Commercial property insurance exists to protect you and your small business from risks—sudden, unexpected events—to your building and your property. Although, in the insurance world, a policy doesn’t refer to chance events as risks. Instead, they’re called perils.
But an insurance company can’t cover all perils—not if it wants to stay in business. So, to limit the scope of coverage, many commercial property insurance policies provide ‘named perils coverage’. This type of insurance only covers losses to the property from perils that were explicitly named in the policy.
Curious what some commonly named perils are and whether named perils coverage is right for your small business? Read on to find out.
What is a peril in insurance?
‘Perils’ is simply an insurance term for hazards that could cause substantial property damage or loss to your personal or commercial property.
In a policy, the named perils definition refers to the hazards that the policy specifically says are covered. Examples of perils are:
Because a named peril policy only covers explicitly stated perils, it tends to be less costly than an open peril (all-risk) insurance policy. And, when coverage is provided on a named peril basis, the burden of proof rests with the insured party. So, they must demonstrate that the named perils were in fact responsible for the loss.
Covering a named peril
For losses to be covered under a named peril policy, the insured has to prove that three criteria were met:
- The perils were explicitly listed in the policy as being covered
- The perils caused damage to the building or your property
- The events had to be accidental and unexpected
The final point is especially important to providers, since coverage depends on whether or not the peril was preventable.
For instance, if you have a fire break out in the office that was caused by old equipment with faulty electrical wiring, the insurance company may not cover the damage to your property.
Because the fire likely could have been avoided by taking proper care and maintenance of your office equipment. However, if a brand-new electronic device caught fire, it would be covered because there was nothing you could have done to avert the risk.
What are common named perils?
Not every commercial property policy will cover the same named perils. Each business needs to perform a risk-assessment and see whether there are perils that aren’t included but need to be. For example, a business in California may want to arrange for earthquake coverage, whereas a Florida business would be fine without it.
What are the most common named perils? They include:
Fire – This refers to anything that produces a spark or a flame, but it doesn’t include smoke damage (that’s a separate peril). Direct damage to property caused by hostile fire (fire that burns outside of where it’s meant to burn) is covered as a fire peril.
Aircraft – Damage that’s caused by falling flying machines such as hot air balloons, planes, helicopters, or spacecraft debris are all considered aircraft perils.
Lightning – If natural electricity causes direct damage, starts fires, or impacts electrical systems, it would be counted.
Explosion – Depending on the language in the policy, explosions may be limited to those that originate within the building, or include those that are in close proximity.
Riot – If a group of people cause damage to the property, it may be considered a riot.
Vehicles – This includes property damage caused by a truck, or motorcycle.
Hail – When hail is a named peril it typically refers to external damage caused by hail. In some cases, inside coverage will be provided, but only if the hail breaches the building.
Theft – If items are stolen from a secured space, they would be covered; however, if the doors were left unlocked, the insurer could claim that you failed to take proper care.
Smoke – Although smoke damage can come from a fire, it can also occur without a fire. This is why it’s commonly listed as a separate named peril from fire.
Point blank, if your policy doesn’t list a specific hazard, and that hazard damages your property, you won’t be protected from the losses. As a result, you’ll be stuck paying for the damages and repairs.
Business owners generally have two types of commercial property coverage to choose from: ‘named perils’ and ‘all-risk.’
All-risk is a more expensive and comprehensive form of commercial property insurance. It covers all perils except for the ones that are explicitly excluded. Some policies call them ‘named exclusions.’ And, unlike a named perils policy, the insurance company has to prove that the peril responsible for the damage was originally excluded. Common exclusions include:
- Employee dishonesty
- Wear and tear
- Boiler explosion
- Governmental seizure of property
- Building ordinance
- Interior damage caused by rain, snow, ice, dust
- Water seepage
If you make the decision to purchase an all-risk policy, it’s vital that you double check the policy to review the exclusions. And, if necessary, it may be wise to get additional coverage in order to shield yourself from higher-risk perils that are common to your area.
Small business insurance: the proper precautions
Purchasing commercial property insurance with a named perils or all-risk policy is one of the primary ways that you can protect your small business from the hazards it might face. But it’s not the only type of insurance you’ll likely require.
For instance, you need general liability insurance to shield yourself from liability claims, such as third-party bodily injury or third-party property damage.
That’s where Thimble can help.
We’re the newer, better, easier, more affordable way to protect your small business from the liability it faces. In less than 60 seconds, you can purchase an on-demand general liability policy by the hour, day, or month. It’s flexible insurance tailored to you. Just download the Thimble app or click “Get a quote” to get started.
Just like your risk assessment identifies what named perils you need, we make sure your policy is right for you. Get general liability insurance with Thimble.
Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.