Insurance—both generally and with respect to property insurance—is a concept that can be tricky and difficult to navigate.
At its core, insurance can provide relief and security when unexpected events (“perils”) occur; however, navigating the terms and conditions of a typical insurance policy is not easy. This is due to many factors, such as the extent of intricacies in sentence structure and language, the layers of definitional terminology used in policies, and the likelihood of many modifying clauses (also known as endorsements) that change, delete, or add to other portions of the insurance policy. These posts are meant to try to pierce through the nuance and complexity of insurance policies.
One of the biggest questions I always ask when I open any type of insurance policy is: “what does this policy provide coverage for?” The language of the policy is key to answering this question, and one must look at language commonly referred to as the “insuring agreement” or “insuring clause” of a policy. When you break down insuring agreements to simple terms, there are two types of property polices: (1) “named peril” policies and (2) “all-risk” policies. There are numerous differences between the two, and this could change whether an insurance company will pay benefits to you in the event of a peril. Below is a brief look at both types of policies:
Named Peril Policies:
Named peril policies are conveniently named as these types of policies cover perils listed (or “named”) in your policy. Conversely, they do not cover perils that are not listed in your policy. Language-wise, your typical named peril policy will state that it covers an enumerated list of perils, and then go on to list each peril covered. While named peril policies will likely also contain exclusions and other limitations of coverage, what perils are covered is specified in the policy language itself.
As an example, if a named peril policy states that it covers for fire damage but is silent as to whether it covers windstorm damage, a named peril policy generally will not cover windstorm damage. This limits potential coverage to you. The upshot is that named peril policies typically come with cheaper insurance premiums, as an insurance company is issuing less comprehensive coverage.
All-Risk Policies:
All-risk policies are more comprehensive, as they cover all perils except for certain perils specifically excluded in the policy. Typically, an all-risk policy will state that it covers all causes of losses except for those specifically excluded under the policy, or some language to that effect. That is where the key difference lies between a named peril policy and all-risk policy: if an all-risk policy is silent about a type of peril, it is still generally covered. Therefore, all-risk policies are considered to be more comprehensive than named peril policies, but that also means that they are typically more expensive premium-wise than named peril policies.
What does this mean?
From a legal perspective, which type of policy you have generally changes the burden you have to prove coverage in a dispute against your insurer. For named peril policies, an insured will generally have the burden of proving that the claimed damage was caused by a peril listed in the policy. For all-risk policies, the insured will generally only have to prove that the damage occurred during the policy period, and the insurer will then have to prove that the damage was excluded under that all-risk policy. While causation of damage is likely an issue in most cases, an all-risk policy generally provides a more favorable burden to the insured than a named peril policy.
The way I like to illustrate comparing the two policies is by using a pizza analogy (food makes the world go round of course!): a named peril policy is like ordering certain slices of a pizza pie chosen for you, whereas an all-risk policy is like ordering the entire pie, but the baker picks some slices to not give to you. There are situations where each policy is more (or less) preferable than the other.
Of course, every situation is different, and every property is different. Consult with your insurance agent as to what types of policies are available to you and ask them for your options as to types of coverage. Ultimately, the hope is that your insurance policy purchase never leads to a subsequent insurance dispute, but considering what type of insurance policy you are obtaining should factor in your choice of insurance, as it impacts how comprehensive your coverage actually is.
If you believe that you are owed insurance benefits for a homeowner’s or commercial property policy, do not hesitate to contact us at info@pkglegal.com or at (561) 726-8444 for a free evaluation of your claim.