Deconstructing the Language of Insurance Policies

I have been thinking a lot recently about the development and history of particular aspects of insurance policy language, and how they reflect the continuing efforts of drafters to take language that can often be imprecise and refine it to more accurately reinforce what the insurer actually intends to take on as a covered risk. Over time, many policy forms are revised as insurers find that limited knowledge about a particular type of risk at the time a policy provision is first crafted or changes in the development of the law in a particular area after the initial drafting mean that the original language chosen by the policy drafters did not accurately enough capture the extent to which an insurer meant to include, or instead exclude, a particular exposure from coverage. Historically, for those old enough to remember it, my favorite example was the exclusion written by many carriers before asbestos litigation broke out in waves, that precluded coverage of claims for asbestosis. Personally, I have little doubt that those who drafted that policy language thought they were saying by that language that the policies do not cover any bodily injury/tort liabilities arising from the mining, sale, use, etc. of asbestos and asbestos based products, and that based on what the authors knew of the subject at that time, they thought they were writing such a broad limitation on coverage. As time moves on though, it becomes clear that many suits arising out of asbestos involve other physical ailments, and not just the particular disease of asbestosis. End result? Courts find that the exclusion does not apply to the other types of injuries, since they fall outside the express wording of the exclusions, which were only written as applying to asbestosis, even though the authors undoubtedly understood the word asbestosis to mean something much more than just the specific disease that would bear that name. Indeed, what possible logic could there be behind intentionally excluding just the tens of thousands of claims for asbestosis, and not the tens of thousands of claims arising from other, similar diseases that stem from asbestos exposure and inhalation?

The history of pollution exclusions in liability policies is much the same, and another classic example. It has only taken some forty years for policy language to catch up to the extent of exposure created by environmental liabilities, and the industry has spent an untold fortune covering such claims and defending against claims for coverage of such claims in the interim. That this occurred is completely understandable, as the extent of exposure for pollution losses expanded exponentially only after much of the (then) standard policy language governing this issue was written.

Of course, a sane person might ask why I am spending so much time thinking about this these days, and there are a number of answers to that question, some even halfway legitimate or rational. But the reason is primarily that very interesting articles on the historical development of particular pieces of policy language or structure keep crossing my desk, and they keep reinforcing these points.

Here are two of them. First, the D & O diarist, Kevin LaCroix, has as well written a history of the development and adoption of the breach of contract exclusion that has become standard in many forms of policies as I have seen anywhere. As he explains, insurers always understood that the insuring agreement in their policies covered tort liability, and did not expand coverage to contractual liability; in essence, insurers and insureds alike understood that policies did not cover an insured’s failure to comply with its contractual undertakings, without any need for particular or express policy language detailing that point. However, as Kevin captures in his piece, over time this understanding started to fade into the ether, and insurers found it necessary to add a specific exclusion to policies expressly stating what had, in the past, simply been understood by all concerned, without any need for an express exclusion to that effect.

The second is this historical overview of the development and expansion of claims made policies. In this instance, as the author explains, claims made policies were developed for a particular type of exposure, but because of the usefulness of that structure with regard to such issues as setting premiums and other practicalities of the insurance business, it expanded into other forms of coverage, becoming, eventually, the industry’s “go to” form of coverage.

All of these examples bring one back to the same point, which is that the seemingly dry, contractual recitations in insurance policies are actually only the current manifestation (pun intended, for any insurance coverage lawyers reading this) of what is actually a living, breathing, ever evolving form of literature.