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

Peril vs. Hazard

A peril is the cause of a loss (fire, wind, theft). A hazard is a condition that increases the chance or size of a loss. The exam separates three hazard types, and miscalling one is a common trap.

Think of it this way: the peril burns the building down, the hazard is the reason it was likely to burn.

Named Perils vs. Open Perils

The single most tested property distinction is how a form decides what is covered, and who must prove what.

Named Perils

A named-peril form covers only the causes of loss it lists. The insured bears the burden of proof — to collect, the insured must show the loss came from a listed peril. If the cause is not on the list, there is no coverage, even if it is not excluded anywhere.

Open Perils

An open-peril (also called Special or "all-risk") form covers every cause of loss except those excluded. The insurer bears the burden of proof — to deny a claim it must point to a specific exclusion. Open perils cost more and provide markedly broader protection.

Scenario: A meteor punches through a roof. Under a named-peril form the insured must find "falling objects" or a comparable listed peril or recover nothing. Under an open-peril form it is covered unless specifically excluded — and meteors are not excluded.

The ISO Causes-of-Loss Forms

Commercial property attaches one of three ISO causes-of-loss forms to the Building and Personal Property Coverage Form (CP 00 10). Homeowners forms parallel the same Basic/Broad/Special ladder.

Basic Form (CP 10 10) lists roughly eleven perils: 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) adds the second tier: falling objects; weight of snow, ice, or sleet; water damage from accidental discharge; and collapse from specified causes.

Special Form (CP 10 30) flips the logic entirely — it is open perils, so you read the exclusions, not a list of covered causes.

Concurrent Causation and Anti-Concurrent-Causation

When a covered peril and an excluded peril combine to cause one loss, the older concurrent-causation doctrine let an insured recover if any contributing cause was covered. Insurers responded with anti-concurrent-causation (ACC) language: if an excluded peril contributes to a loss in any way, the entire loss is excluded — regardless of sequence or other covered causes.

Worked example: A hurricane produces both wind damage (covered) and storm-surge flood damage (excluded). Under ACC wording, where wind and flood acted together the loss is excluded; the practical claims approach is to separate and document the wind-only damage so that portion can be paid while the flood portion is denied. Documentation of each cause is the takeaway.

Standard Exclusions Every Form Shares

Nearly every property form excludes the same categories, and exclusions generate a large share of exam questions.

• Catastrophic: flood, earthquake, war, nuclear hazard — correlated or uninsurable.
• Behavioral: intentional loss, illegal acts — controls moral hazard and fraud.
• Maintenance/wear: wear and tear, rust, corrosion, vermin, settling, mold — gradual and foreseeable, not fortuitous.
• Ordinance or law: the extra cost of meeting current building codes when rebuilding.

Flood is never covered by a standard form, even when a covered peril (a hurricane) caused the flooding; coverage comes through the NFIP (max $250,000 building / $100,000 contents for a dwelling) or private flood. Earthquake is added by endorsement or a separate policy, almost always with a percentage deductible of 10-20% of the dwelling limit rather than a flat dollar amount.

Proximate Cause

When perils occur in a chain, coverage turns on the proximate cause — the dominant, efficient cause that sets the loss in motion through an unbroken sequence. If lightning (covered) ignites a fire that destroys a house, the proximate cause is lightning, and the loss is covered even though intervening events did the physical damage. If the chain is broken by a new, independent excluded peril, that later cause may control instead. Proximate-cause reasoning is how adjusters decide which peril a multi-step loss is attributed to.

Friendly Fire vs. Hostile Fire

A durable common-law distinction the exam still tests: a friendly fire stays where it is intended to be (in a fireplace, furnace, or stove) and damage from it — scorching, smoke from a contained cooking fire — is not covered. A hostile fire escapes its intended container or burns where no fire should be, and the resulting loss is covered. A log that rolls out of the fireplace and ignites the carpet has become a hostile fire; soot that merely accumulates from normal furnace operation has not.

Ordinance or Law — A Frequently Tested Gap

Even open-perils forms exclude the extra cost of complying with building codes when rebuilding. After a covered fire, an older building may have to be brought up to current code (new wiring, sprinklers, accessibility). The base policy pays only to restore the building as it was; the increased cost of construction to meet code is excluded unless the insured buys an ordinance or law endorsement. This pairs naturally with functional replacement cost and is a classic distractor on commercial property questions.