Exclusion clauses in Insurance Contract: Enforceability and Interpretation

The terms of the insurance contract require strict construction without eschewing or adding the words in the contract. However, insurers are exempted from any liability where the loss is attributable to an excluded peril specified in the exclusion clause or not mentioned in the covered causes/perils/risks/loss.

Abstract

Exclusion clause in any contract plays a very important role in not only the interpretation of contract but also minimizing the risk emanating from the contract. It requires immaculate and impeccable drafting keeping in mind the laws of different jurisdictions, custom and trade and usage in the particular trade.

Leaving something probable or inevitable will risk the party at the same time excluding everything may invite striking down the exclusion clause itself being contrary to the main purpose of the contract.

Big concerns have additional responsibility to balance the scale when the other party to the contract is in weaker position to negotiate or actually has no room to negotiate as in adhesion contract.

The terms of the insurance contract require strict construction without eschewing or adding the words in the contract. Therefore, it is the duty of the insurers to not only accept their liability in clear and unambiguous terms but to ensure that they are reasonable and not inconsistent with the terms of the main contract.

Exclusion

The term 'exclusion' is self-explanatory. It spells out the things not covered in a contract and requires more attention than any other clauses in a contract.