Generally speaking, exclusions are the cases for which the insurance company does not provide coverage. They are the conditions excluded from the insured event to avoid losses to the company.
Life insurance contracts, for example, have certain specific provisions and clauses that must be met in order for the claim to be considered valid. Generally, the insurance provider is responsible for paying the amount of the claim in the event of the insured’s death. However, to avoid adverse selection situations, insurance companies do not provide benefits under specific conditions such as suicide of the insured.
Such clauses should be clearly stated in the policy document at the time of inception of the contract for the information of the insured. The waiting period during which insurance benefits do not apply is also a type of exclusion.
The exclusion of contractual liability and the “insured contract” exception.
Contractual liability coverage is insurance intended to cover the risk found in most construction contracts and subcontracts in which one party agrees to indemnify another party against liability for third party claims; usually when the claim is liability in whole or in part is caused by the indemnifying party.
A contractual liability policy includes a loss suffered that is covered by a warranty included in the contract. Ideally, a contractor should read and understand all parts of their Commercial General Liability Insurance (CGL) policy, but typically, when the event, incident or claim occurs, they try to determine if they are “covered”.
What are these exclusions?
Contractual liability insurance has been automatically provided within the standard CGL policy since 1986. Coverage for contractual liability is largely eliminated in the typical CGL policy by an exclusion for assumption of liability in a contract or agreement. ISO standard form CG 00 01 includes a number of standard exclusions for bodily injury and property damage liability, including:
- expected or intended injury;
- contractual liability;
- liquor liability;
- workers’ compensation;
- employer’s liability;
- pollution;
- aircraft, auto or watercraft;
- mobile equipment
- war;
- damage to property;
- damage to the product;
- damage to the work;
- damage to impaired property or property not physically injured;
- recall of products, work or impaired property;
- personal and advertising injury;
- electronic data; and
- recording and distribution of material or information in violation of law.
A contractual liability exclusion generally operates to prohibit or deny coverage for bodily injury and property damage claims for which an insured is obligated to pay under an assumption of liability in a contract or agreement when an insured assumes liability for the conduct of a third party. It is important to note that an indemnity clause is an assumption of liability and is common in most construction contracts.
Exceptions to the exclusion of contractual liability
First, the contractual liability exclusion does not apply to liability for damages that “the insured would have in the absence of the contract or agreement”. Think of claims for damages. And the second, is that the contractual liability exclusion does not apply to liability for damages “assumed in a contract or agreement that is an ‘insured contract.'” The key here is the term “insured contract,” which is defined later in the policy.
Finally, when evaluating coverage, first consider the initial grant of coverage, then the exclusions from coverage, and finally the exceptions to those exclusions. This avoids many mishaps, and above all, unnecessary inconvenience and loss.
