What Is The Difference Between An Insuring Clause and Exclusions?

Property insurance can take two different forms: open peril or named peril. Open peril policies cover all losses that are not expressly excluded. These policies almost assuredly include an exhaustive list of excluded causes of loss and excluded types of damage. Such exclusions are often written in complicated terms that courts have interpreted over the years, and reference to court rulings is necessary to fully understand their meaning.

On the other hand, named peril policies to cover physical loss from certain specified causes only. If the peril is not named, then there is no coverage for the resulting loss.

The insured and the insurer have different burdens of proof under these different types of policies.  Under an open peril policy, the insured has the responsibility of proving that the loss was within the policy’s insuring clause.  Under the law, insuring causes in open peril policies must be construed broadly when there is a dispute about whether the loss is covered. The insurer has the burden to prove that the loss was caused by any excluded peril it believes may apply. When there is a dispute about whether an exclusion applies, courts construe the exclusions narrowly.

Under a named peril policy, the insured has the initial responsibility to prove that the loss was caused by a specifically listed peril. The insurer then has the burden to show that the claim was specifically excluded if it believes that to be the case. Similar rules of interpretation apply in the event of a dispute, but the specificity of these policies reduce the number of disputes.

Because this distinction affects this and several other aspects of enforcing property insurance policies, parties should not overlook the specific language of their insuring clauses and should understand that sources outside of the policy language, such as court opinions, can bear on precisely what they mean.