What Is a War Exclusion Clause?
A war exclusion clause in an insurance policyspecifically excludes coverage for acts of war, such as invasions, insurrections, revolutions, military coups, and terrorism. A war exclusion clause in an insurance contract refers to the protection of an insurer who will not be obligated to pay for losses caused by war-related events. Insurance companies commonly exclude coverage perils on whichthey cannot afford to pay claims.
Key Takeaways
- A war exclusion clause in an insurance policy excludes insurance coverage for damages related to war or similar activities.
- An insurance company is protected from having to pay out claims on automobiles, homes, and the like, if the damage was caused by war.
- The reason insurance policies have war clauses is that insurance companies cannot accurately compute the premiums to charge for damages sustained by war.
- Insurance companies also do not cover war damages because the cost of the claims could potentially be astronomical, driving the company into bankruptcy.
- War exclusion clauses were expanded and became standard after the September 11 terrorist attacks.
Understanding a War Exclusion Clause
Because most insurance companies would be unable to remain solvent, let alone profitable, if an act of war suddenly presented them with thousands or millions of expensive claims, auto, homeowners, renters, commercial property, and life insurance policies often have war exclusion clauses. However, entities that are faced with a significant risk of war, such as companies located in politically unstable countries, may be able to purchase a separate war risk insurance policy.
Insurance companies typically won'tcover damages caused by war for clearreasons. If war breaks out in a country, it could cause a catastrophic amount of damage that wouldlikely bankrupt the insurance company if it were on the hook tocover such damages. Moreover, if an insured individual decides to join the military and go to war, they are voluntarily putting themselves at a much higher risk of getting disabled or killed. As a result, many life and disability policies do not cover losses from war.
Two primary factors require the modern version of the war exclusion clause: the inability of insurance companies to gauge premiums to cover the risk of war and the need for insurance companies to protect themselves against a catastrophic financial disaster that could result from war-level destruction. If private insurers were to assume the normal risk incidents to military service in time of war under ordinary premium rates, they would likely go out of business.
Standardization of War Exclusion Clauses
The war exclusion clause became an important issue in the insurance industry following the Sept 11, 2001 terrorist attacks on New York City and Washington D.C.Before theattacks, mostwar exclusion clausesapplied only with respect to contractually assumed liability on the theory that private persons and organizations cannot otherwise incur liability in connection with war.
However, afterSeptember 11, "war and terrorism" exclusions that broadened the war portion of the exclusion beyond contractually assumed liability were quickly added to liability policies. This developmentwidened the scope ofthe war exclusion clause, whichis now consideredstandard, regardless of whether terrorism is insured or excluded in the policy.
FAQs
Key Takeaways. A war exclusion clause in an insurance policy excludes insurance coverage for damages related to war or similar activities. An insurance company is protected from having to pay out claims on automobiles, homes, and the like, if the damage was caused by war.
What is the exclusion clause of an insurance policy? ›
An exclusion is a provision within an insurance policy that eliminates coverage for certain acts, property, types of damage or locations.
What are the three major types of exclusions included in insurance contracts? ›
The three major types of Exclusions are:
- Excluded perils or causes of loss.
- Excluded losses.
- Excluded property.
Standard insurance policies usually exclude war as a covered peril because related damage is unpredictable and difficult to anticipate.
What does war mean in insurance? ›
War risk insurance is an insurance policy that provides financial protection to the policyholder against losses from events such as invasions, insurrections, riots, strikes, revolutions, military coups, and terrorism.
What is an example of an exclusion clause? ›
It's possible for you to include terms in your sales contract to protect yourself from liability if specified things go wrong, e.g. you could include a term saying you're not legally responsible if you're late in delivering the goods. This type of term is called an 'exclusion clause'.
Why might an exclusion clause be included in a contract? ›
Also known as exemption, disclaimer, or limitation clauses, they are, as a general guide, any term which purports to restrict, modify or exclude a remedy or liability arising out of a breach; or which appears to exclude or restrict a liability or duty that would otherwise arise.
What is the war exclusion in life insurance? ›
A war exclusion clause in an insurance contract refers to the protection of an insurer who will not be obligated to pay for losses caused by war-related events. Insurance companies commonly exclude coverage perils on which they cannot afford to pay claims.
Why do we need exclusion in an insurance contract? ›
These exclusions help insurers avoid risks they find too high or unpredictable. Sometimes, your policy only lists the perils it covers, meaning everything else is automatically excluded.
What are two of the most common exclusions used by underwriters? ›
Risky activity: Any death due to risky activities, such as skydiving or rock climbing, are usually counted as an exclusion. Substance abuse: If a policyholder's death is the result of drug or alcohol abuse, it may be excluded from their policy.
A war risk clause is an exclusionary clause eliminating coverage for losses arising out of war or warlike actions.
What is not a true statement of the war exclusion? ›
Explanation: The statement that is NOT true of the war exclusion is war risk is typically uninsurable. The war exclusion typically applies to both declared and undeclared wars, but it does not apply to civil insurrections.
Is war risk typically uninsurable? ›
War is usually considered an uninsurable catastrophic risk (though some insurers do offer war insurance) and is not covered by terrorism insurance. The only line of insurance that covers injury or death from an act of war is workers compensation.
What is a war clause? ›
noun. : a clause included in some life insurance policies issued during wartime that limits the insurer's liability to a return of premiums if the insured dies as a result of war or while serving in the military or naval services outside the home area.
Who provides war insurance? ›
AXA XL offers worldwide insurance for assets that are exposed to war, terrorism and political violence attacks. We help companies navigate through dynamic, complex and ever-changing global threats while considering the implications of legislation such as TRIPRA.
What type of risk is war in insurance? ›
War risk insurance is a type of insurance which covers damage due to acts of war, including invasion, insurrection, rebellion and hijacking. Some policies also cover damage due to weapons of mass destruction. It is most commonly used in the shipping and aviation industries.
What are the requirements for an exclusion clause? ›
⇒ There are two requirements for an exclusion clause to be incorporated via a previous course of dealing: i) There must be sufficient notice of the clause. ii) There must be consistency in the previous dealings.
Why is exclusion important in insurance? ›
Insurers use exclusions to reduce their risk and to avoid paying claims either for uninsurable losses such as certain catastrophic losses such as war, or to avoid paying losses for claims best covered under other policies.
What do exclusions section of a policy specify? ›
Insurance exclusions are provisions in an insurance policy specifying risks that are not covered.
