Two recent cases reaffirm the wisdom of giving careful consideration to the effects of exclusion clauses in insurance policies.
One involved a fire protection system that was ineffective when a fire broke out, causing loss to the owners of the building in which it was installed. They sued the engineer who installed the system, who settled their claim and claimed on his insurance policy. The insurers refused the claim because the policy contained an exclusion clause which excluded a claim which arose as a result of the failure of 'any fire or intruder alarm... to perform its intended function'. The engineer went to court to force them to pay.
The court rejected the engineer's claim, holding that the words were clear in their meaning. Applying normal principles, the purpose of an exclusion clause is to exclude the stated perils. In this case, the loss was not due to the equipment being defective (in which case the policy would have covered the claim) but because it failed to perform its intended function of putting out the fire, an exclusion clearly included in the policy by the insurer for good commercial reasons.
In the second case, a clause in an insurance policy which included the requirement that the premises were attended by at least one responsible person when not protected by the intruder alarm system was sufficient to exclude a claim for losses due to theft when the responsible person (the managing director of the claimant company) left the premises because he felt unsafe. Although the policy would have covered the loss had he been under the actual threat of violence, in the absence of a specific threat the exclusion clause applied.
Exclusion clauses are put into policies by the insurer with the specific intention of reducing the insurer's risk under the policy. Such clauses can have a much wider effect than one might think. We can advise you on the proper construction of contractual clauses including those applicable to your insurance policies.
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