Commercial Property Insurance: All-Risk vs Named Perils, and Who’s on the Hook for Tenant Coverage
The cover page says “all risk,” which sounds like a finished sentence. It isn’t. What decides whether you get paid is the exclusions page, a percentage called coinsurance, and one paragraph of the lease nobody reads next to the policy.
What’s the actual difference between all-risk and named-perils commercial property coverage?
It comes down to who carries the burden of proof. Per the Insurance Bureau of Canada, a named perils policy covers only losses or damage caused by perils that are listed in your policy and subject to exclusions — so after a loss, you have to show the cause sits on that list. An all risk policy covers loss or damage caused by any peril, unless specifically excluded — so the insurer has to show your cause falls inside an exclusion. All risk doesn’t mean everything is covered. It means everything except a list you still have to go read.
Source: Insurance Bureau of Canada — Types of Business Insurance Coverage (accessed 2026)
I’m Arthur Zhao. Insurance is the line item my clients are most eager to delegate and most likely to get wrong, because the declarations page says “all risk” and that phrase reads like a conclusion. Let me be clear about my lane: I’m a real estate broker, not a licensed insurance broker. I can’t tell you what to buy, what limit to carry, or how to handle a claim — that’s your insurance broker’s job, and your lease is your lawyer’s job. What I can do is take the structure apart, so that when you walk into those two offices you already know which questions have money attached to them.
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A guest list, or a bouncer with a ban list
Think of it as two ways to run a door. Named perils is a guest list: if your name isn’t on it, you don’t get in, and nobody owes you an explanation. All risk is a bouncer with a ban list: everyone gets in until someone can point at your name on the wall.
That’s not just a difference in how much is covered — it’s a difference in who has to prove what when the claim gets contested. Under named perils, you prove your loss was caused by something on the list. Under all risk, the insurer proves it wasn’t. In a disputed claim, that reversal is often worth more than any individual peril you could have added.
An all-risk policy is defined by its exclusions
Perils commonly carved out, and typically requiring an endorsement or a separate policy, include flood and surface water, earthquake, sewer backup, gradual seepage and resulting mould, ordinary wear and tear, mechanical or electrical breakdown of the equipment itself (boiler and machinery), faulty workmanship, pollution, terrorism, and war. What’s excluded and how far the carve-out reaches varies by policy — which is exactly the list to walk through line by line with your insurance broker.
The quieter variable is how a loss gets valued. Actual cash value is the fair market value of the property, accounting for the factors that raise or reduce it — depreciation included. A replacement cost provision instead substitutes the damaged property with something similar, of the same use. Same fire, same limit, materially different cheque. The cover page won’t tell you which one you bought. The declarations page will.
The building gets rebuilt. The income doesn’t.
Per IBC (accessed 2026), business interruption insurance covers loss of profits and continuing fixed expenses resulting from a fire or other insured peril that prevents a business from continuing its normal operations. It typically takes three forms:
• Gross earnings: pays only until the property or stock is replaced, or the damage repaired
• Profits form: keeps paying until the business resumes its normal, pre-interruption level, subject to policy limits
• Extra expense: for businesses that can keep operating through the loss, covering the added cost of doing so
On the ownership side, the parallel cover is loss of rental income — particularly relevant where a landlord depends on rent to meet mortgage obligations. Note the asymmetry that creates: after a fire, your lender’s payment schedule does not pause out of sympathy.
The question worth asking out loud: how long does the indemnity period run? It has a ceiling. And how long a commercial rebuild actually takes is set by adjusters, drawings, permits, and trades — not by your preference. Whether that ceiling fits your building is a conversation with your broker, not a default to accept.
⚠️If you own the building and finance it, the rebuild clock and the mortgage clock run independently. The property policy rebuilds the asset; only loss of rental income coverage addresses the rent that stops arriving while it’s rebuilt. IBC specifically flags this cover for landlords who rely on rent to meet mortgage obligations — so the indemnity period is worth checking against a realistic permit-and-construction timeline, not an optimistic one.
One building, two policies, one gap in the middle
The gap sits between them, and it’s called leasehold improvements: the commercial kitchen, the walk-in cooler, the demising walls, the signage. Physically it’s attached to the landlord’s building. Financially it came out of the tenant’s pocket. Who insures it is not an insurance question — it’s a lease question, and the answer is whatever the lease says.
Two failure modes, both common. Both parties assume the other covers it, and nobody does. Or both cover it, and after a loss two insurers spend months arguing over contribution while the unit sits dark. Neither is an insurance failure. Both are drafting failures.
One more thing to hold onto: under a net lease, the tenant is already funding the landlord’s premium through TMI. That looks like an accounting detail. In the next section it turns out to be the reason Canadian courts spent decades deciding who pays.
💡 Insurance isn’t one purchase — it’s three documents that have to agree with each other: the policy (what’s covered, what’s carved out), the lease (who must insure, who eats their own negligence), and the valuation (is the limit still today’s replacement cost). Any one of them out of sync with the other two is a gap. And a gap only introduces itself on the worst day.
The lease can beat the policy
Starting in the 1970s, a trio of Supreme Court of Canada decisions (the industry calls it the Trilogy) established a broad principle: where a tenant contributes to the premium for the landlord’s insurance, the landlord — and the landlord’s insurer — shouldn’t be able to turn around and sue that tenant for negligence. The tenant paid for the coverage; it should get the benefit of it. For years this got compressed into a comfortable myth: I pay TMI, so I’m covered.
