Skip to main content
diversification.com
← Back to A Definitions

All risks

What Is All Risks?

All risks coverage in an insurance policy refers to a type of property insurance that provides protection against any fortuitous cause of loss, except for those specifically excluded. This approach to coverage fundamentally differs from "named perils" policies, which only cover losses resulting from causes explicitly listed in the policy. Within the broader field of insurance and risk management, all risks policies aim to offer a more comprehensive form of financial protection for the policyholder. While the term "all risks" is widely understood in the industry, modern insurance policies often use terms like "open perils" or "special perils" to avoid the implication of truly limitless coverage, acknowledging that certain exclusions will always apply.9

History and Origin

The concept of "all risks" insurance, particularly in homeowners' forms, developed significantly in the mid-20th century. Before this, most property insurance policies were structured around "named perils," meaning they would only cover specific events like fire or theft. The introduction of the all risks approach provided a broader scope of protection. A 1959 law review article, "All Risks of Loss v. All Loss: An Examination of Broad Form Insurance Coverages," discussed this newer form of insurance that covered "all risks of physical loss."8 This evolution aimed to simplify understanding for the public, reduce overlapping coverages, and offer more complete protection, while also creating economies in insurance management and marketing.7 The International Risk Management Institute (IRMI), founded in 1978, has played a role in educating insurance professionals on these evolving concepts, including all risks coverage.6

Key Takeaways

  • All risks insurance policies cover any cause of loss unless it is specifically listed as an exclusion.
  • This contrasts with named perils policies, which only cover losses from explicitly stated events.
  • The term "all risks" is often replaced by "open perils" or "special perils" in modern policies to clarify that certain exclusions always apply.
  • Such policies are designed to provide broader and more comprehensive financial protection for insured assets.
  • Understanding policy exclusions is crucial for policyholders, as these define the actual limits of all risks coverage.

Interpreting All Risks

Interpreting an all risks policy requires careful attention to its exclusions and conditions. Unlike named perils policies, where the burden is on the policyholder to prove the loss was caused by a covered peril, with an all risks policy, the burden often shifts to the insurer to prove that the loss falls under an exclusion. This makes the language of exclusions particularly critical. Common exclusions might include flood, earthquake, war, nuclear hazard, or intentional acts. For instance, the New York State Department of Financial Services emphasizes that standard homeowners insurance policies generally do not cover floods or earthquakes, requiring separate policies for these specific perils.5,4 Therefore, even with an "all risks" policy, a policyholder must review the document thoroughly to understand the actual boundaries of their coverage.

Hypothetical Example

Consider Sarah, a homeowner who purchases an all risks property insurance policy for her house. One winter, a rare ice storm causes a large tree branch to fall, damaging her roof and a section of her fence. Later, a pipe bursts in her attic, leading to significant water damage to the ceiling and walls.

Under her all risks policy, Sarah files a claim for both incidents. Because neither falling tree branches due to an ice storm nor burst pipes are typically listed as exclusions in an all risks policy, her insurer would likely cover the repair costs, minus her deductible. If she had a named perils policy, she would need to check if "falling objects" or "burst pipes" were explicitly listed as covered perils. The all risks nature simplifies the claim process by assuming coverage unless an exclusion applies. The claims adjuster would assess the damage and confirm that no exclusions, such as "damage from freezing if the property was vacant," apply.

Practical Applications

All risks policies are widely applied across various sectors, providing broad coverage in situations where specific risks are numerous or unpredictable. In commercial insurance, large businesses often opt for all risks policies to protect their assets from a wide array of potential damages, including operational disruptions or property damage. For example, a manufacturing plant might have an all risks policy to cover equipment breakdown, fire, or even unexpected supply chain interruptions (if explicitly included or not excluded).

In personal finance, homeowners insurance policies, often structured on an "all risks" or "open perils" basis, are common. These policies protect the dwelling and personal property from a wide range of occurrences, from theft to unexpected structural damage. The rising frequency and cost of U.S. "billion-dollar weather and climate disasters," as tracked by the National Centers for Environmental Information (NCEI), highlight the importance of comprehensive coverage in protecting assets from unforeseen natural events.3,2 This data underscores the value of all risks policies in safeguarding against a broad spectrum of losses that could otherwise result in significant financial hardship.

Limitations and Criticisms

Despite their broad nature, all risks policies are not without limitations or criticisms. The primary limitation stems from the inherent nature of "exclusions," which define the boundaries of what is not covered. These exclusions can be extensive and complex, leading to disputes over coverage. For instance, an insurance dispute arose concerning a builder's risk policy where a blank field in an escalation clause led to differing interpretations by the policyholder and insurer regarding the scope of coverage, illustrating how policy wording, even omissions, can become a point of contention.1

Another criticism is the potential for unexpected gaps in insurance if policyholders do not thoroughly review all exclusions and conditions. Events such as war, nuclear incidents, certain types of pollution, or pre-existing damage are almost universally excluded. Furthermore, the interpretation of policy language can vary, sometimes leading to litigation, particularly concerning ambiguous clauses. Courts often apply principles of contract interpretation to resolve such disputes, which can sometimes favor the policyholder if the ambiguity is substantial. However, the expectation that "all risks" truly means all risks can create a false sense of security for policyholders, highlighting the need for careful review and professional advice.

All Risks vs. Named Perils

The fundamental difference between all risks and named perils insurance lies in their approach to defining what is covered. An all risks policy (also known as "open perils" or "special perils") covers any loss that occurs, unless the cause of that loss is specifically listed as an exclusion within the policy. This means that if an event happens and it's not on the list of exclusions, it is generally covered. The burden of proof typically falls on the underwriter to demonstrate that an exclusion applies.

Conversely, a named perils policy only provides coverage for losses that are explicitly listed or "named" in the policy. If a particular cause of damage or loss is not on that specific list, then the policy will not cover it, regardless of how the loss occurred. For example, a named perils policy might list fire, theft, and vandalism as covered perils. If damage occurs due to a burst pipe, and "burst pipe" is not named, there would be no coverage. The burden of proof for a named perils policy rests with the policyholder to show that the loss was caused by one of the listed perils. Confusion between these two types of policies often arises when policyholders assume broad coverage without understanding the distinct scope of each.

FAQs

What does "all risks" mean in an insurance policy?

"All risks" in an insurance policy means that the policy covers any cause of loss to the insured property, unless that specific cause is listed as an exclusion in the policy document. It aims to provide comprehensive coverage.

Is "all risks" truly all risks?

No, despite the name, "all risks" does not literally mean every single risk is covered. All policies have specific exclusions for events like war, nuclear incidents, flood, or earthquakes (unless specifically added via an endorsement), among others. Therefore, it's more accurately referred to as "open perils" or "special perils" coverage.

What is the main advantage of an all risks policy?

The main advantage is its broad coverage. It generally covers unexpected or unusual losses that might not be anticipated or explicitly listed in a "named perils" policy. This can simplify the claims process for the policyholder as they don't need to prove a specific named peril caused the loss.

How do I know what is excluded from my all risks policy?

You must carefully read the "Exclusions" section of your insurance policy. This section will detail all the perils or circumstances under which losses will not be covered. If you have questions, contact your insurance provider or a qualified insurance professional.

Is an all risks policy more expensive than a named perils policy?

Generally, yes. Because "all risks" policies offer broader coverage and protect against a wider range of potential losses, the premium is typically higher than that for a named perils policy for the same property.