4.1 Perils, Hazards, Types of Loss & Types of Legal Liability
Key Takeaways
- A peril is the cause of loss, such as fire or windstorm, while a hazard is a condition that increases the chance or severity of loss.
- Physical hazards are tangible conditions, moral hazards involve dishonesty, and morale (attitudinal) hazards involve carelessness because insurance exists.
- Named-peril forms cover only listed causes of loss, while special or open-peril forms cover direct physical loss unless excluded, shifting the burden to the insurer to prove an exclusion.
- Direct loss is physical damage to property; indirect or consequential loss is financial loss that results from it, such as additional living expense, lost rent or business income.
- Louisiana Civil Code art. 2320 makes employers answerable for damage caused by employees in the functions for which they are employed, and art. 667 imposes liability without regard to care for pile driving or blasting.
Peril, Hazard and Risk
| Term | Meaning | Louisiana claim example |
|---|---|---|
| Risk | Uncertainty about financial loss | A coastal home owner is uncertain whether a storm will damage the house |
| Peril | The cause of a loss | Windstorm, fire, hail, theft, collision |
| Hazard | A condition that increases the probability or severity of a loss from a peril | A blocked chimney, frayed wiring, an unsecured trampoline |
Types of Hazards
- Physical hazard: a tangible condition of property, people or operations. Examples include a gas leak, rotten roof decking, storing gasoline in a garage, or a vacant building with broken windows.
- Moral hazard: dishonesty or character traits that increase the chance of an intentional or inflated loss. Examples include arson for profit, staging a theft, or padding a contents inventory.
- Morale (attitudinal) hazard: indifference or carelessness because insurance exists. Examples include leaving keys in an unlocked car or not tarping a roof opening "because the insurer will pay."
- Legal hazard: a feature of the legal environment that raises loss costs, such as court rules or verdict trends in a jurisdiction. Adjusters account for venue and applicable law when evaluating liability exposure.
Exam tip: A defective furnace is a physical hazard. An insured who inflates a claim shows a moral hazard. An insured who stops locking doors because "it's insured" shows a morale hazard.
Perils Insured Against
| Approach | How coverage works | Burden of proof | Examples |
|---|---|---|---|
| Named perils | Only the perils listed in the policy are covered | The insured must show a listed peril caused the loss | Standard Fire Policy; DP-1; HO-2; Coverage C in HO-3; CP 10 10 Basic and CP 10 20 Broad |
| Special form (open perils) | Direct physical loss is covered unless excluded | Once a direct physical loss is shown, the insurer must prove an exclusion applies | DP-3 and HO-3 on buildings; HO-5; CP 10 30 Special |
Louisiana adds a statutory rule for immovable property: if damage is covered in whole or in part, the insurer bears the burden of establishing an exclusion, and policy language shifting that burden is void (R.S. 22:1893(B)).
Named-peril lists come in grades used across property forms:
- Basic perils: fire, lightning, windstorm, hail, explosion, riot and civil commotion, aircraft, vehicles, smoke, vandalism, and often volcanic eruption and sinkhole collapse in commercial forms.
- Broad perils: the basic perils plus items such as falling objects; weight of ice, snow or sleet; accidental discharge of water or steam; freezing; sudden tearing apart of heating or plumbing systems; and artificially generated electrical current (personal lines) or water damage (commercial).
Types of Loss
| Type | Definition | Coverage examples |
|---|---|---|
| Direct loss | Physical damage to, or destruction of, the property itself caused by the peril | Wind removes shingles; fire chars a kitchen; hail dents a vehicle |
| Indirect (consequential or time element) loss | Financial loss that results from direct damage, usually measured over time | Additional living expense and fair rental value (HO Coverage D; DP Coverages D and E); business income and extra expense; spoilage after a covered equipment breakdown |
Adjusters verify that an indirect loss flows from covered direct damage. Business income under the CP 00 30 requires direct physical loss at described premises from a covered cause of loss, and ALE requires the residence to be uninhabitable because of a covered peril. A total dwelling loss in Louisiana also triggers the R.S. 22:1338 right to a three-month ALE advance on request.
Types of Legal Liability
Liability insurance pays when the insured is legally obligated to pay damages. The source of that obligation matters.
| Liability type | What the claimant must prove | Louisiana examples |
|---|---|---|
| Negligence (fault) | Duty, breach, causation and damages | General fault liability under Civil Code art. 2315 |
| Strict liability | That the harm occurred within the rule; fault or intent is not required, though limited defenses may exist | A dog owner is strictly liable for injuries the owner could have prevented that did not result from the injured person's provocation (Civil Code art. 2321) |
| Absolute liability | Only that the activity caused the damage; the defendant's knowledge and care are irrelevant | Under Civil Code art. 667, a proprietor is answerable without regard to knowledge or reasonable care for damage caused by an ultrahazardous activity, which the article strictly limits to pile driving or blasting with explosives |
| Vicarious liability | That the defendant is legally responsible for another person's conduct | Employers are answerable for damage caused by employees in the exercise of the functions for which they are employed (Civil Code art. 2320); parents are answerable for damage caused by their minor children in the circumstances art. 2318 describes |
Accident Versus Occurrence
- An accident is a sudden, unexpected, unintended event at a definite time and place.
- An occurrence, as ISO liability forms define it, is an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Occurrence wording therefore covers gradual injury or damage, such as a slow leak rotting a neighbor's framing, that would not be "sudden."
The next sections apply these concepts to valuation (indemnity, ACV and replacement cost), Louisiana negligence and comparative fault, and the standard policy provisions.
An insured stops locking a detached workshop after buying a policy, saying the insurer will replace anything stolen. What type of hazard is this?
Which is an indirect (consequential) loss rather than a direct loss?
Under Louisiana Civil Code art. 667, which activity makes a proprietor answerable for damage to neighbors without regard to knowledge or reasonable care?
Under a special form (open-peril) property policy, what must happen after the insured shows a direct physical loss to covered property?