It is standard practice for agents and brokers to default to the open perils causes of loss when proposing property insurance. As instructors, we often cite the primary advantage this form has over basic or broad perils to the insured, the burden of proof. In a named peril contract, the burden falls to the insured to show that a described peril caused the loss. In the open peril form, that burden shifts to the insurance company to show coverage is precluded by an exclusion or limitation.

This point was reinforced to me when I had the opportunity to clean out my archives when we recently moved to Denver, Colo. Among the musty documents I was sorting, I found two claims summaries from my underwriting years that highlight some difficulties in named perils policies. One is an inland marine example; the other is a standard fire policy. Although these were many years ago, their lessons resonate today.

The Case of the Tall Giraffe on the Short Ride:

A small zoo in eastern Ventura County, Calif. purchased a Giraffe from a wild animal park in San Diego County. The terms of sale made the purchaser responsible at the point of sale, not the point of delivery. In marine terms, that would be "FOB point of sale" versus "FOB point of shipment".

The zoo set about to arrange transportation: they modified an open trailer (giraffes are tall) to drive the animal up to its new home; they carefully planned the route to avoid freeways (giraffes can be nervous animals prone to stress trauma); and, having completed risk management, proceeded to arrange some risk transfer.

The finance officer negotiated a one way trip certificate to cover the animal for a high five figure limit. The terms of the policy would begin at the effective date of the move and automatically expire upon completion. The covered perils in addition to fire or lightning included the following transit exposures:

Death or Destruction made necessary by;

• Collapse of bridges or culverts.
• Collision upset or overturn of the transporting conveyance.

Once coverage was secured, the move began. As they approached Ventura County, a flaw in the route plan became tragically apparent. While they had carefully considered the length and duration of the route, they failed to account for height. The course took them under a railway crossing. The math added up to catastrophe. A trailer mounted giraffe at 20 feet divided by an 18 foot overpass yields a bad outcome.

Covered or not covered?

While the named perils selected covered the peril of collision, the language restricts the response to the transporting conveyance. In this case it was the animal that collided with the abutment, not the vehicle.

An open peril trip certificate, while more costly, had no exclusion that would have applied to this event. This option was offered but declined in what proved to be a bad purchasing decision.

An additional peril covering collision of the animal with any vehicle or object could have been brokered, but why bother when the open peril option is a more elegant solution?

Add Water and Stir!

The next case involves a standard fire policy on a restaurant in Springfield, Mass. That establishment is long gone, but the memorable example of a wedding reception in that facility remains. Not so much for the music and dancing, but for what proved to be a memorable meal.

Here's the coverage: A standard fire policy with fire and lightning, the extended coverage endorsement and vandalism and malicious mischief. That is today's equivalent of Basic Perils.

Here's what happened: The restaurant specialty featured middle-eastern cuisine. As the guests were seated for the banquet, the lights dimmed and a column of waiters, lined up by height, paraded in brandishing crossed skewers of flaming shish kebab.

Now the restaurant was in an older brick building equipped with a dry pipe sprinkler system on the Grinnell standard of 1899. The pipes were exposed with the sprinkler heads pendant beneath them. This put the sprinkler heads about eight feet from the floor. As the tallest waiters passed below a line of sprinkler heads, the flames from the burning skewers melted the fusible links on the sprinkler heads.

The wedding party first heard the high pitched rush of the compressed air escaping from the sprinkler pipes. In the next minute they were deluged by a torrent of 25 gallons of water per minute from five sprinkler heads.

Following the excitement that the wedding party did not bargain for, the restaurant was left with five figures of water damage. Covered or not covered?

Did a friendly fire or a hostile fire trigger the sprinkler heads? This was an interesting argument since the named perils did not include sprinkler leakage.

The matter was resolved by a generous interpretation of hostile fire by the insurance company that may have had a different outcome if another zero was added to that claim. Once again, open perils would have removed any doubt over a covered peril.

Lessons Learned?

It's always more effective to manage exclusions and limitations than to anticipate naming perils.

To me, an open perils policy is like reading the obituaries every morning. If your name isn't in them, you can have a good day.

When you read coverage on an open perils form, if it isn't excluded, you can expect coverage. That too can be a good day!

Alan M. Parizo AFIS, CISC, ACSR is on the faculty of the Agribusiness Farm Insurance Specialist (AFIS) designation. This article originally appeared on theinsurancecommunitycenter.com.