Study guide
2.2 Perils, Hazards, and Exclusions
Property & Casualty Insurance Exam
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1 Introduction
0.1 About the Property & Casualty Exam 0.2 How to Use This Course
2 Chapter 1: Insurance Fundamentals
1.1 Risk and Risk Management 1.2 Types of Risk 1.3 Principles of Insurance 1.4 The Insurance Contract 1.5 Policy Structure and Components
3 Chapter 2: Property Insurance Concepts
2.1 Property Coverage Basics 2.2 Perils, Hazards, and Exclusions 2.3 Valuation Methods 2.4 Coinsurance and Insurance to Value 2.5 Deductibles and Policy Limits
4 Chapter 3: Dwelling Policies
3.1 Dwelling Policy Overview 3.2 Dwelling Policy Forms (DP-1, DP-2, DP-3) 3.3 Dwelling Property Coverages 3.4 Dwelling Exclusions and Conditions
5 Chapter 4: Homeowners Policies
4.1 Homeowners Policy Overview 4.2 Homeowners Policy Forms (HO-2 through HO-8) 4.3 Section I: Property Coverages 4.4 Section II: Liability Coverages 4.5 Homeowners Exclusions 4.6 Homeowners Conditions 4.7 Common Homeowners Endorsements
6 Chapter 5: Personal Auto Policy
5.1 Personal Auto Policy Overview 5.2 Part A: Liability Coverage 5.3 Part B: Medical Payments Coverage 5.4 Part C: Uninsured/Underinsured Motorists 5.5 Part D: Physical Damage Coverage 5.6 PAP Exclusions 5.7 No-Fault Insurance and PIP
7 Chapter 6: Liability Insurance Concepts
6.1 Liability Insurance Basics 6.2 Negligence and Tort Law 6.3 Types of Legal Liability 6.4 Personal Umbrella Policies
8 Chapter 7: Commercial Property Insurance
7.1 Commercial Package Policy (CPP) 7.2 Building and Personal Property Coverage Form 7.3 Causes of Loss Forms 7.4 Business Income Coverage 7.5 Businessowners Policy (BOP)
9 Chapter 8: Commercial General Liability
8.1 CGL Policy Overview 8.2 Coverage A: Bodily Injury and Property Damage 8.3 Coverage B: Personal and Advertising Injury 8.4 Coverage C: Medical Payments 8.5 CGL Exclusions 8.6 CGL Limits and Conditions
10 Chapter 9: Commercial Auto Insurance
9.1 Business Auto Policy Overview 9.2 Covered Auto Designation Symbols 9.3 BAP Liability Coverage 9.4 BAP Physical Damage Coverage 9.5 Garage and Truckers Coverage Forms
11 Chapter 10: Workers Compensation
10.1 Workers Compensation Overview 10.2 Part One: Workers Compensation Insurance 10.3 Part Two: Employers Liability 10.4 Workers Compensation Exclusions 10.5 Other States and USL&H Coverage
12 Chapter 11: Other Commercial Lines
11.1 Inland Marine Insurance 11.2 Ocean Marine Insurance 11.3 Commercial Crime Insurance 11.4 Surety Bonds 11.5 National Flood Insurance Program 11.6 Professional Liability Insurance 11.7 Commercial Umbrella and Excess Liability 11.8 Boatowners and Personal Watercraft Insurance 11.9 Farm and Ranch Insurance 11.10 Mobile Home and Manufactured Housing Insurance 11.11 Title Insurance
13 Chapter 12: Insurance Regulations and Ethics
12.1 Producer Licensing 12.2 Producer Authority and Responsibilities 12.3 Unfair Trade Practices 12.4 Claims Settlement Practices 12.5 State Insurance Department 12.6 Penalties and Disciplinary Actions
2.2 Perils, Hazards, and Exclusions
Key Takeaways Explain This Topic AI
Named-perils (basic/broad) coverage pays only for listed causes of loss and puts the burden of proof on the INSURED; open-perils (special) coverage pays for any non-excluded cause and shifts the burden to the INSURER.
A peril is the cause of loss; a hazard increases the likelihood or severity — physical, moral, and morale hazards are distinct and tested.
Flood is always excluded from standard property policies and must be bought through the NFIP (max $250,000 dwelling / $100,000 contents) or private flood insurance.
Earthquake is excluded and added by endorsement or separate policy, usually with a percentage deductible of 10-20% of dwelling value (California Earthquake Authority for CA).
Anti-concurrent-causation language excludes the entire loss when an excluded peril contributes in any way, even alongside a covered peril.
Last updated: June 2026
Peril vs. Hazard — Define Both
A peril is the cause of a loss (fire, wind, theft). A hazard is a condition that increases the chance or size of a loss. The exam separates three hazard types:
- Hazard Definition Example
- Physical hazard A tangible condition Oily rags in a basement; an icy sidewalk
- Moral hazard Dishonesty — the insured wants a loss Arson for profit; staged theft
Morale hazard Carelessness — indifference because insurance exists Leaving doors unlocked; not fixing a known leak
Named Perils vs. Open Perils
This distinction controls coverage scope and, critically, who must prove what .
