Building Your Business Business Insurance The Purpose of Business Insurance Exclusions By Marianne Bonner Marianne Bonner Facebook Twitter Marianne Bonner, a certified CPCU and ARM, has covered small business insurance topics for The Balance since 2013. She worked in the insurance industry for 30 years as an analyst and underwriter among other roles and holds multiple professional designations. Along with The Balance, Marianne has written many articles for International Risk Management Institute's Risk Report. learn about our editorial policies Updated on April 16, 2021 In This Article View All In This Article Reasons to Exclude Risks Exclusion Exceptions and Buybacks Watch for Changes Where to Look for Exclusions Alternate Locations Photo: Extreme Media / Getty Images Exclusions are provisions in business insurance policies that eliminate coverage for certain types of property, perils, situations, or hazards. Risks described in exclusions aren't covered by the policy. Insurers utilize exclusions to remove coverage for hazards they're unwilling to insure. Reasons to Exclude Risks Insurance policy exclusions serve various purposes but most apply to risks that fall into one of the categories described below. Catastrophic Events Some risks are uninsurable because they are catastrophic events. An example is war. If a war breaks out and a bomb damages your business property, your commercial property policy won't cover the loss. Virtually all property policies exclude damage caused by war and military action. Note Some catastrophic events can be insured by specialized coverage. Examples are floods and earthquakes. Covered by Another Policy Many risks are excluded under one type of policy because they are covered by another. For instance, auto liability claims are excluded under a general liability policy because they are covered by a commercial auto policy. Similarly, liability and auto policies exclude any benefits the employer is obligated to pay under a workers' compensation law since such benefits are covered by workers' compensation insurance. Maintenance Issues Some risks, such as wear and tear, are excluded because they are naturally occurring events that can be controlled by the policyholder through proper maintenance. Damage caused by wear and tear is excluded from both commercial property policies and auto physical damage insurance. Other risks that can be controlled through regular maintenance are rust, corrosion, and insect infestations. Against Public Policy Many insurance policies exclude crimes, violations of the law, and intentionally caused injuries because insuring them would be against public policy. For this reason, liability policies don't cover claims arising from the insured's intentional, harmful acts like firing a gun or committing fraud. Exclusion Exceptions and Buybacks Many exclusions contain exceptions that give back a limited amount of coverage. An example is the contractual liability exclusion in the standard general liability policy, which excludes liability assumed under a contract. An exception to the exclusion provides coverage for liability assumed under an insured contract (a defined term in the policy). Some exclusions can be eliminated if you're willing to pay an additional premium. For instance, the standard general liability policy excludes claims arising out of injuries inflicted by one employee against another. Many businesses buy back coverage for co-employee claims by purchasing fellow employee coverage. Watch for Changes Policy forms aren't cast in stone. The Insurance Services Office (ISO) updates the standard commercial policy forms every few years. Insurers often follow suit, incorporating the changes the ISO has made into their proprietary forms. When the ISO or an insurer revises a form, it may add new exclusions or modify existing ones. A new exclusion generally means a reduction in coverage while an exclusion modification may broaden or restrict coverage. Note Many states have laws requiring insurers to notify policyholders in advance if renewal policies contain exclusions or other restrictions not found in expiring policies. Where to Look for Exclusions An obvious place to look for policy exclusions is under the section titled "Exclusions." Many policies contain more than one list of exclusions. For instance, the standard business owners policy contains two sets of exclusions, one for property and another for liability. Some policies also contain a separate list of exclusions that apply to all coverages. Many policies contain one or more sections entitled "limitations". A limitation is a partial exclusion and narrows the scope of coverage for a covered risk. For instance, theft is a covered peril under the standard business owners policy, but theft losses involving furs, jewelry, and other valuable items are subject to a $2,500 limit. Alternate Locations Exclusionary provisions can be found in other parts of the policy, not just the Exclusions section. One of the most common places for them to appear is in the policy "Definitions." Insurers define terms to attach specific meanings to them and narrow the scope of interpretation. For example, the standard business auto policy defines the word "auto" as a land motor vehicle, trailer, or semi-trailer designed for travel on public roads. The definition excludes mobile equipment, which is also a defined term that encompasses a broad array of machinery and equipment. Another place where exclusions can be found is in the policy "Conditions" section. For instance, the standard business auto policy contains a provision that essentially excludes accidents that occur outside the defined "coverage territory." This provision appears in the general Conditions section, not the Definitions. Finally, many insurers add exclusions to policies by attaching endorsements to preprinted forms. An endorsement may add a new exclusion or modify an existing one. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Citizens General Insurance Brokers. "Liability Insurance for Contractors: Understanding Exclusions." Accessed April 16, 2021. U.S. Department of the Treasury. "Terrorism Risk Insurance Act of 2002." Page 3. Accessed April 16, 2021. Insurance Information Institute. "Background on: Terrorism risk and insurance." Accessed April 16, 2021. Casemine. "Libbey Owens-Ford v. Insurance Company of North America." Accessed April 16, 2021. Raizner Slania LLP. "Property Insurance Claim Denials Based on Wear and Tear." Accessed April 16, 2021. IRMI. "CGL Insurance and the Question of Intent." Accessed April 16, 2021. Insurance Services Office. "Business Owners Coverage Form." Page 3. Accessed April 16, 2021. IRMI. "Auto versus Mobile Equipment in the CGL." Accessed April 16, 2021. District of Columbia, Department of Insurance, Securities and Banking. "Filing for Business Auto Coverage Form." Page 29. Accessed April 16, 2021.