Causes of Loss

To identify what perils they cover, property insurance policies use either:

*The named perils approach *The open perils approach

Difference in Condition Policies

A difference-in-conditions (DIC) policy is a property insurance policy that is purchased in addition to a commercial property policy to obtain coverage for perils, such as flood and earthquake, that the commercial property policy does not cover. *DIC policies can also be used to fill other coverage gaps. Many DIC policies are issued by nonadmitted excess and surplus lines insurers who can be very flexible in addressing unique exposures.

Peril

A peril is a cause of loss. "Peril" and "cause of loss" mean exactly the same thing. However, "hazard" and "peril" are not the same. A hazard can increase the likelihood of loss resulting from a perils

The named perils approach

A property insurance policy that uses the named perils approach includes a list or description of the perils that are covered. The named perils are also called specified perils. The insured that wants his or her claim paid has the burden of proof. If the insured can prove that covered property was damaged by one of the named or specified perils, the insurer is obligated to pay the claim unless coverage does not apply for some other reason.

The open perils approach

In contrast to the named perils approach which lists the perils that are covered, the open perils approach describes the causes of loss (perils) that are not covered. With an open perils policy, the insurer has the burden of proof. A loss to covered property by any cause is covered unless the insurer can prove that the loss was caused by a peril on the excluded list. The open perils approach is sometimes referred to as "special," and some insurance forms with "special" in their title use the open perils approach.

Moral Hazard

Moral hazards are tendencies or traits of an individual that increase the chance of a loss. *Bad credit is an example of a moral hazard affecting property. A person in bad financial condition is somewhat more likely than another person to intentionally destroy property in order to collect on his or her insurance.

Morale Hazard

Morale hazards are also individual tendencies, but they arise from a state of mind, attitude, or indifference to loss. *Not locking the doors when leaving one's home is an example of a morale hazard because it increases the likelihood of a theft.

Physical Hazard

Physical hazards are individual physical characteristics that increase the chance of loss. They exist due to the presence of some physical condition. Using solvents or other flammable liquids are physical hazards because they increase the likelihood of a fire.

Proximate cause

The proximate cause is the cause that sets in motion an unbroken chain of events leading to the loss. It may or may not be the immediate cause of the loss.

Concurrent Causes of Loss

When claims arise and turn to litigation on this issue, some courts have followed the theory of concurrent causation, which holds that, if a given loss involves more than one peril, and at least one of the perils is covered by the policy, then the loss is covered—even if the policy specifically excludes another cause of the loss.

Hazard

a condition that increases the likely number of losses or the likely severity of a loss *Potholes along a busy highway are considered road hazards.

Examples of Perils

fire explosion windstorm flood theft collision *An insurance policy provides financial protection against losses caused by covered perils, because the insurance policy "covers" them, i.e., the insurance policy provides protection for accidental loss or damage resulting from them.

Causes of loss are referred to as:

perils

For a loss to be covered under a property insurance policy, a covered peril (cause of loss) must be the:

proximate cause