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

Causes of Loss: How Property Coverage Is Triggered

A peril is the cause of a loss (fire, windstorm, theft). A hazard is a condition that increases the chance or severity of a loss. Property insurance never covers "everything"; it responds only when a covered peril operates. The single most-tested distinction on the national P&C exam is whether a form is named-peril or open-peril (special), because that label dictates who carries the burden of proof at claim time.

Named-Peril vs. Open-Peril

A named-peril form (also called specified or basic/broad) lists each covered cause of loss. If the peril is not listed, there is no coverage. The insured bears the burden of proving the loss came from a listed peril.

An open-peril form (the ISO term is Special; older texts say all-risk) covers every cause of loss EXCEPT those specifically excluded. The insurer bears the burden of proving an exclusion applies. Open-peril always costs more premium because it is broader.

The Three ISO Causes of Loss Forms (Commercial)

Commercial property uses standalone Causes of Loss forms attached to the Building and Personal Property Coverage Form (CP 00 10):

The mnemonic for Basic perils is often "WCSHAVVERS" plus fire/lightning/explosion. Broad simply adds the next tier.

Common Exclusions on Open-Peril Forms

Because Special covers all-but-excluded, exam questions focus on what is carved out. Standard exclusions include: ordinance or law, earth movement (earthquake), governmental action, nuclear hazard, utility service failure, war, water (flood, surface water, sewer backup), wear and tear/deterioration, and intentional acts by the insured. Flood and earthquake are excluded under virtually all property forms and require separate policies or endorsements (NFIP flood; DIC for quake).

Coverage Triggers and Concurrent Causation

The anti-concurrent causation clause states that an excluded peril is excluded regardless of whether a covered peril contributes to the loss in any sequence. Classic example: a hurricane drives both wind (covered) and storm-surge flood (excluded). The anti-concurrent language lets the insurer deny the flood portion even though covered wind occurred at the same time. Adjusters must apportion wind vs. water damage.

Specific vs. Concurrent Causation and the Anti-Concurrent Clause

Open-peril forms cover everything not excluded, which makes the exclusions the battleground. Two doctrines decide borderline losses.

• Efficient proximate cause - when a covered peril sets a chain of events in motion, the loss is covered if the dominant (efficient proximate) cause is covered, even if an excluded peril appears later in the chain.
• Anti-concurrent causation clause - many modern forms override that doctrine, stating that an excluded peril is excluded whether or not any other cause contributes "concurrently or in any sequence." This is why flood and earth movement losses are denied even when a covered peril also contributed.

Exam trap: If the form contains an anti-concurrent causation clause and an excluded peril (flood, earth movement) is in the chain, the loss is excluded even though a covered peril also contributed. Without that clause, efficient proximate cause may save the claim.

The Standard Open-Peril Exclusions

Memorize the recurring exclusions on special/open-peril property forms: flood, earth movement, war, nuclear hazard, ordinance or law, intentional loss, government action, neglect, and wear and tear / inherent vice. Wear, tear, and mechanical breakdown are excluded because they are not fortuitous - insurance covers sudden and accidental loss, not maintenance.

Ensuing-Loss Exceptions

Many exclusions carry an ensuing loss giveback: although the excluded cause itself is not covered, a resulting covered peril is. If faulty wiring (excluded as a defect) causes a fire, the fire damage is covered because fire is a covered ensuing peril. The exam rewards spotting the ensuing-loss carve-back inside an otherwise broad exclusion.

Burden of Proof and the Named-Peril/Open-Peril Divide

Who must prove what is the practical heart of the named-peril versus open-peril distinction.

This shift in burden is why open-peril coverage is broader and costs more: the insurer, not the insured, must prove the loss falls into an exclusion.

The Three Commercial Causes-of-Loss Forms

• Basic (CP 10 10) - a short named-peril list: fire, lightning, explosion, windstorm/hail, smoke, aircraft/vehicles, riot, vandalism, sprinkler leakage, sinkhole collapse, volcanic action.
• Broad (CP 10 20) - Basic perils plus falling objects, weight of snow/ice/sleet, water damage from plumbing, and limited collapse.
• Special (CP 10 30) - open-peril: covers risks of direct physical loss except those excluded.

Exam trap: Theft is NOT covered by the Basic or Broad forms - only the Special form includes theft (subject to its own conditions). Flood and earth movement are excluded on all three and need separate coverage.

Fortuity and Inherent Vice

All property coverage requires a fortuitous (accidental, uncertain) loss. Inherent vice (a quality within the property that causes its own deterioration - rust, rot, spoilage) and ordinary wear and tear are excluded because they are certain to occur, not accidental.