Named Perils (Basic Form / Broad Form)
Covers only the perils specifically listed. The insured bears the burden of proof — they must show the loss came from a listed peril. Common named perils include:
- Fire and lightning
- Windstorm and hail
- Explosion; smoke
- Vandalism and malicious mischief
- Theft
- Falling objects; weight of ice, snow, or sleet
- Accidental discharge of water from plumbing (not flood)
- Volcanic eruption
- Open Perils (Special Form / All-Risk)
Covers all causes of loss except those excluded . The insurer bears the burden of proof — to deny a claim it must show an exclusion applies. Open perils costs more and provides broader protection.
- Feature Named perils Open perils
- What is covered Only listed perils Everything except exclusions
- Burden of proof On the insured On the insurer
- Premium Lower Higher
- Also called Basic / Broad Form Special Form / All-Risk
Scenario: A meteor punches through a roof. Under named perils, the insured must find "meteor" or "falling objects" on the list or recover nothing. Under open perils, it is covered unless specifically excluded.
Standard Exclusions
Nearly every property policy excludes the same categories. Memorize these — exclusions generate a large share of property questions.
- Category Examples Why excluded
- Catastrophic Flood, earthquake, war, nuclear hazard Correlated, uninsurable, or regional risk
- Behavioral Intentional loss, illegal acts Prevents moral hazard and fraud
- Maintenance/wear Wear and tear, rust, corrosion, vermin, settling, mold Gradual, foreseeable, not fortuitous
- Mechanical Mechanical breakdown A warranty issue, not sudden loss
- The Flood Exclusion (Heavily Tested)
Flood is never covered by a standard property policy, even when a covered peril (a hurricane) caused the flooding. Flood is excluded because it is a correlated, catastrophic risk subject to adverse selection.
How to get flood coverage:
National Flood Insurance Program (NFIP) — the federal program. Maximum residential limits are $250,000 building and $100,000 contents .
Private flood insurance — increasingly available and can exceed NFIP caps.
The Earthquake Exclusion
Earthquake is also excluded and is added by endorsement or a separate policy . The defining feature is the percentage deductible , typically 10-20% of the dwelling limit rather than a flat dollar amount. On a $400,000 home, a 15% earthquake deductible is $60,000 — far larger than an ordinary deductible. California residents typically buy through the California Earthquake Authority (CEA) .
Concurrent Causation and Anti-Concurrent-Causation
When a covered peril and an excluded peril combine to cause one loss, the concurrent-causation doctrine historically allowed recovery if any contributing cause was covered. Insurers responded with anti-concurrent-causation (ACC) clauses: if an excluded peril contributes to the loss in any way , the entire loss is excluded.
Worked example: A hurricane produces both wind damage (covered) and storm-surge flood damage (excluded). Under ACC wording, where wind and flood acted together the loss is excluded; the standard claims approach is to separate and document the wind-only damage so that portion can be paid while the flood portion is denied. Careful documentation of each cause is the practical takeaway.
Coverage Forms: Basic vs. Broad vs. Special
The exam expects you to rank the three cause-of-loss forms used in both homeowners and commercial property. Basic Form is the narrowest named-perils list, traditionally fire, lightning, windstorm, hail, explosion, smoke, aircraft, vehicles, riot, vandalism, sinkhole collapse, and volcanic action. Broad Form adds the second tier of named perils — falling objects; weight of ice, snow, or sleet; accidental discharge of water or steam; freezing of plumbing; and sudden tearing or cracking of a heating or air-conditioning system. Special Form is open perils: everything is covered unless excluded.
As coverage widens from Basic to Broad to Special, premium rises and the burden of proof shifts from the insured toward the insurer.
- Form Coverage trigger Burden of proof Relative premium
- Basic Short named-perils list Insured Lowest
- Broad Expanded named-perils list Insured Middle
- Special All risks except exclusions Insurer Highest
- Why Certain Risks Are Not Insurable
Exclusions are not arbitrary; they trace back to the characteristics of an insurable risk . A loss should be definite and measurable, fortuitous (accidental), not catastrophic to the insurer, calculable, and affordable. Flood and earthquake violate the non-catastrophic characteristic because a single event strikes thousands of insureds at once (correlated loss). Intentional acts violate the fortuitous characteristic — the insured controls whether the loss happens, creating moral hazard. Wear, tear, rust, and gradual deterioration violate the accidental characteristic because they are expected and certain, not sudden.
War and nuclear hazard are simply beyond the financial capacity of any private insurer. Tying each exclusion back to a failed insurability characteristic lets you reason through unfamiliar scenarios rather than memorize a list.
Ordinance or Law — A Frequently Tested Gap
Even open-perils policies exclude the extra cost of complying with building ordinances or laws when rebuilding. After a covered fire, a 40-year-old building may have to be brought up to current code (new wiring, fire sprinklers, accessibility). The base policy pays only to restore the building as it was; the increased cost of construction to meet code is excluded unless the insured buys an ordinance or law endorsement . This pairs naturally with functional replacement cost and is a classic distractor on commercial property questions.