At its essence, insurance coverage is all about risk mitigation. It’s one of the primary ways an individual or small business can hedge against the risk of financial loss, but insurance companies are also businesses with interests to protect.
This is why a standard insurance policy will typically include a number of exclusions. An exclusion is an event (accident, incident, or accusation) that the insurer will not cover.
Curious what the more common insurance exclusions are and why insurers tend to omit them from a policy?
Let’s find out.
What are insurance exclusions?
Insurance exclusions are policy provisions that waive coverage for certain types of risks or ‘events.’ They are an important way that an insurer can narrow the range of coverage—with an exclusion clause—for risks that they are unwilling to cover.
Because of that, a policy is largely defined by its various exclusions.
At the end of the day, it’s important to remember that an insurer is a business. The risk of having to cover excluded events would prevent many insurers from entering or staying in the market.
So, what are common exclusions?
Common insurance exclusion categories
The exclusions within a policy vary based on several factors and are up to the provider’s discretion.
It’s important to note that some of the exclusions in commercial property, homeowners, personal auto, and general liability insurance policies will be the same, but others will be unique to that specific type of policy.
But, generally speaking, there are exclusion categories that can be broadly applied across all forms of insurance. They include:
- Intentional actions
- Covered elsewhere
- Illegal actions
- Maintenance issues
- Easy to control
There are some risks that are simply uninsurable because they are so taxing, they can negatively impact a large number of policyholders simultaneously. An example would be Hostile Acts exclusion, described as the following by the National Law Review:1
“This policy excludes loss or damage directly or indirectly caused by or resulting from any of the following regardless of any other cause or event, whether or not insured under this policy, contributing concurrently or in any other sequence to the loss:
hostile or warlike action in time of peace or war by any:
- government or sovereign power (de jure or de facto);
- military, naval, or air force; or
- agent or authority of any party specified in i or ii above.”
Sometimes catastrophic exclusions are simply referred to as ‘war exclusions,’ which protects insurers from having to pay for losses caused by low-probability, high-cost, widespread events. But, this term can also apply to floods, tornados, earthquakes, or other “acts of God.”
Although you won’t be able to find war coverage, if you want to be covered from catastrophic “acts of God,” you’ll need to purchase a separate catastrophic insurance policy.
The purpose of insurance is to protect an individual or business from misfortune and circumstances that are beyond their control. So, if an insured intentionally causes the damage, most policies won’t pay for the losses.
For example, if a driver experienced road rage and purposefully drove their car into another vehicle, their auto insurance policy would likely not cover damages to the insured’s car, even if they had a comprehensive crash policy. Or, if a contractor purposefully damaged a client’s property because they hadn’t been paid, the malicious damage wouldn’t be covered by the provider.
There are dozens of risks that are excluded from one type of policy because that coverage is included in another type of policy. For example, a general liability policy won’t cover vehicle liability claims since that is what commercial auto policies are for.
Most every insurance policy has exclusions that void the insurance contract if the insured is attempting to recoup losses resulting from lawless behavior or criminal actions.
One of the first steps an insurance company will take to evaluate a claim (under any insurance policy) is deciding whether the act that caused the loss can be reasonably counted as an “occurrence” per the policy. In most cases, if there is an underlying crime, a claim won’t be counted as an occurrence.
For instance, in 2018, a Michigan landlord evicted a tenant that had caused significant property damage while growing marijuana illegally.2 The landlord tried to recoup a half million dollars of coverage, but the courts denied his claim, ruling that the illegal actions exclusion in his policy could be applied to tenants.
Put simply, not every risk can be insured, especially since many of them occur naturally over time.
For example, most insurance policies won’t cover damage caused by wear and tear to a vehicle or a home, since they are risks that can be controlled by taking proper precautions and through continued maintenance.
Easy to control
There are some risks that insurers exclude because they can be easily mitigated or significantly reduced by the insured taking the proper precautions or actions.
For instance, if your roof were to cave in because of snow buildup over several days, the insurer could claim that there were actions you could have reasonably taken to remove the snow and prevent the damage.
Thimble: honest, straightforward liability coverage
There’s a lot of complex terminology and “fringe cases” in the insurance industry. That’s why Thimble was created. Here, we break down concepts like insurance exclusions and offer honest, straightforward general liability and professional liability insurance policies designed to work for small businesses.
At Thimble, we sell policies by the hour, day or month. We provide game-changing flexibility, allowing you to take a job for tomorrow, even if you don’t have insurance today. To start protecting your business, download the Thimble mobile app or click “select a quote.” In under 60 seconds, you can go from no insurance to being covered.
If you have any questions about Thimble’s insurance exclusions, take a look through our individual policies and select the one that works for you.
Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.