Protection issues in distribution systems which are to be operated in open and closed-loop modes in a smart grid are studied and a generalized protection setting method is proposed to meet the new requirements. The developed setting method assumes a conventional over-current protection scheme for the system with reclosers and over-current relays. In a closed-loop mode, it identifies protective devices that have to be sacrificed in order to maximize protection coordination for bidirectional fault current flow. The proposed setting method has been tested on many systems with different complexity and is proved effective.