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

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

Property insurance pays for direct physical loss only when the cause of loss (the peril) is covered. The single most-tested distinction on the national portion is how a policy decides which perils are covered: by naming them (named-peril) or by covering everything except what is excluded (open-peril, also called "all-risk" or "special" form).

A named-peril form lists each covered cause of loss. If the peril is not on the list, there is no coverage. The burden of proof is on the insured: the policyholder must show that the loss arose from a listed peril. ISO uses the Causes of Loss - Basic Form (CP 10 10) and Causes of Loss - Broad Form (CP 10 20) on the commercial side, and the Dwelling DP-1 and Homeowners HO-1/HO-2/HO-3 forms on the personal side.

Basic vs. Broad named perils

The ISO Basic Form (CP 10 10) lists the core perils. The Broad Form (CP 10 20) adds several more and is the source of many exam traps.

Memory aid for Basic: the perils spell loosely "We FELL VENS" — Wind/hail, Fire, Explosion, Lightning, Leakage (sprinkler), Vandalism, Etc. Broad adds the three "falling, freezing, water" perils.

Open-peril (Special Form, CP 10 30)

The Special Form (CP 10 30) and the personal HO-3 / HO-5 flip the logic: every direct physical loss is covered unless an exclusion or limitation applies. The burden of proof shifts to the insurer, who must prove a loss falls under an exclusion to deny it. This broader coverage commands a higher premium.

Common open-peril exclusions to memorize: wear and tear, deterioration, inherent vice, latent defect, rust/corrosion, mold, insects/vermin, settling/cracking, faulty workmanship, and the "big two" catastrophe exclusions — flood and earthquake — plus war, nuclear hazard, and intentional acts. Flood and earthquake are excluded on virtually every standard property form and must be added by endorsement or a separate policy (e.g., NFIP).

Perils vs. hazards (don't confuse them)

A peril is the actual cause of loss (fire, theft, wind). A hazard is a condition that increases the likelihood or severity of a peril. Three hazard types are tested:

• Physical hazard — a tangible condition (oily rags in a basement, a frayed cord).
• Moral hazard — dishonesty or a tendency to cause loss intentionally (arson for profit, a history of padded claims).
• Morale hazard — indifference to loss because insurance exists (leaving doors unlocked, careless habits).

The distinction "moral = dishonest intent" versus "morale = carelessness/indifference" is a classic single-word trap on the national exam.

Ensuing-Loss and Anti-Concurrent-Causation

Two clauses refine how exclusions work and both are tested. An ensuing-loss provision restores coverage for a covered peril that follows an excluded one: faulty wiring (excluded faulty workmanship) is not covered, but the fire it causes is. An anti-concurrent-causation (ACC) clause, common on flood and earth-movement exclusions, denies the entire loss if an excluded peril contributes in any sequence with a covered peril. ACC is why wind-driven storm surge is often denied as flood even when wind also blew.

Proving the Cause of Loss

The burden of proof drives claim outcomes. On a named-peril form the insured must prove the loss came from a listed peril; if the cause is unknown, the claim fails. On an open-peril form the loss is presumed covered and the insurer must prove an exclusion. This is the single largest practical advantage of buying special-form coverage and a frequent exam answer.

Exam summary: Named-peril = insured proves a listed peril (Basic CP 10 10, Broad CP 10 20, DP-1/HO-2). Open-peril = insurer proves an exclusion (Special CP 10 30, HO-3/HO-5). Flood and earthquake are excluded on essentially all standard forms.

Building the Mental Map

Think of coverage breadth as a ladder. At the bottom sits the Basic Form (CP 10 10) and the dwelling DP-1, covering a short list of perils. The Broad Form (CP 10 20), dwelling DP-2, and homeowners HO-2 add falling objects, weight of ice and snow, and accidental water discharge. At the top, the Special Form (CP 10 30), dwelling DP-3, and HO-3/HO-5 cover open-peril. As you climb the ladder, premium rises and the burden of proof shifts toward the insurer.

Knowing where a given form sits lets you answer dozens of coverage-scope questions quickly, because the exam often asks which form is needed to cover a peril such as weight of ice and snow (Broad and above) or theft of the dwelling structure (Special and above).