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

How Property Forms Define Coverage

Property insurance pays for direct physical loss to covered property caused by a covered cause of loss (a peril). Every property policy answers three questions: (1) What property is covered? (2) What causes of loss are covered? (3) What is excluded or limited? Section 2.1 focuses on the second question — the difference between named-peril and open-peril ("all-risk") coverage — because the exam tests it relentlessly.

A peril is the cause of loss (fire, windstorm, theft). A hazard is a condition that increases the chance or severity of a loss. Memorize the three hazard types: physical (an oil-soaked rag pile), moral (an insured who burns property to collect), and morale (carelessness because insurance exists).

Named-Peril Coverage

Under a named-peril form, only the perils listed by name in the policy are covered. The burden of proof is on the insured to show the loss was caused by a listed peril. If the peril is not named, there is no coverage — silence equals exclusion.

ISO uses standardized peril sets. The ISO Homeowners forms reference the Causes of Loss found in HO-2 (Broad Form) and the basic dwelling forms. The classic basic named perils are often memorized with the acronym tied to fire, lightning, windstorm, hail, explosion, smoke, riot/civil commotion, aircraft, vehicles, and volcanic eruption. The broad list adds, among others, falling objects; weight of ice, snow, or sleet; accidental discharge of water/steam; freezing; sudden tearing/cracking of a heating system; and artificially generated electrical current.

Open-Peril ("All-Risk") Coverage

Under an open-peril form (the term "all-risk" is discouraged because nothing is truly all-risk), every cause of direct physical loss is covered unless specifically excluded. The burden of proof flips to the insurer — the company must prove an exclusion applies to deny a claim. This is broader and more expensive coverage.

The ISO HO-3 insures the dwelling and other structures (Coverages A and B) on an open-peril basis, but covers personal property (Coverage C) on a named-peril basis. The HO-5 upgrades Coverage C to open-peril as well. The HO-8 (Modified Form) is named-peril and pays on a functional/repair-cost basis for older homes.

Quick-Reference: Form-to-Coverage Matrix

Trap: Candidates assume HO-3 is open-peril for everything. It is open-peril only for the structure; contents remain named-peril. That single distinction appears on nearly every state exam.

Standard Exclusions (Open-Peril Forms)

Even open-peril forms exclude a recurring set of catastrophic or maintenance-related causes. Memorize this list:

• Ordinance or law (cost to comply with building codes during repair)
• Earth movement (earthquake, landslide, sinkhole) — buy back via endorsement
• Flood / surface water — covered only by NFIP or a stand-alone flood policy
• Power failure off the premises
• Neglect (failure to protect property after a loss)
• War, nuclear hazard, and intentional loss
• Governmental action (seizure/destruction)
• Wear and tear, deterioration, mold, vermin, mechanical breakdown

These "big two" — flood and earthquake — are excluded from all standard property forms regardless of named vs. open. Expect a question pairing a coastal or seismic loss with the correct stand-alone product.

Burden of Proof: The Decisive Practical Difference

The most heavily tested consequence of named-peril versus open-peril is who must prove what. Under a named-peril form, the insured must prove the loss was caused by a peril specifically listed; if the cause is unproven or unlisted, there is no coverage. Under an open-peril form, coverage is presumed and the insurer must prove an exclusion applies to deny the claim. This shift in burden, not a longer list of perils, is why open-peril coverage is broader and costs more.

The Standard Named Perils and a Memory Aid

The broad named-peril list, used in DP-2, HO-2, and the broad causes-of-loss forms, adds to the basic perils. Candidates memorize the basic group, often by the aid that fire, lightning, explosion, windstorm and hail, smoke, aircraft and vehicles, riot and civil commotion, vandalism, and sinkhole collapse appear first, with volcanic action grouped in. The broad form then adds falling objects, weight of ice and snow, accidental water discharge, freezing, and electrical surge. Knowing which perils belong to "basic" versus "broad" lets you rank DP-1, DP-2, and DP-3 by breadth.

Concurrent Causation and Anti-Concurrent Language

When two perils, one covered and one excluded, combine to cause a single loss, the concurrent causation doctrine once forced coverage. ISO responded with anti-concurrent-causation lead-in language stating that certain excluded perils (flood, earth movement, ordinance or law) are excluded "regardless of any other cause or event contributing concurrently or in any sequence." Recognizing this lead-in tells you a loss is excluded even if a covered peril also contributed, a favorite advanced question.