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Common Insurance Terms: Named Peril vs. Open Peril

April 30, 2013

The causes of loss covered by a property policy can be described one of two ways: on either a “named peril” or an “open peril” basis. It is useful to understand the difference between these two modes of coverage if you wish to fully understand what’s insured against and what’s excluded under your homeowner’s, business owner’s, or other property policies.

Named Peril

A “named peril” policy will specifically list the perils or causes of loss covered under the policy. This means that anything not listed as a “named peril” is not covered. For example, if your homeowner’s policy lists “volcanic ash” as a named peril, then it includes coverage for damage caused by volcanic ash. On the other hand, if “volcanic ash” is not mentioned in the list of named perils, it will not be covered. While some named peril policies may also include a list of example exclusions for illustrative purposes, this list isn’t meant to be an exhaustive description of what’s excluded. Exclusions will be determined based on whether they are listed as named perils. Examples of named peril policies include the so-called “Basic Form” and “Broad Form” property policies. The Broad Form names all the perils listed in the Basic Form plus a few more. Therefore, the Broad Form offers wider coverage.

Open Peril

You can think of an “open peril” policy as the opposite of a named peril policy. In an open peril policy everything is covered except those perils listed as exclusions. In this case, if “volcanic ash” isn’t specifically named as an exclusion, it would be covered along with everything else not listed. For this reason, open peril policies tend to contain long lists of exclusions. Overall, however, they tend to offer more comprehensive coverage than named peril policies. Open peril policies are also sometimes referred to as “All Risk” or “Special Form” policies.

All this is to say, when you’re reading the coverages in a property policy, you may need to ask yourself: “Is this policy telling me what’s included or excluded? How do I read between the lines so that I’m sure I understand what perils are covered?” This will make you a smarter, more confident insurance consumer and help to guarantee you understand your policy.

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