Welcome To My World

​

“Pick & Mix” policies are not a new type of product – they’ve been around forever and embrace all classes of business. You will very likely have several on your desk right now. How did the name come about?  In a word, judges. Intrigued? -  read on. 

​

Wordings specialists will all recognise (with eyes rolling no doubt) the idea of creating a “new” wording from a popular market base form and then adding in clauses from other policies and/or endorsements in order to enhance it or simply create something more “unique”, then changing the font and adding your branding and launching it into the market. This might also embrace melding several wordings together. Welcome to the “Pick & Mix” wording!

​

Why is “Pick & Mix” a thing? 

​

The Pick & Mix wording is a thing for a variety of reasons but mostly because:

​

• It’s quick and cheap to produce

• There generally isn’t any legal reason why not to: almost every form is a mix of ideas taken from other forms so there is very little originality that could be seriously protected

• It feels safe: everyone is doing it (and has always done)!

• The market likes familiarity so an adaptation of a “tried and tested” form is more likely to be accepted

• True originality means taking risks both with an idea and the drafting

 

So, in principle there is nothing wrong with the practice: probably 50% of our work involves Pick & Mix to an extent. If a standard wording doesn’t fully address the requirements of the insured it needs to be changed (or “manuscripted”). Tailoring the wording to the insured is an example of good client service: which is what we are all aiming for. 

​

The problems creep in when that manuscripted form is then used as “standard” for all similar clients without properly assessing whether it’s fit for the purpose of those clients. 

​

Further, and the main focus of this Newsletter, there may have been little or no consideration given as to how the mix of different clauses interact with each other, which is usually only discovered (to someone’s cost) when there’s a claim. 

​

How Pick & Mix Policies Arise

​

Although we do some wordings from scratch, particularly in the field of emerging risks, (and to be honest this is the most satisfying work for the wordings professional), modern insurance products are rarely drafted completely from scratch. 

​

Practitioners on both sides of the deal frequently build policies by adapting existing forms, incorporating endorsements, and manuscripting to address particular risks presented by the insured. This process can create efficiencies, but it also increases the risk of inconsistencies.

​

For example, a cyber policy might incorporate:

​

• A London market insuring clause.

• US-derived privacy liability provisions.

• Broker manuscript extensions.

• Standard market (eg LMA) exclusions.

• Bespoke amendments negotiated for a particular insured.

 

Each component may have originally been drafted against a different underlying policy architecture or deliberately in isolation. Once combined, provisions that worked perfectly in their original context may no longer fit comfortably together.

​

Common Problems

​

As I mentioned earlier, I didn’t invent the expression “Pick & Mix”; it was invented by judges hearing insurance disputes over the years. Insurance lawyers will be very familiar with the unflattering comments of judges about contracts drafted in our industry.  

​

The phrase “Pick & Mix” was used by judges to refer to a policy assembled from a variety of sources without sufficient consideration of how the clauses interact as a coherent whole. It’s reasonable to assume that those judges were not intending to be complimentary towards this practice when describing it in these terms! 

​

Nonetheless, in an increasingly manuscript-driven market, the practice is common. A policy may combine a core wording from one insurer, endorsements borrowed from another market form, broker-generated clauses, sector-specific amendments, and provisions lifted from overseas policies. Although each clause may appear reasonable when viewed in isolation, problems can arise when they are brought together into a single contract.

​

I wrote about some of these issues in our February 2024 Newsletter. 

​

Conflicting Definitions

​

A frequent issue is the interaction of definitions. 

​

An insuring clause may define “Claim” broadly to include civil, regulatory and criminal matters, while another insuring clause in the same contract will use the same word “Claim” but which is assuming a narrower definition, that only encompasses, say, “civil proceedings”. The result can be uncertainty as to whether a particular event falls within the scope of the cover depending on which insuring clause is involved. This is a big one: for an insurer it can mean giving much broader cover than intended, or for the broker, much narrower cover. Either could be a massive issue for the Insured.  

​

While we are on the subject, “claim” can often mean two different things in a wording – in the defined sense to describe an underlying insured event (as above) – and in the undefined sense to mean a “claim made under the policy”. Liability wordings frequency confuse the two. I have corrected this issue literally countless times. 

