Insurance Exclusions That Quietly Kill Coverage

The exclusions that quietly kill coverage are the ones that remove the work your business actually does. The worst offenders exclude named types of work (designated operations), work outside the operations described on the policy (classification limitations), contract claims after a worker injury (action over) and, for contractors, residential work or work above a set height. They rarely sit in the main policy form. They arrive as endorsements listed in the forms schedule (the list of form numbers and titles attached to the declarations page), often with titles like "Exclusion", "Limitation of Coverage" or "Designated". The table below covers the rest, from subcontractor and ground movement exclusions to abuse and professional services. This guide is for new owners who want to find them in the policies they inherited before a claim does.

Where do the dangerous exclusions hide?

Every policy has standard exclusions in its main form. General liability, for example, excludes injuries to your own employees, most auto accidents and most pollution, which is why other policies exist. Those are expected. The exclusions that surprise buyers are added by endorsement, often because of the business's class, a past claim or the market the policy was placed in. See exclusion and endorsement.

To find them:

1. Get the forms schedule. It lists every form and endorsement by number and title. It is usually on or attached to the declarations page. How to read a declarations page shows where.
2. Ask the broker for a written exclusions summary in plain language, tied to your operations, and for copies of every endorsement.

For how to read form numbers and editions, and why the endorsements matter more than the declarations, see declarations page vs full policy. Then scan the schedule for the title words in the table below.

Titles and wording vary widely by carrier, and some of these exist in standard and non-standard versions, so treat this as a guide to what to look for rather than a description of your policy.

Which exclusions limit the work your policy covers?

These are the most dangerous for a new owner, because businesses change after a sale.

• Designated operations or designated work exclusions remove coverage for named activities, products or projects. A seller who once had a claim from a type of work may have accepted an exclusion for it. If that work is in your growth plan, you could be growing into work the policy does not cover.
• Classification limitations limit coverage to the operations described on the declarations. Anything else, even closely related work, may not be covered. This is why an outdated description of operations is more than a premium problem.
• Residential exclusions are common on commercial contractor policies. Depending on wording, they can reach condos, townhomes and apartment buildings, not just single-family homes.
• Height limitations exclude work above a set height or number of stories, which matters for roofing, rooftop equipment, signs and window work.
• Professional services exclusions on general liability remove injury or damage arising from professional work such as design, inspection, consulting or technology services. If your business gives advice or certifies work, you may need professional liability to fill that gap; see the professional liability review.

Which exclusions push worker injuries back onto you?

Injuries to your own employees belong to workers' compensation and employer's liability. But worker injuries also come back through other doors, and some endorsements close the general liability door.

• Action over exclusions. An injured worker, barred from suing their own employer in most cases, sues the general contractor or property owner. That party then sues you, often under the indemnity clause in your contract. The standard general liability form generally covers liability you assumed in an "insured contract", which is how many businesses meet customer indemnity requirements. An action over exclusion can remove that coverage for worker injury claims. Employer's liability on your workers' comp policy may respond to some of these claims from your own employees, but it generally excludes liability you took on by contract, so the indemnity you promised may have to be paid from your own cash. Whether that also breaches the contract's insurance requirements is a question for your attorney.
• Independent contractor and subcontractor exclusions. Some policies exclude injury to, or caused by, independent contractors. Others make coverage depend on each subcontractor carrying its own insurance at set limits and naming you as an additional insured. If the seller never collected certificates, claims involving subcontractors could be denied. See do your subcontractors carry required coverage.

These exclusions often show up in contractor and staffing classes and in the excess and surplus lines market (insurers that take harder-to-place risks and have more freedom over policy wording).

Which exclusions remove specific kinds of claims?

