What Is an Exclusion Clause?
An exclusion clause is a clause in a contract which excuses a party to the contract of liability in situations covered by the exclusion clause. This type of term in a contract can be illegal in certain settings, while in other cases, it may be in common and widespread use. If a contract has exclusion clauses, it is important to get familiar with them before signing and to contest them, if necessary, before agreeing to the contract.
In a simple example of an exclusion clause, an insurance company could say that it will not provide coverage in the event of negligence. Someone who burns a house down by leaving a lit candle on the table, for example, could not file a claim because the insurance company would not be liable for the damages. Exclusion clauses can be seen on home, business, car, and health insurance, defining situations in which the insurer is not liable. These are deemed legal uses of this type of clause because they protect the insurer from unreasonable risk.
Exclusion clauses can be used to absolve companies of liability when they will otherwise be too at risk to do business. For example, a company which handles repairs may state that it is not liable for damages caused by the user which interfered with the repair, or for changes made by the user. This allows them to work on products for repair safely, with the knowledge that they will not be held liable for mistakes made by the user.
A contract may also involve an exclusion clause if exclusions are required for both parties to be willing to sign the contract. A company may demand, for example, that it be excused of liability before it will agree to provide a product or service. The exclusion clause makes it clear that both parties are aware of this agreed-upon term and that they understand the risks of the contract.
There are cases in which an exclusion clause can cross the line and be deemed illegal. People who are not sure about the legality of an exclusion clause should consult a lawyer or government official. It is also advisable to consult a lawyer who is familiar with contract law before agreeing to a major contract, to make sure that the terms are legal, reasonable, and within the general terms used for similar contracts in similar settings. People who are not familiar with what contracts should look like can unwittingly sign an unfair contract, or may be confused about the terms of a contract and have difficulty fulfilling it as a result.
Written by S.E. Smith
