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

Perils, Causes of Loss, and How Coverage Is Triggered

A peril is the cause of a loss — fire, windstorm, theft, water damage. Property forms decide which perils are covered in one of two ways: they either name the covered perils, or they cover risk broadly and then list what is excluded. This single design choice controls the burden of proof and is among the most heavily tested ideas on the national portion of the exam.

Under a named-peril form, the policy lists each covered cause of loss. If a peril is not on the list, there is no coverage. The insured carries the burden of proof: the policyholder must show the loss was caused by a listed peril. Examples include the ISO Homeowners HO-2 (Broad Form) and the Dwelling DP-1 (Basic) and DP-2 (Broad) forms.

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

An open-peril form — ISO calls it "special" form, the older term is "all-risk" — covers all direct physical loss except what is specifically excluded. Because coverage is presumed, the insurer carries the burden of proof: the company must show an exclusion applies to deny the claim. This is broader protection and the reason special-form policies cost more.

Key ISO mappings to memorize:

Trap: The HO-3 is the most common homeowners form. Candidates routinely answer that an HO-3 covers personal property on an open-peril basis — it does not. The HO-3 dwelling/structures are open peril, but personal property remains named peril on the HO-3. Only the HO-5 (and HO-3 with the HO 00 15 endorsement) extends open-peril coverage to contents.

Standard Named Perils

The basic named perils (DP-1 / HO-2 core) generally include fire, lightning, windstorm, hail, explosion, riot, aircraft, vehicles, smoke, vandalism, and (on broad forms) volcanic eruption, falling objects, weight of ice/snow/sleet, accidental discharge of water, freezing, and artificially generated electrical current. A useful mnemonic for the basic perils is WHARVES: Windstorm/hail, Hail, Aircraft, Riot, Vehicles, Explosion, Smoke (plus fire and lightning).

Concurrent causation is a tested wrinkle: when a covered peril and an excluded peril combine to cause one loss. Modern ISO forms include anti-concurrent-causation (ACC) language — if an excluded peril (e.g., flood or earth movement) contributes "in any sequence," the entire loss is excluded. This is why a home destroyed by flood-driven water and wind together is often denied under a non-flood policy.

Common Exclusions (Open-Peril Forms)

Even open-peril forms exclude predictable, catastrophic, or maintenance perils. The standard exclusion set includes:

• Ordinance or law (cost to rebuild to current code)
• Earth movement (earthquake, landslide, sinkhole)
• Flood and surface water
• Power failure originating off-premises
• Neglect and failure to mitigate
• War, nuclear hazard, and intentional loss
• Governmental action (seizure, destruction)
• Wear and tear, deterioration, mechanical breakdown, rust, mold, vermin

The first set above (often grouped on the dwelling section) carries ACC wording. Earthquake and flood are added back only by endorsement or a separate policy (NFIP for flood, DIC for difference-in-conditions).

Direct vs. Indirect Loss and Proximate Cause

Property forms distinguish direct loss — physical damage to covered property from a covered peril — from indirect (consequential) loss, the financial fallout such as lost rents, business income, or extra expense. A homeowners or dwelling form pays direct loss to the structure; the resulting loss of use is a separate, often percentage-based coverage. On the exam, recognize that time-element coverages (Fair Rental Value, ALE, Business Income) are indirect-loss coverages triggered only when a covered direct loss makes the property untenantable.

The doctrine of proximate cause decides which peril "caused" a loss when several events chain together. The proximate cause is the first event in an unbroken sequence that sets the others in motion. If a covered peril sets off the chain, the entire resulting loss is generally covered even if a later link would have been excluded; if an excluded peril starts the chain, anti-concurrent-causation language can bar the whole loss.

Specified (Named) Peril Burden of Proof in Detail

The named-peril versus open-peril distinction is more than vocabulary — it allocates the burden of proof and shapes how a claim is investigated. Under a named-peril form, the insured must affirmatively show the loss was caused by a peril listed in the policy; an unexplained or mysterious loss is not payable because the insured cannot tie it to a covered cause. Under an open-peril (special) form, every risk of direct physical loss is covered unless excluded, so the insurer must identify and prove an applicable exclusion to deny.

This shift explains why open-peril coverage costs more and why exam scenarios involving disappearance, cracking, or unexplained damage hinge on which form applies. It also underlies the "ensuing loss" concept: even when a cause is excluded, a separate covered peril that ensues (for example, a fire that follows an excluded event) is paid.