June 16, 2022

Insurance Policy Language: Complex, and Critically Important

By Lia Tonietti, Senior, Advisory Services

Insurance Policy Language: Complex, and Critically Important Insurance

There is no one-size-fits-all approach to insurance policies, especially because policy language is shaped by the ever-changing economic environment. Thus, understanding what your insurance policy includes (and excludes) is crucial because each policy is subject to various interpretations and conditions that are designed to fit the policyholder’s specific needs.

The 9/11 terrorist attack remains one of the largest single insured loss events in history,1 with losses to the insured and insurance industry totaling $40 billion.2 Prior to 9/11, most would have thought coverage for losses was included under a general insurance policy without additional cost. The attacks changed the insurance industry forever.

Today, many types of losses are often excluded from policies — or are expensive to include, if offered at all. Additionally, countries have established terrorism insurance programs to mitigate the risk if another event should occur.

The Coronavirus pandemic (“Covid-19”) that began in early 2020 was another event that threw the world for a loop, effectively changing the insurance industry once again. Businesses experienced substantial loss of income for a variety of Covid-related reasons, including but not limited to government-mandated shutdowns, reduced staff, shortage of inventory due to hardships on suppliers, etc.

Insurance policy language dictates whether a business’s loss of income claim falls under coverage. For example, most business interruption policies require loss of income to be caused by “direct physical loss or damage,” which may not apply to Covid-related economic losses. And while a business may believe it has triggered coverage under one area of the policy, coverage may be denied due to specific policy exclusions. For example, many exclude coverage for viruses, disease, or pandemics, except if there is an endorsement in place.

Essentially, insurance was designed to offer financial protection for unexpected extreme events. But prior to such an event, the policyholder must understand coverage language to make sure they are appropriately covered. The insurance industry — and, consequently, policy language — evolves in response to events. Reviewing and understanding your current policy language and applicable coverage is key to avoiding a lapse in coverage that could ultimately make or break a business.


  1. “Background on: Terrorism risk and insurance”, iii.org [website], https://www.iii.org/article/background-on-terrorism-risk-and-insurance#top
  2. “How much did the September 11 terrorist attack cost America?”, iags.org [website], http://www.iags.org/costof911.html