Like many commercial contracts, some reinsurance contracts are filled with archaic terms, industry jargon, and, most unfortunately, legalese. And it doesn't have to be that way. All contracts, including reinsurance contracts, should be written in plain English. It's time to abandon templates that are overly wordy and obtuse. It's time to "say what you mean, and mean what you say" in simple, clear, and concise language. This Expert Commentary will discuss why drafting reinsurance contracts in plain English is the right way to go.
Why Are Some Reinsurance Contracts Difficult to Read and Understand?
Historically, reinsurance contracts were put together by nonlawyers who thought that using archaic language and legalese was the way contracts should be drafted. They often took old contracts with old verbiage and reused them. Templates were created, and the ambiguities propagated. Most companies and reinsurance intermediaries have their own wording templates, and once approved (even decades ago) by senior management, they are difficult to change.
Another problem is the usage of industry jargon. To the layperson and the court system, industry jargon is often confusing and unintelligible. But because reinsurance is a highly technical industry, it is difficult to remove all industry terms of art from reinsurance contracts; otherwise, the contracts would not work for the reinsurance transaction. However, definitions for those terms of art can be drafted in plain English in a clear and concise way.
Part of the problem is the old adage: "If it's not broken, don't fix it." The industry is used to using certain language and is loath to move away from it. Additionally, some in the industry, including some industry lawyers, are concerned that judges will rule differently if the legalese is not maintained in clauses that have been subject to prior judicial interpretations. Whether that fear is based on reality is questionable. Courts construe contracts based on the words used in the contracts. The clearer the contract is, the more likely the court will interpret the contract consistently with the intent of the parties.
With the development of professional contract wording departments in many insurance and reinsurance companies, with lawyers joining the reinsurance contract drafting fray, one would think that reinsurance contracts would be drafted better. And, in many cases, they are: Ambiguities have lessened, and typos, grammatical errors, and stylistic blunders have been reduced. Importantly, more attention is being paid toward clearer terms and conditions. While props should be given to the hard-working contract wording teams, unfortunately, plenty of legalese and archaic language still finds its way into many reinsurance contracts.
What the naysayers ignore is that writing in plain English helps to remove ambiguity, enhances clarity, and makes the contract more readable and easier to understand for the parties, their employees, and, when disputes arise, arbitrators and judges.
What Are Some of the Language Problems Found in Reinsurance Contracts?
Language problems range from the unnecessary use of archaic language to grammatical errors to poor stylistic choices to the overuse of industry jargon. Examples of archaic language, poor grammar, stodgy style, and legalese are easy to find even in many current reinsurance contracts. For example, let's look at some of the common legalese terms used in reinsurance contracts: "herein," "hereunder," "such," "said," "hereby," "foregoing," "hereinafter," "therein," "thereto," and "thereof." Any English professor or legal writing instructor will caution against using these words. Why? Because these words are archaic, stodgy, and often add nothing to the contract.
Stylistically and grammatically, you will find run-on and wordy sentences. For example, a favorite opening phase often seen in the definitions article of reinsurance contracts is "as used herein ['Occurrence'] shall mean.…" If a term is defined in a contract, it is obvious that it is only defined for purposes of that contract. The word "herein" and the phrase "as used herein" are superfluous. Definitions should start simply by saying "['Occurrence'] means" without using all those other extraneous words that add nothing to the definition.
Here is an example of an overly wordy sentence found in a reinsurance contract.
As respects all Policies covered by this Contract including any Extended Reporting Periods thereon, at the expiration of this Contract, the Reinsurer shall remain liable for all Occurrences, Claims Made and/or Claims-Made and Reported with dates of loss prior to the termination, expiration, or renewal of such Policies, whichever occurs first.
Redrafted, the same sentence can be shortened to the following.
The Reinsurer will remain liable for all Occurrences, Claims Made and/or Claims-Made and Reported with dates of loss prior to the termination, expiration or renewal of all covered Policies, including any Extended Reporting Periods, whichever occurs first.
By revising this sentence, the word count went from 52 to 38 words. Here's another example of a wordy sentence with legalese found near the inception of a reinsurance contract.
The parties hereto agree as herein below provided, in consideration of the mutual covenants contained in the following Articles, and upon the terms and conditions as set forth below herein.
The following sentence has been revised.
In consideration of the mutual covenants contained in the Contract, the Parties agree as follows.
Simplifying the sentence using plain English leads to clarity. Similarly, look at this sentence.
