Open perils

An open perils policy flips the usual question. Instead of listing what it covers, it covers direct physical loss or damage from any cause, then lists what it doesn’t. If a cause isn’t excluded, it’s generally covered, subject to the policy’s limits and conditions.

How it works

In the standard commercial property forms, open perils coverage is the special causes of loss form. You may still hear it called “all risk,” but that name oversells it, because every open perils policy has exclusionsExclusionAn exclusion is a provision in an insurance policy that removes coverage for specific causes, types of loss, property or activities the policy would otherwise cover.Read the definition. Common ones include:

• flood, earthquake and other earth movement
• wear and tear, rust, mold and gradual deterioration
• mechanical breakdown
• dishonest or criminal acts by you or your employees
• missing property or inventory shortages found only when you count stock

Some exclusions can be bought back by endorsementEndorsementAn endorsement is a written change to an insurance policy that adds, removes or modifies coverage, such as adding an additional insured or a new location.Read the definition, and others, like flood, need a separate policy.

Open perils vs. named perils

Under named perilsNamed perilsA named perils policy covers damage only from the causes of loss it specifically lists, such as fire or windstorm, so anything not on the list isn’t covered.Read the definition, you generally have to prove that a listed peril caused the loss. Under open perils, the burden generally shifts: the insurer has to show that an exclusion applies. That makes open perils more forgiving when something unexpected happens, which is why many businesses prefer it.

An example