FL Adjuster Claims Professional Exam Study Guide

Causes of Loss

Insurance policies carefully define the perils (causes of loss) they cover. A covered peril must be the proximate cause of the loss, meaning the initial event that sets in motion a chain of events leading to the loss.

Two types of policies cover perils:

Named Perils Policy: Lists the specific perils that are covered. Losses must result from a listed peril.
Open Perils Policy: Lists perils that are excluded. Losses are covered unless caused by an excluded peril.

Difference-in-Conditions (D-I-C) Policy: Supplements a commercial property policy by covering perils not included, such as flood and earthquake. Often issued by excess and surplus lines insurers.

Hazards

A hazard is a condition that increases the likelihood or severity of a loss. Insurers recognize three types of hazards:

Moral Hazard: Individual tendencies increasing loss likelihood (e.g., bad credit may lead to intentional property destruction).
Morale Hazard: Indifference to loss (e.g., not locking car doors, relying on insurance).
Physical Hazard: Physical conditions increasing loss likelihood (e.g., icy sidewalk increasing slip-and-fall risk).

Example: Insufficient lighting increases the chance of theft (physical hazard). A pile of oily rags increases the chance of fire (physical hazard).

Perils

A peril is a cause of loss. Common perils include:

Fire
Explosion
Windstorm
Flood
Theft
Collision

Insurance policies provide financial protection against losses caused by specified (covered) perils.

Proximate Cause of Loss

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

Example: An earthquake breaks a gas main, causing a fire that destroys a building. The proximate cause is the earthquake, not the fire. Coverage depends on whether earthquake is a covered peril.

Named Perils

A named perils policy lists specific perils covered. Policyholders must prove the loss was caused by a listed peril.

Common Named Perils (Basic Policy):

Fire
Lightning
Explosion
Windstorm or Hail
Smoke
Riot or Civil Commotion
Vandalism
Sprinkler Leakage
Sinkhole Collapse
Volcanic Action

Broader Form Adds:

Falling Objects
Weight of Ice, Sleet, or Snow
Water Damage (from specific causes)
Collapse (from specific causes)

Crime Perils:

Theft: Any type of stealing or attempted stealing.
Burglary: Theft from within a premises by unlawful entry (e.g., after-hours break-in).
Robbery: Theft using or threatening force (e.g., armed robbery).
Mysterious Disappearance: Property disappears from a known place, likely stolen (e.g., a ring left in a restroom).
Vandalism: Willful and malicious damage to property without theft.

Open Perils (Special Perils)

An open perils policy covers all perils except those explicitly excluded. The insurer must prove a loss was caused by an excluded peril to deny a claim.

Common Exclusions:

War and Military Action
Nuclear Hazards
Earthquake
Flood
Wear and Tear
Employee Dishonesty

Concurrent Causation: If a loss involves multiple perils and at least one is covered, the loss may be covered, even if another cause is excluded.

Example: A court ruled that a flood caused by a negligently designed dam was covered under an open perils policy, as negligent design was not an excluded peril.

Difference-in-Conditions (D-I-C)

A D-I-C policy supplements commercial property policies to cover excluded perils like flood and earthquake. Often issued by excess and surplus lines insurers for flexibility.

Test Your Knowledge

Question: If an earthquake breaks a gas main, causing a fire that destroys a building, the proximate cause of the building’s loss is the fire.

Answer: Click the button to reveal the answer.