Reading and Rights – literacy and the “affirmative duty to read a contract of insurance”

“Policyholders should be aware that Mississippi law provides that insureds have an affirmative duty to read a contract of insurance and are bound by the contents thereof”, according to the Mississippi Insurance Department’s (MID) Policyholder’s Bill of Rights (PBOR).

Merriam-Webster’s Dictionary of Law defines affirmative duty as, “involving or requiring the application of effort”.   In other words, what the law actually requires is that insureds make an effort to read their insurance contract. What a relief!

An important study, by Forrest E.Harding in the Journal of Risk and Insurance in 1967, found that a specimen auto policy was substantially more difficult to read than Albert Einstein’s The Meaning of Relativity.  In response to urging by consumer groups, Plain English advocates, and regulators, insurance companies began to revise and simplify their contracts as far back as the 1970s—some voluntarily, some in response to state laws.

David Rossmiller, quoted above, took a look at policy language in Plainly Ambiguous: Have Plain English Laws Made Insurance Policies Less Ambiguous? (Oregon Association of Defense Counsel, Spring 2008):

…there is little evidence that insurance consumers can better understand policies now than they could at the time of the Harding study, or that they even read the policies at all. Do they fail to read because the contracts are too opaque, even with Plain English improvements? Or would they fail to read insurance policies no matter how simply the policies are written?

Data suggest another question:  How many consumers have the literacy skills required to read insurances policies with understanding?  The January 8, 2009 issue of USA Today had the answer in part, Literacy study: 1 in 7 U.S. adults are unable to read this story:

% USA Adult Population: Below Basic, Basic, Intermediate and Advanced (2003 NAAL)

A long-awaited federal study finds that an estimated 32 million adults in the USA — about one in seven — are saddled with such low literacy skills that it would be tough for them to read anything more challenging than a children’s picture book or to understand a medication’s side effects listed on a pill bottle.

Overall, the study finds, the nation hasn’t made a dent in its adult-literacy problem: From 1992 to 2003, it shows, the USA added about 23 million adults to its population; in that period, an estimated 3.6 million more joined the ranks of adults with low literacy skills.

In many cases, states made sizable gains. In Mississippi, the percentage of adults with low skills dropped 9 percentage points, from 25% to 16%. In every one of its 82 counties, low-skill rates dropped — in a few cases by 20 percentage points or more.

In Mississippi that “sizable gain”  meant one in every 6.25 adults “cannot read paragraphs (or) sentences that are connected” – slighter better than the “about every seven” for the nation as a whole. Data were only released for adults reading below the basic level of literacy.  However, Mississippi had used the same assessment instrument in the 1991 statewide Mississippi Literacy Assessment .  The estimated adult population reading at the Basic, Intermediate, and Proficient levels used the State data for 1992 and calculated 2003 from those data based on findings from the National Assessment.

Reading and understanding the terms of an insurance policy is a task that requires proficient reading skills; i.e.,” integrating, synthesizing, and analyzing multiple pieces of information located in complex documents.”  An adult reading at the lower intermediate level has skills for locating information in dense, complex documents and making simple inferences about the information.

Although Rossmiller acknowledged the insurance industry’s effort to simplify policies, he wrote that effort, “begs the question: Are policies any easier to understand than they once were?”

If the success of the Plain English movement is measured not by the number of states with Plain English laws, or by marginal gains in readability, but instead by the amount of insurance litigation over the ambiguity of terms, the movement has not been a success…

Industry studies consistently show that people have at best a very imperfect idea of what their policies cover. For example, a 2007 consumer survey conducted by Zogby International for MetLife Auto & Home found widespread misconceptions about homeowners and auto coverage. Among the misconceptions include:

More than seven out of ten Americans thought homeowners insurance would pay for the full cost to rebuild from a natural disaster or fire. In fact, most insurance companies no longer offer automatic full replacement value for homes, and leave it up to homeowners to determine the value of their homes and to insure them accordingly. This lack of knowledge became evident after extensive wildfires in 2003 near San Diego destroyed hundreds of homes. Residents found themselves underinsured as their homes rapidly increased in value, but found that insurers had long since removed full replacement value from coverage.

After more than three decades of effort at simplifying policy language, seven out of ten Americans – not just those living on our Coast – had misconceptions about what their insurance policy covered.  One possible reason simplification did not make policy language simpler is suggested in Rossmiller’s summary of the history of the Plain English movement:

The Plain English movement for legal prose grew out of the work and advocacy of such people as Rudolf Flesch…an enormously influential writer on readability and use of clear, precise language. His many books include one that has entered English as a stock phrase, Why Johnny Can’t Read, and also How To Write Plain English: A Book for Lawyers and Consumers.

Flesch also developed a method of testing the readability of text.

The Flesch/Flesch–Kincaid readability tests are designed to indicate comprehension difficulty when reading a passage of contemporary academic English. There are two tests, the Flesch Reading Easiness, and the Flesch–Kincaid Grade Level. Although they use the same core measures (word length and sentence length), they have different weighting factors, so the results of the two tests correlate approximately inversely: a text with a comparatively high score on the Reading Ease test should have a lower score on the Grade Level test. Both systems were devised by Rudolf Flesch.

These tests are so widely used that they are typically integrated into word processing programs.  Consequently, when an insurance policy or other document is put the the test, a low grade-level score is often deemed sufficient simplification.   Obviously, grade 10.8 – the grade level computer-calculated for the version of policy language on anti-concurrent causation – wasn’t simple enough:

We do not insure under any coverage for any loss which would not have occurred in the absence of one or more of the following excluded events. We do not insure for such losses regardless of: (a) the cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss; or (d) whether the event occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these.

Asking how low does a grade-level score needs to be for the average policyholder to understand the terms of the policy is a logical question.  However, skill level is much more reliable indicator as the goal is not just a readable policy but one that is understandable.

A focus on skill level is also compatible with the seemingly lost findings of the 1967 study mention in Rossmiller’s article:

The study recommended steps like simplifying how policies are physically arranged, making policy provisions apply to the whole policy rather than individual sections, and creating standard definitions within policies.

The study’s recommendations; however, focus on content.  Design is an equally critical factor.  Type size and spacing  matter a lot and are but two of a number of critical elements that must be addressed in the design of an understandable insuance policy.

Do insurers really want policyholders to have an understandable policy?  David Rossmiller answers that question:

Insurers, then, do not write for consumers, they write for courts. Insurers win some, they lose some, but once a policy provision has been interpreted in one jurisdiction, it is precedent andacquires actuarial value as a known quantity. Even if the ruling was adverse, insurers can charge premiums accordingly.

Coming up with new language, in contrast, is risky because it wipes out previously calculated chances of loss. The court and the insurer, then, are like chess players at a tournament, moving their pieces across the board, trying to understand the meaning of each other’s moves in the context of chess theory. But in this scenario, the audience at the tournament—consumers—knows how to play checkers only.

The consumers are neither part of the game nor does anyone really expect them to understand it or pay attention to it.

Checkmate!

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