What Is a War Exclusion Clause?
Let me explain what a war exclusion clause is in an insurance policy: it specifically excludes coverage for acts of war, such as invasions, insurrections, revolutions, military coups, and terrorism.
This clause in your insurance contract protects the insurer, meaning they won't have to pay for losses caused by war-related events.
You should know that insurance companies commonly exclude coverage for perils they can't afford to pay claims on.
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, policies like auto, homeowners, renters, commercial property, and life insurance often include war exclusion clauses.
However, if you're an entity facing a significant risk of war, such as a company in a politically unstable country, you may be able to purchase a separate war risk insurance policy.
Insurance companies typically won't cover damages caused by war for clear reasons: if war breaks out in a country, it could cause a catastrophic amount of damage that would likely bankrupt the insurance company if it were on the hook to cover such damages.
Moreover, if you as an insured individual decide to join the military and go to war, you're voluntarily putting yourself at a much higher risk of getting disabled or killed, so 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 the attacks, most war exclusion clauses applied only with respect to contractually assumed liability on the theory that private persons and organizations cannot otherwise incur liability in connection with war.
However, after September 11, 'war and terrorism' exclusions that broadened the war portion of the exclusion beyond contractually assumed liability were quickly added to liability policies.
This development widened the scope of the war exclusion clause, which is now considered standard, regardless of whether terrorism is insured or excluded in the policy.
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