Les Knox and I had an interesting discussion regarding all risk insurance and named perils coverage while debating a loss on the Jersey Shore. Les referred to the policy as an "open perils" policy, and I referred to it as an "all risk" policy. The personal property coverage was written on a "named perils" basis. The trend is to refer to the modern "all risk" policy as an "open perils" policy, but I think it is largely semantics.
For over 25 years, The Insurance School, Inc., has been a wonderful institution for insurance learning. Here is what they say in part about open perils, all risk insurance, and named peril coverage:
The named peril policy covers losses caused to covered property by the perils listed and "named" in the policy. Exclusions spell out what is not covered… In a named peril policy the insured is responsible to prove the peril that did the damage is listed on the policy and prove the value of the damaged property. The open peril policy is different in that it covers direct damage caused by all risk of physical loss to covered property. These policies also contain a list of exclusions that are not covered…So, just as the perils are important to know it is also imperative for us to understand what is excluded from coverage under the policy. With endorsements, some of the exclusions can be "bought back" for an additional premium to coincide with the specific needs of the insured.
…[If] all of the structures are covered on an "open peril" basis, [t]his means that if a cause of loss is not excluded, then coverage would apply. The burden of proof is up to the insurance company to prove that the loss is excluded.
. . . .
Exclusions are used because a homeowner policy is not designed to cover every risk the insured faces…. Covering some perils may cause financial catastrophe for the insurer so the coverage is excluded under the policy….
…When the policy tells the insured that all risk of physical loss is covered, the insured takes that literally and the courts would rule in the insured’s favor in any coverage dispute. So it is imperative that the insurer specifically list what is not covered so as to not cause any ambiguities in the interpretation of coverage.
We covered this basic insurance concept recently in Named Peril or All-Risk Insurance: What’s the Difference and Which is Better in a Given Situation?:
A named peril insurance policy covers only what is specifically noted in the policy. For example, if it doesn’t say you’re covered for vandalism damages or backed up sewers, you aren’t. Since the named peril insurance policy only covers specific perils, it is usually less expensive than an all-risk or open peril insurance policy. A typical broad form named peril policy would cover fire, windstorm, hail, aircraft, riot, vandalism, explosion and smoke. Flood insurance and earthquake insurance are two other common examples of named peril policies. When coverage is written on a named peril basis, the burden is on the insured to prove that one of the named perils caused the loss.
An all-risk or open peril policy covers everything except what is specifically excluded in the policy. The all-risk insurance policy is usually more expensive than the named peril policy because it is more comprehensive. Under an all-risk policy, the burden is on the insurance company to prove that the peril causing the damage is not excluded; otherwise, coverage applies. Since the exclusions and limitations are the key to determining what coverage is provided by an all-risk policy, a better name might be “named exclusions” coverage.
Just remember, an "all risk" insurance policy never covers all risks of loss. And if the rest of you want to correct me by claiming that the policy is better known as an "open perils" policy, I challenge you to find the term in marketing of the coverage. Agents sell "all risk" insurance knowing it is not "all risk." Buyer Beware!
