Section I Perils Insured Against and Exclusions
Key Takeaways
- Named-peril = insured proves a listed peril caused the loss; open-peril = insurer must prove an exclusion applies.
- HO-3 writes Coverage A/B open-peril but Coverage C named-peril; HO-2 is named-peril throughout.
- Water discharge and freezing perils cover only SUDDEN and ACCIDENTAL events - continuous seepage is excluded as maintenance.
- The most-tested exclusions exclude flood (surface water) and sewer backup; flood needs NFIP, backup needs HO 04 95.
- Open-peril Coverage A adds exclusions for wear/tear, mold/rot, settling, vermin, and mechanical breakdown.
Open Peril vs. Named Peril
The burden of proof shifts depending on how a coverage is written. Under named-peril coverage (HO-2 throughout, HO-3 Coverage C, HO-4/6 contents), the insured must prove the loss was caused by a listed peril. Under open-peril ('all-risk') coverage (HO-3 Coverage A/B, HO-5 throughout), all direct physical loss is covered UNLESS specifically excluded - so the insurer must prove an exclusion applies. This shift is a frequent exam concept.
Open-peril is broader and more expensive precisely because the policy starts from 'everything is covered' and then carves out exclusions, rather than starting from a finite list of insured perils.
The Named Perils (HO-2 / HO-3 Contents)
The Broad Form named perils insured against - tested as a list:
- Fire or lightning
- Windstorm or hail
- Explosion
- Riot or civil commotion
- Aircraft
- Vehicles
- Smoke
- Vandalism or malicious mischief
- Theft
- Falling objects
- Weight of ice, snow, or sleet
- Accidental discharge or overflow of water or steam (plumbing/HVAC)
- Sudden and accidental tearing apart, cracking, burning, or bulging of a steam/hot-water system
- Freezing of plumbing/HVAC
- Sudden and accidental damage from artificially generated electrical current
- Volcanic eruption
Trap: numbers 12 and 14 cover sudden and accidental water discharge and freezing - continuous or repeated seepage over weeks/months is excluded as a maintenance issue. Likewise, freezing is excluded if the insured failed to maintain heat or shut off the water in a vacant dwelling.
Section I Exclusions
The Homeowners Section I exclusions apply to both named- and open-peril forms. Several are subject to anti-concurrent causation language, meaning the loss is excluded even if a covered peril contributed concurrently or in sequence. Core exclusions:
| Exclusion | Notes / Tested Detail |
|---|---|
| Ordinance or Law | Cost to comply with building codes (offset by 10% Additional Coverage) |
| Earth Movement | Earthquake, landslide, sinkhole - needs separate coverage/endorsement |
| Water Damage | Flood, surface water, sewer/drain backup - flood needs NFIP/private flood; backup needs endorsement |
| Power Failure | Off-premises power interruption |
| Neglect | Failure to protect property at and after a loss |
| War, Nuclear Hazard | Standard catastrophic exclusions |
| Intentional Loss | Loss arising from an act committed by an insured |
| Governmental Action | Seizure/destruction by order of authority |
The water exclusion is the single most tested exclusion: standard Homeowners policies do not cover flood (rising surface water) or sewer backup. Flood is purchased separately (NFIP), and sewer/sump backup is added by the Water Back-Up and Sump Overflow endorsement (HO 04 95).
Open-Peril (HO-3 Coverage A) Specific Exclusions
Because HO-3 Coverage A is open-peril, ISO adds a set of exclusions that apply ONLY to the dwelling/other-structures coverages on top of the general Section I exclusions: wear and tear / deterioration, mechanical breakdown, smog, rust, mold, fungus, wet rot, settling/cracking/shrinking of foundations, animals owned by an insured, and birds, vermin, rodents, insects. These are 'maintenance and gradual' perils - the policy is not a home-warranty contract.
Heavy rain causes a nearby river to overflow, and rising surface water enters the insured's basement, ruining the furnace. Under an unendorsed HO-3, how is this loss treated?
A loss occurs to the dwelling under an HO-3 (open peril, Coverage A). The insurer wishes to deny the claim. Where does the burden of proof lie?
Open Peril vs. Named Peril by Form, Restated
Under HO-2 the dwelling, other structures, and contents are all named-peril. Under HO-3 the dwelling and other structures are open-peril while contents remain named-peril. Under HO-5 all three are open-peril. This means the burden of proof shifts depending on what was damaged and under which form, and the exam tests that interaction relentlessly. Memorize that HO-3 contents are named-peril, because the most common error is assuming open-peril contents under an HO-3.
The Homeowners Named Perils for Contents
The named perils that apply to HO-2 throughout and to HO-3 contents are: fire or lightning; windstorm or hail; explosion; riot or civil commotion; aircraft; vehicles; smoke; vandalism and malicious mischief; theft; falling objects; weight of ice, snow, or sleet; accidental discharge or overflow of water or steam; sudden and accidental tearing apart/cracking/burning/bulging of a heating or AC system or appliance; freezing; and sudden and accidental damage from artificially generated electrical current; plus volcanic eruption. Each is sudden and accidental, which is why gradual leakage, rust, and wear are not on the list.
Section I Exclusions Common to All Forms
All Section I forms exclude ordinance or law (beyond the small additional coverage), earth movement, water damage (flood, surface water, sewer backup unless endorsed, and subsurface water), power failure off premises, neglect, war, nuclear hazard, and intentional loss. ISO anti-concurrent-causation language provides that if an excluded peril such as flood or earthquake contributes to a loss in any sequence, the loss is excluded even though a covered peril also contributed. This is why a home damaged by both wind and storm-surge flooding may recover only for the clearly wind-caused portion.
Open-Peril-Specific Exclusions on HO-3 and HO-5
Because HO-3 (dwelling/other structures) and HO-5 (everything) are open-peril, they add exclusions that would be unnecessary on a named-peril form: wear and tear, deterioration, inherent vice, latent defect; mechanical breakdown; smog, rust, mold (subject to limited buy-back), and corrosion; settling, cracking, and bulging of foundations or walls; birds, vermin, rodents, and insects; and damage by domestic animals. These exclusions prevent the open-peril grant from turning into a maintenance contract.
On the exam, an open-peril loss is denied not because the peril is unlisted (there is no list) but because one of these specific exclusions applies, so screen the exclusions, not the perils.