Notwithstanding the expiration or termination of this Agreement as hereinabove provided, the provisions of this Agreement will continue to apply to all obligations and liabilities of the parties incurred hereunder to the end that all such obligations and liabilities will be fully performed and discharged.
When revised, the sentence becomes simpler and clearer.
The Parties agree that the terms of this Agreement will continue to apply to all obligations and liabilities of the Parties, which will be fully performed and discharged even after the expiration or termination of this Agreement.
Finally, here is an example of a reinsurance premium clause.
As respects the reinsurance provided under this Agreement, the Company shall pay to the reinsurer a deposit premium by Section as outlined below.
Here is the same sentence redrafted in plain English.
The Company will pay the Reinsurer a deposit premium for each Section as outlined below.
The introductory clause is totally unnecessary as clearly the premium article is directed at the reinsurance provided under the reinsurance contract.
Why Is Drafting in Plain English Important?
Some may ask, what is the big deal about having legalese and archaic language that we are all used to in a reinsurance contract? We all know what these words mean. The answer is that clearer, simpler, and more concise language is always better. Adding unnecessary words to a contract can only cause ambiguity and confusion. Simplifying language and using plain English as much as possible makes a reinsurance contract easier to read and understand for all readers (not to mention shrinking the size of the contracts to save trees and bytes).
Not everyone who works in the industry has done so for 30 years; writing reinsurance contracts in plain English allows newer industry employees to get up to speed faster. Reducing the learning curve is especially important when veteran industry participants are retiring in droves and recruiting new entrants to the industry has been difficult.
More importantly, regulatory agencies and the courts will find less challenges if the contracts are written clearly and concisely. Even though the insurance regulators should be familiar with reinsurance, we know that many are not. Clearly, securities regulators are much less familiar, and many reinsurance contracts are part of securities filings. Also, drafting contracts with archaic and confusing language may cause inconsistent interpretations of similar contracts and confuse those who are required to construe them.
Drafting a Reinsurance Contract in Today's Environment
In today's world, where many reinsurance contracts are now being drafted in conjunction with artificial intelligence (AI) programs, writing in plain English is especially important. AI large language models are trained on datasets of model clauses and past contract wordings. If those wordings are chock full of archaic language and legalese, the AI program will learn that using verbose and ambiguous language is the way to go.
It is absolutely critical that AI prompts for contract drafting explicitly exclude legalese and archaic language, and the more detailed the prompt in excluding legalese and verbose writing and encouraging plain English, the more well-written the initial draft of the reinsurance contract will be.
Conclusion
The purpose of a reinsurance contract, like any contract, is to clearly set forth the intent of the parties by setting out the terms and conditions of the parties' agreement clearly and concisely. The clearer and more concise the contract is, the easier it will be for the parties and, if necessary, third parties to understand the contract and fulfill the parties' obligations under the contract without controversy. Drafting in plain English and abandoning legalese and archaic language goes a long way toward avoiding disputes and enhancing a successful business relationship.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
Like many commercial contracts, some reinsurance contracts are filled with archaic terms, industry jargon, and, most unfortunately, legalese. And it doesn't have to be that way. All contracts, including reinsurance contracts, should be written in plain English. It's time to abandon templates that are overly wordy and obtuse. It's time to "say what you mean, and mean what you say" in simple, clear, and concise language. This Expert Commentary will discuss why drafting reinsurance contracts in plain English is the right way to go.
Why Are Some Reinsurance Contracts Difficult to Read and Understand?
Historically, reinsurance contracts were put together by nonlawyers who thought that using archaic language and legalese was the way contracts should be drafted. They often took old contracts with old verbiage and reused them. Templates were created, and the ambiguities propagated. Most companies and reinsurance intermediaries have their own wording templates, and once approved (even decades ago) by senior management, they are difficult to change.
Another problem is the usage of industry jargon. To the layperson and the court system, industry jargon is often confusing and unintelligible. But because reinsurance is a highly technical industry, it is difficult to remove all industry terms of art from reinsurance contracts; otherwise, the contracts would not work for the reinsurance transaction. However, definitions for those terms of art can be drafted in plain English in a clear and concise way.
Part of the problem is the old adage: "If it's not broken, don't fix it." The industry is used to using certain language and is loath to move away from it. Additionally, some in the industry, including some industry lawyers, are concerned that judges will rule differently if the legalese is not maintained in clauses that have been subject to prior judicial interpretations. Whether that fear is based on reality is questionable. Courts construe contracts based on the words used in the contracts. The clearer the contract is, the more likely the court will interpret the contract consistently with the intent of the parties.
