The Fine Print: Learning about Policy Exclusions
Some business owners have recently received a wake up call when it comes to their business insurance.
When the global pandemic hit, many business owners were left scrambling, not knowing what to do to keep their business afloat.
Nowhere was this more felt then in the restaurant industry, where owners tried everything they could to try and keep their business afloat.
One of those places was their business insurance policy.
Most of the owners turned to a little known add on to the property insurance section of their business owners policies called “Business interruption” which supplies a business with income in the event your business has to shut down for a time due to a property damage loss or, say for instance a government mandated closure.
So when business owners breathed a sigh of relief and filed claims they were shocked when they came back as quickly denied.
These claims were denied based on another part of your insurance policy, which sometimes isn't gone over enough with the insurance buyer, Policy Exclusions.
What are policy exclusions?
Simply put, policy exclusions are a detailed list of events which are not covered by your policy. 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.
So, when the restaurant owners' claims were denied they were largely denied based on loss caused by viruses or bacteria being excluded from their policy.
At the end of the day, it’s important to remember that an insurer is a business and their main business is 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. It applies to all forms of insurance as well whether its persona, business, or even workers compensation.
What are some other common exclusions?
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.
Catastrophic-There are some risks that are simply uninsurable because they are so taxing, they can negatively impact a large number of policyholders simultaneously. 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.
Intentional actions-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.
Covered elsewhere-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.
Illegal actions-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.
Maintenance issues-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.
So, is it even worth it to get insurance if it’s not going to cover me?
Insurance is a funny thing. You don't ever really think about it until you need it. The best advice is to make sure you take the time to go over your insurance policy with your agent. It is important to know all of the ins and outs of your policy. What it will do, what it wont, and specifically what it will pay for.
Policy language is important and even though it could become the most boring few minutes of your life, knowing what is in your policy can be invaluable when you really need to know.