What is an Exclusion Clause?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 07 March 2020
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An exclusion clause is a clause in a contract that excuses a party to the contract of liability in situations covered by it. 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 such 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, 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 that handles repairs may state that it is not liable for damages caused by a user who interfered with the repair or for changes made by the user. This allows the company to work on products for repair safely, with the knowledge that it will not be held liable for mistakes made by the user.


A contract may also involve such a 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 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 one should consult a lawyer or government official. They should also 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.


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Post 4

Be careful about the liability exclusion clauses some manufacturers add when you buy a product from them. I have a washing machine which has had many minor problems, some of which I could probably fix myself. Instead, I have to call an engineer out each time, to avoid invalidating my warranty.

I understand that workers need to be protected from danger but it seems wrong to say people can't touch things at all. This is especially important for those who buy extended coverage plans, and are responsible for just the labor costs.

Post 3

@angelBraids - I see where you are coming from with the example you gave. I am pretty sure most policies include a dispute clause, so your neighbor should have been able to query the lack of coverage in that situation. It's possible that insurance on a property in a high crime area would require the person living there to secure it fully, when they are not inside.

Post 2

Don't you think the exact definitions of the laws concerning exclusion clauses should be made clearer? It is hard to know exactly what can be counted as negligence when it comes to insurance.

My neighbor was burgled while she was watering the flowers outside. She didn't get any compensation because she failed to lock the door while out of the house. That hardly compares to starting a fire while smoking in bed, yet they are both considered the same!

Post 1

Another area which tends to have at least one exclusionary clause is travel insurance. It's really important to read the terms very carefully to be sure you are fully covered.

If you plan to do anything considered dangerous, such as skydiving, you may need to buy a policy targeting this kind of activity.

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