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Insurers must remember to KISS (keep it simple, stupid): Tips on the use of plain language in insurance contracts

07 June 2021 Deanne Wood, Partner Fasken; Barr-Mary Tyzack Candidate Attorney Fasken
Deanne Wood, Partner at Fasken

Deanne Wood, Partner at Fasken

Barr-Mary Tyzack, Candidate Attorney at Fasken

Barr-Mary Tyzack, Candidate Attorney at Fasken

In spite of concerted efforts over the past decade to simplify contractual terms, consumers remain content to append their signatures to agreements without having perused the governing terms and conditions.

In recent years this trend has been exacerbated by the creation of e-contracts where consumers merely click an “I accept” T’s and C’s tick-box without ever having read and understand the content.

In an increasingly consumer-centric environment, businesses are under increasing pressure to ensure that consumers read and understand the terms of agreements at the time of their conclusion. This is particularly so in under the recent regulatory developments within the financial sector. The use of plain language is encouraged –

• as one of the key elements in the Treating Customers Fairly principles;
• in section 22 of the Consumer Protection Act 68 of 2008 which provides that consumers have the “right to information in plain and understandable language”; and
• in section 64 of the National Credit Act 34 of 2005 which provides for the “right to information in plain and understandable language”.

In 1960 the U.S. Navy coined the term “KISS” - an acronym for keep it simple, stupid - as a key design principle. This principle supposes that most elements operate best when they are crafted or designed in simple terms rather than being made complicated. Under the KISS principle, simplicity is the primary objective.

In the case of Coertzen v Gerard NO and Another (1) the court set out general principles and observations regarding the interpretation of an insurance policy. The Court held that the words in the policy must be given their plain ordinary, popular and grammatical meaning unless it is clear from the context that the parties intended them to bear a different meaning. Terms should be spelt out in very clear terms and in plain language. However in doing so, one must be careful not to dilute the essence of the terms.

In order to achieve these objectives, insurers should bear the following in mind when drafting policies:

• Be brief but clear: Use simple language but avoid abbreviations, jargon, latin phrases and legalese.
• Be careful of over-defining: Only use definitions where doing so will simplify the contract. Too often the use of definitions serves to add rather than remove complexity.
• Understand your audience: Understanding who will be reading the policy will assist in the drafting of its terms.
• Beware of deadly silences: Do not leave out important terms and conditions for the sake of brevity.
• Avoid “industry understanding”: Just because a term, phrase or operation of cover is common-place within the insurance industry, or generally understood to perform in a certain way does not mean it will be understood by consumers in that way or interpreted by the courts to operate that way.
• Stay abreast of developments: Our courts regularly consider and interpret insurance policies. The regulator also provides regular guidance on the way in which contracts should be drafted. It is important to keep up to date with these developments in the law.

The solution to “KISS” is not always straightforward – it involves a gentle balance between “keeping it short and simple”, while ensuring that the heart of the contract and the rights and obligations of the parties remain intact.

1. 1997 (2) SA 836 (O) D.

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