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?
The insured must prove the loss was caused by a listed peril
The insurer must prove the loss falls under a stated exclusion
The state insurance department decides each claim
Neither party — open-peril forms have no exclusions
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?
Physical hazard
Moral hazard
Morale hazard
Proximate hazard
Sections you finish are checked off in the contents.