Two-Risk Warranty
The two-risk warranty requires that a loss claimed under a per-risk excess of loss treaty involves at least two independent risks or policies before cover responds.
- Clause type
- Warranty
- Origin/Market
- Reinsurance market
- Favours
- Insurer
- Negotiability
- Market standard
Purpose
Per-risk excess of loss treaties are designed to protect the cedent against a large loss on a single risk, not to serve as disguised proportional cover for ordinary individual losses. The two-risk warranty ensures that cover only responds where at least two independent risks are actually affected by the same loss occurrence – for example a major fire that spreads to a neighbouring risk.
Effect and limits
If only a single risk is affected, the loss remains entirely with the cedent, even if it exceeds the agreed retention. The warranty thus clearly distinguishes per-risk excess of loss from single-risk business and prevents the cover being used for losses that properly belong under proportional reinsurance or the cedent’s own retention.
Negotiation and practice
The key point of dispute is the definition of an “independent risk” – for example whether different buildings of the same policyholder, or different policyholders, are meant. A precise contractual definition reduces the risk of interpretation disputes following a major loss.