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

Perils, the Trigger of Coverage

A peril is the cause of loss — the event that actually does the damage, such as fire, windstorm, theft, or vandalism. Property insurance never pays for damage as such; it pays only when a covered peril is the proximate cause of the loss. How a policy defines which perils are covered is the single most heavily tested concept on the National Portion, because it controls every claim outcome.

Two other terms ride alongside peril and are commonly confused on the exam:

• Hazard — a condition that increases the chance or severity of a loss (oily rags = physical hazard).
• Loss — the actual reduction in value the insured suffers when a peril strikes.

A hazard is not a peril. The exam loves a question where lightning (peril) ignites stored gasoline (physical hazard) causing a fire (peril); the trigger is the peril, the gasoline merely made it worse.

Named-Peril Coverage

Under a named-peril (also called specified-peril) form, the policy lists each covered cause of loss. If the peril is not on the list, there is no coverage — full stop. The burden of proof is on the insured to show the loss came from a listed peril.

ISO packages named-peril coverage in two commercial tiers and two personal tiers:

Memory aid for the Basic perils: the classic "WCSHAVVERS" mnemonic — Windstorm, Civil commotion, Smoke, Hail, Aircraft, Vehicles, Volcanic action, Explosion, Riot, Sprinkler leakage — layered on top of the standard Fire/Lightning base.

Open-Peril (Special) Coverage

An open-peril form — historically called all-risk — covers every cause of loss except those specifically excluded. This flips the burden of proof: the insured need only show that a direct physical loss occurred; the insurer must then prove an exclusion applies to deny the claim. That burden shift is why open-peril coverage is broader and costs more.

Key ISO open-peril forms:

• CP 10 30 — Special Causes of Loss (commercial property)
• HO-3 — open peril on the dwelling (Coverage A/B) but named peril on contents (Coverage C)
• HO-5 — open peril on both dwelling and contents
• DP-3 — dwelling open peril

Common exclusions that survive on every open-peril form: ordinance or law, earth movement, governmental action, nuclear hazard, utility service failure, war, water (flood/sewer backup), wear and tear, and intentional acts. These appear verbatim as distractors — know that flood and earthquake are excluded even under "all-risk."

Direct vs. Indirect Loss and Proximate Cause

The exam separates direct loss (physical damage to the property itself — the building burns) from indirect (consequential) loss (the income or extra expense that follows — the business cannot operate during repairs). A standard property form pays direct loss; indirect loss requires business income (CP 00 30) or extra expense (CP 00 50) coverage.

Proximate cause decides borderline claims. The covered peril must be the unbroken, dominant cause in the chain of events. If a covered peril sets a chain in motion that ends in damage, the loss is usually covered even if an intervening event helped — for example, fire (covered) causes water damage from firefighting (covered as a consequence).

Why Edition Dates Matter

ISO forms carry an edition date (e.g., CP 10 30 09 17 = September 2017 edition). The edition controls exactly which exclusions and definitions apply, so an insured's coverage can change at renewal when a newer edition is attached. Test items rarely ask the date itself, but they expect you to know the form number identifies the coverage and that newer editions can narrow or broaden perils.

Quick contrast to lock in: named peril = list of yeses, insured proves the cause; open peril = list of nos, insurer proves the exclusion. Premium and breadth rise from Basic → Broad → Special as you move from a short named list to the full open-peril grant.

What Each Causes-of-Loss Form Adds

The three commercial causes-of-loss forms build on one another, and the exam expects you to know what each level adds. The Basic Form (CP 10 10) is a named-peril form covering the classic group remembered by the mnemonic "WC FLEERV SS": windstorm or hail, civil commotion/riot, fire, lightning, explosion, smoke, aircraft/vehicles, riot, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action.

The Broad Form (CP 10 20) adds the named perils of falling objects, weight of snow/ice/sleet, water damage from plumbing, and building/structure collapse from specified causes. The Special Form (CP 10 30) flips to open-peril ("all risk") coverage: everything is covered unless excluded, which is the broadest and most expensive.

The practical consequence is the burden of proof, which is the single most tested causes-of-loss concept. Under named-peril Basic or Broad coverage, the insured must prove the loss came from a listed peril. Under open-peril Special coverage, the loss is presumed covered and the insurer must prove an exclusion applies. This is why theft, which is excluded from Basic and Broad, is typically covered by Special unless an exclusion or limitation removes it.

Common exclusions appear across all three forms and reflect the same logic seen in fundamentals: ordinance or law, earth movement, governmental action, nuclear hazard, utility service failure, war, water (flood and surface water), and wear and tear. Several can be added back by endorsement (ordinance or law, utility services, flood) for additional premium, which is why an excluded peril is not always uninsurable, merely not in the base form.

Worked scenario: a warehouse suffers theft of inventory. Under a Basic form the claim is denied because theft is not a listed peril; under a Special form the claim is covered because theft is not excluded, and the insurer would have to prove an exclusion to deny. Knowing which form covers theft, and who bears the burden of proof, is the core causes-of-loss exam skill.

Key Takeaways

The Basic causes-of-loss form covers the named WC FLEERV SS perils, the Broad form adds falling objects, weight of ice/snow, water damage, and collapse, and the Special form provides open-peril coverage. Named-peril forms put the burden of proof on the insured; open-peril forms put it on the insurer to prove an exclusion. Theft is covered by Special but not Basic or Broad, and excluded perils like flood and ordinance-or-law can often be added back by endorsement.