What are exclusion clauses

Unlike some exclusion or exemption clauses in ordinary contracts, an exclusion clause in a contract of insurance is not usually designed to exclude, restrict or limit a party’s legal liability. Rather, these clauses carefully define the boundaries of the risk to be insured by setting out what will ‘not’ be covered under the contract of insurance. While insuring clauses are often broadly worded for simplicity, exclusion clauses are often used as a tool to narrow the scope of coverage provided.

Exclusion clauses should be distinguished from other terms in the contract of insurance, such as conditions precedent and warranties. The purpose of an exclusion clause is to define, from the outset, the specific risks which will not be covered by insurers in any event under the policy. Conditions precedent and warranties, on the other hand, will only affect the scope of cover when they are breached by the insured. Under the Insurance Act 2015, breach of a condition precedent or a warranty may have the effect of discharging the insurer’s liability or suspending cover under the policy.

Common exclusions

Some exclusions are typically included in a range of policies, for example:

1. •

   war

2. •

   terrorism

3. •

   pollution

Commonly excluded perils may, however, be written back into the policy by way of an endorsement. For example, the standard Lloyd’s Market Association (LMA) 3030 wording contains