An exclusion is a policy provision that eliminates coverage for some type of risk. Exclusions narrow the scope of coverage provided by the insuring agreement. In many insurance policies, the insuring agreement is very broad. Insurers utilize exclusions to carve away coverage for risks they are unwilling to insure.

Reasons to Exclude RisksExclusions serve various purposes. Most apply to risks that fall into one of the following categories.

• Catastrophic: Some risks are uninsurable because they are likely to affect a huge number of policyholders at once. An example is war.
• Covered Elsewhere: Many risks are excluded under one type of policy because they are covered under another. For instance, auto liability claims are excluded under a general liability policy because they are covered by a commercial auto policy.
• Easy To Control: Some risks are excluded because they are easily controlled by the policyholder. An example is damage to personal property in the open caused by rain, snow, ice or sleet. Such damage is excluded under most commercial property policies because it is easily prevented by the insured.

• Not Accidental: Most insurance policies cover fortuitous events. Thus, they exclude losses the insured caused intentionally. For example, both general liability and commercial auto liability policies exclude bodily injury that an insured inflicts on a third party intentionally.
• Maintenance Issues: Some risks are not practical to insure because they occur naturally. An example is wear and tear. Damage caused by wear and tear is excluded from both commercial property and auto physical damage coverage. Risks of this type can often be controlled through proper maintenance. Vehicle tires can be protected from wear and tear through proper rotation.

• Illegal: Many policies exclude losses that result from violations of the law or criminal acts. For example, general liability policies exclude bodily injury, property damage or personal and advertising injury that results from a violation of the Telephone Consumer Protection Act or CAN-SPAM Act.
• Partially Insurable: Some risks are insurable within specific parameters. For instance, many liability policies exclude liability assumed under a contract. However, coverage is provided for liability assumed under a contract that qualifies as an insured contract (as defined in the policy).

• Insurable for a Price: Some risks are insurable if you are willing to pay an additional premium. An example is a loss caused by theft committed by your employees. Such losses are routinely excluded under commercial property policies. However, you can insure such losses by purchasing employee theft coverage.

Changes
Policy forms are not cast in stone. Most are revised periodically. ISO updates it's commercial auto, general liability and commercial property forms every few years. Insurers often follow, incorporating the changes ISO has made into their proprietary forms. A common outcome of the form revision process is the addition or modification of policy exclusions.

Many of the changes made to policy exclusions are a response to recent court decisions. ISO and insurers draft policy forms with the intention of limiting coverage to certain risks. A court may determine that the policy covers a risk that the drafter assumed was excluded. ISO or the insurer may then add or modify an exclusion to remove coverage for that risk.

Sections
An obvious place to look for policy exclusions is in the section entitled exclusions. Some policies contain both exclusions and limitations. A limitation is a partial exclusion. It narrows the scope of coverage for an insured risk. For instance, property policies often restrict coverage for valuable items like furs and jewelry to a specified (low) limit.

A policy that provides more than one type of coverage may contain multiple lists of exclusions. A separate list applies to each type of coverage. For example, a typical commercial auto policy contains two sets of exclusions, one under  Liability Coverage and the other under Physical Damage Coverage.

Some policies that provide multiple coverages include only one set of exclusions. Each exclusion applies to all coverages. Other policies contain separate exclusions for each type of coverage and common exclusions that apply to all coverages.

Exclusion Location
A policy may contain exclusions that are not located in the exclusions section. Here are some places where they often appear.

Definitions
One of the most common places to find policy exclusions is the definitions section. Definitions attach specific meanings to words so that they can narrow the scope of coverage. For example, many policies define a coverage territory, which limits coverage to events that take place in specified countries. This definition serves as an exclusion since events that occur outside the specified countries are not covered. Policies that do not specify a coverage territory generally cover events that occur anywhere in the world.

Conditions
Exclusions can also be found in the policy section. For example, the ISO commercial auto policy contains a provision that limits coverage to accidents that occur in the coverage territory. This provision appears in the general conditions section, not the definitions.

Endorsements
Many insurers add exclusions to policies by attaching endorsements to preprinted forms. An endorsement may add a new exclusion or modify an existing one.
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Insuring Agreement
The insuring agreement is the backbone of a policy. It typically contains broad statements describing the coverage provided. Even the insuring agreement can contain exclusions. For instance, the insuring agreement in the standard general liability policy specifically excludes bodily injury or property damage that was known to certain insured parties before the policy began.

Terrorism insurance is offered separately or as a special addition—called an “endorsement” or “rider”—to your standard commercial property insurance policy. A standard business policy alone will not cover losses caused by terrorism.
Terrorism coverage is a public/private risk-sharing partnership that allows the federal government and the insurance industry to share losses in the event of a major terrorist attack. The Terrorism Risk Insurance Act (TRIA), which was enacted by Congress in November 2002, ensures that adequate resources are available for businesses to recover and rebuild if they are the victims of a terrorist attack. Under TRIA all property/casualty insurers in the U.S. are required to make terrorism coverage available.
Frequently asked questions about terrorism insuranceQ. What is covered by terrorism insurance?
A. A commercial terrorism policy covers damaged or destroyed property—including buildings, equipment, furnishings and inventory. It may also cover losses associated with the interruption of your business. Terrorism insurance may also cover liability claims against your business associated with a terrorist attack.
Q. What’s excluded in a commercial terrorism insurance policy?
A. Depending on your state, a terrorism insurance policy may exclude coverage for fire following. Nuclear, biological, chemical and radiological (NBCR) attacks are also excluded, except in the life, health and workers compensation lines of insurance.
Cyber risks are also an emerging terrorist threat. It is possible that property damage or injuries to employees could be caused by a cyber-attack—for instance an attack that causes equipment to malfunction. On the other hand, most computer attacks are not violent and do not cause physical damage. In general, terrorism insurance is unlikely to cover a cyber-attack, and a small business concerned about this risk should consider purchasing separate cyber liability insurance.
Q. How does terrorism insurance work?
A. Losses are only covered by a terrorism insurance policy if the U.S. Department of the Treasury officially certifies an event as an act of terrorism. This requires that the act be violent and be driven by the desire of an individual or individuals to coerce U.S. civilians or government. No act shall be certified by the Secretary as an act of terrorism if property and casualty losses, in the aggregate, do not exceed $5 million. The act must also cause at least $100 million in damage to be considered a terrorist attack.
The definition of a certified act of terrorism has been expanded to cover both domestic and foreign acts of terrorism.
Factors to consider when deciding whether to buy terrorism insuranceAbout 60 percent of U.S. businesses have terrorism insurance. A few factors to consider when deciding whether or not to insure yourself against terrorism include:

• Business Location—Rural and residential areas are less likely to be targeted by a terrorist attack. Commercial urban centers, as well as airports and train stations, have a higher risk for terrorist attack.
• Cost—Premiums for terrorism coverage range from $19 to $49 per million of insured value, depending on the size of the company.  The expense generally represents 3 to 5 percent of a company’s property insurance costs.
• Type of Business—Certain industries—such as the energy sector—have a higher risk of being targeted for terrorist attacks. If your business is part of a high-risk industry, you may want to consider purchasing terrorism insurance.