What is all risks insurance?

How All Risks Insurance Works

The wording of “all-risks coverage” is somewhat misleading because all insurance policies contain numerous exclusions. Insurers often use terms like “special perils coverage” to describe this type of insurance policy. For an “all-risks” type of coverage, it is typically the insurer’s responsibility to prove that the claim is covered.

In a personal liability umbrella insurance policy, which is a type of insurance that might be considered to provide all-risks coverage, the policay still excludes certain incidents, such as intentional damage, business liability, damage to your own property, and damage resulting from acts of war. These policies do cover everything else the policy is written to cover, including incidents related to personal liability.

Insurance providers generally offer two types of property coverage for homeowners and businesses, named perils coverage and all-risks coverage. A policy with “all-risks coverage” will not actually cover any type of loss. Insurance policies are typically designed to cover specific situations and will list many incidents that aren’t covered. The most common types of perils excluded from all-risks coverage include earthquake, war, government seizure or destruction, wear and tear, infestation, pollution, nuclear hazard, and market loss. An individual or business can pay an additional premium, known as a rider or floater, to have a specific peril included in the contract.

All-risks coverage doesn’t mean you can use your umbrella policy to pick up where your health insurance coverage falls short. It’s essential to study the “perils insured against” section of your policy to see what’s covered. Open-perils policies are sometimes known as “comprehensive” insurance because the coverage is inclusive. Named-perils insurance may have distinct levels of coverage, from “basic” to “broad.” When shopping for coverage, make sure you’re comparing the same kinds of policies, i.e., open-perils to open-perils, or named-perils to named-perils.

Some property may be too high a risk to be included in the open-perils part of a policy. Valuable items such as jewelry, fine art, antiques, and collectibles are often insured separately through a scheduled personal property endorsement. Inland marine insurance using a floater policy is another option for insuring high-risk property.

Burden of Proof in All Risks Insurance

One of the key distinctions of an all risks insurance policy is how the burden of proof operates in the event of a claim. The responsibility for proving whether a loss is covered or excluded differs depending on whether the policy is an all risks policy or a named perils policy.

How Burden of Proof Works in All Risks Insurance

1. Policyholder's Responsibility (Initial Proof)
   1. In an all risks policy, the insured (policyholder) only needs to prove that a loss occurred. They do not have to specify or prove the exact cause of the loss upfront.
   2. As long as the loss is not explicitly excluded in the policy, it is assumed to be covered.
2. Insurer's Responsibility (Proving an Exclusion Applies)
   1. If the insurance company wants to deny the claim, the burden shifts to the insurer to prove that the cause of loss is excluded under the policy.
   2. The insurer must demonstrate that the loss falls within the list of exclusions outlined in the policy.
   3. If the insurer cannot prove that an exclusion applies, then the claim should be covered.

Burden of Proof vs. Named Perils Insurance

• In a named perils policy, the burden of proof is on the insured to show that the loss was caused by a peril that is specifically listed in the policy.
• If the policyholder cannot prove that a named peril caused the loss, the claim can be denied.
• This makes named perils policies more restrictive compared to all risks insurance.

Example Scenario:

• A homeowner with an all risks policy files a claim for roof damage after a storm.
• The homeowner only needs to show that the damage occurred—not prove the specific cause.
• If the insurer suspects that wear and tear (which is commonly excluded) caused the damage, it must provide evidence to support the denial.
• If the insurer cannot prove the damage was due to wear and tear, the policyholder’s claim should be paid.

When do I need to be aware of all risks insurance?

Many business owners should be aware of this insurance, but one great example of someone who needs to be aware of all risks is a person in agriculture, and all risks or open peril crop insurance is one of the more popular types. This protects against things, such as drought, wind damage, excessive moisture, and flood damage, that lead to crop loss. Coverage allows for both price and yield protection and it is a credit enhancement for those looking for agricultural loans.

What is important to know about all risks insurance?

If you are a business owner, all risks insurance helps protect against a variety of things that can result in loss to your livelihood. It is a convenient package that removes the need for separate policies. There are some other important items you should know about all risks insurance:

• All risks insurance offers more comprehensive coverage than property and casualty insurance does.
• All risks insurance is the most common and popular commercial package insurance coverage in the country, and it is usually available for a discount.

FAQS:

Who is all risk insurance best suited for?

All risk insurance is best suited for individuals and businesses seeking comprehensive coverage against a wide range of unforeseen risks, except those explicitly excluded in the policy. This includes homeowners, construction contractors, and business owners who require protection from various potential perils.