2.1 Causes of Loss / Named-Peril vs. Open-Peril
Key Takeaways
- Named-peril forms list covered causes and place the burden of proof on the insured; open-peril (all-risk) forms cover everything not excluded and shift the burden to the insurer.
- ISO commercial Causes of Loss forms: Basic (CP 10 10) and Broad (CP 10 20) are named-peril; Special (CP 10 30) is open-peril.
- HO-3 covers the dwelling open-peril but personal property named-peril; HO-5 makes both open-peril.
- Flood and earth movement are excluded from standard property forms and need separate coverage.
- Anti-concurrent causation language excludes a loss when an excluded peril combines with a covered peril.
How Property Policies Define What They Cover
A property policy answers one core question: which perils (causes of loss) trigger payment? Insurers answer it two ways. A named-peril form lists each covered cause; if a loss is not on the list, there is no coverage. An open-peril form (older texts say all-risk) covers every direct physical loss except what the exclusions remove. The practical difference is the burden of proof.
Under a named-peril form, the insured must prove the loss came from a listed peril. Under an open-peril form, coverage is presumed and the insurer must prove an exclusion applies to deny the claim. This single shift is the most heavily tested concept in the property section.
The Standard ISO Causes of Loss Forms
The Insurance Services Office (ISO) commercial property program packages perils into three Causes of Loss forms attached to the Building and Personal Property Coverage Form:
| ISO Form | Name | Type | What it covers |
|---|---|---|---|
| CP 10 10 | Causes of Loss – Basic Form | Named-peril | Fire, lightning, explosion, windstorm/hail, smoke, aircraft/vehicles, riot/civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic action |
| CP 10 20 | Causes of Loss – Broad Form | Named-peril | All Basic perils plus falling objects, weight of ice/snow/sleet, water damage (accidental discharge), and building/structure collapse |
| CP 10 30 | Causes of Loss – Special Form | Open-peril | All direct physical loss except stated exclusions; broadest commercial coverage |
A memory hook used on the exam: B-WIFE for the perils added going from Basic to Broad — falling objects, weight of ice/snow/sleet, water damage, and collapse round out the Broad menu.
Homeowners Peril Tiers
The ISO Homeowners (HO) program mirrors this design. HO-2 insures both dwelling and contents on a named-peril basis. HO-3, the most common form sold, covers the dwelling (Coverage A) and other structures on an open-peril basis but keeps personal property (Coverage C) on a named-peril basis. HO-5 upgrades both dwelling and contents to open-peril. Knowing which coverage is open vs. named within a single HO-3 policy is a classic trap.
A retail store suffers water damage from an unidentified source. The policy attaches the ISO Causes of Loss – Special Form (CP 10 30). Who carries the burden of proof regarding coverage?
Direct vs. Indirect Loss and the Anti-Concurrent Causation Trap
Direct loss is physical damage to covered property; indirect (consequential) loss is the financial fallout, such as lost rent or business income, and needs a separate coverage part. The exam also tests anti-concurrent causation language: when an excluded peril (for example, flood or earth movement) combines with a covered peril, the anti-concurrent causation clause excludes the entire loss — even if the covered peril contributed. Floods and earthquakes are excluded in standard property and homeowners forms and require separate policies or endorsements.
Which ISO homeowners form covers the dwelling on an open-peril basis but keeps personal property on a named-peril basis?
Burden of Proof Drives Everything
The single most tested distinction is who must prove what:
| Form Type | Also Called | Burden of Proof |
|---|---|---|
| Named-peril | Specified, basic/broad | Insured must prove the loss came from a listed peril |
| Open-peril | Special, all-risk | Insurer must prove an exclusion applies to deny |
Open-peril coverage is broader and costs more precisely because the insurer carries the burden. When a question describes a loss from an unusual cause and asks which form pays, an open-peril form usually does (unless excluded), while a named-peril form pays only if that exact cause is listed.
The Standard Peril Tiers
The ISO family stacks perils in widening tiers. Memorize the broad-form mnemonic and the additions at each level:
- Basic form perils: fire, lightning, windstorm, hail, explosion, smoke, aircraft/vehicles, riot/civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic action.
- Broad form adds: falling objects; weight of ice/snow/sleet; accidental discharge of water/steam; freezing; sudden tearing/cracking of a heating/AC system; and damage from artificially generated electrical current.
- Special form: open-peril — covers any direct physical loss not specifically excluded.
A reliable way to identify a basic-form loss on the exam is the absence of water-discharge and weight-of-ice perils, which first appear at the broad level.
Concurrent Causation and Anti-Concurrent Language
When a covered peril and an excluded peril combine to cause one loss, anti-concurrent causation language in modern forms denies coverage if an excluded peril is involved in any sequence. This is why a home destroyed by storm surge during a hurricane is treated as flood (excluded) even though wind (covered) was also present. Expect a question that pairs wind and water and asks which policy responds — the answer turns on whether the form has anti-concurrent wording and whether flood coverage was purchased separately.
An open-peril (special form) policy insures a building. An unusual loss occurs from a cause not listed and not excluded. Who bears the burden of proof, and is the loss likely covered?
Direct vs. Indirect Loss
Property forms separate direct loss (physical damage to the property itself) from indirect or consequential loss (the financial fallout that follows). A fire that burns a restaurant is a direct loss; the lost profit while it is closed for repairs is an indirect loss covered only by business income or, in personal lines, additional living expense. The exam pairs these by asking which coverage responds to the income gap after a covered direct loss — the answer is the time-element (indirect) coverage, not the direct property limit.
A related distinction is fortuitous vs. non-fortuitous loss. Insurance covers sudden, accidental, fortuitous events. Gradual deterioration, wear and tear, inherent vice, and expected losses are not fortuitous and are excluded on every form regardless of whether it is named-peril or open-peril, which is why an open-peril policy still will not pay for a rusted-through pipe that failed over years.