Deconstructing the “All-Risk” Policy: What Does “All-Risk” Really Mean?

The past two weeks, I wrote about how all-risk policies developed from the original fire insurance policies. Though I plan to write about the most common exclusions that consumers encounter in all-risk policies, I want to clarify exactly what one can expect from an all risk policy in more general terms.

When purchasing an all-risk policy, understand that you almost certainly will not be covered for every possible loss. In fact, as I alluded last week, there are always exclusions contained within an all-risk policy which limit the instances in which you may recover damages from your insurance company. As one court put it,

The label ‘all risk’ is essentially a misnomer. All risk policies are not ‘all loss’ policies; all risk policies…contain express written exclusions and implied exceptions which have been developed by the courts over the years…. In a nutshell, a policy of insurance insuring against ‘all risks’ is to be considered as creating a special type of insurance extending to risks not usually contemplated, and recovery will usually be allowed, at least for all losses of a fortuitous nature, in the absence of fraud or other intentional misconduct of the insured, unless the policy contains a specific provision expressly excluding loss from coverage. Ariston Airline & Catering Supply Co., Inc. v. Forbes, 511 A. 2d 1278, 1282 (N.J. Super Ct. Law Div. 1986) (internal citations omitted).

The Third Circuit of the United States Court of Appeals stated,

The term ‘all-risk’ has been said to be somewhat misleading. ‘All-risk’ is not synonymous with ‘all loss.’ Indeed, the question of ‘loss’ and ‘risk’ are separate and distinct….Under an ‘all-risk’ policy, the only questions which need to be answered…are whether the plaintiff has suffered a loss and, if so, whether such loss is excluded from coverage under the policy. Intermetal Mexicana, S.A. v. Insurance Co. of North America, 866 F. 2d 71, 75 (3d Cir. 1989) (internal citations omitted).

Be sure to understand that even though a policy may be sold as an “all-risk” policy, there are exclusions that may preclude recovery. This highlights the importance of reading each line of your policy so that you completely understand what losses are not covered.

Next week I will begin my discussion of specific exclusions. Stay tuned!