Georgia Property & Casualty Practice Exam

Which of the following statements correctly describes the difference between an open perils policy and a named perils policy?

1. A named perils policy covers many more causes of loss than an open perils policy.

2. A named perils policy requires the policyowner to show the cause of loss is covered, while the insurer has the burden of proving that the loss is excluded with an open perils policy.

3. A named peril policy excludes certain types of peril, while an open perils policy covers virtually every possible cause of loss.

4. Open peril policies are less expensive than named peril policies.

The correct answer is: A named perils policy requires the policyowner to show the cause of loss is covered, while the insurer has the burden of proving that the loss is excluded with an open perils policy.

The statement that accurately describes the difference between an open perils policy and a named perils policy is that a named perils policy requires the policyholder to demonstrate that the cause of loss is included in the policy, while with an open perils policy, the insurance company must prove that the loss is excluded. This distinction is crucial because a named perils policy only covers the specific risks listed in the policy. Therefore, if a loss occurs, the insured must provide evidence that the loss corresponds to one of the named perils to receive compensation. In contrast, an open perils policy, often also referred to as an all-risk policy, is designed to cover all losses except for those that are specifically excluded. This places the responsibility on the insurer to identify and justify any exclusions that would prevent a claim from being paid, which gives policyholders a broader and more flexible coverage. In contrast, other statements either misinterpret the definitions of the policies or present inaccurate comparisons. For instance, a named perils policy does not cover more causes of loss than an open perils policy; in fact, it typically covers fewer. The assertion that an open perils policy covers virtually every possible cause of loss is accurate, but it does not align with the distinction