6.1 - Exclusions: An Overview

Question 1

The Need for exclusions

Answer 1

-all property policies, whether named-perils or all-risks, contain exclusions that remove certain losses from the policy’s coverage
-the exclusion list:
>types of property that are not insured; and
>perils that are never insured against or sometimes not insured against
-exclusions never expand policy coverage, but always restrict it
-they remove exposures:
>to loss that are considered undesirable or uninsurable;
>exposures to trade risk or maintenance costs or other exposures to inevitable (that is, non-fortuitous) loss: and
>exposures that reflect underwriting and rating considerations
-exclusions may be temporary or permanent
-may exclude only a part of the coverage
-some exclusions may be amended or overridden by special endorsements or coverage wordings

Question 2

Exceptions to an Exclusion

Answer 2

-an exclusion may be modified not only be endorsement or other wording external to it but also by one or more exceptions that are internal to the wording of the exclusion
-the word “except” appears in many exclusion clauses, and that word qualifies or modifies what property or peril is actually excluded from coverage
-for that reason, qualifiers or modifiers such as except must be read very carefully in interpreting a clause
-in the IBC all-risks habitational forms, some of the exclusions that limit coverage are qualified by exceptions to those exclusions in the form of the specified perils listed later in the policy, thus the exclusion applied to all losses except a loss that is caused by one of the specified perils
-exceptions are placed within exclusions to restore policy coverage under certain circumstances; they may reflect legislative requirementsR

Question 3

Reading a Policy: Extending Step 3

Answer 3

-all-risks coverage insures against loss or damage caused by a peril that is not excluded, so it makes it critical to understand not only the perils insured against under the policy, but also the exclusions
-Step 3 in reading a policy may therefore be extended as follows:
>determine whether there is coverage under the policy by looking at what is insured under the policy and under what circumstances. The onus is on the insured to show that the loss or damage falls within coverage
>if there is coverage, next determine whether any exclusions apply to the circumstances of the LoD. The onus shifts to the insurer to demonstrate that the coverage is excluded
>if an exclusion applied, determine whether there is an exception to the exclusion that restores coverage despite the exclusions. The onus falls back to the insured to establish that an exception is triggered

-these principles are used by Canadian Courts to interpret property ins policies, generally, coverage provisions are interpreted broadly and exclusion clauses narrowly

Question 4

Exclusions Compared: The Homeowners Forms

Answer 4

-policy exclusions are divided into 2 groups: property not insured against and LoD (perils) not insured against
-since Comp form is the broadest, all of the property it excludes is also excluded under the broad and basic forms
-all of the perils excluded under the Comp form are either excluded or simply not insured under the broad and basic forms because the property:
>does not fall under the named-perils coverage of either form;
>is specifically excluded within the description of a named peril; or
>falls within the exclusions listed in the form

-the main difference in how corresponding exclusions are applied between the basic, broad and comp forms lie in the progression in the three forms from named-perils to all-risks coverage for Coverages A, B, and C