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

What a "Cause of Loss" Means

A peril is the cause of a loss — fire, windstorm, theft, vandalism. A hazard is a condition that increases the likelihood or severity of a peril. Property exam questions live or die on this distinction: lightning is a peril; a frayed wire that invites lightning damage is a physical hazard. The policy never pays for a hazard — it pays for loss caused by a covered peril.

Hazards split three ways. Physical hazards are tangible conditions (oily rags, an icy sidewalk). Moral hazards involve dishonesty — an insured who would intentionally burn a money-losing business. Morale hazards (sometimes called attitudinal) involve carelessness because insurance exists — leaving a car unlocked. Examiners love a question that asks you to classify a stated condition into one of these three buckets.

Two Ways to Trigger Coverage

Property forms grant coverage in one of two architectures, and the difference controls who carries the burden of proof.

• Named-peril (specified-peril) forms list every covered cause of loss. The insured must prove the loss was caused by a listed peril. The ISO Causes of Loss — Basic Form (CP 10 10) and Broad Form (CP 10 20) are named-peril. Dwelling form DP-1 and Homeowners forms HO-2 / HO-3 (contents) are named-peril.
• Open-peril ("special" or all-risk) forms cover all direct physical loss except what is expressly excluded. The insurer must prove an exclusion applies to deny. The ISO Causes of Loss — Special Form (CP 10 30), the HO-3 dwelling coverage, and HO-5 are open-peril.

The trap: "all-risk" does not mean "everything." It means everything not excluded. Wear and tear, flood, earth movement, and ordinance/law are excluded even on open-peril forms.

The Standard Named Perils (memorize the list)

The ISO Broad Form perils build on the Basic Form. Knowing the boundary between Basic and Broad is high-yield.

A memory hook for homeowners named perils is WCSHHAVVERFFF — but on the state exam the cleaner approach is to learn what Broad adds to Basic, because that boundary is exactly where questions are written.

Named-Peril Burden vs. Open-Peril Burden, Worked Through

The named-peril/open-peril distinction is not academic; it decides who must prove what. On a named-peril form, after a loss the insured must affirmatively show the cause was one of the listed perils. On an open-peril (special) form, the insured shows only a fortuitous direct physical loss occurred, and the insurer must then point to a specific exclusion to deny.

Picture identical water-stained drywall: under named-peril contents coverage the insured must prove an accidental discharge from a plumbing system, while under open-peril dwelling coverage the insurer must prove the water was excluded surface flooding. Same facts, opposite party carrying the burden.

The Standard Named-Peril List and Its Logic

The traditional broad-form perils, worth memorizing, are fire and lightning; windstorm and hail; explosion; riot and 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 of a heating/AC or appliance; freezing; and sudden and accidental damage from artificially generated electrical current; plus volcanic eruption. Notice each is sudden and accidental, never gradual; that single qualifier explains why seepage, wear, and rust are absent from the list.

Direct vs. Indirect Loss and Concurrent Causation

A direct loss is the immediate physical damage (fire burns the building); an indirect or consequential loss flows from it (lost business income while closed). Property forms cover direct loss by default and require separate time-element coverage for the indirect loss. The concurrent-causation problem arises when a covered peril and an excluded peril combine to cause one loss; ISO anti-concurrent-causation language states that if an excluded peril (such as flood or earth movement) contributes in any sequence, the loss is excluded, a rule that frequently surprises candidates expecting partial recovery.

Why the Open-Peril Form Still Has Teeth

Open-peril does not mean everything is covered. Special forms still exclude flood, earth movement, war, nuclear hazard, ordinance or law, intentional acts, wear and tear, and similar non-fortuitous or catastrophic causes, and they often impose narrower terms on theft of building materials or losses to property off-premises. The practical lesson for the exam is that open-peril shifts the burden and broadens coverage, but the exclusions list is where open-peril losses are won or lost, so read the cause of loss against the exclusions, not just the insuring agreement.

Ensuing-Loss and the Sequence-of-Events Trap

Even when an exclusion applies, an ensuing-loss provision may restore coverage for a separate covered peril that follows. For example, faulty workmanship is excluded, but if defective wiring causes a fire, the resulting fire damage is covered as an ensuing loss because fire is a covered peril.

The exam tests this by chaining events: an excluded cause triggers a covered peril, and the question is whether the downstream fire, water, or explosion damage is paid. The rule is that the excluded cause itself is not covered, but the ensuing covered peril usually is, unless anti-concurrent-causation language defeats it.