WORDING CHAT

Experience has told me it’s impossible to draft the perfect wording. This is because it is catering for events and situations that by their nature are unexpected and uncertain, and the market is constantly shifting. You don’t really know how well your wording works until you have claims. This is when you realise there may be an issue.

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There are some things you can do to reduce this factor, and avoiding some of these basic errors will help. I have chosen more obvious / easily corrected issues explainable in this format, not some of the more complex ones. Tempting though it is to give examples of the funniest/worst wording errors I have seen, I have stuck to themes which may be more instructive. The following are not in order of severity!

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1. Insuring Agreements/Extensions

   • Triggers - the policy can only respond to things that happen during the policy period, so make sure this is stated explicitly in the insuring clauses (and extensions unless parasitic on the insuring  clauses). You’d be surprised how often this is missed. 

   • Basis clauses - in English policies weed out language in the preamble that makes representations in the placement process the “basis” of the contract – these were outlawed by the Insurance Act 2015. Apart from anything else seeing them in there will make the reader think the wording hasn’t been updated for years.

   • A word on cover extensions – check they aren’t already covered, and if they are, and you still want to include them, add language that recognises this.

2. Definitions

   • Policies often have many definitions then don’t use them consistently. Do a word check. That said, watch out for those occasional situations where a word should not be used in its defined sense eg a claim under the policy is not a Claim (I have corrected this a million times!).

   • Try and avoid making a definition circular – this is when a definition includes its own defined term.

   • Some definitions are only used once (so not needed) or sometimes aren’t used at all. You can do a word check to sort this out.

   • If your definitions clause goes through the alphabet twice you are in trouble!

3. Exclusions

   • Sometimes exclusions only refer to one type of insured event (eg a Claim), and there are other insured events (eg a Crisis Loss) that just aren’t mentioned.

   • Check the exclusion clauses fit the exclusions preamble by reading each one in conjunction with it. This way you will help avoid disputes about their breadth.  

   • Think about what is being excluded and apply appropriate causation language depending on how narrow or broad the exclusion needs to be, rather than taking a “one size fits all” approach, which may lead to accusations of “illusory cover”.

   • Excluding things that are not covered in the first place is common in policies but can lead to interpretational issues. It’s a particular issue when market boilerplate clauses are added to comply with regulatory requirements.

   • Carve-backs to carve-backs – just plain confusing!

   • Are you sure you know the difference between a Retroactive Date, a Continuity Date, and a Prior & Pending clause? Whilst used interchangeably they are not the same thing (in my view). Not enough room here to explain!

4. Claims Conditions

   • Distinguish the conditions that must be complied with in order for the cover to be in place, from the ones that don’t.  A “one size fits all” approach won’t go down well in court.

   • Where you have a mix of first party and third party covers make sure the conditions work for both. I see this issue a lot, with some first party conditions simply left out.

   • Sometimes conditions only refer to one type of insured event (eg a Claim), and there are other insured events that just aren’t mentioned.

5. General Conditions

   • Some policies are silent on what happens to changes in risk eg takeovers, insolvency, acquisitions, and disposals during the policy period. Some that do mention them terminate the policy when run-off is intended and vice versa.  

   • There are policies out there that have not been amended since the Insurance Act 2015 came in! If the policy is governed by English law check the Insurance Act 2015 has been taken into account in the clauses dealing with misrepresentation /non-disclosure.  

   • Check the disputes clause to ensure it still reflects the parties’ intentions as to how disputes may be resolved.  The Insured’s GC will have a view on this.

   • Specify the proper law in the schedule rather than drafting it into the wording (this allows the proper law to vary deal to deal without changing the wording).

6. Endorsements

   • It’s best to tailor these to the wording so that consistent definitions and other expressions are used. I appreciate this isn’t always practical particularly where market boilerplate clauses are being added. In this situation choose the one that best fits the wording.

   • Changing one clause by endorsement often has knock-on effects on others but this is frequently not addressed. Read the whole wording to see where else you may need to make a change.

   • Not being clear what an endorsement overrides. Where it is intended an endorsement overrides things in the wording without deleting them, add “Notwithstanding any provision to the contrary” language.

   • Often an endorsement has been absorbed into the wording (usually a good thing) with all the additional endorsement language still included (not so good).

7. Excesses, Retentions and Deductibles

   • These are often used interchangeably but they are not the same. Which one is intended? The most important difference is a deductible is part of the limit of liability, and commonly deducted from a payment made by the insurer, the others are not and operate as a “primary uninsured” layer which the insured must pay before the insurance attaches. I would generally say it’s OK to use “excess” and “retention” interchangeably but others may say differently.

   • Does one of these apply to each claim or each collection of related claims? The wording needs to get this right and also be consistent with the schedule. Fertile source of litigation over the years.

8. Limits and Sub-limits

   • Inconsistencies between the schedule and the wording are common. Make sure they are clear, and consistent with each other, on whether they are “any one claim” or “in the aggregate”.

   • Where different people/entities are covered for different things and separate limits apply, make clear what happens when more than one limit is impacted by a single event or multiple related events.

9. More Generally:

   • Try to avoid using any variable values in the wording – keep them all in the schedule so you don’t have to fiddle with the wording each time you do a deal. It also avoids inconsistent values between the schedule and the wording which is a fertile area for disputes. 

   • Where two clauses may appear to overlap or contradict each other (which frequently happens) make sure that one expressly takes the other into account, so it is clear how they are meant to operate together or which overrides which.

10. Remember – in wordings Less is usually More! Keep verbiage to a minimum. This cuts down inconsistencies between clauses and makes the policy easier to read. We all want that, right?