What is policy language drafting, how does it occur, and how should it apply? These are questions I receive as a former employee of the Insurance Services Office, Inc. (“ISO”), as responsible for product development for a $2B insurance group, and for Lloyd’s MGA Business in the US. I have been asked to write about the process in Expert Opinions and testify on the process at depositions, in court, and at arbitration proceedings. I am not a lawyer and am not providing legal advice.
As background, I have written policy language since I started in the P&C Industry at The Insurance Services Office, Inc., (“ISO”). ISO is the largest insurance service organization in the world providing advisory materials to over 1,000 insurance companies in the US. I authored the Special Package Auto Policy and the Personal Auto Policy. I wrote several of the first drafts of the Commercial Property “Simplified” policies and then worked on the Occurrence and Claims Made versions of the Commercial General Liability Coverage Forms. I have written many endorsements with new coverage grants and specific exclusions. I left ISO after 16 years and went to The Home – when it wrote approximately $2B in annual P&C premiums. While at The Home, I tailored coverages for specific programs and insureds. Later, at Syndicated Services Company (“SSC”) I assisted the MGAs which we placed with Lloyds make their programs more competitive. I left SSC and became the NH Assistant Insurance Commissioner for a term and then became a consultant. As a consultant I have written specific BOP programs for jewelry stores, craft breweries, dry cleaners, beauty salons, artisan contractors, and others.
When I was at ISO, policy forms and endorsements were drafted by ISO staff and reviewed and approved by ISO Committees. For example, while I drafted the language of the Personal Auto Policy it was reviewed by a Subcommittee of the Personal Auto Committee and then approved by the Personal Auto Committee and then the Personal Lines Committee. At that time (mid 1970s), the Drafting Subcommittee I worked with included two lawyers, two underwriters, and a claims representative from ISO participating companies. Our job was to take the language of the Family Automobile Policy and the Special Package Automobile Policy and simply the language to meet the then newly enacted Flesch Readability Score.
ISO participating companies had representatives on the Personal Auto and Personal Lines Committees. Those committees approved the language developed by ISO staff. In many cases, the actual language was debated as to meaning and how it could be interpreted in individual fact cases. Where needed to explain a specific intent and meaning, a definition was inserted. Sometimes language would be changed or clarified. In the end, each Committee agreed that the language they reviewed was sufficient to explain the broad intent and that ISO should proceed with the necessary regulatory reviews.
Committee review continued through the development and implementation of the Commercial Lines Simplification Program in the mid 1980s. That is, Committees – with participating insurer representation, reviewed and approved ISO staff suggested language. That later changed when ISO went from a company owned organization (companies paid ISO to be members or subscribers) organization to a staff owned organization and now a subsidiary of Verisk Analytics (primarily owned by institutional investors). While ISO still submits material to insurer staffed groups for review and comment, decisions on language are made by ISO staff.
At The Home, the product development staff (and I) developed modifications to ISO and NCCI filed products. These modifications were reviewed by underwriting and claims personnel for consistency with their intent. Language was agreed upon with the understanding that it needed interpretation given the facts of each case – which could differ by jurisdiction.
Can the drafters of policy language provide guidance on the intent of each word in a policy? NO, they cannot! Where terms are not defined, my answer to that question is the normal understanding of the word is intended to be used. In many cases, I refer to a standard dictionary for its definition. That could be Webster’s Dictionary, Wikipedia, or (in some cases) even Black’s Law Dictionary. A drafter can provide guidance, in the absence of a definition of a term, as to how the policy or endorsement language was intended to apply, but the final determination on a specific fact situation relies on the insurer’s interpretation of the application and possibly – if needed – a judicial ruling. No drafter can explain the intent in a fact case unless that fact case was reviewed when the language was drafted. In many cases, the meaning of specific language is known through case law. But note, those rulings can be case and/or state specific. Court rulings can, and have, construed policy language in numerous and inconsistent ways. Insurance service organizations have not provided, and cannot provide, language interpretations for individual case fact situations unless their language was developed for that specific individual case.
Some argue that redrafting and modernizing policy language each year or after several years is a necessity. However, if that were to be done, insurers could lose years of case history and open the language to a future of new interpretations.
The use of the same policy language year after year is not new. Some policy language has been used, without change, for years. The “Sue and Labor” clause in marine policies originated in Lloyd’s language in the 1600s. While still used in ocean marine policies, it is now sometimes used in inland marine property policies. The language, in today’s environment, has little meaning to most readers – but continues to be used and has been subject to years of case law.
Individual insurers develop their own policy language besides using that of insurer service organizations. While the insurer may have some written documents on the overall intent of the language, for example, to cover loss resulting from a mechanical malfunction of part of a machine, the insurer must still interpret the language they wrote for the individual loss fact situation.
Policy drafting is a technical work of art. It is best serviced by the use of simple, commonly understood terms, with definitions used for specific meaning. Contracts are legal complex documents containing coverage grants, exclusions, limitations, and conditions. Policyholders are reminded, at the beginning of the policy, READ YOUR POLICY CAREFULLY!
