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Definition of Open Perils in Business Insurance

Commercial insurance terms and definitions. Learn more about business insurance terminology and get the right coverage for your business.

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Open Perils

In a standard property insurance contract, there are standard stipulations about what is covered. Then there are situations where your protection is excluded. The incidents where coverage is implemented are known as open perils.

Open Perils Policies Offers All-Risks Coverage

Within a commercial property policy, open perils are the incidents that are covered due to some form of damage. The exception to this is items that are deemed as exclusions. To provide further detail, a commercial policy would cover damage to property unless it was due to something specifically mentioned. For instance, the property might not be covered in the event of an earthquake or mudslide.

Open Perils vs. Named Perils

An open perils policy doesn’t specifically describe the situations where coverage is permitted. However, a named perils contract names each of the situations that are covered. The latter tends to be less expensive because it can be customized by the policyholder. Open Perils cost more since they offer coverage for events the business may never encounter.

Generally, an open perils policy is recommended. Though named perils can save a business money, a situation might arise that isn’t listed.

Common Exclusions

These are some of the most common exclusions in an open perils policy:

  • Sewage backups

  • Water damage from man-made or natural incidents

  • Power and mechanical failures

  • Internal theft or vandalism

  • Damage from insects or animals

This isn’t to say that these situations are uninsurable. Rather, coverage for these incidents must be purchased separately.

Providing Proof

A policyholder must save all of the necessary paperwork and evidence for an open perils policy. Depending on the situation, the insurer may try to prove that the incident was part of the excluded perils list. If the policyholder offers evidence countering this, then the insurer has no choice but to pay the claim.

This is one reason why open perils insurance is generally better than named perils. In the latter, it’s up to the insured to prove they have coverage. If they don’t have the necessary information, the responsibility of payment falls on them.

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