How to choose between named perils and open perils coverage

Every property policy answers the question of what caused the damage in one of two ways. A named perils form lists the causes it covers, and anything not on the list is not covered; after a loss, the burden is on you to show the damage came from one of the listed causes. An open perils form, also called special form or all-risk, covers any cause of loss except the ones it specifically excludes; after a loss, the burden is on the carrier to show the cause falls within an exclusion. The difference is invisible when a kitchen fire is the cause, because fire is on every list and excluded by no one. It becomes the whole claim when a television falls off the wall, a pipe leaks slowly behind a cabinet, or a ring goes down a drain.

Choosing between them is not a philosophical decision. It is a matter of finding out which basis each part of your policy is on today, listing the losses that fall between the two, deciding whether those losses are ones you would rather insure or absorb, and pricing the upgrade. This guide does that in order, with the forms named and the exclusions that survive even the broadest coverage set out plainly.

What to gather first

The answer is in the policy form, not on the declarations page, so you will need the whole document.

• The full policy booklet or PDF, including the form number printed on it, such as HO-3, HO-5, HO-4, HO-6, DP-1 or DP-3, and every endorsement attached.
• The declarations page, for the deductible and the contents limit.
• A list of the property losses your household has actually had or nearly had in the past several years, however small, since they show which perils matter for your house.
• For a landlord, the same for each rental, and a note of whether the tenant's contents are yours to insure at all.
• The age, construction and maintenance state of the house, because carriers set eligibility for the broader forms on them.

Step one: find which basis each part of the policy is on

Homeowners forms split the question between the building and its contents. The most common homeowners form, the HO-3, insures the dwelling and other structures on an open perils basis and the contents on a named perils basis. The HO-5 insures both on open perils. The older HO-2 insures both on named perils, and is now uncommon. Renters on an HO-4 and condominium owners on an HO-6 have their contents on named perils unless an endorsement changes it, and the HO-6 building items, meaning the interior finish the owner is responsible for, follow the same basis as the contents on most forms. Landlord dwelling forms run from the DP-1, which is a short named perils list that often omits theft and water damage, to the DP-3, which is open perils on the building.

Find the form number and then read the section headed perils insured against. On a named perils form it is a list; on an open perils form it is a sentence about risks of direct physical loss followed by a list of exclusions. Many carriers also sell an endorsement that moves the contents on an HO-3 or HO-4 to open perils without changing the whole form, and it is worth checking whether one is already attached before assuming the default applies.

Step two: list the losses that fall between the two

The named perils list on a standard homeowners form covers fire and lightning, windstorm and hail, explosion, riot, aircraft, vehicles, smoke, vandalism, theft, falling objects, weight of ice and snow, accidental discharge of water or steam from plumbing and appliances, sudden tearing apart of a heating or air conditioning system, freezing, sudden damage from artificial electrical current, and volcanic eruption. That is a long list, and it covers the dramatic losses. The gap is everything else: an item dropped and broken, paint spilled on a rug, a television knocked from its mount, a laptop crushed in a bag, a pipe that has been seeping for months, a garage door that fails and crushes a bicycle, a lost or misplaced item, and any water damage whose cause cannot be shown to be sudden.

Open perils covers those, subject to its own exclusions, and the exclusions are worth reading because they do not go away with the broader form. Flood and surface water are excluded on every homeowners form and need a separate flood policy; earthquake likewise. Wear and tear, deterioration, rust, rot, mould, settling and cracking, animals and insects, neglect, intentional acts, ordinance or law, power failure off the premises, and continuous or repeated seepage over a period of time are all excluded on open perils forms too. What open perils adds is the accidental, the unexplained and the sudden-but-not-listed, and it reverses who has to prove what.

The burden of proof is not academic. A ceiling stained by water with no visible burst pipe is, on a named perils form, a claim you must fit into the accidental discharge peril and the carrier can decline for want of evidence; on an open perils form, the carrier must identify an exclusion that applies, such as long-term seepage, and prove it. In Arizona's monsoon, where wind-driven rain enters around a flashing and nobody can say when, and in Idaho winters, where a frozen line thaws and leaks into a wall before anyone knows, that reversal decides many claims.

