Perils and exclusions

Perils are specific causes of loss covered by an insurance policy, while exclusions are events or circumstances the policy does not cover. Insurance companies list perils such as fire, theft, and windstorm explicitly in homeowners policies; for example, ISO HO-3 covers 16 named perils including vandalism and lightning.

Exclusions commonly include floods, earthquakes, war, nuclear hazards, and intentional damage–FEMA reports that standard home insurance never covers flood damage. Insurers define “named peril” policies as those covering only listed risks (e.g. smoke), whereas “all-risk” or “open peril” policies exclude only specified losses like wear and tear or neglect.

Policyholders must review exclusions because insurers deny claims for excluded events; for instance, earthquake coverage requires a separate endorsement in California due to high seismic risk. The National Association of Insurance Commissioners states that mold is usually excluded unless resulting from a covered peril like burst pipes.

Insurance contracts specify exclusions to limit insurer liability and keep premiums affordable–excluding high-frequency risks like maintenance issues reduces average claim costs nationwide. Courts interpret ambiguous exclusion clauses against insurers under the doctrine of contra proferentem; this legal principle protects consumers if wording lacks clarity, as stated by YourInsurance.info.

Endorsements allow customers to add back coverage for some exclusions (e.g. sewer backup) at additional cost according to industry data from III.Org.