When buying commercial property insurance or homeowners insurance, you must decide whether you want a “named perils” policy or an “all-risk” policy. The term “named perils” refers to specific causes of loss or damage that are named in your insurance policy.

Named perils coverage is an important concept in property insurance, especially if your business or home is located in an area that’s prone to events like windstorms, fires — and even volcanic eruptions. Follow along to learn the ABCs of named perils and whether this type of policy is right for your business.

What is a “named peril” in insurance?

Simply put, a “peril” is an insurance term for hazards that could cause substantial property damage or loss to your property.
In a home insurance or business property policy, the “named perils” definition refers to the hazards that the policy explicitly covers, which are listed in the policy. Fire, theft, and vandalism are common examples of named perils.

A named peril policy tends to be less expensive than an open peril (or “all-risk”) insurance policy because of its limited scope of coverage. When coverage is provided on a named peril basis, the burden of proof rests with the insured party, meaning that they must demonstrate that a named peril was responsible for the loss.

What are the most common named perils?

Not every commercial property policy will cover the same named perils. Each business needs to perform a risk assessment and determine which perils are most likely to affect their operations. For example, a business in California may want to arrange for earthquake coverage, whereas a Florida business would probably be more concerned about windstorms.

Although every policy is different, here are common named perils:

  • Fire
  • Aircraft and vehicles
  • Lightning
  • Explosion
  • Strikes, riots, or civil commotion
  • Vehicles
  • Windstorms (not named or hurricane) and hail
  • Vandalism or malicious mischief
  • Earth movement, earthquake, and volcanic eruption
  • Falling objects
  • Ice, sleet and snow
  • Water overflow from plumbing and HVAC machinery or equipment
  • Freezing of plumbing, heating, air conditioning and household appliances
  • Electrical short circuit or malfunction
  • Theft
  • Smoke

In short, your named peril policy won’t cover a specific hazard or peril unless it is listed. As a result, you’ll likely be stuck paying for the damages and repairs if a loss is caused by any unnamed peril.

How does an insurance company cover a named peril?

In order for insurance companies to cover the losses under a named peril policy, the insured has to prove that the claim meets three criteria:

  1. The policy explicitly states that it covers that peril
  2. The peril caused damage to the building or to your covered property
  3. The loss event had to be accidental and unexpected

The final point is especially important to insurance providers because coverage depends on whether or not the loss was preventable. For instance, if old equipment with faulty electrical wiring causes a fire to break out in your office, your insurance company may not cover the damage to your property. Why?

Because the fire likely could have been avoided with proper care and maintenance of your office equipment. However, if a brand-new electronic device caught fire, it would likely be covered because a fire caused by new equipment is unexpected – and not something you could have averted with maintenance.

What is all-risk insurance?

A named peril is different from an open peril. An open perils policy — also known as “all-risks coverage” — covers all risks except for those explicitly excluded in the policy.1

All-risk is a more expensive and inclusive form of commercial property insurance. It covers ALL perils except for the ones that are explicitly excluded. And, unlike a named perils policy, the insurance company has to prove that the peril responsible for the damage is excluded. Common exclusions include:

  • Pollution
  • War
  • Earthquake
  • Ordinary wear and tear
  • Boiler explosion
  • Governmental seizure of property
  • Flood
  • Interior damage caused by rain, snow, ice, dust

If you decide to purchase an all-risk policy, review the policy exclusions with your insurance agent or broker. You might be able to buy back excluded perils that you identify are likely to affect your operations.

Take the proper precautions to protect your small business

Purchasing commercial property insurance with either a named peril or all-risk policy is one of the primary ways that you can protect your small business from the hazards it might face.

As a small business, you not only need to protect yourself from property damage but also claims of property damage to your clients and other third parties. That’s where Thimble can help: Our Business Owners’ Policy (BOP) bundles commercial property insurance and general liability insurance in one neat, cost-effective package.

To get started, download the Thimble app or click “Get a Quote” below. Answer a quick set of questions and buy your policy online, in the app, or over the phone in minutes. Protect your savings for a rainy day, even if the rain damages your office.

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Source:

  1. International Risk Management Institute. Open Perils.