​

Similarly, different clauses may use terms such as “Loss”, “Wrongful Act”, “Property”, “Cyber Event” or “Occurrence” in slightly different ways, creating ambiguity where consistency was intended; “loss”, “property”, and “occurrence” may perfectly correctly be needed in both defined and undefined senses too – as long as it’s done in the right places. 

​

In some cases, wordings use defined terms throughout the wording that have no actual definition or we have “orphan” definitions that are not used anywhere else – this is almost always the sign of a Pick & Mix! 

​

Overlapping or Inconsistent Exclusions

​

Exclusions are often imported from market precedents without examining how they align with the preamble to the Exclusions section, insuring clauses or each other.

​

A policy may contain a broad grant of cover on the one hand and an exclusion on the other that was drafted for a different coverage model. In some cases, the exclusion can remove all or most of the cover in a manner that appears inconsistent with the commercial purpose of the policy. Ever heard the phrase “illusory cover”? This is what this is. Courts have to work hard to try to make sense of it and there might be an issue with the Consumer Duty: the policy is not fit for purpose. 

​

Adding standard exclusions to a wording (perhaps incorporating an endorsement or in order to comply with a market edict) can lead to the exclusion of perils that were not covered in the first place. I see this a lot. 

​

The practice is very common in the US, possibly as a “belt and braces” play. But when done in the UK this can cause confusion as the insuring clause is the route through which the covered event must travel before the application of an exclusion even becomes relevant. If the insuring clause doesn’t cover the event then the matter rests there. If the wording nevertheless contains an exclusion for the non-covered event this may then lead to more uncertainty because it suggests the item must have been covered in the first place.  

​

Unwilling to remove an existing broad exclusion altogether but agree it’s too broad? There are two ways to do this – narrowing the causation or “linking” language at the start of the clause, or creating “carve-backs”. Carve-backs are popular as it doesn’t involve redrafting the existing clause – you just add the things intended to be excluded from the exclusion back in at the end, another classic Pick & Mix play.  Exclusions to exclusions? Sounds like things could get complicated!   

​

Incompatible Conditions

​

Notification provisions are particularly vulnerable to Pick & Mix drafting.

​

One section of a policy may require notification “as soon as practicable”, while another requires notice within a specified number of days. One may be expressed as a condition precedent and the other not. This might of course be deliberate but if the two types of language came from different sources that’s less likely. 

​

Different sections may also contain inconsistent co-operation and consent provisions. I often see duplicated conditions where more than one version of the same clause is included – clearly the drafter felt that both were necessary because they look different – but they cover the same ground (whilst also being inconsistent), so actually it’s the worst of both worlds. 

​

Excesses, Limits and Attachment Issues

​

Aggregation clauses, which group related matters together to aid the operation of the policy, can appear in different places in wordings, and may not be labelled as such. You may see one in the context of the Excess, Limits, the Prior Matters Exclusion, and the “Deeming” clause in the Claims Conditions, as well as if there is any Reinstatement clause. If your wording obtained these clauses from different sources there is a very high chance they will not say the same thing or be consistent with each other (on an unplanned basis). 

​

Aggregation is one of the most fertile sources of insurance disputes because the stakes can be very high: the unexpected application of multiple excesses or limits, or the attachment or non-attachment of claims to a policy year could be financially disastrous for one party or another.

​

The lesson is: aggregation clauses, deductibles, limits, and attachment clauses need to be drafted as part of a carefully integrated structure where thought is given to ensuring a consistency of approach (or any deliberately inconsistent approach). 

​

Incompatibility with the Schedule

​

Frequently we see a clause incorporated into a wording that has a perfectly good existing schedule attached to it, from another source that contains references to “the Schedule” but there is no corresponding item there, or a clause that contains a numeric value (such as for a sub-limit) that has a conflicting entry in the Schedule, without it being clear which should prevail.  

​

For example – what happens if the wording says: “the sublimit stated in the Schedule shall apply to this cover” and there is no sublimit entry in the Schedule? I am sure you can guess the outcome!

​

Firstly, it’s best to put all variable numeric values in the schedule as this acts as a checklist and avoids having to change the wording every time the numeric values change. Secondly, make clear in the wording that where there is a conflict the schedule prevails: it is the closest thing to a summary of what the specific deal’s main terms are intended to be and less likely to be “boilerplate”.

