Understanding the War Exclusion Clause
A war exclusion clause in an insurance policy specifically excludes coverage for acts such as invasions, insurrections, revolutions, military coups, and terrorism. This clause protects insurers from being obligated to pay for losses caused by war-related events, which are risky and financially burdensome perils that insurers cannot afford to cover.
Key Points to Consider
- Scope of Coverage: A war exclusion clause excludes insurance coverage for damages related to war or similar activities.
- Protection for Insurers: Insurance companies are safeguarded from having to pay out claims on properties and automobiles damaged by war.
- Premium Calculation Challenges: Accurate computation of premiums for war-related damages is nearly impossible, justifying the exclusion.
- Potential for Insolvency: Covering war damages could potentially have astronomical costs, risking the insurer’s survival.
- Post 9/11 Expansion: After the September 11 terrorist attacks, war exclusions were expanded and standardized in many insurance policies.
Why War Exclusion Clauses Are Essential
Because most insurance companies would struggle to remain solvent if faced with numerous expensive claims from war, many common insurance policies — such as auto, homeowners, renters, commercial property, and life insurance — include war exclusion clauses. However, entities at higher risk, particularly in politically unstable regions, may seek specialized war risk insurance.
Financial Stability
Insurers typically won’t cover war damages to avoid catastrophic financial losses that could lead them into bankruptcy. If war breaks out, the volume of claims and the extent of damage could be unsustainable for insurers to manage.
Policyholders Joining Military Service
If a policyholder enlists in the military and participates in war, they face heightened risks of injury or death. Consequently, many life and disability insurance policies do not cover war-related losses.
Two main factors make modern war exclusion clauses necessary:
- Premium Calculation Impossibility: Insurers cannot effectively set premiums to cover war risks.
- Catastrophic Risk Protection: Insurers protect themselves from potential disaster-level claims resulting from war and associated destruction.
Evolution and Standardization of War Exclusion Clauses
The war exclusion clause became highly significant following the September 11, 2001 terrorist attacks. Prior to these attacks, war exclusion clauses generally applied to contractually assumed liabilities. Private persons and organizations typically couldn’t incur liability for war.
However, after the attacks,
Related Terms: Insurance Premiums, Life Insurance, War Risk Insurance, Contractual Liability, Bankruptcy.
References
- U.S. Department of the Treasury. “Report on the Effectiveness of the Terrorism Risk Insurance Program (June 2022)”.
- National Association of Insurance Commissioners (NAIC). “Terrorism Risk Insurance Act (TRIA)”.
