4.3 Section I Perils Insured Against and Exclusions

Named Perils vs. Open Perils

The perils basis determines the burden of proof. Under named perils, the insured must prove the loss was caused by a listed peril. Under open perils (special form), the insured need only prove a direct physical loss occurred; the insurer then bears the burden of proving an exclusion applies. This shift in burden is the practical advantage of HO-3/HO-5 over HO-2.

The HO-2 broad-form list of named perils (also used for HO-3/HO-5 Coverage C) is commonly remembered with the acronym for the basic perils plus the broad additions. The basic perils are: fire/lightning, windstorm/hail, explosion, riot/civil commotion, aircraft, vehicles, smoke, vandalism, and theft (plus volcanic eruption).

The Broad-Form Named Perils

Broad form adds several perils to the basic list. Memorize the full broad-form set because HO-2 and HO-3 Coverage C are written to it:

Note the modifiers: water damage must be 'sudden and accidental' and from a system on the premises; gradual seepage over weeks is excluded. Freezing is covered only if the insured used reasonable care to maintain heat or shut off and drained the system.

Section I Exclusions

Even under open-perils HO-3, the following are excluded regardless of how they occur. These appear constantly on the national exam:

• Ordinance or law (cost of upgrading to current code, beyond the small additional coverage)
• Earth movement (earthquake, landslide, sinkhole, mudflow) - covered only by endorsement
• Water damage - flood, surface water, sewer/drain backup, and groundwater are excluded; backup requires an endorsement, flood requires a separate NFIP/private flood policy
• Power failure off the premises
• Neglect (failure to protect property after a loss)
• War, nuclear hazard
• Intentional loss by an insured
• Governmental action

The top two real-world coverage disputes are flood vs. wind (hurricane) and gradual leak vs. sudden discharge. A burst pipe is covered; a slow leak that rots a subfloor over months is excluded as gradual seepage.

Anti-Concurrent Causation

Homeowners forms contain an anti-concurrent causation (ACC) clause: if an excluded peril (e.g., flood) combines with a covered peril (e.g., wind) to cause a loss, the loss is excluded even if the covered peril contributed. This is why hurricane claims hinge on whether damage was 'wind-driven' (covered) or 'storm-surge flooding' (excluded under the ACC clause and shifted to the NFIP).

Practical trap: A claimant whose home is destroyed by hurricane storm surge cannot recover under the HO policy even though wind was also present - the ACC language excludes the entire loss attributable to the flood sequence. Adjusters allocate damage between covered wind and excluded surge.

Remember the distinction between direct loss (physical damage to covered property) and indirect/consequential loss (loss of use, spoilage). Section I covers direct loss; indirect loss is covered only where the form specifically grants it (Coverage D, food spoilage endorsement).

Intentional Loss, Neglect, and the Government-Action Exclusions

Beyond the catastrophe exclusions, the homeowners Section I form lists conduct-based and policy-design exclusions candidates must know. Intentional loss caused by an insured is excluded for every insured, a provision tightened so an innocent co-insured spouse cannot recover when the other commits arson. Neglect bars recovery when the insured fails to use reasonable means to save and preserve property at and after a loss.

Governmental action (seizure or destruction by order of authority) is excluded, except destruction ordered to stop the spread of a covered fire, which is paid. Power failure off the residence premises and war and nuclear hazard are excluded as well. The form's structure — broad insuring agreement, then the catastrophe group, then the conduct group, then exceptions that buy specific items back — is exactly the three-step path candidates should walk on every coverage question: insuring agreement, exclusion, then exception or endorsement.

The Broad-Form Named Perils List

Candidates should be able to recite the broad-form named perils that apply to contents under the HO-2 and HO-3 (and to both structure and contents under the HO-2). They are fire/lightning; windstorm/hail; explosion; riot/civil commotion; aircraft; vehicles; smoke; vandalism/malicious mischief; theft; falling objects; weight of ice, snow, or sleet; accidental discharge or overflow of water or steam; sudden tearing/cracking/bulging of a heating or water system; freezing of plumbing; and sudden artificial electrical-current damage.

A frequent trap is that the water-related perils cover sudden and accidental discharge but exclude continuous or repeated seepage over time, and freezing is covered only if the insured used reasonable care to maintain heat or shut off and drain the system. Knowing which perils require sudden-and-accidental wording separates passing candidates from those who assume all water damage is covered.

Earth Movement, Water, and Concurrent-Cause Wording

The two catastrophe exclusions candidates most often misapply are earth movement (earthquake, landslide, sinkhole, mine subsidence) and water damage (flood, surface water, sewer backup, and underground water). Both can be bought back: earthquake by the HO 04 54 endorsement and sewer/drain backup by the HO 04 95 Water Backup endorsement, while true flood requires a separate NFIP or private flood policy. The form's anti-concurrent-causation lead-in means that if one of these excluded forces contributes to a loss in any sequence with a covered peril, the whole loss is excluded unless an endorsement restores it.