An exclusion is a statement in an insurance policy which describes a loss the policy does not cover, even though the general language of the policy seems to indicate there would be coverage.

Since exclusions take away some of the coverage of the policy, the law requires that they be clearly written and very specific. In the event of a reasonable difference of opinion over how to interpret the meaning of an exclusion, a court generally will resolve the dispute in favor of the policyholder. Typically, they adopt the narrowest or most restrictive interpretation.

Property or business owners policies intend to cover loss to the business from damage to the property. They generally contain a number of exclusions. Being aware of the policy exclusions is just as important as knowing what its coverages are.

It is important to remember that all insurance policies are unique and have different characteristics and exclusions. Exclusions can vary by location and by type of business. Adding a rider to the policy for an additional premium can insure some exclusions.

The following exclusions are common in most commercial insurance policies.

Flood or Water Damage

Most insurance policies will not cover you for flood or water damage. Flood damage is when water enters the building from the outside. Water damage occurs when water escapes from inside the building’s pipes, gutters, tanks, etc. This exclusion may also exclude coverage from a sewer back up into the property and damage from mudslides that result from flooding.

Insurance generally covers storm damage. Storm damage refers to the effect on your premises from a violent wind, including cyclones and tornadoes, thunderstorms or hail, and which may be accompanied by rain or snow. For example, your policy may cover damage to your building from high winds, but will not cover water damage from a river that overflows its banks.

Depending on the location of your business, whether you own or rent, and how much information you have regarding prior flooding or water damage, you may want to inquire about getting coverage for some of these excluded risks. You need to read the fine print carefully, however. Sometimes flood insurance only covers removing the water from the building and cleaning up, not replacing damaged drywall and furniture or damaged computers. Obviously, the more comprehensive the policy the greater the risk to the insurance company and the higher the cost of the policy will be to you.

Acts of War

Most insurance policies will specifically exclude any act or risk the carrier considers associated with war or insurrection. Frequently these include nuclear weapons, invasion, acts of foreign enemies, hostilities, civil war, rebellion, revolution, insurrection, etc.

Hijacking and Kidnapping

The insurance policy likely excludes bomb threats, hoax, extortion or other attempted threats and acts of terrorism.

Deliberate Damage

Any loss or damage caused deliberately by you, or any director, business partner, principal, or employee of yours, or with your permission will be excluded from coverage.

Existing Damage

Insurance will not cover any loss, damage, or unexpected events which occurred before your coverage started.

Confiscation, Nationalization or Expropriation

Most policies exclude any loss, damage or consequential loss due to confiscation, nationalization or expropriation. In other words, any loss, damage or consequential loss caused by any person or organization who lawfully destroys or takes away your ownership or control of any property or item covered by the policy. This would include any eminent domain actions by the government.

Other exclusions for property damage could include vermin or insect damage, wear and tear, corrosion, contamination, dampness, rust, mildew, lack of maintenance, errors in design, plan or specification, faulty workmanship or materials, and loss of business due to labor disputes or strikes.

This is not a complete list of all of the possible exclusions. You should read your policy carefully before signing and ask for clarification regarding any risk where you can’t tell whether or not it is covered.

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