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

What a Cause of Loss Really Means

In property insurance the peril is the cause of a loss — fire, wind, theft, or vandalism. The cause of loss form attached to a policy decides which perils trigger payment. Choosing between named-peril and open-peril coverage is the single most consequential coverage decision an insured makes, and it drives a heavy share of exam questions.

Named-Peril Coverage

A named-peril form pays only when a loss arises from a peril written into the policy. If the cause is not on the list, there is no coverage even if the damage is severe and accidental. Critically, the insured carries the burden of proof — the policyholder must demonstrate that a listed peril produced the loss before the insurer pays.

Open-Peril Coverage

An open-peril form (often called all-risk, though the term is disfavored) covers every cause of loss except those specifically excluded. Here the burden flips: the insurer must prove an exclusion applies to deny the claim. Open-peril coverage is broader and costs more.

The Three ISO Causes of Loss Forms

Commercial property uses three Insurance Services Office (ISO) cause of loss forms; homeowners forms mirror them.

• Basic Form (CP 10 10): the narrowest named-peril list — fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action.
• Broad Form (CP 10 20): all Basic perils plus a second tier — falling objects; weight of ice, snow, or sleet; water damage from accidental discharge; and collapse from specified causes.
• Special Form (CP 10 30): open perils — covered unless excluded, the broadest and most expensive option.

Homeowners Parallels

• HO-2 uses broad named perils on both the dwelling and contents.
• HO-3 insures the dwelling on an open-peril basis but keeps personal property on named perils.
• HO-5 extends open-peril coverage to both dwelling and personal property.

A Worked Scenario

A meteorite punches through a roof and destroys a den. Under an HO-2 (named perils), the insured must locate "falling objects" on the covered list and prove the meteorite qualifies; if it is absent, nothing is paid. Under an HO-3 dwelling coverage (open perils), the meteorite loss is paid automatically because no exclusion names meteorites — the insurer would have to find an applicable exclusion, and none exists.

This is why open-peril coverage protects against the unforeseen: novel and bizarre causes are covered by default rather than by listing.

Why the Premium Differs

The wider the trigger, the more exposure the insurer assumes. As you move from Basic to Broad to Special, the universe of covered events grows from a short list to "everything but the exclusions," so the premium rises accordingly. Courts also resolve ambiguous policy language in favor of the insured (the doctrine of contra proferentem), which makes open-peril wording even more protective.

Common Exam Traps

• Confusing the burden of proof. The single most common error is thinking the insurer always proves the cause. It only does so under open perils; under named perils the insured proves the peril.
• Assuming open peril means everything is covered. Exclusions (flood, earthquake, wear and tear, intentional acts) still apply — "open peril" is not "unlimited."
• Mismatching HO forms. Remember HO-3 splits the treatment: dwelling is open peril, contents are named peril. Only HO-5 gives open peril to both.

Reading a Named-Peril List the Way the Exam Does

When a question hands you a named-peril list, treat it as exhaustive. If the cause of loss is not on the list, stop — there is no coverage, no matter how sympathetic the facts. The Broad Form adds value precisely by lengthening that list, which is why HO-2 policyholders recover for a burst pipe (accidental discharge) or a collapsed roof under snow, while a bare Basic Form insured may not.

The Second Tier of Broad-Form Perils

Memorize the Broad Form additions as a block, because exam questions love to test whether a specific cause falls in the second tier:

• Falling objects
• Weight of ice, snow, or sleet
• Accidental discharge or overflow of water or steam from plumbing, heating, or air-conditioning
• Freezing of plumbing, heating, or air-conditioning systems
• Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or water system

Notice these are all sudden and accidental events. Gradual seepage, by contrast, is excluded as maintenance — a recurring distractor.

Coverage Is About the Form, Not the Line of Business

The named-versus-open distinction applies identically to homeowners, dwelling, commercial property, and inland marine. The label changes (HO-3, DP-3, CP 10 30) but the logic is constant: a Special Form is broadest and shifts the proof burden to the insurer, while a named-peril form is narrower and keeps the burden on the insured. Anchoring on this single rule lets you answer questions across every property line with the same reasoning.

Quick Decision Checklist

1. Is the form named peril or open peril?
2. If named peril, is the cause on the list?
3. If open peril, is there an applicable exclusion?
4. Who therefore carries the burden of proof here?

Running this four-step checklist converts a wordy scenario into a fast, defensible answer.

Basic vs. Broad vs. Special Causes of Loss