4.3 Section I Perils Insured Against and Exclusions

Perils Insured Against

Section I defines what causes of loss are covered. The structure depends on the form. Named-perils coverage (the basic and broad lists, and Coverage C on most forms) pays only when one of the listed perils causes the loss. Open-perils coverage (HO-3/HO-5 dwelling; HO-5 contents) pays for any direct physical loss unless excluded. Knowing the two named-perils lists is essential exam content.

The Basic and Broad Named-Perils Lists

Memory aid for the basic list: "We Have Some Very Eager Adjusters Reviewing Vandalism, Smoke, and Lightning." The broad list adds the second column. The HO-2 uses the full broad list; HO-8 uses a narrowed basic list.

Note how the HO-3 mixes bases: the dwelling (Coverage A and B) is open perils, so a falling tree or a frozen pipe is covered unless excluded, while contents (Coverage C) stay on the broad named-perils list. That is why a question about contents damaged by an unusual cause (say, a meteor) may hinge on whether "falling objects" is a listed broad peril — it is — whereas the same cause hitting the roof is simply open-perils covered.

Section I Exclusions

Exclusions apply to all Section I coverages, including open-perils forms. The classic exam exclusions are:

• Ordinance or Law (cost to comply with building codes when rebuilding)
• Earth Movement (earthquake, landslide, sinkhole) — needs a separate policy or endorsement
• Water Damage (flood, surface water, sewer/drain backup) — flood needs the NFIP
• Power Failure (off-premises)
• Neglect (failure to protect property after a loss)
• War, Nuclear Hazard, Intentional Loss
• Governmental Action

A frequently tested point: the anti-concurrent causation language means that if an excluded peril (e.g., flood) contributes to a loss in any sequence with a covered peril, the loss is excluded. Sewer/drain backup can be added back by the HO 04 95 endorsement; water/sewer backup is NOT the same as flood.

Exclusions matter most on open-perils forms, because there the policy covers everything except what is excluded. On a named-perils form an uncovered cause is simply absent from the list. So an exam item that gives an HO-5 (open perils) and an unusual loss is really asking, "Is this on the exclusion list?" — if it is not excluded, it is covered.

Trap List: Common Exam Pitfalls

• Flood vs. water backup — flood (rising surface water) is always excluded and requires NFIP; sewer/sump backup can be endorsed onto the HO policy.
• Earthquake is excluded and bought back by the HO 04 54 endorsement.
• Mold is generally excluded or sub-limited; it is covered only when resulting from a covered water peril.
• Wear and tear, deterioration, rust, rot, settling, and infestation are excluded maintenance perils on every form.
• Frozen pipes are covered ONLY if the insured used reasonable care to maintain heat or shut off and drain the system in a vacant dwelling.
• On open-perils forms, theft from a dwelling under construction and continuous/repeated seepage are specifically excluded.

The split between sudden water discharge (covered broad peril) and flood/surface water (excluded) and seepage (excluded as gradual) generates many exam items. A burst supply line that floods the kitchen overnight is a covered accidental discharge; a slow leak under the sink that rots the cabinet over months is excluded seepage; a storm-swollen creek entering the basement is excluded flood. Train yourself to spot the keywords sudden and accidental (covered) versus continuous, repeated, gradual, or rising surface water (excluded).

The Open-Peril (HO-3/HO-5) Difference

On HO-3 the dwelling and other structures are open-peril, so the insurer must prove an exclusion to deny; contents remain named-peril (broad list). HO-5 extends open-peril to contents as well. This is why a mysterious-disappearance or accidental-spill loss to personal property is typically denied under HO-3 but may be covered under HO-5. The exam loves a fact pattern where the same loss is covered under HO-5 but excluded under HO-3 contents.

Concurrent Causation and the Tested Exclusions

The standard HO exclusions read with an anti-concurrent-causation lead-in ("we do not insure for loss ... regardless of any other cause or event contributing concurrently or in any sequence"). The big eight excluded perils are: ordinance or law, earth movement, water damage (flood/surface water/sewer backup without endorsement), power failure (off-premises), neglect, war, nuclear hazard, and intentional loss. Many of these have ensuing-loss exceptions — for example, an excluded cause that sets off a fire still has the fire covered.

Pitfall Recap