• Subsidence or earth movement. Many general liability policies for contractors exclude property damage from settling, sinking or shifting soil. For a business that digs, grades, pours foundations, paves or manages drainage, that exclusion can remove the most likely large claim. Property policies also commonly exclude earth movement for your own buildings, a separate issue.
• Abuse and molestation. These exclusions remove claims of abuse and often related claims of negligent hiring or supervision. Businesses whose staff work with children, older adults or patients, or inside clients' homes, carry this exposure. Separate coverage is often available, frequently with a lower limit than the main policy.
• Other targeted exclusions to look for, depending on industry: assault and battery, communicable disease, firearms, mold, and specific products or chemicals. Two forms named in the table also reach beyond their headline use. A contractual liability limitation works like an action over exclusion but is broader: it can remove coverage for most indemnity you agree to in contracts, not only worker injury claims. A limitation to designated premises, projects or operations, one form of classification limitation, covers only what is listed. Both bite when you add locations or sign new contracts.

The question for each is the same: does this exclusion describe something the business actually does, or could reasonably be blamed for? If yes, it needs an answer.

What can you do about an exclusion you find?

You have four main options, and the right one depends on the exposure and the market:

A hypothetical example. A buyer acquires a remodeling contractor that has done commercial tenant improvements for years. The growth plan is apartment and condo renovations. The general liability policy carries a residential exclusion that, in this carrier's wording, reaches condos and apartment buildings, plus an action over exclusion. The first multi-family contract requires the buyer to indemnify the property owner for worker injuries. Under the current policy, both the work and the indemnity could be uninsured. The buyer delays signing, asks the broker to market the account to carriers that write multi-family remodeling without those exclusions, and signs once a replacement policy is bound, accepting a higher premium as a cost of the new line.

Morrow can read the forms schedule on your inherited policies, flag the exclusions that conflict with your operations and plans, and request alternatives where they make sense; any change depends on carrier underwriting.

Keep reading

• Declarations Page vs Full Policy: Why the Endorsements Matter More
• New Owner Review: General Liability
• 15 Coverage Gaps New Owners Find in Owner-Run Businesses
• When Customer Contracts Require Coverage You Do Not Have
• Admitted vs Surplus Lines: Is the Seller's Account in the Wrong Market?
• All guides for new business owners

Frequently asked questions

Where do I find the exclusions on my business insurance policy?

Start with the forms schedule, the list of form numbers and titles on or attached to the declarations page. Standard exclusions are in the main coverage form; the ones that surprise owners are usually added by endorsement. Ask your broker or carrier for copies of every listed form.

Could a worker injured on a customer's job come back at my business through the contract?

It can. An injured worker who usually cannot sue their own employer may sue a general contractor or property owner, who then sues you, often under your contract's indemnity clause. General liability often covers that kind of indemnity as an insured contract, but an action over exclusion, depending on its wording, can remove that coverage for worker injury claims and leave the indemnity uninsured. Employer's liability may answer some claims involving your own employees, but it generally excludes liability you took on by contract. Check the endorsement wording, and ask your attorney about the contract terms.

Can an exclusion be removed from my policy?

Sometimes. A carrier may remove or narrow an exclusion at renewal if the reason for it no longer applies, often for added premium. Otherwise the options are separate coverage, a different carrier or market, or changing the operations or contract terms involved.

Does my general liability policy cover professional mistakes?

Generally no. General liability is built for bodily injury and property damage, and many policies add a professional services exclusion. Claims that your advice, design or inspection was wrong usually need professional liability insurance.

Why would the seller have accepted a restrictive exclusion?

Often for good reasons at the time: a past claim, a hard-to-place class, or a lower premium on work the seller rarely did. The question for you is whether the exclusion fits the business you now run and plan to grow.

Will my umbrella cover something my general liability policy excludes?

Usually not. Many umbrellas follow the underlying policy's exclusions, and some add their own. A few drop down for certain claims, but check the umbrella's own wording before counting on it.

References

• Insurance Services Office: Commercial General Liability Coverage Form CG 00 01 12 07 (carrier-hosted copy)
• IRMI: Exclusion definition
• IRMI: Insured contract definition

This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.