Although it is something of a misnomer, the real property coverages of all the homeowners insurance policies discussed (as opposed to personal property coverages) is so-called all-risk coverage. Under all-risk policies, coverage is defined by the policy’s exclusions. The typical all-risk property insuring agreement provides that the insurer insures against risk of direct physical loss to property…. This means the risk of loss to dwellings and separate structures.
Most homeowners insurers also sell named perils policies, in which covered property is only covered if loss results from a specifically listed peril. Such named perils policies are usually less expensive than the all-risk policies sold by the same insurer. This is true both of insurers that use standard ISO policy forms, as well as insurers that use proprietary policy forms.
As noted at the beginning of this section, the term all-risk policy really is a misnomer. This is because the all-risk coverage of such policies only applies to dwellings and separate structures. The property coverage applicable to personal property is named perils coverage in most cases. There are really two functional differences between all-risk coverage and named perils coverage. First, as noted, under all-risk coverage, direct physical loss to covered property is covered unless the cause of loss is excluded.
Under named perils coverage, covered property is only covered if loss is caused by a peril that is specifically listed in the policy. The real difference here is that, in a practical sense, the list of covered perils under an all-risk policy is more inclusive than under a named perils policy. Second, whether a policy is an all-risk or named perils policy affects the burden of proof in the event there is a coverage dispute after a loss that results in a lawsuit between the insured and the insurer. Under the laws of most states, the insured of an all-risk policy need show no more than that damage to or destruction of covered property occurred. The burden of proof then shifts to the insurer to prove that an exclusion precludes coverage.
In the world of property/homeowners insurance, the terms peril, risk, and risk of loss refer to fortuitous, active, physical forces, such as fire, lightning, windstorm, theft, and vandalism (just to give a few examples). The concept of risk or peril as an active physical force is pretty self-apparent. The condition of fortuity requires a bit more explaining: fortuitous means occurring by chance or accidentally. For example, damage to property caused by wear and tear or failure to maintain is not loss that occurs by chance. Loss due to normal wear and tear is deterioration through use—a certainty, not a fortuity.
The fortuity requirement precludes coverage for intentional damage or destruction of property. This is why, for example, arson is not covered. There is another reason why intentional damage to or destruction of property is not covered. If such damage was covered, it would create an undesirable incentive for insureds to destroy property for the purposes of generating cash when they found themselves in financial difficulty.
