2.1 Causes of Loss / Named-Peril vs. Open-Peril
Key Takeaways
- A peril is the cause of loss (fire, wind, theft); a hazard is a condition that increases the chance or severity of a peril; the loss is the resulting harm.
- Named-peril forms cover only perils listed by name and put the burden of proof on the insured; open-peril (all-risk/special) forms cover all causes except those excluded and shift the burden of proof to the insurer.
- ISO commercial Causes of Loss forms come in three editions: Basic (CP 10 10), Broad (CP 10 20), and Special (CP 10 30); Special is open-peril.
- The three hazard types are physical, moral (dishonest intent, such as arson for profit), and morale (carelessness because insurance exists).
- Concurrent causation, anti-concurrent-causation language, and the ensuing-loss exception decide coverage when an excluded peril and a covered peril combine.
Peril, Hazard, and Loss
Every property question rests on three vocabulary words. A peril is the cause of loss — fire, windstorm, hail, theft, vandalism. A hazard is a condition that increases the chance a peril occurs or the severity if it does. A loss is the actual harm: the destroyed roof, the stolen jewelry, the lost rents.
Three Types of Hazard
| Hazard | Definition | Exam example |
|---|---|---|
| Physical | A tangible condition raising loss potential | Oily rags in a basement; an icy walkway; flammable storage |
| Moral | Dishonest intent that produces a loss | Arson for profit; faking a theft to collect |
| Morale | Carelessness or indifference because insurance exists | Leaving keys in an unlocked car; not repairing a known leak |
The trap is moral vs. morale: moral is deliberate dishonesty, morale is mere carelessness. Underwriters decline moral hazards outright; morale hazards are priced or controlled.
Named-Peril vs. Open-Peril Coverage
Property forms grant coverage one of two ways, and the difference controls both what is covered and who must prove the claim.
- Named-peril (specified-peril) forms cover only the perils printed by name. If wind is not listed, wind damage is not covered. The insured carries the burden of proof — the claimant must show the loss came from a listed peril.
- Open-peril forms (also called all-risk or, in ISO terms, special form) cover all direct physical loss except causes specifically excluded. The insurer carries the burden of proof — to deny, the company must point to an exclusion.
Because open-peril coverage is broader, it costs more, and exam questions often reward the candidate who knows the burden-of-proof flip.
The ISO Commercial Causes of Loss Forms
In ISO commercial property (the Building and Personal Property Coverage Form, CP 00 10), the perils are not built in — they come from a separate Causes of Loss form attached to the policy.
| Form | ISO number | Type | Scope |
|---|---|---|---|
| Basic | CP 10 10 | Named-peril | Fire, lightning, explosion, windstorm/hail, smoke, aircraft/vehicles, riot/civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic action |
| Broad | CP 10 20 | Named-peril | All Basic perils plus falling objects, weight of ice/snow/sleet, water damage (accidental discharge), and building glass breakage; adds limited collapse |
| Special | CP 10 30 | Open-peril | Risk of direct physical loss unless excluded — the broadest commercial form |
A memory aid for the Basic perils is "FLEXSWVRS" style grouping, but the heavily tested fact is simply that Special (CP 10 30) is the open-peril form and Broad adds the ice/snow/sleet weight and water-discharge perils to Basic.
Homeowners Mirror
The personal-lines homeowners forms follow the same logic. HO-2 (Broad) is named-peril on both dwelling and contents. HO-3 — the most common form — is open-peril on the dwelling (Coverages A and B) but named-peril on personal property (Coverage C). HO-5 is open-peril on both. Knowing the HO-3 split is one of the most frequently tested property facts on the exam.
Concurrent Causation and Ensuing Loss
What happens when a covered peril and an excluded peril combine to cause one loss? Three doctrines decide it.
- Concurrent causation: when two or more perils — one covered, one excluded — act together. Older case law sometimes forced coverage if any concurrent cause was covered.
- Anti-concurrent-causation (ACC) language: modern ISO exclusions begin "We do not pay for loss... regardless of any other cause or event contributing concurrently or in any sequence to the loss." This bars coverage if an excluded peril (such as flood or earth movement) is any link in the chain.
- Ensuing-loss exception: even where a peril is excluded, if it leads to a separate covered peril, the ensuing loss is covered. Classic example: faulty workmanship is excluded, but if defective wiring causes a fire, the fire damage is covered as an ensuing loss.
Named-Peril vs. Open-Peril: Burden of Proof
The single most tested consequence of the named-peril/open-peril distinction is who must prove what. Under a named-peril (specified-peril) form, the insured must prove the loss was caused by a listed peril. Under an open-peril ("all-risk"/special) form, coverage is presumed and the insurer must prove an exclusion applies to deny the claim. This burden-shift is worth real points.
Direct vs. Indirect Loss and Concurrent Causation
A direct loss is the immediate physical damage (fire burns the building); an indirect (consequential) loss is the downstream financial effect (lost business income while rebuilding). Standard property forms cover direct loss; indirect loss needs business income/extra expense coverage. The exam also tests concurrent causation: when a covered and an excluded peril combine, anti-concurrent-causation language (common for flood and earth movement) lets the insurer deny the entire loss if the excluded peril contributed, even partially.
Specified-Peril vs. Special Form Cost Trade-Off
Because open-peril ("special") forms cover all causes except those excluded, they cost more than named-peril forms but shift the burden of proof to the insurer. A budget-conscious insured may accept a named-peril form to save premium, knowingly accepting the risk that an unlisted cause of loss is uncovered — a trade-off the exam frames as a suitability question.
Under an HO-3 homeowners policy, how is coverage structured?
An insured stores oily rags near a furnace, increasing the chance of fire. The oily rags are best classified as: