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

Causes of Loss: The Foundation of Property Coverage

Property insurance answers one question before any dollar is paid: was the cause of loss a covered peril? A peril is the cause of a loss (fire, windstorm, theft). A hazard increases the chance or severity of a peril. The exam tests three hazard types you must distinguish: a physical hazard is a tangible condition (oily rags in a closet, an icy walkway); a moral hazard is dishonesty or a tendency to cause loss intentionally (arson for profit); and a morale hazard is carelessness or indifference because insurance exists (leaving doors unlocked).

Confusing moral with morale hazard is one of the most common wrong answers on the test.

Named-Peril vs. Open-Peril Coverage Triggers

The single most testable distinction in property insurance is how the policy decides whether a loss is covered.

• Named-peril (specified-peril) forms cover ONLY the perils explicitly listed. If the peril is not on the list, there is no coverage. The burden of proof is on the insured to show the loss was caused by a listed peril.
• Open-peril (special / all-risk) forms cover ALL direct physical losses EXCEPT those specifically excluded. The burden of proof shifts to the insurer to prove an exclusion applies.

The word "all-risk" is being phased out by ISO in favor of "special form" or "risks of direct physical loss," because nothing is truly all-risk — exclusions always exist.

ISO Causes of Loss Forms (Commercial Property)

For commercial property, ISO publishes three separate Causes of Loss forms that attach to the Building and Personal Property Coverage Form (CP 00 10):

The Basic Form covers fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. The mnemonic many candidates use is "WC SHAVERS" plus the named extras. The Broad Form adds breakage of glass, falling objects, weight of snow/ice/sleet, and water damage from plumbing.

Homeowners Forms and Their Peril Structure

ISO homeowners forms blend the two approaches in ways the exam loves to probe:

• HO-2 (Broad Form): named-peril on BOTH dwelling and contents.
• HO-3 (Special Form): the most common homeowners policy — open-peril on the dwelling (Coverages A and B) but named-peril on personal property (Coverage C). This split is a guaranteed exam question.
• HO-5 (Comprehensive Form): open-peril on both dwelling and contents.
• HO-8 (Modified Form): named-peril, used for older homes settled on a modified/repair-cost basis.

The HO-2 named-peril list runs 16 perils, often remembered as the perils that progress from fire through "falling objects, weight of ice/snow, accidental discharge, sudden tearing, freezing, and artificially generated electrical current."

Coverage Triggers and Anti-Concurrent Causation

A coverage trigger defines when a loss is deemed to occur. Property policies almost always use a direct physical loss trigger — there must be tangible damage during the policy period. Two traps:

1. Concurrent causation: when a covered and an excluded peril combine to cause one loss. Modern ISO forms contain an anti-concurrent causation (ACC) clause stating that if an excluded peril (e.g., flood or earth movement) contributes "in any sequence" to the loss, the entire loss is excluded — even if a covered peril also contributed.
2. Ensuing loss: an exception that restores coverage. If an excluded peril leads to a covered peril (e.g., a faulty appliance — excluded — causes a fire — covered), the resulting fire damage may be covered as an ensuing loss.

Burden of Proof — the Hidden Reason Open Perils Cost More

The named-peril versus open-peril contrast is really about who must prove what. Under a named-peril form, the insured must prove the loss was caused by a listed peril. Under an open-peril (special) form, coverage is presumed and the insurer must prove an exclusion applies to deny the claim. That shifted burden — plus the broader grant — is why open-peril coverage commands a higher premium.

Proximate Cause and Anti-Concurrent Causation

When several events combine, the proximate cause is the dominant, efficient cause that sets the loss in motion in an unbroken chain. If the proximate cause is a covered peril, the loss is generally covered even if an excluded peril contributed downstream.

Modern ISO forms add an anti-concurrent causation (ACC) clause that overrides this: it states the excluded peril is excluded regardless of any other cause or event that contributes concurrently or in any sequence. The classic application is flood plus wind in a hurricane — because flood is excluded under an ACC clause, water damage is denied even if covered wind also contributed. This is why coastal insureds buy separate NFIP flood coverage; the homeowners or commercial property form will not fill the gap. Expect a question that pairs a covered wind peril with an excluded flood peril and asks how an ACC clause resolves it.