"Let form follow function" in insurance policy drafting: Technip, Project Angel and … the Bauhaus?

I opened a book the other day on the Bauhaus.

The Bauhaus is a fascinating art movement that emerged in Germany from the dying embers of the first world war. Showing up in architecture and product design primarily, at its heart were the principles of simplicity and usefulness and the imperative to create beautiful things through purposeful utilitarianism. A now ubiquitous phrase, that is a lasting legacy of the Bauhaus, underpinning many fundamental design ideas is this: "let form follow function".

Why am I telling you this? Because these principles have huge relevance and potency in my world of policy drafting. For wordings technicians and lawyers, perspective is everything. We don’t just write insurance contracts, we play a part in the design of products and first and foremost, making good products is about good design.

Products are made, sold and purchased, to be used.  I often talk about this use case which takes many forms. In the Courts it comes up in the context of disputes about interpretation (the reasonable purchaser of insurance through to the 'pedantic' commercial lawyer) and also how improving good outcomes for consumers (synonymous with users) is a fundamental driver of regulatory change.

When I read about Bauhaus, I had in my mind two recent Court of Appeal cases concerning the interpretation of policy wordings: Project Angel¹ and Technip².

How these policies were used, by which I mean, built, was a common theme.

These cases are not natural bedfellows as they concern very different worlds: W&I in the context of large corporate transactions and offshore energy construction projects. That both business lines operate in a very idiosyncratic way, is however, a characteristic that they do share.

The similarity extends somewhat further. They require a high level of underwriting and alteration to a standard form wording by way of schedules, annexes and endorsements, to cater for the various factual intricacies of the specific insured risks. They exist at one end of the scale in a model that is common to all insurance and deployed in differing degrees depending on business line.

Project Angel is a fascinating case.

It concerned the interpretation of a provision in a Warranty and Indemnity policy. The insured ultimately failed to convince the Court that a crucial definition contained what they considered was an obvious mistake, namely that within the language of a definition, "any liability for actual or alleged non-compliance" the "for" should be replaced with "of".

When I first saw it, the idea that a solitary letter, 'f' (or the absence of it), from a complicated contract could generate so much cost and court time was what struck me as both terrifying and remarkable. However, having dipped into the recordings of the Court of Appeal hearing, to listen to the opening and closing arguments, it is a much richer seam.

The dispute shines a light on the complex web of inter-related documentation that made up the specific insurance contract. At its heart is a stark reminder that with a lot of "bespoking" comes a corresponding increase in the demand on the reader.

Navigating the document becomes more and more complicated to a point that where you start, which documents and which clauses you visit and in which order, will open the door to different interpretations and arguments as to meaning and how that is acquired.

There must be a better way of designing the "form" of these products: one that takes a stronger lead from the user case (or "function") and as a result strips out the complexity.  

The issue in the Technip appeal was a different one.

This case centred upon the interpretation of an existing contractual exclusion endorsement in a standard form contract for offshore construction all risks cover, known as WELCAR. The insured, Technip, asserted that the judge at first instance had overplayed the significance of the commercial rationale of how an endorsement was underwritten to support an interpretation that meant an exclusion was of wide (and for them, of devastating) consequence.

It was also argued that because the policy was a composite one, i.e. to be construed as a separate contract between insurers and each insured, this meant that the definitions of "Insured" (which listed multiple entities) needed to be construed in the policy as relating only to the specific insured making a claim.

The Court dismissed the Technip appeal in short order, indicating that the linguistic interpretation, commercial rationale all pointed to the same direction.  

The composite policy point however, is an interesting one for those drafting wordings as the Court dismissed their being any general point of principal from the authorities that, absent specific language, composite policies should be interpreted differently.

There is an obvious tension as to how catch all definitions can possibly hope to cater for all the various permutations of the things being insured, who they belong to and in respect of which party a liability might arise and whether a trigger against one, opens the gates for all. We need to be really very careful when we draft using such techniques.  In a wording that relies on drafting techniques like this, the risk is that "form" cannot follow "function" as there are so many functions.

What we do so well in this industry is to simplify and we do that by compartmentalising as insurance is predicated on the idea of a problem shared, is a problem halved. That works on a product design basis too.

As risks emerge, evolve and then settle, so should the products that are there to support them. Charting where we are on that natural trajectory can be a valuable exercise and these two cases show from different angles how idiosyncrasies and complexities are pulling us off in the wrong direction.

In the context of product wordings, the idea that form should follow function is a mantra to live by. It is only if we properly understand the user case, that we can build better products.

Large risk products might be outside of the direct influence that the Consumer Duty is having on driving improvements in clarity and intelligibility, but when the benefits of fresh eyes and doing things differently are so patently obvious that may well change.  

As Walter Gropius, an architect and founder of Bauhaus, reminds us, "the mind is like an umbrella. Its most useful when open".

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