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

How Coverage Is Triggered

Every property policy answers one question before it pays a dime: was the cause of loss a covered peril? A peril is the actual cause of loss (fire, windstorm, theft). A hazard is a condition that increases the chance or severity of a peril (oily rags in a corner, blocked fire exits). Hazards do not pay claims; perils do. The exam loves to test the difference: a slick floor is a physical hazard; lying on an application is a moral hazard; carelessness because 'insurance will cover it' is a morale hazard.

The policy describes its covered perils through a Causes of Loss form. In ISO commercial property, three printed forms control the trigger: the Basic Form (CP 10 10), the Broad Form (CP 10 20), and the Special Form (CP 10 30). Whichever form applies, the insuring agreement must first establish that covered property suffered loss from a covered cause before any exclusion or condition is even examined.

Named-Peril vs. Open-Peril

Under a named-peril (specified-peril) form, only the perils listed on the form are covered. The burden of proof is on the insured to show the loss came from a listed peril. Basic and Broad forms are named-peril.

Under an open-peril (special / all-risk) form, all direct physical loss is covered except what is specifically excluded. The burden of proof shifts to the insurer to prove an exclusion applies. The ISO Special Form (CP 10 30) and Homeowners HO-3/HO-5 dwelling coverage are open-peril. Open-peril is broader and costs more.

What Each Form Adds

The Basic Form covers the 'FLEE-WSSH' core: Fire, Lightning, Explosion, windstorm/hail, Smoke, vehicles/aircraft, riot/civil commotion, vandalism, Sprinkler leakage, sinkhole collapse, and volcanic action.

The Broad Form adds the Basic perils plus falling objects, weight of ice/snow/sleet, water damage (accidental discharge), and building collapse. It also adds a limited form of glass breakage.

The Special Form drops the list entirely and covers risks of direct physical loss except those excluded. Common exclusions even under Special: wear and tear, gradual deterioration, insects/vermin, ordinance or law, earth movement, flood, war, nuclear hazard, and intentional acts.

Homeowners Mirror the Commercial Pattern

The same logic governs the ISO Homeowners line. The HO-2 covers the dwelling and contents on a named-peril basis. The workhorse HO-3 covers the dwelling and other structures on an open-peril basis but keeps personal property (Coverage C) on a named-peril basis — a split that exams test constantly. The HO-5 upgrades contents to open-peril as well, giving the broadest protection. The HO-8 modifies coverage for older homes by settling losses on a functional or repair-cost basis rather than full replacement cost.

Renters use the HO-4 (contents only, named-peril) and condo owners use the HO-6, which covers personal property plus the unit-owner's interior improvements. Recognizing which form is open-peril where is a reliable source of exam points.

Direct vs. Indirect Loss

Property forms also distinguish direct from indirect (consequential) loss. A direct loss is the physical damage itself — the fire-charred wall. An indirect (or time-element) loss is the financial fallout that follows, such as lost business income, extra expense, or additional living expenses while a home is uninhabitable. Indirect coverage is triggered only when a covered direct loss occurs first, then suspends operations or use. The exam pairs this with the proximate cause doctrine: the covered peril must be the unbroken, dominant cause in the chain leading to the loss for the policy to respond.

Exam Traps

• 'All-risk' does not mean all losses are covered — every open-peril form still has exclusions. Treat 'all-risk' as a marketing word; the policy is open-peril.
• Flood and earthquake are excluded on standard property forms regardless of trigger style; they need separate policies (NFIP flood, DIC/earthquake) or endorsements.
• On the Special Form, theft of building materials is covered, but mysterious disappearance and dishonesty by the insured are excluded.
• Order of forms by breadth: Basic < Broad < Special. The Special Form costs the most because it shifts the burden of proof to the insurer.
• Indirect/time-element coverage (business income, ALE) requires a covered direct loss to trigger it first.

Named-Peril vs. Open-Peril and the Burden of Proof

The single most tested idea in property is who must prove what. Under a named-peril (specified-peril) form, the burden is on the insured to show the loss was caused by a peril listed in the policy. Under an open-peril (special / all-risk) form, coverage applies to all direct physical loss except what is excluded, so the burden shifts to the insurer to prove an exclusion applies.

Exam trap: "Open peril" is not "covers everything." Standard exclusions - flood, earth movement, war, nuclear, ordinance or law, wear and tear, and intentional acts - apply to open-peril forms just as they do to named-peril forms. The breadth difference is which side carries the evidentiary burden. Direct vs. indirect (consequential) loss is a related split: business income and extra expense are indirect losses requiring separate coverage.