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

Peril, Hazard, and Cause of Loss

A peril is the cause of a loss — fire, windstorm, theft, lightning. A hazard is a condition that increases the likelihood or severity of a loss. Exam questions reliably test the three hazard types:

• Physical hazard — a tangible condition (oily rags, icy steps, a flat roof that ponds water).
• Moral hazard — dishonesty or character that invites loss (an insured who would burn a money-losing building).
• Morale hazard — indifference or carelessness because insurance exists (leaving doors unlocked).

In ISO property forms, the listed perils are organized into named Causes of Loss forms on commercial business and into the dwelling/homeowners perils list on personal lines.

Named-Peril vs. Open-Peril (Special) Coverage

This distinction governs who proves what at claim time, and it is the single most tested property concept.

Open-peril is broader and shifts the proof burden to the carrier, so it costs more. "All-risk" is the older market term; ISO uses "special" and "risk of direct physical loss."

The Forms You Must Know

Personal lines (Homeowners HO 00 03, 2011/most-recent ISO edition):

• Coverage A (Dwelling) and B (Other Structures) — written open peril (special).
• Coverage C (Personal Property) — written named peril unless upgraded by HO 00 05 or the HO 00 15 endorsement.
• The HO 00 02 (Broad Form) is named-peril throughout; the HO 00 05 (Comprehensive) is open-peril throughout.

Commercial lines (ISO Causes of Loss forms attached to the Building and Personal Property Coverage Form, CP 00 10):

• CP 10 10 Basic Form — fire, lightning, explosion, windstorm/hail, smoke, aircraft/vehicles, riot/civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic action (the "BC FLEE SHAVS" style mnemonic candidates use).
• CP 10 20 Broad Form — Basic perils plus falling objects, weight of ice/snow/sleet, water damage (accidental discharge), and building glass breakage; adds limited collapse coverage.
• CP 10 30 Special Form — open peril (risk of direct physical loss) subject to exclusions.

Standard Exclusions and the Anti-Concurrent-Causation Trap

Open-peril forms still exclude a predictable list. The exam expects you to recognize the "big exclusions" common to ISO property forms:

• Ordinance or law (cost to rebuild to current code).
• Earth movement (earthquake, landslide, sinkhole except as added).
• Flood / surface water — requires separate NFIP or private flood coverage.
• Power failure (off-premises), war, nuclear hazard, intentional loss.
• Wear and tear, mold, vermin, mechanical breakdown (maintenance items).

The anti-concurrent-causation (ACC) clause states that an excluded peril is excluded "regardless of any other cause or event contributing concurrently or in any sequence." So if an excluded flood and a covered wind both contribute, the ACC language lets the insurer deny the flood-related damage even though wind also operated. Watch for this in scenario questions.

Endorsements That Add Back Excluded Perils

Because the standard exclusions create real gaps, the exam expects you to know the endorsements that restore coverage:

• Earthquake — added by endorsement (e.g., CP 10 40 / DIC policies); often carries a separate percentage deductible.
• Flood — never added to the homeowners or commercial property form; bought separately through the NFIP or private flood markets.
• Ordinance or Law — CP 04 05 (commercial) or HO 04 77 covers the increased cost to rebuild to current building codes, including demolition and the undamaged-portion cost.
• Equipment Breakdown (boiler & machinery) — restores mechanical/electrical breakdown excluded by the base form.

A recurring trap: candidates assume "special form" means "everything is covered." Open peril is broad but still subject to the exclusion list, so always read the exclusions before concluding a loss is paid.

Direct vs. Indirect Loss and Proximate Cause

Property forms distinguish direct loss (physical damage from a covered peril — fire burns the building) from indirect (consequential) loss (the follow-on economic loss — lost rents or extra living expense while the building is repaired). Indirect loss is covered only when the form or an endorsement specifically adds it.

When several events combine, the proximate cause doctrine asks which peril set the unbroken chain in motion. If the efficient proximate cause is covered, the resulting loss is generally covered even if a later non-covered event contributed — except where an anti-concurrent-causation clause overrides this and excludes the entire loss if an excluded peril is in the chain.

Specified-Peril Sublists and Common Add-Backs

Knowing exactly which perils sit in each ISO tier earns easy points:

Glass breakage, theft, and earthquake/flood are typically handled by endorsement or separate policy, not the base causes-of-loss form.