Property & Casualty Insurance Exam (National Portion)Property and Casualty Insurance BasicsHard
A policyholder's car is stolen. The policy includes coverage for 'theft' but has an exclusion for 'losses due to conversion, embezzlement, or secretion by any person in lawful possession of the covered auto.' This exclusion is an example of a specific peril being excluded from a broader covered peril. This is characteristic of:
- AReplacement Cost Policy
- BActual Cash Value Policy
- COpen Peril Policy
- DNamed Peril Policy
Show answer & explanationAnswer & explanation
Correct answer: C. Open Peril Policy
An Open Peril (or All-Risk) policy covers all perils except those specifically excluded. The scenario describes a broad peril (theft) being covered, but with specific exclusions (conversion, embezzlement) carving out specific circumstances from that coverage. This structure is typical of an Open Peril policy, where exclusions are listed to narrow down the broad grant of coverage.
Why the other options are wrong
- A. Replacement Cost refers to how a loss is valued, not what perils are covered.
- B. Actual Cash Value refers to how a loss is valued, not what perils are covered.
- D. A Named Peril policy only covers perils specifically listed; it would not grant broad theft coverage then exclude specific theft types in this manner.
Open Peril Policy
An insurance policy that covers all causes of loss unless specifically excluded in the policy.
- Also known as 'All-Risk' or 'Special' coverage.
- Provides broader coverage than 'Named Peril' policies.
- Burden of proof is on the insurer to show an exclusion applies.
Memory trick: Peril Policies: Named is a LIST, Open is an EXCLUSION list.