With the development of professional contract wording departments in many insurance and reinsurance companies, with lawyers joining the reinsurance contract drafting fray, one would think that reinsurance contracts would be drafted better. And, in many cases, they are: Ambiguities have lessened, and typos, grammatical errors, and stylistic blunders have been reduced. Importantly, more attention is being paid toward clearer terms and conditions. While props should be given to the hard-working contract wording teams, unfortunately, plenty of legalese and archaic language still finds its way into many reinsurance contracts.
What the naysayers ignore is that writing in plain English helps to remove ambiguity, enhances clarity, and makes the contract more readable and easier to understand for the parties, their employees, and, when disputes arise, arbitrators and judges.
What Are Some of the Language Problems Found in Reinsurance Contracts?
Language problems range from the unnecessary use of archaic language to grammatical errors to poor stylistic choices to the overuse of industry jargon. Examples of archaic language, poor grammar, stodgy style, and legalese are easy to find even in many current reinsurance contracts. For example, let's look at some of the common legalese terms used in reinsurance contracts: "herein," "hereunder," "such," "said," "hereby," "foregoing," "hereinafter," "therein," "thereto," and "thereof." Any English professor or legal writing instructor will caution against using these words. Why? Because these words are archaic, stodgy, and often add nothing to the contract.
Stylistically and grammatically, you will find run-on and wordy sentences. For example, a favorite opening phase often seen in the definitions article of reinsurance contracts is "as used herein ['Occurrence'] shall mean.…" If a term is defined in a contract, it is obvious that it is only defined for purposes of that contract. The word "herein" and the phrase "as used herein" are superfluous. Definitions should start simply by saying "['Occurrence'] means" without using all those other extraneous words that add nothing to the definition.
Here is an example of an overly wordy sentence found in a reinsurance contract.
Redrafted, the same sentence can be shortened to the following.
By revising this sentence, the word count went from 52 to 38 words. Here's another example of a wordy sentence with legalese found near the inception of a reinsurance contract.
The following sentence has been revised.
Simplifying the sentence using plain English leads to clarity. Similarly, look at this sentence.
When revised, the sentence becomes simpler and clearer.
Finally, here is an example of a reinsurance premium clause.
Here is the same sentence redrafted in plain English.
The introductory clause is totally unnecessary as clearly the premium article is directed at the reinsurance provided under the reinsurance contract.
Why Is Drafting in Plain English Important?
Some may ask, what is the big deal about having legalese and archaic language that we are all used to in a reinsurance contract? We all know what these words mean. The answer is that clearer, simpler, and more concise language is always better. Adding unnecessary words to a contract can only cause ambiguity and confusion. Simplifying language and using plain English as much as possible makes a reinsurance contract easier to read and understand for all readers (not to mention shrinking the size of the contracts to save trees and bytes).
Not everyone who works in the industry has done so for 30 years; writing reinsurance contracts in plain English allows newer industry employees to get up to speed faster. Reducing the learning curve is especially important when veteran industry participants are retiring in droves and recruiting new entrants to the industry has been difficult.
More importantly, regulatory agencies and the courts will find less challenges if the contracts are written clearly and concisely. Even though the insurance regulators should be familiar with reinsurance, we know that many are not. Clearly, securities regulators are much less familiar, and many reinsurance contracts are part of securities filings. Also, drafting contracts with archaic and confusing language may cause inconsistent interpretations of similar contracts and confuse those who are required to construe them.
Drafting a Reinsurance Contract in Today's Environment
In today's world, where many reinsurance contracts are now being drafted in conjunction with artificial intelligence (AI) programs, writing in plain English is especially important. AI large language models are trained on datasets of model clauses and past contract wordings. If those wordings are chock full of archaic language and legalese, the AI program will learn that using verbose and ambiguous language is the way to go.
It is absolutely critical that AI prompts for contract drafting explicitly exclude legalese and archaic language, and the more detailed the prompt in excluding legalese and verbose writing and encouraging plain English, the more well-written the initial draft of the reinsurance contract will be.
Conclusion
The purpose of a reinsurance contract, like any contract, is to clearly set forth the intent of the parties by setting out the terms and conditions of the parties' agreement clearly and concisely. The clearer and more concise the contract is, the easier it will be for the parties and, if necessary, third parties to understand the contract and fulfill the parties' obligations under the contract without controversy. Drafting in plain English and abandoning legalese and archaic language goes a long way toward avoiding disputes and enhancing a successful business relationship.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.