Silk and love of exclusions

When the silky embrace gets you anywhere. Within a couple of weeks after the Semana Grande, San Sebastián will have one of its famous hotels full of cinema anoraks.  No one will be excluded from this wonderful event.

A worrying trend making the role of contract wordings anoraks so useful is the misunderstanding of exclusions and their unique relationship with coverage extensions.

Let us focus on the remote days when the market was sitting on the edge of LMP (London Market Principles) and close to adopt the Market Reform Standards.

Twenty years or so later we are now sitting alongside the Market Reform Contract MRC V2.1 and the IMRC.

An exclusion would be amended, deleted in part or in full. An exclusion would not apply to a particular scenario. Similarly, a coverage extension would be satisfactorily secured if it explained what was happening with an existing exclusion.  A coverage extension may be obtained until a set amount and beyond that amount the exclusion applies in full.  Typically, valuable papers or fine arts are subject to this kind of scenario. However, this is more an exception to the rule. Something that we can refer as a hybrid exclusionary coverage.

Carriers and brokers of all commercial classes are producing wordings with concurrent exclusions.

An additional feature in such contracts is the absence of writebacks on key coverage extensions when elsewhere in the wording the trigger / proximate cause are actually excluded absolutely.

The concept of hoax in a plain vanilla political violence contract is a semi-absolute exclusion. It is the sister/brother in arms scenario with the hybrid exclusionary language. The former is excluded then covered whereas the latter is included then excluded.

To make matters worse the exclusions can be set in at least three different contexts

  an all-risks setting       Takeaway is if not specifically excluded then it is covered.  

§     a named perils decorum         Think at micro-level on a particular insurable risk

§     a mysterious grey landscape             Anything else.

   In the event of concurrent language around exclusions or overlapping coverage extensions, which one prevails?

This is when one must look at the wording palimpsest. Is it all down to the exclusions being dovetailed from another contract? Is there any notwithstanding anything to the contrary overrider?  Is the wording correctly structured? What choice of law does govern this contract? What onerous provisions amounting to an exclusionary language are further limiting the relevant coverage extensions? What is the writeback basis? By sections, by perils, by cause or consequence or both?

All this needs to be crystal clear. Because your contract could be then placed with excess layers or subject to reinsurance agreements on a facultative basis or on a warranty full follow basis.

Messy exclusionary language means a very ambiguous apportionment of sublimits, a controversial contribution of other insurances. The Corbyn v King case proves that the context of a sublimited coverage is not very clear until the elected controversial clause is forensically studied at micro-level but also ejusdem generis i.e. in its closest holistic proximity. On the back of such analysis, one should be able to determine whether the sublimit applies to one location or all locations combined, one entity or all entities.  Setting it in stone avoids a contra-proferentem to the carrier. Setting it in stone at the broker’s initiative may be detrimental to the policyholder as it limits the wriggle room but at least there would be contract certainty.

Carriers compound the issues by offering in greater number wordings without any commas and the grammatical use of Insured in singular and plural within the same coverage extension or the same exclusion.

In this growing interconnected world cross-overs between classes are inevitable. The same applies to a coverage extension. Some judges may view one exclusion in silo when others can see a catch all absolute exclusion like the LMA5401 being applied beyond what the initial intent was.

Our task would not be complete if the MRC mandates and the contract wording content were not aligned.

A silky combination of geo-politically correct dominoes? A better monetary stability claims wise if the Mundell’s incompatibility issue got solved.