The terms ‘Named Perils’ and ‘All Risks’ refer to two different kinds of insurance coverage. An insurance policy can be written as a ‘Named Perils’ policy, or it can be written as an ‘All Risks’ policy. This article explains what the two types are all about and what the implications are for the insurance buyer.
‘Named perils’ and ‘all risks’
‘Named Perils’ covers only loss incurred as a result of perils that are listed (or named) within the policy wordings.
On the other hand, ‘All Risks’ covers loss from any cause as long as it is not explicitly stated as excluded in the policy wordings.
In other words, a Named Perils policy stipulates what IS INCLUDED, an All Risks policy stipulates what is NOT INCLUDED.
This fundamental distinction impacts policy coverage, how a policy is written – and also where the burden of proof lies when a claim arises.
Let’s dig into this further…
A Named Perils insurance policy specifically names the perils, or dangers, that the insurance company will cover. These are the things that the insurers deem to be risky or worthy of coverage within the insurance policy. When an insured organization suffers a loss under a Named Perils policy, the burden of proof that the insurance policy should cover the loss falls to the insured. The insured must prove that the loss in question did indeed arise as a result of a peril named in the policy.
An All Risks policy (a.k.a. comprehensive policy) assumes everything is covered other than those exclusions specified in the policy. Under an All Risks policy, the burden of proof that coverage applies (or does not) falls to the insurance company. Here, the insurer must review the wording and prove that no exclusion applies to the cause or event that triggered the policy.
Where they apply
Both types of policies have their place. Named Perils policies are common in property insurance wordings. Employment practices liability policies and cyber insurance policies are commonly written on a Named Perils basis. This allows the insurance company to better define and cover known risks that give rise to claims.
Insurance companies commonly write general liability and errors and omissions policies on an All Risks basis. With these policies, the perils are far more difficult to specifically name. This could be due to their evolving nature, or because coverage could be triggered by a mere allegation of negligence, which is a broad and often complicated assertion.
Despite the standardization of some coverages and policies, the critical distinction between Named Perils and All Risks policies is still widespread, so it’s important to carefully review insurance policies. A Named Perils policy might initially appear less complicated. However, it still has its own set of exclusions, those things that are specifically excluded from coverage. An All Risks policy might have broader coverage yet still be riddled with exclusions. Where both forms are available (such as homeowner’s insurance), a Named Perils policy tends to be cheaper.
Both wordings have their benefits and drawbacks. It is up to the insured to determine the policy best suited to their needs. With either option, work with a broker to have the policy evaluated for accuracy, applicability, and above all, protection.
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