​

Melding Wordings Together

​

Package or multiline policies are all the rage at the moment – and may be here to stay for the long term. Clients like them because they represent a “one stop shop” with no perceived issues over gaps or overlapping products. However, putting these policies together is a complex task and a special mention should go here for merging two or three (or more) different wordings together to produce a package or blended form. It’s Pick & Mix on steroids. 

​

Whilst you may only have a couple of sources for the clauses and so in theory obtaining consistency is much easier, the main issue we encounter is what we do about pre-existing flaws in the source wordings.  

​

It’s very rare we see two perfect wordings come together. Often they are two Pick & Mix wordings. The expression “Two Wrongs Don’t Make a Right” springs to mind. If these wordings are melded without addressing some of the issues mentioned above in the source wordings then such issues will simply be repeated or even amplified in the newly merged product.

​

Consequences

​

The Pick & Mix policy is not automatically bad news. In fact, it may be the best thing for the client. If the different clauses are considered with each other and where they are intended to be inconsistent they say as much, using saving language, it is a perfectly legitimate approach. This is what we strive to do every time we have one cross our desks. However, there are negatives. 

​

Disputes

​

As I have said before, it’s (almost) always about claims. This is when the policy is really tested and the client finds out whether the wording they have paid for and been relying on over the years actually works as intended. 

​

Lawyers will correctly tell you that the negative consequences of Pick & Mix policies are legal disputes: hence judges coming up with the Pick & Mix phrase in the first place. 

​

In disputes a different kind of “Pick & Mix” also emerges: parties may select those clauses in the wording that support their interpretation in isolation while dismissing less favourable relevant provisions. For example, in an aggregation dispute a party may rely on “the aggregation clause” as labelled, where there are in fact at least two other clauses relevant to aggregation in the wording that are different (which that party explains are not relevant due to the labelling). 

​

Courts generally reject such approaches. The policy must be interpreted as an integrated bargain rather than a collection of individual clauses from which either party may selectively choose favourable language. In this example it will look at all aggregation language in the wording to try and determine what, against the commercial background, the parties must have objectively intended. 

​

Ironically, the more fragmented the policy drafting, the greater the temptation for parties to engage in this type of selective interpretation, or Pick & Mix.

​

Commercial

​

Disputes are just the end game: long before any dispute arises the product is unlikely to look elegant or make complete sense. It won’t stand up to scrutiny. This will be pretty obvious to anyone who sits down and reads it all the way through: and when clients do this there can be red faces for insurance practitioners. 

​

In an RFP scenario it may be very damaging to the incumbent’s chances if the client hears about the Pick & Mix issues, for the first time, from a rival company.  

​

This is also about credibility – in an increasingly crowded marketplace it’s hard to get heard above the noise. Having a well-structured product with a bit of originality (even if originally derived from a Pick & Mix approach) will give you a voice. 

​

The Final Word on Pick & Mix

​

The phrase “Pick & Mix policy” captures a genuine challenge within modern insurance drafting. Policies are often assembled from multiple precedents, endorsements and manuscript provisions, each developed for a different purpose and context. While this approach can provide flexibility, it may also generate inconsistencies, ambiguities and unintended consequences.

​

If the parties are intentionally entering into an integrated bargain they should do so with a contract that achieves this. Why would they want to rely on isolated clauses that don’t align with each other? 

​

The real challenge is how to create (and maintain) great wordings at scale that can also be easily bespoked on a managed and fully understood basis. You can’t have a wordings expert review every individual contract you produce. There isn’t a silver bullet solution: not even AI, at least at the moment. It seems to me that a combination of human wordings expertise, use of templates, the managed use of AI, and discipline as to how and when wordings can be changed internally will probably get you closer to this holy grail. 

​

Also, clients may be very happy with their current wording (however potentially problematic) because it’s familiar, and be loath to move onto something strange and new, particularly if their claims outcomes have been positive. Inertia is a powerful force in this market so some bold leadership may be needed to move people on to something new, maybe with a “Difference in Conditions” clause for the first year on the new wording. Eventually, those who innovate will steal a march on those who don’t. 

​

Here, there is an opportunity to step back. Not to refine what already exists, but to think more fundamentally about what cover should exist in the first place. This is becoming more relevant now than ever. We will return to this topic in a future Newsletter. 

​

​

​