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Policy Exclusions: Insurance Policy is a Contract

Posted on: December 14, 2022

Chi Hung Nguyen
December 14, 2022

Policy Exclusions: Insurance Policy is a Contract

Get your insurance claim accepted by finding lawyers who understand your policy

Insurance companies and their wealth of resources can be intimidating to anyone without a professional insurance or legal background, but this does not mean insurance companies should not be held responsible when they fail to pay. Get your insurance claim accepted by finding lawyers who understand what you can and cannot recover under your policy terms.


Something you may not know is that your insurance policy is a contract. Typically, the insured person pays a premium, and in exchange the insurance provider agrees to cover you and others if an incident triggers insurance coverage. In auto policies, this is usually as a car accident, or truck accident. This agreement forms the basis of an insurance policy contract.


Each state has different laws that control the effect of a contract. So, Insurance policies are contracts that are understood according to each state’s unique laws. When the insurance company policy contract assigns a clear meaning or definition for a particular term, the court is likely to side with the insurance company. When that word or term is not clear, the court looks at the information and evidence to see what the people who are a part of the contract intended for the word to mean.


What are the parts of an insurance contract?


Each insurance company can have their own unique insurance contract parts, as long as they comply with the law. Generally, there are three parts to an insurance contract:


  1. Application: This typically asks for the potential insured person’s information, and asks many questions that the insurance company wants to know about potential risks that may affect their coverage. One example of a commonly asked question on an insurance application is about the history of claims that a person made. If they see a person has a lot of insurance claims, they may dig deeper to get more information.


  1. Declaration Sheet: This has the insured person’s name, describes the who, what, when, where and why of insurance coverage, such as who exactly is covered by insurance, what kind of property is covered, where that covered property is located, the total amount of coverage a person has such as coverage limits, as well as deductibles and endorsements may raise or lower just how much coverage is offered.


  1. Policy: This is usually several pages long, and has a complete copy of the insurance contract. It would have a section for definitions, describing the terms that the insurance company wants to have a special meaning. Conditions that talk about what needs to be done or a condition that needs to be met before the insurance company will follow through. This would also have the endorsements discussed above, and an outline of all of the things that both the insurance company and the insured person have to do, such as their duties under the law.


Lastly, the insurance policy will include the insurance policy exclusions – what the insurance company will not cover or do. Insurance policy exclusions are discussed in greater detail below:


What are insurance policy exclusions?


There are many types of policy exclusions. Exclusions are essentially exceptions to coverage, meaning you may be covered for a particular event, occurrence, incident or car accident – unless the insurance company finds out something causes you to fall outside the range for coverage.


What is an example of an insurance policy exclusion?


Pre-Existing Conditions


Saying a claim was denied because the injury was because of a “pre-existing condition” is a defense that insurance companies try to use to avoid payment. Essentially, a “pre-existing condition” exclusion argues that if someone was already hurt or sick to begin with, they cannot recover later on. This is often a defense to avoid paying for claims ranging from car accidents and truck accidents, to health issues and disabilities.


In one New York case, New England Mut. Life Ins. Co. v. Doe, a court of appeals said that the insurance company still has to pay for the insured person’s benefits even though he did not tell the insurance company that he was already diagnosed with HIV beforehand. The insurance company argued that his insurance policy specifically had an exclusion for pre-existing conditions, and that the claimant did not tell the insurance company beforehand that he had HIV when he applied for insurance. The claimant’s personal injury lawyer countered that another clause in the insurance policy contract said that the deadline for the insurance company to challenge his application and the policy passed years ago, and the court agreed. Put simply, this means that one section of the insurance policy contract can be used against you and another section can work in your favor.


Interpreting and understanding the effects of specific language, terms and sections in an insurance contract requires legal knowledge and experience handling insurance claims. Seek out a personal injury lawyer as soon as you are able.


Can the insurance company also make any contractual defenses?


Yes, the insurance company may have multiple defenses based on the insurance policy contract itself, and any other binding, written agreements.


One of many examples is contract reformation. Generally, a contract defense may be related to the formation of the insurance policy contract, or any other legal theories the insurance company can use to try to persuade the court that it does not need to pay an insurance claim.

What is an example of a contractual defense the insurance company can raise?


Willful misrepresentation of a material fact means that if the insurance company can show that the insured lied, hid the truth or somehow misrepresented an important, key fact at some point before or after filing an insurance claim, then the insurance company may try to cancel the insurance policy.


For example, the insurance company might say that the insured person did not really tell the insurance company about all of his or her claims from the past, or that the insured person did fully not describe everything or everyone that would be covered under the insurance plan accurately. The insurance company will argue that because the insured person misrepresented an important fact, they did not really understand the situation and reject a claim.


Injured claimants hurt in a car accident or truck accident should not worry. If the at-fault driver’s insurance company tries to cancel the at-fault driver’s policy because of a mistake he or she made, the insurance company may still be held responsible for injuries you suffered as a third party.


Contract Liability as a Type of Exclusion


This article discussed the differences and similarities between an insurance exclusion and contract defenses. Of course, there is a lot of overlap. Both, for the most part, can be understood based on the words in the actual insurance policy.


Contract liability itself can also be a kind of policy exclusion. If the insured person took on, or assumed, liability and responsibility by signing a contract, then he or she cannot later get coverage from the insurance company for bodily injury or property damage.


For example, an insured person enters into a separate contract to do a job, and later breaches the contract by failing to do the job. In this situation, the insurance company will likely not pay. This is because the insured person’s insurance policy only covered bodily injuries and damage to the insured person’s property, not any breaches in contract by the insured person. This kind of contract liability exclusion also applies when the insured person tries to take on liability for another person that is not covered.


But this does not mean that just because there is an exclusion or other contract defense that there is no hope for a particular claim.


Some courts have said that just because a specific legal theory may not be the best does not mean a claim should automatically be denied or invalidated. The insurance companies need to look at the root of the causes, what exactly were the damages, the facts and circumstances surrounding the damages and how they relate to each other.


Work with the best personal injury attorney near you that can help understand and break down the terms in your insurance policy contract. Finding a car accident lawyer is important if you suffer any injury in a car crash and the insurance company is hiding behind technical legal terms and procedures. Injured claimants struggle getting compensation when insurance companies make the process frustrating.


Contact an experienced personal injury lawyer 

Without experience in the insurance industry or legal experience, understanding which factors or evidence can help or hurt your case can be difficult to understand.

Are you trying to secure your financial recovery with the help of experienced attorneys? If so, we can help.

The Pusch & Nguyen Law Firm has helped countless Texans handle their insurance disputes. Our experienced trial lawyers have gone up against some of the biggest names in the insurance industry while successfully bringing home payouts for clients. Our successful reputation speaks for itself, and with offices in both Houston and San Antonio, we are well equipped to assist Texans who are in dire need of our services. Register online for a free case evaluation or call us today at 713-524-8139 (Houston) or 210-702-3000 to schedule an appointment with a member of our team.

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