Then came Royal Host GP Inc. v. 1842259 Ontario Ltd. (2018 ONCA 467, decided May 18, 2018). A fire started in a tenant’s restaurant kitchen and damaged the building extensively. The Court of Appeal for Ontario reversed the motion judge and held the landlord’s insurer could pursue a subrogated claim against the negligent tenant. What did it turn on? Two notwithstanding phrases in section 7.02 of the lease, which said the tenant stayed liable for its own negligence notwithstanding the landlord’s covenant to insure and notwithstanding the tenant’s contribution to that cost. Justice Juriansz read them for their ordinary grammatical meaning: the parties had directly addressed both Trilogy principles and contracted out of them.
The principle that survives is the one worth writing down: the scope of the indemnity is set by the lease, not by the insurance policy. So the question in this article’s title — who’s on the hook for tenant coverage — has no answer at the insurer’s office. The answer was decided at the negotiating table, in a sentence, probably years ago.
Coinsurance: the penalty for a stale valuation
A coinsurance provision requires the insured to carry insurance for a specified amount stated in the policy in order to be eligible for full coverage. According to the Chambre de l’assurance de dommages (ChAD, Quebec’s damage-insurance regulator), commercial-lines coinsurance clauses typically require at least 80% or 90% of the property’s value to avoid a penalty on a partial loss, and the payout is prorated:
Indemnity = (amount of insurance carried ÷ amount required) × loss
An illustration — the formula is ChAD’s, the numbers are mine, made up to make the shape visible. A building with a $2,000,000 replacement cost, on a policy with a 90% coinsurance clause, requires a $1,800,000 limit. You carry $1,200,000. A $300,000 partial loss hits — comfortably under your limit, so you feel fine. The payout: (1,200,000 ÷ 1,800,000) × 300,000 = $200,000, before your deductible. The missing $100,000 is you, acting as your own insurer.
Look closely at the trap. Your limit was four times the size of the loss and you were still cut by a third. The penalty isn’t for a limit too small to pay the claim — it’s for a limit too small relative to the building. And replacement cost moves every year with materials, labour, and code. A limit that was right in 2023 can be wrong now, silently, with no notice from anyone.
ℹ️A coinsurance clause measures your limit against the property’s current value, so a limit is a setting that decays, not a decision you make once. Construction costs move every year. Agree on a review cadence with your insurance broker so the number doesn’t quietly go stale between renewals.
What to ask your insurance broker
• Is this policy named perils or all risk? Walk me through the exclusions, one at a time.
• Does it settle on actual cash value or replacement cost?
• What’s my coinsurance percentage, and what year’s replacement cost is my current limit based on?
• Are flood, sewer backup, earthquake, and equipment breakdown in or out? What does adding them cost?
• Do I carry business interruption or loss of rental income, and how long is the indemnity period? Does it match a realistic rebuild timeline for this building?
• Who insures the leasehold improvements — and does that match what my lease says?
• The lease demands additional insured status and a waiver of subrogation. Are both actually endorsed onto the policy? (They’re two different mechanisms — one doesn’t imply the other.)
• Does my lease contain notwithstanding language around the insurance covenants? (That one’s for the lawyer.)
Put the lease and the policy on the same table and read them against each other. It costs you an afternoon. It’s the highest-return hour of due diligence I know of in commercial real estate.
Frequently Asked Questions
If my landlord already insures the building, why does the lease still make me buy insurance?
Because the two policies cover different things. The landlord’s policy covers the building — structure, roof, common areas — plus the landlord’s own liability and typically loss of rental income. It does nothing for your stock, equipment, business interruption, or your commercial general liability. The genuinely contested item is your leasehold improvements: attached to the landlord’s building, paid for out of your pocket. Who insures those is decided by the lease, not by either insurer.
Does a landlord’s covenant to insure protect me if the fire was my fault?
Not automatically — that’s the myth. The Supreme Court of Canada’s 1970s Trilogy established that a tenant contributing to the landlord’s premium should generally get the benefit of that insurance. But in Royal Host GP Inc. v. 1842259 Ontario Ltd. (2018 ONCA 467), the Court of Appeal for Ontario held the landlord’s insurer could subrogate against a negligent tenant, because the lease said the tenant stayed liable notwithstanding the landlord’s covenant to insure. The scope of the indemnity is set by the lease, not the policy — so have your lawyer read yours.
What’s the difference between being an “additional insured” and having a “waiver of subrogation”?
They’re two separate mechanisms and you generally need both endorsed. IBC defines an additional insured as a person other than the named insured who is protected by the terms of the policy — that’s the landlord getting coverage under your policy. Subrogation, per IBC, is the process by which an insurer, after paying a loss, takes over the insured’s rights to recover from whoever is legally liable; a waiver means the insurer gives up that right against the named party. One doesn’t imply the other — ask your broker to confirm both are actually on the policy.
Why would my insurer pay less than my policy limit on a partial loss?
Most likely a coinsurance clause. Per ChAD (Quebec’s damage-insurance regulator), commercial policies typically require a limit of at least 80% or 90% of the property’s value, and if you’re under it, a partial loss is prorated: (carried ÷ required) × loss. The counterintuitive part is that your limit can be several times larger than the loss and you still get cut, because the penalty measures your limit against the building’s value, not the claim’s. It’s the reason replacement-cost valuations need refreshing.
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