Types of Homeowners’ Insurance Coverage: “All Risks” v. “Named Peril” – A Distinction with a Difference

The type of insurance policy you have may greatly affect the outcome of a trial based upon your insurance company’s denial of your claim. Most homeowners simply go to their agent and ask for insurance. When they get it, they figure they are covered for any accidental damages. However, that is simply not the case. Obviously, there are exclusions that prevent coverage for particular causes of damage. All homeowners should read their policy to make sure they understand those exclusions. That concept is not that hard to understand.

However, what can be confusing is the distinction between “all risks” and “named perils” policies. “Named peril” or “specific peril” policies only insure against certain perils or causes of damage that are named in the policy.[1] For example, a “named peril” might say “this policy covers all losses caused by fire, wind, water, hurricane, etc.” Only those losses listed are covered, subject to any listed exclusions that may apply.

On the other hand, “all risks” policies cover any accidental cause of damage unless the policy contains a specific provision expressly excluding the loss from coverage.[2] This is the type of policy that a homeowner would purchase for the peace of mind to know that, regardless of the cause, any damage to the home would be covered, unless the policy specifically explains that it is not and why it is not. Knowing the difference between the two types of policies allows an insured to properly evaluate their exposure.

While the distinction seems clear, that has not stopped Florida insurance companies like Citizens Property Insurance Corporation from trying to confuse the issue. They often argue that because a certain peril is first excluded and then added back in by endorsement, this somehow changes the policy from “all risks” to “named peril”, for that cause of damage.

This argument may seem trivial. However, at the end of the day, the homeowner knows his or her house is covered for any loss except those that are specifically excluded. The endorsement simply eliminates one or more of the form exclusions.

The reason insurers want to confuse the issue and make that argument has to do with which party has to do what at a trial. Historically, and as it should be, when a homeowner makes a claim under an “all risk” policy and proves that the damage happened during the policy period, the burden of proof is placed on the insurance company to prove the damage was caused by excluded perils.[3] This makes sense because the homeowner bought insurance for the peace of mind to know that regardless of the cause of damage, the home is covered, unless the insurer can explain which exclusion applies and why. A homeowner should not have to pick a specific cause of damage that is covered under the policy and prove that it was the cause of the damage and prove that none of the excluded perils caused the damage. That would defeat the purpose of buying an “all risks” policy.

In the context of sinkhole claims, despite the fact that it has been well settled that an “endorsement [does] not change the ‘all risks’ nature of the underlying policy’, Citizens and other insurers have been working overtime in an attempt to make homeowners pursuing possible sinkhole claims prove that sinkhole loss and only sinkhole loss was the cause of the damage.[4] Unfortunately, some courts bought into that argument and have required homeowners to prove that sinkhole activity was the cause of the damage. This, in turn, allowed insurers to simply say, no it didn’t, without having to prove which specific exclusions applied to avoid coverage. This is important because it is costly and difficult to disprove every single exclusion in the typical HO3 policy.

However, on the eve of Thanksgiving, the Second District Court of Appeal gave homeowners something to be thankful for; an interpretation of an insurance policy and case law that supports the homeowners’ reasonable expectations.[5] If an insurer wants to avoid paying for damages after a homeowner with an “all risks” policy proves those damages happened during the policy period, that insurer must prove the cause of the damage was excluded from coverage under the policy.[6] Hopefully, this decision will lead to more homeowners being justly compensated for their losses.

[1] Hudson v. Prudential Property and Casualty Ins. Co., 450 So.2d 565 (Fla. 2d DCA 1984).

[2] Hudson, 450 So.2d at 568.

[3] Id.

[4] Id.

[5] Mejia v. Citizens Property Ins. Corp., 2014 WL 6675717 (Fla. 2d DCA November 16, 2014)

[6] Id at *1.