Criminal Act Exclusion in Liability Policies

 

 

 

Liability policies such as D&O policy, Professional liability, Public liability, CGL policy and product liability policies have exclusions like every other insurance policy. An important exclusion is the criminal act exclusion in liability policies.

 

Criminal act exclusions in liability insurance policies are provisions which exclude coverage for claims arising from criminal acts committed by the insured. The criminal act exclusion makes the insurance contract void if it is evident that the insured is making a claim for a loss that has occurred due to criminal actions or lawless behavior by the insured.

In short, the criminal act exclusion means that if the insured is involved in an illegal activity or commits a crime, the insurance policy will not cover any resulting claims or damages.

Purpose of the criminal act exclusion

The primary purpose of this exclusion is to prevent individuals or entities from using insurance coverage when they engage in illegal activities.  The exclusion is meant to ensure that insurance companies do not bear the financial burden of such actions.

Criminal acts in liability policies

The definition of criminal acts in liability policies includes any intentional harm or damage like assault, vandalism, etc., Criminal activities also include illegal activities such as drug trafficking.

For illustration purposes , dishonest acts such as forgery or fraud or insider trading committed by directors or officers is a criminal act and is considered as an exclusion in liability policies such as D&O policies. Any such intentional criminal activity is not covered in the D&O policy. Similarly E&O policies do not cover claims arising out of any dishonest acts or criminal prosecution or illegal activities by the insured.

Execution of the criminal acts exclusion

If the insured makes a claim and the insurance company suspects that it is a fraudulent activity, the first step when assessing the claim is to decide if the act that caused the loss can be classified as an admitted occurrence according to the policy. However if it can be proved that the loss was due to an act arising out of any criminal intent then the claim will be rejected by the insurance company.

For this the insurance company has to prove that the actions of the insured were criminal to apply this exclusion to any reported claims. It then becomes incumbent on the insured to prove otherwise. 

The criminal act exclusions in liability insurance are designed to prevent coverage for claims resulting from the insured's illegal activities.

Understanding exclusions in insurance policies

It is important to understand the implications of not only the criminal acts exclusion but also other exclusions when buying a liability insurance policy. 

One should review the terms of the liability insurance policy to understand the scope of the criminal acts exclusion.

It is best to consult an insurance broker to seek clarification on the application of these exclusions and if any exceptions or limitations might affect coverage of the policy.

We at Zen Insurance Brokers assist in choosing an insurance policy with clauses suited to your requirements. Choose your insurance policy wisely. Get in touch with us for any assistance.

 

Disclaimer:

Zen Insurance Brokers is an IRDAI registered broker which facilitates quick and adequate insurance broking services. We deal with only regulator approved products of insurers. We do not underwrite the products.