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

Perils, Hazards, and the Coverage Trigger

A peril is the cause of loss — fire, windstorm, theft, water. A hazard is a condition that increases the chance or severity of a peril (oily rags near a furnace). The exam tests three hazard types: physical (a slick floor), moral (intentional dishonesty, e.g., arson for profit), and morale (carelessness because insurance exists). Insurers underwrite hazards; the policy responds to perils.

Whether a loss is paid turns entirely on the coverage trigger — the way the form defines which perils it covers. Property forms use one of two triggers: named-peril or open-peril (also called "special" or "all-risk").

Named-Peril Forms

A named-peril (also called "specified-peril") form covers ONLY the perils explicitly listed in the policy. If the cause of loss is not on the list, there is no coverage. The burden of proof rests on the insured, who must show the loss was caused by a listed peril.

The industry-standard Basic Form named perils are remembered with the mnemonic "FAVED CL”/"WHARVES": Fire, Lightning, Windstorm/Hail, Explosion, Smoke, Aircraft/Vehicles, Riot/Civil commotion, Vandalism, Sprinkler leakage, Sinkhole collapse, Volcanic action.

The Broad Form adds the "falling objects, weight of ice/snow/sleet, and accidental discharge" group on top of basic perils.

Open-Peril (Special) Forms

An open-peril form (ISO Causes of Loss — Special Form, CP 10 30, or homeowners HO-3 on the dwelling and HO-5 on contents) covers ALL direct physical loss EXCEPT perils specifically excluded. This is broader coverage and flips the burden of proof: the insurer must prove an exclusion applies to deny a claim. This burden shift is a heavily tested distinction.

Open-peril is not "everything." The Special Form still excludes the standard set — ordinance or law, earth movement, governmental action, power failure, war, nuclear hazard, flood (the "OEG-PWNF" group), plus wear and tear, rust, mold, settling, and animal/insect damage. Theft, marring, and certain water losses also carry special limitations.

Practical comparison

• HO-3 — open-peril on Coverage A/B (dwelling/other structures), named-peril on Coverage C (personal property). Most common homeowners form.
• HO-5 — open-peril on BOTH dwelling and personal property. Premium-tier form.
• DP-3 — dwelling open-peril analog for non-owner-occupied or rental dwellings.

The Standard Exclusions Group

Both named-peril and open-peril forms share a recurring set of standard exclusions the exam expects you to recognize on sight. These are excluded regardless of trigger because they are uninsurable, catastrophic, or better handled by separate policies:

• Ordinance or law — extra cost to rebuild to current codes (added back by endorsement).
• Earth movement — earthquake, landslide, subsidence (separate earthquake policy or DIC).
• Flood — surface water, overflow, mudflow (covered only by NFIP or private flood).
• Power failure away from the premises, war, nuclear hazard, and intentional acts.
• Neglect — failure to protect property after a loss.

The first letters spell common memory aids; the key tested point is that buying an open-peril ("all-risk") form does NOT pick up any of these — they need separate coverage or an endorsement. Flood and earthquake in particular are perennial wrong-answer magnets because students assume "all-risk" includes them.

Exam Traps

• "All-risk" does not mean all-loss. Open-peril always carries exclusions; if a tested exclusion (flood, earth movement) applies, the broad trigger does not help.
• Burden of proof direction. Named-peril → insured proves a covered peril caused the loss. Open-peril → insurer proves an exclusion. Reverse these and you miss the question.
• Concurrent causation. When an excluded peril (flood) and a covered peril combine, anti-concurrent-causation language excludes the entire loss — even the part the covered peril caused.
• Ensuing loss. Some exclusions (faulty workmanship) restore coverage for a resulting covered peril (a fire that ensues from bad wiring). Watch for "ensuing loss" wording.
• Named-peril costs less because it covers fewer causes — a common premium-comparison question.

Specific vs. Blanket and Scheduled Coverage

How property is described on the declarations interacts with the causes-of-loss trigger:

• Specific (scheduled) coverage - a separate limit on each item or location. A loss at one location is capped at that location's limit.
• Blanket coverage - a single limit covering multiple items or locations, available wherever the loss occurs. Blanket usually requires a margin clause or higher coinsurance and avoids the trap of a location being underinsured while another is overinsured.

Trap: Blanket coverage spreads one limit across all covered property; a candidate who applies a per-location cap to a blanket limit gets the wrong recovery.

Ensuing Loss and the Sequence-of-Events Question

Some exclusions contain an ensuing-loss exception: although the originating cause (faulty workmanship, defective design, a maintenance defect) is excluded, a separate covered peril that results is paid. Bad wiring is excluded, but the fire it ignites is covered. The exam often presents a chain of events and asks which link the policy pays.

Trap: Watch the difference between anti-concurrent causation (excluded + covered peril together = whole loss excluded) and ensuing loss (an excluded cause that leads to a new covered peril = the ensuing peril is paid). The exam pairs the two as opposite answer choices.