2.1 Causes of Loss / Named-Peril vs. Open-Peril
Key Takeaways
- Named-peril forms cover only listed causes; the insured proves the peril caused the loss.
- Open-peril (Special) forms cover all direct physical loss except stated exclusions; the insurer must prove the exclusion.
- ISO commercial causes-of-loss forms: Basic CP 10 10, Broad CP 10 20 (adds water/snow/collapse), Special CP 10 30 (open peril).
- Theft and glass breakage are NOT named perils on Basic or Broad forms.
- Anti-concurrent-causation language lets insurers deny a loss when an excluded peril (flood, earth movement) is in the causal chain, regardless of sequence.
How Property Policies Define What They Cover
Every property policy answers one core question: which causes of loss will trigger payment? In ISO commercial property, this is settled by the Causes of Loss form you attach to the Building and Personal Property Coverage Form (CP 00 10). In personal lines, the same logic is baked into the policy's perils wording. The two structural choices are named-peril (also called specified perils) and open-peril (historically all-risk).
A named peril is a cause of loss the policy lists by name. If the cause is not on the list, there is no coverage. An open-peril policy flips the logic: it covers every direct physical loss except those specifically excluded. This single difference drives the most-tested concept on the property portion of the exam: the burden of proof.
Burden of Proof — The #1 Exam Trap
On a named-peril policy, the insured must prove the loss was caused by a listed peril. On an open-peril policy, coverage is presumed, so the insurer must prove an exclusion applies to deny the claim. Examiners love to reverse these.
Memory hook: Named = iNsured proves. Open = cOmpany proves.
Open-peril coverage is broader and therefore costs more premium. It does not mean "everything is covered" — wear and tear, deterioration, insects/vermin, mechanical breakdown, and intentional acts remain excluded even on open-peril forms.
ISO Causes of Loss Forms (Commercial Property)
| Form | Number | Type | Scope |
|---|---|---|---|
| Basic | CP 10 10 | Named | Fire, lightning, explosion, windstorm/hail, smoke, aircraft/vehicles, riot/civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic action (the "BCNS" group) |
| Broad | CP 10 20 | Named | Basic perils plus falling objects, weight of snow/ice/sleet, water damage (accidental discharge), and limited collapse |
| Special | CP 10 30 | Open | All direct physical loss except stated exclusions |
A classic distractor: glass breakage and theft are NOT in Basic or Broad — they require the Special (open-peril) form or an endorsement. The Broad form's collapse and water-damage additions are frequent fill-in-the-blank targets.
A retailer suffers a loss from theft and files a claim. The policy carries the ISO Broad Causes of Loss form (CP 10 20). Coverage is most likely:
Concurrent Causation and Anti-Sequence Wording
When two perils — one covered, one excluded — combine to cause a loss, courts once forced coverage under the concurrent causation doctrine. ISO responded with anti-concurrent-causation (ACC) lead-in language: "We will not pay for loss... regardless of any other cause or event that contributes concurrently or in any sequence to the loss." This language attaches to the big exclusions — flood, earth movement, and ordinance or law.
Result: if a flood and a covered windstorm jointly destroy a building, the ACC clause lets the insurer deny the entire flood-related loss even though wind contributed. Expect a scenario question testing whether the ACC wording defeats coverage. The exam's correct answer is almost always that the ACC clause bars coverage when an excluded peril is in the causal chain.
Under an open-peril (Special) property form, who carries the burden of proof when a claim is contested?
Direct vs. Indirect Loss
Property forms separate direct loss (physical damage to covered property by a covered peril) from indirect (consequential) loss — the loss of income or extra expense that follows the direct damage. A fire that destroys a restaurant's kitchen is a direct loss; the lost profit while it is closed is an indirect loss covered only if business income / extra expense is added. The exam tests this line constantly: a base property form pays to rebuild, but not for lost earnings unless time-element coverage is present.
Specified (Named) Perils Most Tested
Memorize the core named-peril roster shared by the ISO Basic Causes of Loss form and the personal Broad list: fire, lightning, windstorm, hail, explosion, smoke, aircraft, vehicles, riot/civil commotion, vandalism, and sprinkler leakage — plus, on the Broad form, falling objects, weight of ice/snow/sleet, and water damage from plumbing. Glass breakage and collapse appear on broader forms. Flood, earthquake, war, nuclear, wear and tear, and intentional acts are excluded on every standard property form and require separate coverage or endorsement.
A restaurant suffers a covered kitchen fire and must close for six weeks. Its unendorsed Building and Personal Property form pays to rebuild but denies the claim for lost profits during the closure. Why?
Ensuing Loss and the Exam Logic
Many exclusions contain an ensuing-loss exception: the original cause is excluded, but if it leads to a separate covered peril, the resulting damage is paid. For example, faulty construction is excluded, but if defective wiring causes a fire, the fire damage is covered because fire is a covered ensuing peril. When you see a two-step loss on the exam, ask whether the second event is itself a covered peril — that, not the excluded root cause, determines the payout under the ensuing-loss rule.
Open-Peril Exceptions to Master
Even an open-peril (Special) form does not cover everything. Standard carve-outs include wear and tear, deterioration, inherent vice, latent defect, mechanical breakdown, rust/corrosion, smog, settling/cracking, and damage by insects, birds, rodents, or domestic animals. These are maintenance issues, not fortuitous losses, so the insurer never intended to fund them. On the exam, an open-peril claim that turns on gradual deterioration or vermin is denied even though the form 'covers all risks of direct physical loss.'
Putting It on the Exam
When a property question describes a loss, work it in this order: (1) Is the damaged item covered property or excluded property? (2) Was the cause a covered peril under the form in force (named-peril list vs. open-peril)? (3) Does an exclusion bar it, and if so is there an ensuing-loss exception that restores coverage for a later covered peril? (4) Is the loss direct or indirect, and is time-element coverage present? Running these four gates in sequence prevents the most common scoring mistakes on causes-of-loss items.