2.1 Causes of Loss / Named-Peril vs. Open-Peril
Key Takeaways
- A named-peril (specified-peril) form covers only the perils it lists; the insured carries the burden of proving the loss came from a listed peril.
- An open-peril (special, formerly 'all-risk') form covers every cause of loss except those excluded; the insurer carries the burden of proving an exclusion applies.
- ISO commercial property uses three Causes of Loss forms: Basic (CP 10 10), Broad (CP 10 20), and Special (CP 10 30) — Special is open-peril.
- A peril is the cause of loss (fire, wind, theft); a hazard increases the chance or severity of a peril; the proximate cause is the predominant cause that sets the chain of events in motion.
- Anti-concurrent-causation language defeats coverage when an excluded peril (flood, earth movement) combines with a covered peril to cause one loss.
Perils, Hazards, and the Cause of Loss
Every property claim turns on one question: what caused the loss, and is that cause covered? The exam tests three terms relentlessly, so fix them first.
- Peril — the cause of loss. Fire, windstorm, hail, theft, vandalism, lightning, and explosion are all perils.
- Hazard — a condition that increases the likelihood or severity of a peril. Hazards do not cause loss directly; they make a peril more likely.
- Proximate cause — the predominant, efficient cause that sets in motion an unbroken chain of events leading to the loss.
The Three Types of Hazard
| Hazard | Definition | Exam example |
|---|---|---|
| Physical | A tangible condition of property or person | Oily rags in a basement; an icy sidewalk; a frayed wire |
| Moral | Dishonest tendencies — the insured may cause a loss to collect | Arson for profit; staged theft of a failing business's inventory |
| Morale | Carelessness or indifference because insurance exists | Leaving a car unlocked; not repairing a known leak |
The trap students miss: moral hazard is deliberate dishonesty, while morale hazard is mere carelessness or an indifferent attitude. One spelling difference, two very different exam answers.
Named-Peril vs. Open-Peril Forms
The single most important coverage distinction in property insurance is how the policy decides what is covered.
Named-peril forms (also called specified-peril or specified-causes-of-loss) cover only the perils expressly listed. If the loss does not match a listed peril, there is no coverage. The burden of proof falls on the insured — the policyholder must show the loss arose from a peril named in the contract.
Open-peril forms (called special form, or historically all-risk) flip the logic: they cover every cause of direct physical loss except those specifically excluded. The burden of proof falls on the insurer — the company must point to a specific exclusion to deny the claim. Because open-peril gives broader protection and shifts the burden, it costs more.
| Feature | Named-Peril | Open-Peril (Special) |
|---|---|---|
| What's covered | Only listed perils | Everything not excluded |
| Burden of proof | On the insured | On the insurer |
| Breadth | Narrower | Broader |
| Cost | Lower premium | Higher premium |
| Industry term | Specified / broad | Special / formerly 'all-risk' |
Note the industry has retired the term all-risk in favor of special or open-peril, because 'all-risk' wrongly implied no exclusions. Exam answers may still use 'all-risk' to mean open-peril.
ISO Causes of Loss Forms (Commercial Property)
In the ISO Commercial Property program, the building/contents coverage form (e.g., CP 00 10) is silent on perils; the insured attaches a Causes of Loss form to define coverage breadth. There are three, and their form numbers are heavily tested.
| Causes of Loss form | Number | Type | What it covers |
|---|---|---|---|
| Basic | CP 10 10 | Named-peril | Fire, lightning, explosion, windstorm/hail, smoke, aircraft/vehicles, riot/civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic action |
| Broad | CP 10 20 | Named-peril | All Basic perils plus falling objects, weight of snow/ice/sleet, water damage (accidental discharge), building glass breakage, and collapse |
| Special | CP 10 30 | Open-peril | All direct physical loss except what is excluded |
A memory hook: Basic covers the original perils; Broad broadens by adding the weather/water and collapse group; Special is the open-peril top tier. Personal lines use a parallel idea — the Dwelling DP-1 is roughly named-peril Basic, while Homeowners HO-3 insures the dwelling on an open-peril basis but keeps personal property on a named-peril basis.
Watch one more wrinkle: even the Special (open-peril) form lists exclusions — wear and tear, mechanical breakdown, settling, smog, rust, vermin, and pollution are standard. So 'open-peril' never means 'covers literally everything.' On the exam, if an answer choice claims the special form has no exclusions, it is wrong by definition.
Under an open-peril (special) form, who bears the burden of proving whether a loss is covered?
Proximate Cause and Anti-Concurrent Causation
When several events combine, the proximate cause doctrine asks which event was the predominant, efficient cause that started an unbroken chain leading to the loss. If a covered peril is the proximate cause, the loss is generally covered even if intervening events follow.
Example: lightning (covered) strikes a home and starts a fire (covered) that firefighters extinguish with water that ruins the floors. The proximate cause is lightning — the entire chain is covered.
Insurers limit this with anti-concurrent-causation (ACC) language. ACC says that when an excluded peril and a covered peril combine to cause a single loss, the entire loss is excluded, regardless of the sequence. This is why a hurricane that drives both covered wind and excluded storm-surge flood into a home can defeat coverage for water damage. ACC wording typically reads: 'We do not insure for loss caused directly or indirectly by [flood/earth movement]... regardless of any other cause or event contributing concurrently or in any sequence to the loss.'
Worked Trap
An earthquake (excluded) cracks a gas line, igniting a fire (covered) that burns the house. Many homeowners forms contain an ensuing-loss / resulting-fire exception that carves back coverage for the fire even though the earthquake is excluded. Read whether the form excludes the peril outright or only its direct effects — California's standard fire policy historically preserved fire coverage following a quake.
A homeowner leaves the front door unlocked for weeks because 'insurance will cover it anyway,' and the home is burglarized. This careless attitude is an example of which hazard?