Legal Definitions - open policy

An open policy, also known as an unvalued policy, is a type of insurance contract where the precise monetary value of the insured property or interest is not agreed upon or specified at the time the policy is purchased. Instead, the policy sets a maximum limit of coverage, and the actual value of the loss is determined *after* an insured event occurs, such as a theft or damage. The insurer will then pay out the assessed value of the loss, up to the agreed maximum limit. This contrasts with a "valued policy," where the parties agree on a specific value for the insured item beforehand.

Here are some examples to illustrate how an open policy works:

• Art Collection Insurance: Imagine a private art collector who owns a diverse collection of paintings, sculptures, and antique artifacts. The market value of these pieces can fluctuate, and some might be new acquisitions whose exact value is still being appraised. Instead of trying to assign a fixed value to each individual piece when purchasing insurance, the collector opts for an open policy with a total coverage limit of, for instance, $5 million. If a fire damages several artworks, an independent appraiser would assess the current market value of the damaged pieces *after* the fire, and the insurer would pay out that assessed value, up to the $5 million policy limit. This illustrates an open policy because the specific value of the loss is determined post-event.

• Retail Business Inventory: A small electronics store carries a constantly changing inventory of laptops, smartphones, and accessories. New stock arrives weekly, and items are sold daily, making it impractical to update the exact value of the entire inventory with the insurer every day. The store owner purchases an open policy for their inventory with a maximum coverage of $500,000. If a burst pipe floods the store and destroys a significant portion of the stock, the insurance company would send an adjuster to assess the value of the damaged inventory at the time of the incident. The payout would be based on this post-loss assessment, up to the $500,000 policy limit, demonstrating the flexibility of an open policy for fluctuating assets.

• Household Contents Insurance: Most standard homeowner's insurance policies for personal belongings operate as open policies. It would be nearly impossible for a homeowner to list and assign a precise value to every single item in their home—from furniture and electronics to clothing and kitchenware—at the time they purchase the policy. Instead, the policy specifies a total coverage limit for contents (e.g., $150,000). If a burglary occurs, the homeowner would provide a list of stolen items, and the insurer would then assess the replacement cost or actual cash value of those items *after* the theft, paying out the determined value up to the $150,000 limit. This is a common application of an open policy for items whose individual values are not fixed upfront.