Property claims glossary
What is an exclusion in a property insurance policy?
An exclusion is policy language that removes coverage for specific causes, property or circumstances, such as flood, earth movement, wear and tear or neglect. On a property claim it can remove all or part of a loss, so it must be applied correctly: missed, it overpays the claim; misapplied, it underpays the family and invites a dispute.
Worked example · fictitious claim
A storm causes $25,000 of damage: $15,000 from wind tearing open the roof and $10,000 from surface water flooding the basement. Under a homeowners policy with a flood exclusion and a $1,000 deductible, the payment is $15,000 − $1,000 = $14,000. The $10,000 of flood damage falls to a separate flood policy, if the family has one.
How it affects a settlement
An exclusion takes the excluded part of the loss out of the payable total, and the reason must be explained to the family in writing. Applying one that does not fit the facts can turn a payment question into a bad-faith question.
In practice
Policy language that removes coverage for specified causes, property, or circumstances: wear and tear, neglect, flood, earth movement, and many more. Missed exclusions are a principal source of claims leakage; misapplied exclusions are a principal source of bad-faith exposure. Both failure modes come from reading under time pressure.
Related
Peril · HO-3 policy · Policy coverage checking · property claims glossary