Perils, Hazards, and Exclusions

The causes of loss covered by a property policy are called perils. Understanding which perils are covered — and which are excluded — is essential for interpreting coverage.

Named Perils vs. Open Perils

This is one of the most important distinctions in property insurance:

Named Perils (Basic or Broad Form)

Definition: Only covers the specific perils listed in the policy.

Common Named Perils:

• Fire and lightning
• Windstorm and hail
• Explosion
• Smoke
• Vandalism and malicious mischief
• Theft
• Falling objects
• Weight of ice, snow, sleet
• Water damage (from plumbing, not flood)
• Volcanic eruption

Burden of Proof: The INSURED must prove the loss was caused by a named peril.

Open Perils (Special Form / All-Risk)

Definition: Covers ALL causes of loss EXCEPT those specifically excluded.

How It Works:

• If a peril isn't excluded, it's covered
• Provides broader protection than named perils
• Costs more than named perils coverage

Burden of Proof: The INSURER must prove an exclusion applies to deny a claim.

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Comparison: Named vs. Open Perils

Example Scenario

A meteor crashes through your roof:

• Named Perils Policy: You must prove "meteor" is a listed peril. If not listed, NOT covered.
• Open Perils Policy: Covered, unless "meteor" or "falling objects from space" is specifically excluded.

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Standard Policy Exclusions

These perils are typically excluded from ALL property policies:

Catastrophic/Fundamental Exclusions

Moral/Behavioral Exclusions

Maintenance/Wear Exclusions

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The Flood Exclusion

Exam Alert: Flood is NEVER covered by standard property policies. This is heavily tested.

Why Flood Is Excluded:

• Floods affect many properties simultaneously (correlated risk)
• Adverse selection — only people in flood zones buy coverage
• Violates "non-catastrophic" requirement for insurable risk

How to Get Flood Coverage:

• National Flood Insurance Program (NFIP) — federal program
• Some private flood insurance now available (limited)
• Maximum NFIP coverage: $250,000 dwelling, $100,000 contents

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The Earthquake Exclusion

Why Earthquake Is Excluded:

• Regional catastrophic risk
• Can affect thousands of policies at once
• Difficult to price accurately

How to Get Earthquake Coverage:

• Earthquake endorsement to homeowners policy
• Separate earthquake policy
• California Earthquake Authority (CEA) for CA residents

Important: Earthquake deductibles are typically percentage deductibles (10-20% of dwelling coverage), NOT flat dollar amounts.

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Concurrent Causation

What If Multiple Perils Cause a Loss?

Concurrent Causation Doctrine: If a covered peril and excluded peril combine to cause a loss, some courts ruled the loss was covered.

Insurance Industry Response: Most policies now include anti-concurrent causation clauses stating that if an excluded peril contributes to the loss in ANY way, the entire loss is excluded.

Example:

• Hurricane causes wind damage (covered) AND flood damage (excluded)
• Anti-concurrent causation: BOTH losses may be excluded if they occurred together
• Standard approach: Only wind damage is covered, flood damage excluded

Key Point: Always separate and document different types of damage for proper claim handling.