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

What "Cause of Loss" Means

A peril is the cause of a loss; a hazard is a condition that increases the chance or severity of that loss. The exam tests both the vocabulary and the way commercial and personal forms decide which perils are covered. ISO packages property perils into the Causes of Loss forms used with the Building and Personal Property Coverage Form (CP 00 10): the Basic Form (CP 10 10), Broad Form (CP 10 20), and Special Form (CP 10 30).

Named-Peril vs. Open-Peril

The single most-tested distinction in property insurance is how a policy lists what it covers.

• Named-peril (specified-peril) policies cover only the perils written into the form. If the cause of loss is not listed, there is no coverage. The burden of proof is on the INSURED to show the loss came from a listed peril.
• Open-peril (special-form, "all-risk") policies cover all direct physical loss except what the policy specifically excludes. The burden of proof shifts to the INSURER to prove an exclusion applies.

Open-peril is broader and costs more; named-peril is narrower and cheaper. The word "all-risk" is being retired by ISO in favor of "special form," but exams still use both.

The Basic Form Perils (memorize)

The Basic Form (CP 10 10) covers these named causes of loss. A common mnemonic is WCSHAFTER-VV — but most candidates simply memorize the list: Fire, Lightning, Explosion, Windstorm or Hail, Smoke, Aircraft or Vehicles, Riot or Civil Commotion, Vandalism, Sprinkler Leakage, Sinkhole Collapse, and Volcanic Action. Note that Vandalism appears on the Basic form in commercial property even though new homeowners students often think it is "broad."

What the Broad Form Adds

The Broad Form (CP 10 20) includes everything in Basic and adds: falling objects; weight of snow, ice, or sleet; water damage (accidental discharge from a system); and breakage of building glass. It also adds collapse as an additional coverage. These are the classic "broad" extras the exam expects you to attribute to the Broad form, not the Basic form.

Direct vs. Indirect Loss

• Direct loss is the physical damage to property itself — a fire burns the building.
• Indirect (consequential) loss is the financial loss that follows the direct loss — lost business income, extra expense, or spoilage while the building is repaired. Indirect coverage (e.g., Business Income, CP 00 30) requires a covered direct loss to trigger it.

Hazards: The Three Types

Underwriters classify conditions that raise risk:

1. Physical hazard — a tangible condition (oily rags, an icy sidewalk, frayed wiring).
2. Moral hazard — dishonesty or a tendency to cause a loss intentionally (an owner with a history of suspicious fires, or who is in financial trouble and might torch a failing business).
3. Morale hazard — indifference or carelessness because insurance exists (leaving doors unlocked, not bothering to shovel). Moral = dishonest intent; morale = careless attitude. The exam loves this pair.

Common Open-Peril Exclusions

Even a Special Form excludes predictable, catastrophic, or maintenance-type losses. Memorize that these are typically excluded: wear and tear, deterioration, inherent vice, mechanical breakdown, vermin/insects/rodents, settling/cracking, flood and earthquake (covered only by separate policy or endorsement), war, nuclear hazard, and ordinance or law. Two of these — flood and earth movement — are excluded on essentially all standard property forms; flood is handled through the NFIP, earthquake through a separate policy/endorsement (DIC).

Exam Trap

A frequent stem says a special-form policy "covers everything." It does not — it covers all direct physical loss except the exclusions. If a candidate sees flood, earthquake, wear-and-tear, or intentional acts, those are out even under open-peril.

What Each Causes-of-Loss Form Adds

The three ISO commercial forms build on one another, and the exam expects you to know the dividing lines:

Exam trap: Only the Special form covers theft by default and uses open-peril coverage; Basic and Broad are named-peril and must list the cause.

Standard Exclusions Even Under Open Peril

Open-peril coverage is not unlimited. The Special form still excludes the predictable categories tested across property lines: flood, earthquake, war, nuclear hazard, wear and tear, inherent vice, ordinance or law, and intentional acts. Flood and earthquake are written back only by separate policies or endorsements (DIC, NFIP, earthquake endorsement).

Anti-Concurrent Causation

When a covered peril and an excluded peril combine to cause one loss, an anti-concurrent causation clause can bar the entire claim if the policy says losses are excluded "regardless of any other cause or event contributing concurrently." This is why a windstorm-plus-flood loss may be denied under a property form even though wind alone would be covered — the flood exclusion, written with anti-concurrent language, controls. Recognizing this clause explains many coastal-loss disputes the exam references.