Step three: decide which of those losses you would rather insure

Look at the list of gap losses and be honest about which ones you would actually claim. Under a typical deductible, a broken television or a spilled tin of paint falls below the threshold or barely above it, and an owner who would not file for them gains little from covering them. The losses that matter are the water events with an unclear cause, the collapse of something heavy on to something valuable, and the accidental damage to expensive contents that a named perils form would not touch. Households with a lot of valuable contents, with a house whose plumbing is old, or with a history of small water incidents get the most from open perils on contents. A minimal renter with a modest set of belongings gains less, and may reasonably stay on named perils and schedule the one or two items that matter.

For the dwelling, the decision is usually made for you: an HO-3 already puts the building on open perils, and a DP-3 does the same for a rental. The choice is live for landlords deciding between a DP-1 and a DP-3, where the DP-1 saves premium by dropping theft, water damage and most of the broad list, and is only sensible for a building with a very low value or a very high deductible.

Step four: price it and check eligibility

Ask for the quote three ways: the current form as it stands, the same form with the contents moved to open perils by endorsement, and a full HO-5 where the carrier offers one. The HO-5 typically comes with replacement cost on contents built in and sometimes with higher default sublimits, so the comparison should be like for like. The premium difference for the endorsement alone is often modest; the HO-5 is more, and part of what it buys is the higher contents settlement basis rather than the perils basis.

Eligibility is the other half. Carriers write the HO-5 and the contents endorsement more readily for newer, well-maintained homes with updated roofs, plumbing and electrical systems, and some will not write them at all for older housing in parts of Las Vegas, Ogden or Boise where the stock predates modern plumbing. If the broader form is declined, the practical alternatives are a higher contents limit with scheduled items on the existing form, or a different carrier. Whatever form results, revisit the deductible; a broader form with a very low deductible invites small claims that raise the premium, and a moderate deductible with open perils is usually the better pairing.

Common mistakes

The confusion between the two bases produces the same errors repeatedly.

• Reading the declarations page and assuming everything on it is covered against everything; the declarations page lists limits, and the form lists perils.
• Believing an HO-3 covers contents on the same basis as the building.
• Buying open perils and then assuming flood, earthquake or gradual water damage is covered; the exclusions survive the upgrade.
• Filing a named perils contents claim for an accidental breakage and being surprised by the denial.
• Choosing a DP-1 for a rental to save premium and discovering after a tenant's departure that theft and water damage were never covered.
• Upgrading to open perils and leaving the contents limit and the valuation basis at actual cash value, so the broader coverage pays depreciated figures.
• Not asking whether a contents endorsement is available before concluding that open perils means a whole new form.

A worked example

Suppose a household in Tucson has an HO-3 with a $350,000 dwelling limit, $175,000 of contents on named perils at replacement cost, and a $2,000 deductible, at a premium of $1,900. They ask for the contents endorsement and are quoted an extra $140 a year; an HO-5 is quoted at $2,250, but they already have replacement cost on contents so the difference is mostly the perils basis. They take the endorsement. The following summer a monsoon storm drives rain under a roof flashing and into a bedroom wall, and by the time the stain shows, the drywall, the carpet and a wardrobe of clothes are ruined; nobody can say which storm did it. The dwelling side is open perils on the HO-3 and pays for the wall and the carpet. The contents side, now open perils, pays $6,000 for the clothes and furniture less the deductible after the carrier fails to show the seepage exclusion applies to what was clearly storm entry. On the original named perils basis the contents claim would have depended on fitting the loss into windstorm or accidental discharge, and the carrier would have declined it for want of a sudden event. The figures are hypothetical.

How to use this

Send us the policy form and the declarations page and we will tell you which basis each part is on, quote the endorsement and the HO-5 side by side across the carriers we represent in Arizona, Nevada, Utah and Idaho, and say which the contents and the house justify. If the form is already open perils on both sides, or the contents are modest enough that the gap losses would never clear the deductible, the finding is that the policy is right as it is and there is nothing to buy.