Insurance Law> Property Insurance> Exclusions Generally

Business Property Insurance Policy Exclusions

Business insurance policies that provide coverage for loss or damage to property normally contain standard exclusions for risks such as war, ordinary wear and tear, and flood damage. To the extent that coverage is needed for such excluded risks, it is expected that such coverage will be obtained through policies other than the normal property insurance policy.

• War Exclusion — The war exclusion generally excludes property damage resulting from warlike action or from government action in defending against warlike actions by another government or a sovereign power.


• Terrorist Exclusion — This exclusion was derived from the war exclusion to exclude property damage from hostile actions by non-governmental or non-sovereign groups.


• Damage Arising from Operation of Ordinance or Law — Enforcement of a law or ordinance may require tearing down of property or damage to property; this exclusion would excuse a property insurer from having to cover losses from such damage.


• Nuclear Hazards — A nuclear hazard exclusion normally would exclude coverage of property damage attributable to a nuclear explosion or other nuclear reaction or to radioactivity.


• Exclusion for Design Errors or Wear and Tear — Property damage sustained before a property insurance policy is obtained is not covered by the policy under this exclusion. The exclusion also is designed to bar coverage of damage that was inevitable due to a design defect that was in place before the policy was obtained. The exclusion may be phrased in terms such as corrosion, decay, settling, shrinking, or inherent defects.


• Water Exclusion — Property damage from flooding, tidal, and other water flows normally is excluded from coverage under the standard business property insurance policy.


• Willful Acts Exclusion — Property damage resulting from willful or fraudulent acts by the insured is usually excluded from business insurance policies. A fundamental premise of insurance policies is that they are intended to cover damage from fortuitous events.


• Earth Movement Exclusions — Business property insurance policies normally contain exclusions for damage arising from earthquakes, volcanic eruptions, landslides, subsidence, and other natural or unintended earth movements.

Business property insurance policies usually contain exclusions for certain types of property in addition to exclusions for the types of events listed above. Most such policies will exclude property damage to automobiles, boats, and airplanes. It is anticipated that business owners will obtain separate coverage for such types of property owned or operated by the business.

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