Claim Failures, Disputes and Official Sources
Liability insurance exclusions explained: what Indian business policies usually do not cover
The exclusions found in most Indian public liability and CGL policies, what each means in practice, examples of claims they defeat, and how to fill the gaps.
Most Indian public liability and CGL policies exclude injury to your own employees, damage to property in your care, custody or control, your own product or work itself, product recall, contractual liability beyond what the law imposes, gradual pollution, professional advice, motor vehicles that must be insured under the Motor Vehicles Act, 1988, fines and penalties, and war, nuclear and similar catastrophe risks, with other exclusions varying by insurer. Exclusions are not traps if you know them: each one points to a different policy or extension that fills the gap. Read the exclusions section of the wording before buying, and ask how to cover anything your business actually does.
This guide belongs to why liability claims are rejected. Wordings vary; the list below is a typical pattern. Exclusions are often raised alongside procedural defences; see how to file a liability claim and renewal and retroactive date mistakes.
The common exclusions and how to fill each gap
| Exclusion | What it means | Example of a claim it defeats | Where cover comes from |
|---|---|---|---|
| Employees | Injury to your own employees | Factory worker injured by a machine | Employees' compensation policy; ESI |
| Care, custody or control | Damage to property you hold, rent or work on | Customer's laptop dropped at your repair shop | Bailee or customer goods cover; extension |
| Own product or work | Repairing or replacing your defective product or work | Cost of re-laying a faulty floor you installed | Not insurable under liability; warranty provisions |
| Product recall | Costs of withdrawing products | Recall of a contaminated food batch | Product recall policy |
| Contractual liability | Liability you take on by contract beyond the law | "Howsoever caused" indemnity to a client | Insured contract wording or extension; renegotiate |
| Gradual pollution | Seepage or contamination over time | Slow leak of effluent into groundwater | Environmental impairment liability |
| Professional services | Advice, design or specification errors | Engineering calculation error causing financial loss | Professional indemnity |
| Motor vehicles | Liability from vehicles requiring compulsory motor cover | Delivery van hits a pedestrian | Motor third-party policy |
| Fines and penalties | Regulatory fines, punitive damages in many wordings | Penalty from a pollution control board | Not insurable; some defence costs under D&O |
| Known circumstances | Matters known before the policy started | Complaint received before inception | Previous policy, if notified then |
| Deliberate acts | Intentional harm or wilful breach of law | Knowingly selling non-compliant goods | Not insurable |
| War, terrorism, nuclear, asbestos | Catastrophe and long-tail risks | Explosion caused by terrorism | Terrorism extension where offered; others usually unavailable |
| Cyber and data | Data breach and privacy claims | Customer data leak | Cyber liability policy |
| USA/Canada jurisdiction | Awards in North American courts | Product claim filed in a US court | Product liability with appropriate jurisdiction |
Exclusions that cause the most disputes
Care, custody or control
Service businesses are often surprised by this one. A car wash, laundry, tailor, warehouse, repair shop or event venue holds customers' property. If it is damaged while in your control, a standard liability policy may not pay. Ask for a customers' goods extension, a bailee's policy, or a warehouse-keeper's liability cover.
Your own work
A plumbing contractor's poor joint leaks and floods a client's office. The policy will usually pay for damage to the office (third-party property) but not to redo the faulty joint (your own work). The distinction matters when a claim is calculated.
Contractual liability
If a contract says you will indemnify the client "for all losses howsoever caused", and the client's own negligence causes an accident, the law would place liability on the client but your contract shifts it to you. A standard policy may decline because the liability arises only from contract. See insurance clauses in contracts.
Pollution
Many Indian liability policies cover pollution only if it is sudden, unintended and unexpected, identifiable in time and place, and discovered and reported within a short period. A gradual leak discovered months later is excluded. Industrial businesses with effluent or chemical storage should consider environmental impairment liability, and check whether a PLI Act policy is compulsory.
Employees and contractors
Liability to your own employees is excluded because it belongs to employees' compensation and ESI. But what about your contractor's workers on your site? Some policies treat them as third parties; others exclude them, or exclude "persons under contract of service or apprenticeship" broadly. Clarify this if you use contract labour. See employees' compensation.
Worked example: one event, several exclusions
A small chemical trading firm (illustrative) has a fire in its godown. The fire:
- Injures two of its own workers
- Injures a passer-by
- Damages a neighbour's shop
- Destroys a customer's goods stored in the godown
- Causes chemical run-off into a drain, which the municipality cleans up
| Loss | Amount | Public liability policy | Other cover |
|---|---|---|---|
| Own workers' injuries | ₹9 lakh | Excluded | EC policy or ESI |
| Passer-by injury | ₹6 lakh | Covered | — |
| Neighbour's shop | ₹14 lakh | Covered | — |
| Customer's goods in godown | ₹11 lakh | Excluded (care, custody or control) | Goods-in-custody extension |
| Drain clean-up | ₹4 lakh | Covered only if sudden and accidental pollution is included | Pollution extension |
Without the extra covers, the firm could face ₹24 lakh or more of uninsured losses from one fire, while its policy pays ₹20 lakh (less deductible). Its own stock and building need a separate fire policy.
How to read the exclusions section
- Find the exclusions heading in the policy wording, not the brochure.
- List each exclusion and ask: does my business ever do this?
- Ask the insurer which exclusions can be deleted or limited by endorsement, and the cost.
- Check definitions: "third party", "property damage", "occurrence", "products" shape what each exclusion covers.
- Compare exclusions across quotes using the liability cover checklist.
Frequently asked questions
Are exclusions the same for all insurers?
No. The headings are similar, but wording and extensions differ. Two policies with the same name can have materially different exclusions.
Does an exclusion apply if it is only partly responsible for the loss?
It depends on the wording, especially phrases like "arising out of" or "directly or indirectly caused by". Broad phrases exclude more.
Can I insure punitive damages?
Many wordings exclude them, and insurability can be uncertain. Treat them as uninsured unless your policy expressly says otherwise.
Is terrorism cover available for liability?
Some insurers offer terrorism extensions or separate policies. Ask your insurer or broker.
Sources
- IRDAI — product filings and policyholder protection rules
- India Code — Motor Vehicles Act, 1988, Public Liability Insurance Act, 1991
- General Insurance Council — industry information on liability products
