War Exclusion Clause

A war exclusion clause in an insurance policy specifically excludes coverage for acts of war such as invasion, insurrection, revolution, military coup and terrorism. A war exclusion clause in an insurance contract refers to protection for an insurer who will not be obligated to pay for losses caused by war-related events. Insurance companies commonly exclude coverage perils on which they cannot afford to pay claims.

Because most insurance companies would be unable to remain solvent, let alone profitable, if an act of war suddenly presented them with thousands or millions of expensive claims, auto, homeowners, renters, commercial property and life insurance policies often have war exclusion clauses. However, entities that are faced with a significant risk of war, such as companies located in politically unstable countries, may be able to purchase a separate war risk insurance policy.

Insurance companies typically won't cover damages caused by war for clear reasons. First, if war breaks out in a country, it could cause a catastrophic amount of damage that would likely bankrupt the insurance company if it were on the hook to cover such damages. Moreover, if an insured individual decides to join the military and go to war, they are voluntarily putting themselves at a much higher risk of getting disabled or killed. As a result, many life and disability policies do not cover losses from war.

The war exclusion clause became a hot issue in the insurance industry following the September 11, 2001, terrorist attacks on New York City and Washington D.C. Before the attacks, most war exclusion clauses applied only with respect to contractually assumed liability, on the theory that private persons and organizations could not otherwise incur liability in connection with war. However, after September 11, "war and terrorism" exclusions that broadened the war portion of the exclusion beyond contractually assumed liability were quickly added to liability policies. This development widened the scope of the war exclusion clause, which is now considered standard, regardless of whether terrorism is insured or excluded in the policy.

Two primary factors require the modern version of the war exclusion: the inability of insurance companies to gauge premiums to cover the risk of war and the need for insurance companies to protect themselves against a catastrophic financial disaster that could result from war-level destruction. If private insurers were to assume the normal risks incident to military service in time of war under ordinary premium rates, they would likely go bankrupt.