2.1 Causes of Loss / Named-Peril vs. Open-Peril

How Property Policies Define What They Cover

A peril is the cause of loss — fire, windstorm, theft, vandalism. Property policies grant coverage in one of two structural ways, and the exam tests the difference relentlessly because it controls who carries the burden of proof at claim time. Memorize this: under a named-peril form the insured proves the loss came from a listed peril; under an open-peril form the insurer proves the loss falls under an exclusion. That single shift in burden is the most-tested idea in this section.

Named-Peril (Specified-Peril) Forms

A named-peril form lists each covered cause of loss; anything not listed is not covered. The ISO commercial property program packages these in the Causes of Loss — Basic Form (CP 10 10) and Causes of Loss — Broad Form (CP 10 20).

• Basic Form (CP 10 10) covers the classic perils: fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action.
• Broad Form (CP 10 20) adds falling objects; weight of snow, ice, or sleet; water damage from plumbing; and the collapse additional coverage.

Open-Peril (Special / "All-Risk") Forms

An open-peril form — the ISO Causes of Loss — Special Form (CP 10 30) — covers direct physical loss from any cause unless that cause is excluded or limited. Producers and exam writers avoid the obsolete term "all-risk" because no policy covers literally all risks; the carrier still excludes wear and tear, earth movement, flood, ordinance or law, war, nuclear hazard, and intentional acts.

Open-peril is broader and more expensive. Because the burden flips, if the insurer cannot tie the loss to a named exclusion, the loss is covered. On homeowners forms the parallels are HO-2 (broad named-peril) and HO-3/HO-5 (open-peril on the dwelling).

Quick Comparison Table

Trap: Students assume "special" means narrower because it sounds restrictive. It is the opposite — Special Form is the broadest commercial causes-of-loss form.

Direct vs. Indirect Loss

Property causes-of-loss forms address direct physical loss — the immediate damage to covered property. Indirect (consequential) loss is the downstream financial loss that follows, such as lost business income or extra expense while the building is rebuilt. Indirect loss is covered only by separate time-element coverages (ISO Business Income CP 00 30 / CP 00 32), never by the base property form.

The exam pairs this with the proximate cause doctrine: when a covered peril sets off an unbroken chain ending in damage, the loss is covered even if the last link is technically excluded — for example, a covered windstorm that lets in rain. Trace the chain back to the first, efficient cause.

Peril vs. Hazard — Do Not Confuse Them

A hazard increases the likelihood or severity of a peril; it is not itself the cause of loss.

• Physical hazard — a tangible condition (oily rags, an icy sidewalk).
• Moral hazard — dishonest tendencies that invite loss (an insured who would burn a failing business).
• Morale hazard — carelessness or indifference because insurance exists (leaving doors unlocked).

The exam often gives a fact pattern and asks whether the item is a peril or a hazard. Fire is a peril; the oily rags that fed it are a physical hazard. Note too that exclusions narrow open-peril coverage, while special limits cap (but do not eliminate) coverage for items like cash or jewelry — a distinction tested in fact patterns.

The Burden-of-Proof Flip (Most-Tested Idea Here)

The practical difference between named-peril and open-peril forms is who must prove what. Under a named-peril form, the insured must prove the loss was caused by a listed peril. Under an open-peril (special) form, coverage is presumed and the insurer must prove an exclusion applies to deny. That shift is why open-peril coverage costs more and why exam answers about "who has the burden" turn entirely on the form type.

Proximate Cause and the Standard Peril List

Property losses are paid based on the proximate cause — the efficient, unbroken cause that sets the chain of events in motion — not the last event in the chain. If lightning (covered) starts a fire that firefighters extinguish with water damage, the proximate cause is lightning and the water damage is covered as an ensuing loss.

Memorize the basic-form perils (often recalled by mnemonics): Fire, Lightning, Explosion, Smoke, Windstorm/Hail, Aircraft, Vehicles, Riot/Civil commotion, Vandalism, Sinkhole collapse, and Volcanic action. Broad form adds falling objects; weight of ice/snow/sleet; accidental discharge of water/steam; freezing; sudden tearing/cracking of a heating or AC system; and damage from artificially generated electrical current.

Exam Strategy: Name the Form From the Clue Words

Questions rarely say "open peril" outright; they signal it. Phrases like "all risks of direct physical loss except as excluded" point to a special/open form, while a list introduced by "we insure against" signals named perils. When a stem hands you a loss and asks whether it is covered, your first move is to identify the form, because that decides who carries the burden of proof and whether you hunt for the peril (named) or for an exclusion (open). Memorize that special form = open = insurer proves exclusion; everything else flows from that single fact.