Insured peril
Insured peril - is an event that can cause damage or loss to a property but is covered by an insurance policy that pays for the loss or damage if it occurs. Insured perils - these are the perils that are covered by the policy as insured. Property insurance can either be named or comprehensive. In a named perils policy, only the perils specified in the contract are covered. In the more comprehensive insurance (also known as an all perils policy), the coverage is broader but there are still events that are considered exclusions.
An insurance company might deny coverage for a particular peril because of its high likelihood of occurring. For instance, in a flood-prone area, flood coverage may be considered an exclusion. Insured peril to operate is no defense to a claim for a loss proximately caused by that insured peril. Losses which are a consequence of negligence caused by someone other than the insured but not proximately caused by a specifically insured peril may be insured comprehensively under negligence as an insured peril. Insured peril will frequently be an act of negligence. The situation will be different if negligence is the peril insured against or is an excepted peril, in which case negligence is of course relevant. When causes operate concurrently, one cause being an insured peril and none of the other causes being excepted perils, the cause of the loss is the peril insured against and the other concurrent causes are ignored[1].
Proceeding with the occurrence of insurance peril
Once the proximate cause is identified, the next step is to determine if the causative peril is covered by the insurance policy or not.
- Excepted or Excluded Perils - these are perils that are specifically stated as excluded.
- Uninsured or Other Perils - these are perils that are not stated in either inclusion cause or exclusion.
Application in practice - in practice, losses caused only by insured perils are payable under the policy. Losses where the proximate cause is an excluded or uninsured peril are not payable. To entitle an insured to recover, the train of events leading from the insured peril to the actual financial loss suffered by the insured must be unbroken. If the sequence of events from an insured event is broken by a train of events from an excepted or uninsured peril, then only the loss up to the break is covered[2].
Types of Causes
Losses may be incurred due to a single cause or by a sequence of causes. To determine whether the loss is payable under the insurance, causes are classified into four categories[3]:
- Single Cause - where the happening of the insured peril is a single cause or the last in a series of causes, then the claim is payable under the insurance policy.
- Concurrent Causes - if there are concurrent causes, but there is no excluded peril involved, the claim is payable. If an insured and an excluded peril operate together to produce the loss, the claim is not payable.
- Unbroken Sequence - where several events occur in unbroken sequence and no excepted peril is involved, the claim is payable.If an excepted peril proceeds the happening of an insured peril, and the insured peril can be said to be a reasonable consequence of the excepted peril, no claim is payable.
- Broken Sequence - if a new and independent cause arises, so that it breaks a chain of sequence, the claim would be payable if the new cause is an insured peril. If the new cause is an excepted peril, the claim would be payable only to the extent of the damage caused by the insured peril.
Examples of Insured peril
- Fire: Fire is a common insured peril, and it is covered under many property insurance policies. Fire can cause a great deal of damage to a home or business, and insurance can help to mitigate the cost of repairs or replacement.
- Windstorm: Windstorm damage is another insured peril that is often covered under property insurance policies. Windstorm damage can range from broken windows to structural damage to a building, and insurance can help to cover the cost of repairs.
- Theft: Theft is another insured peril that is often covered under property insurance policies. If a home or business is broken into and items are stolen, insurance can help to cover the cost of these items.
- Vandalism: Vandalism is another insured peril that is often covered under property insurance policies. If a home or business is vandalized, insurance can help to cover the cost of repairs.
- Flood: Flood is another insured peril that is often covered under property insurance policies. Flooding can cause a great deal of damage to a home or business, and insurance can help to mitigate the cost of repairs or replacement.
Advantages of Insured peril
- Insured perils provide financial protection in the event of a loss caused by a covered event. This can help to protect against financial ruin that could be caused by an unexpected event.
- Insured perils can provide peace of mind by knowing that the policyholder is covered against certain risks. This can help to reduce stress and worry in the event of a loss.
- Insurance policies can be tailored to fit the specific needs of the policyholder, providing additional protection against events that may be of particular concern.
- Insured perils can help to reduce the overall cost of insurance by providing coverage against specific events. This can help to keep the cost of premiums lower than if they had to cover all risks.
Limitations of Insured peril
- Insured perils are limited to the specific events listed in the policy. If an unexpected event occurs that is not listed, the insurer may not cover the loss or damage.
- Insured perils may not include certain types of damage, such as wear and tear, or damage caused by inadequate maintenance.
- Coverage limits may apply, meaning that the insurer will only cover a certain amount of the loss or damage, even if the event is an insured peril.
- The insurer may also deny coverage if the event is found to be caused by the negligence of the policyholder.
- In some cases, the insured peril may not be covered if the insured fails to comply with certain policy requirements, such as notifying the insurer of the claim within a required period.
- Risk assessment: This involves identifying and assessing the various risks to which a property may be exposed. This step is important in determining which perils to insure against since the most likely perils need to be insured in order to ensure adequate protection.
- Risk management: This involves implementing strategies and measures to reduce the risk of loss or damage. This includes preventive measures such as implementing safety protocols and routine maintenance, as well as financial measures such as buying insurance or setting aside funds to cover the cost of repairs.
- Risk transfer: This involves transferring the risk of loss or damage to another party, such as an insurance company. By transferring the risk, the property owner is able to share the financial burden of a potential loss with the insurer.
In summary, insured peril involves assessing and managing the risks to which a property is exposed in order to identify the perils to be insured against, as well as transferring the risk of loss to an insurer.
Footnotes
| Insured peril — recommended articles |
| Insured contract — Runoff Insurance — Franchise insurance — Dual insurance — Loss Payee — Period of indemnity — Retention of risk — First party insurance — Self insured retention |
References
- Haar R.,Laney A.,Levine M., (2016). CRC Press , "Construction Insurance and UK Construction Contracts".
- Proschool IMS., (2012). Tata McGraw-Hill Education , "Risk Management and Insurance Planning".
- Rose F., (2013). CRC Press,"Marine Insurance: Law and Practice ".
Author: Patrycja Bajda
