Homewoners Insurance and Business/commercial Insurance

Typical Property Insurance Exclusions

Even though there are many differences in personal and commercial insurance forms, most of the common property exclusions are found in both.

Most policies have restrictions on coverage when a building is vacant or unoccupied. For instance, vandalism is covered in most policies, however if the building is vacant for a period of 30 days, then the vandalism coverage is suspended. Another situation occurs when a building is going to be unoccupied or vacant during a period of cold weather. Coverage for frozen pipes and plumbing systems is suspended unless you have taken steps to guard against such freezing, such as having the water shut off or having heat maintained in the building.

The following exclusions are listed in most all property policies.

• Wear and tear
• Marring
• Deterioration
• Inherent vice
• Latent defect
• Mechanical breakdown;
• Smog
• Rust or other corrosion
• Mold
• Wet or dry rot;
• Smoke from agricultural smudging or industrial operations;
• Settling, shrinking, bulging or expansion, including resultant cracking, of pavements, patios, foundations, walls, floors, roofs or ceilings;
• Birds
• Vermin
• Rodents
• War
• Nuclear Energy
• Insects
• Animals owned or kept by an "insured."

These exclusions, which apply to “all risk” type policies are derived from policy language and are intended to rule out coverage for two kinds of losses. The first types of loss that are certain to happen over a period of time and therefore do not represent a risk of loss because they are certain to occur. For example, aluminum siding will, over time, show signs of wear. In the second group are losses that are so controllable with reasonable care that only gross disregard by an insured will lead to loss, i.e. leaving metal objects out in the rain to rust.

It is a good idea to read your own policies, however, it is not a good idea to try to interpret them yourself when you have a loss. For instance, the intent of the policy is considered in determining the applicability of the above exclusions, i.e. to reinforce the policy's function as a source of protection from accidental loss. Property insurance is not intended to cover the wear and tear or gradual marring that wood furniture or kitchen counter tops, for example, are subject to, but when an accidental cause of loss results in sudden damage to such property, for instance a heavy object dropped on the counter top that cracks it, it’s not appropriate to apply the wear and tear or marring exclusion to such damage. Unfortunately, a casual reading of the policy language can result in the impression that there is no coverage for any accidental wear and tear, marring, etc. After all, the language reads: "... we do not insure loss ... caused by wear and tear, marring, deterioration; inherent vice, latent defect, mechanical breakdown ...". Even though it is unwritten, many times losses which are both sudden and accidental are covered, even though a casual reading of the policy might indicate otherwise.

Another common mistake made by untrained policy readers is to not read far enough. Many times coverages or exclusions in one part of a policy are modified in another part of the policy. For instance, the last provision of the perils insured against section of the policy reveals the following statement: “any ensuing loss to property... not excluded in this policy is covered. This clarifies the intent to cover unexcluded ensuing loss caused by any of the excluded perils. For example, damage caused by rodents is excluded. But if rodents cause a fire (by chewing into electrical wiring, for instance), there is coverage for the fire loss.

Flood and earthquake are excluded from most property policies, but can be purchased back either as an endorsement in the case of earthquake or as a separate policy as in the case of flood. You can however add coverage for backup of sewers and drains to many policies and overflow of sump pumps is also covered automatically under many policies. Most policies also exclude coverage for damage to pavements, patios, foundations, walls, floors, roofs, or ceilings caused by settling, shrinking, bulging or expansion.

While some of the words such as “wear and tear”, “deterioration”, and “inherent vice”, have a long history of legal interpretation, others such as "vermin" are still the subject of disagreement. Two court decisions have dealt with the meaning of "vermin," both determining that particular creatures (carpet beetles and raccoons respectively) are not vermin, but leaving open the question of what other kinds of creatures are. A Georgia court declared that squirrels are not vermin, but squirrel damage, is excluded by the term "rodent."

The 1991 forms edition removed the exclusion of coverage for loss caused by "domestic animals" and replaced it with an exclusion of coverage for loss caused by animals owned or kept by an "insured." In other words, if a guest's disobedient dog digs up the insured's carpeting, the loss is covered since the animal is not "owned or kept" by the insured. The change in policy language fulfills the original intent of the exclusion, i.e., to exclude pet damage that occurs over time by an insured's poorly trained animals. Since this was the intent of the exclusion from its introduction, invasion of a home and consequent sudden and accidental damage by someone else's animal is outside the spirit of the exclusion even under the previous policy language (which excluded coverage for loss caused by domestic animals).

Another common exclusion is for Power Failure, meaning the failure of power or other utility service if the failure takes place off the "residence premises." But if the failure of power or other utility service results in a loss, from a Peril Insured Against on the "residence premises", the company would pay for the loss or damage.

Most policies provide that you must take reasonable actions in order to save preserve property after and at the time of a loss. If you do not, the insurance company would be well within their rights to deny paying for any items that could have been saved with reasonable care.

Finally, intentional losses are excluded. By intentional losses I mean any loss arising out of any act committed by or at the direction of an "insured" with the intent to cause a loss. A good example of this might be damage caused by an angry child. Maybe your child gets angry and kicks his/her foot through the door. It might be argued that the child intended to kick the door, but did not intend to kick a hole in the door thereby causing damage. If you could convince the company the damage was unintentional, then this type of loss could be covered.

The moral of this article is, read your policy, but seek counsel from someone trained to read insurance language when a coverage question arises. We train our employees to always suggest that claims be referred to the company when there is any question at all of whether or not coverage applies.