In the insurance industry, exclusions are quite an important factor. An exclusion is a provision within your insurance policy that makes coverage null in the cases of some risks. These exclusions can limit the coverage your insurance provides.
So what’s the purpose of insurance exclusions? Usually, insurance policies cover quite a large area. However, insurers seek to protect themselves by making use of exclusions. This enables them to reject responsibility for risks they don’t want to insure.
Why Insurers Exclude Risk
There are several purposes linked to insurance exclusions. Most are applied to risks falling in any of the below categories:
These are the risks that become uninsurable due to their affecting a large group of policyholders at the same time. The best example of this would be war, which affects whole countries at once.
Risks Covered Elsewhere
These risks are excluded from one policy because they’re dealt with by another one. A general liability policy would exclude auto liability claims because they’re covered in the policy for commercial auto.
Such risks are not applicable since the policyholder can easily control them. For instance, a policyholder cannot collect insurance on his personal property being damaged by being left out in the open. Since the insured was at fault here for exposing the car or valuable to rain, ice, snow, or sleet, this risk wouldn’t be covered for them.
Insurance policies usually don’t cover any losses caused deliberately by the policyholder. An example would be a factory owner setting fire to his own building in order to get replacement costs afterward. The same goes for when an insured car is used to cause someone harm on purpose. Both commercial auto and general liability insurance wouldn’t cover any damages in such a case.
Certain risks should not be insured simply because of their natural nature. Wear and tear of equipment, for instance, cannot be covered by either commercial property insurance of auto physical damage insurance. Risk like these may also be controlled with maintenance schedules and updates. Even the tires of vehicles should be regularly rotated in order to avoid wear and tear.
Your insurance policy would also exclude coverage if you use your property for any criminal activity. These could mean any kind of damage, personal injury, advertising injury, or bodily injury incurred by violating the CAN-SPAM act (Telephone Consumer Protection).
Partially Insurable Risk
These are the kind of risks that can only be insured within certain limits. A liability policy could exclude any liability that one accepts by signing a contract. If it’s an insured contract, though, the coverage for liability would probably hold.
Insurable With A Price
Certain risks are insured by paying a higher premium. For instance, you may add to your insurance in order to cover any theft done by your employees. This coverage may otherwise be excluded from general commercial property insurance. Employee theft coverage needs to be purchased separately or as an add-on.
The forms for any insurance policy are revised quite frequently. The ISO would update its general liability, commercial property, and commercial auto forms after every 3-4 years. Insurers follow suit; implementing and updating the changes on their own proprietary forms. Hence, we can expect every form revision to be followed by changes in policy exclusions (mostly additions).
Most changed for policy exclusions are made due to court decisions. Both the insurers and ISO make-up policy form drafts in order to limit coverage for specific risks.
The court might rule that the policy does indeed cover a risk even if the drafter excluded it. Again, ISO and insurers could add to or make changes to exclusions and remove coverage for certain risks.
Policy exclusions are usually listed in the “Exclusions” section. Certain policies have limitations and exclusions at once. Limitations are partial exclusions. These limit the coverage for risk insurance. An example would be a property policy restricting coverage for valuable furs to a low limit.
A multi-coverage policy also contains several kinds of exclusions. Each coverage would have its own list.
A policy for a commercial auto contains a couple of exclusion sets. One comes in Liability Coverage and the other in Physical Damage Coverage.
Some multi-coverage policies may also have just one exclusion set. Each exclusion could apply to several kinds of coverages. There are other policies for separate exclusion catering to each kind of coverage. There are also common exclusions for all coverages.
Exclusions Located Elsewhere
Policies could also have exclusions not found in the exclusions section. These include:
- Definitions – The definitions section may have policy exclusions too. These definitions would give certain meanings to some words. This would limit the scope of the insurance. Several policies could also define coverage territories, giving coverage only to events in certain countries. With this definition, other countries would be excluded. If a policy doesn’t have a coverage territory, it would cover events throughout the globe.
- Conditions – The policy section also contains exclusions. For instance, a commercial auto policy may have a provision limiting coverage to only accidents occurring in a specific territory. Such a provision would be in the section for general conditions.
- Endorsements – Insurers can add exclusions by adding endorsements to already-printed forms. With this, a new exclusion would be added or an existing one modified.
- Insuring Agreement – A policy’s backbone is the insuring agreement. It has broad statements that describe what coverage it provides. This insuring agreement could also have exclusions. An example is that the standard general liability policy would have an agreement excluding bodily injury or any property damage.
Ethan’s Last Word
Please be sure you have a thorough understand of any and all insurance exclusions on your policy before purchasing it.