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Other insurance policy exclusions may be harder to remedy. For example, a homeowner?s policy generally does not cover damage from flooding, which is why many people choose to purchase a separate flood insurance policy. In addition, most insurance policies do not cover damages caused by intentional acts by the insured. This includes things such as setting a trap for a neighbor who comes onto your property to pick fruit from a tree, which can leave you with a hefty lawsuit and no way to compensate for the injury or damage to the neighbor.
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Limits of Liability
Limitation of liability clauses in insurance policies are intended to reduce the risk of litigation by capping potential financial losses. These clauses are also used to encourage business relationships, provide fairness in distributing risk between parties, and help companies save on costs by limiting the amount of insurance they must buy. However, the enforceability of such clauses depends on several factors.
A policy’s limits of liability—the maximum amounts that your insurer will pay for a claim—are listed on the declarations page. For each coverage type—for example, personal property, dwelling fire, or other structures and loss of use—your insurer lists the limit next to it.
When a claim occurs, your insurer will consider the event to be covered under your policy and then assess any damages that may have occurred. Depending on the severity of the claim and any related expenses, your insurer will either pay up to your limits of liability or deny your claim. Limits of liability can be very low in some cases—like in the case of auto insurance, where most states require a minimum of $100,000 per person and $300,000 per accident—and very high in other instances—such as with general or product liability for businesses.
For this reason, it’s important to carefully review the limits of your policies before you sign a contract. Otherwise, you could put the limits of your policy at risk by agreeing to a limitation in a contract that is greater than what you’re insured for.
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Limitations of liability are different than indemnification, which shifts the responsibility for a loss from one party to another. For example, a manufacturer might agree to indemnify a buyer from claims arising from the manufacture and sale of defective products.
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