Co. v. Bender, 893 So.2d 1104, 1108 (Ala. 2004).

[6] American Bankers Ins. Co. of Florida v. Crawford, 757 So.2d 1125, 1129 (Ala. 1999).

[7] SouthTrust Bank v. Williams, 775 So.2d 184, 189 (Ala. 2000) (quoting Connell v. State Farm Mutual Auto. Ins. Co., 482 So.2d 1165, 1167 (Ala. 1985)).

[8] See Ex parte Rager, 712 So.2d at 335; see also SouthTrust Bank, 775 So.2d at 189.

[9] See Southern Foodservice Management, Inc. v. American Fidelity Assur. Co., 850 So.2d 316, 320 (Ala. 2002); see also Ex parte Rager, 712 So.2d at 335; Southern United Fire Ins. Co. v. Howard, 775 So.2d 156, 162-63 (Ala. 2000).

[10] Nationwide Ins. Co. v. Rhodes, 870 So.2d 695, 696–97 (Ala. 2003) (internal citations omitted).

[11] See American Resources Ins. Co. v. H & H Stephens Const., Inc., 939 So.2d 868 (Ala. 2006); see also Greene v. Hanover Ins. Co., 700 So.2d 1354 (Ala. 1997); SouthTrust Bank v. Williams, 775 So.2d at 881 (holding that where a policy is unambiguous and refers the insured to an endorsement, it will be upheld).

[12] American Resources Ins. Co., 939 So.2d at 897 (quoting Aetna Casualty & Surety Co. v. Chapman, 200 So. 425, 426-27 (Ala. 1941).