2.1 Causes of Loss / Named-Peril vs. Open-Peril
Key Takeaways
- A peril is the cause of loss (fire, theft, windstorm); a hazard increases the chance or severity of a peril and is classified as physical, moral, or morale.
- Named-peril forms cover ONLY the perils listed; the burden of proof is on the INSURED to show the loss came from a covered peril.
- Open-peril (special form) covers all direct physical loss EXCEPT exclusions; the burden shifts to the INSURER to prove an exclusion applies.
- ISO commercial property uses the Causes of Loss forms: Basic (CP 10 10), Broad (CP 10 20), and Special (CP 10 30).
- Exclusions like flood, earth movement, ordinance or law, war, and wear-and-tear appear on virtually every property form.
Perils and Hazards
Property insurance turns on two terms candidates confuse constantly. A peril is the cause of a loss — fire, lightning, windstorm, theft, vandalism. A hazard is a condition that increases the likelihood or severity of a peril. Hazards do not themselves cause loss; they make a peril more probable.
Hazards fall into three exam-tested categories:
| Hazard Type | Definition | Example |
|---|---|---|
| Physical | A tangible condition of property | Oily rags in a corner; icy steps |
| Moral | Dishonesty — an intent to cause or exaggerate loss | Owner burns building for the insurance money |
| Morale | Carelessness or indifference because insurance exists | Leaving a car unlocked with keys inside |
Memory trick: moral = dishonesty, morale = carelessness (think low morale = lazy).
Named-Peril vs. Open-Peril Coverage
How a policy lists perils determines what is covered and who must prove the claim.
Named-peril (also called specified peril) coverage insures only the perils explicitly listed in the form. If the peril is not named, there is no coverage. The burden of proof is on the insured to demonstrate the loss arose from a listed peril.
Open-peril coverage (the ISO term is special form; older texts say all-risk) insures all direct physical loss to covered property except losses caused by an excluded peril. Because everything is covered unless excluded, the burden of proof shifts to the insurer to prove that an exclusion applies.
Exam trap: Open-peril is broader, costs more, and reverses the burden of proof. It is NOT “unlimited” coverage — the exclusions are what define the gap.
ISO Causes of Loss Forms
On commercial property, the perils insured are not in the building form (CP 00 10) itself; they are attached through a separate Causes of Loss form. Know these three by name and edition style:
- Basic Form — CP 10 10: named-peril. Covers fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. Memory aid: WCSHAVVERS / “the basic eleven.”
- Broad Form — CP 10 20: the Basic perils plus falling objects, weight of snow/ice/sleet, water damage (accidental discharge), and certain collapse causes.
- Special Form — CP 10 30: open-peril — covers risks of direct physical loss except those excluded.
The Dwelling and Homeowners side mirrors this: DP-1 is basic named-peril, DP-2 is broad named-peril, and DP-3 is open-peril on the dwelling.
A commercial building is insured under the ISO Special Form (CP 10 30). A loss occurs and the cause is unclear. Who carries the burden of proving whether coverage applies?
Standard Exclusions
Nearly every property form, named-peril or open-peril, contains a core list of exclusions. These appear repeatedly on the national exam:
- Flood / surface water — requires separate NFIP or private flood coverage
- Earth movement — earthquake, landslide, sinkhole (earthquake bought back by endorsement or DIC)
- Ordinance or law — added cost to rebuild to current code; bought back via CP 04 05
- War and military action
- Nuclear hazard
- Government seizure or destruction
- Wear and tear, deterioration, inherent vice — maintenance items
The first two (flood and earth movement) are the classic two excluded perils candidates must name on command. Both are excluded because they are catastrophic and non-random — properties in a flood zone all flood at once, defeating risk spreading.
Which of the following is correctly classified as a MORALE hazard?
Direct vs. Indirect Loss and Coverage Triggers
The perils form triggers coverage for direct physical loss — the immediate physical damage to covered property. A separate trigger handles indirect (consequential) loss, the financial fallout that follows the direct loss, such as lost business income or extra expense while the property is repaired. A named-peril or open-peril form must first respond to the direct loss before any time-element coverage applies; if the underlying peril is excluded, the consequential coverage never triggers.
Concurrent causation is a heavily tested wrinkle. When two perils — one covered, one excluded — combine to cause a single loss, ISO open-peril forms use anti-concurrent-causation (ACC) language: if an excluded peril (flood, earth movement) is any part of the causal chain, the whole loss is excluded, even if a covered peril also contributed. This is why a hurricane producing both wind (covered) and storm surge/flood (excluded) leads to disputed claims and is the reason flood must be insured separately.
Finally, distinguish ensuing loss provisions: an exclusion may carve back coverage for the resulting covered peril. For example, faulty wiring is excluded, but the ensuing fire it causes is covered. Candidates should be ready to identify whether a fact pattern is concurrent causation (excluded under ACC) or an ensuing loss (covered carve-back).