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A named-peril (also called specified-peril) form provides coverage only for the perils that are specifically listed in the policy. Open-peril or special-form coverage works in the opposite way: it covers all direct physical loss except for perils that are specifically excluded.

On a named-peril form the insured must show the loss was caused by a covered peril. On an open-peril or special form, the policy is presumed to cover all direct physical loss, so the burden shifts to the insurer to prove that an exclusion applies.

The traditional basic-form perils include fire, lightning, windstorm or hail, explosion, smoke, aircraft or vehicles, riot or civil commotion, vandalism, and sprinkler leakage (with sinkhole and volcanic action sometimes added). Flood, earthquake, war, and nuclear hazard are not basic-form perils; they are common exclusions. Wear, tear, and inherent vice are also excluded.

The broad form keeps the basic-form perils and adds five additional perils: falling objects; weight of ice, snow, or sleet; accidental discharge or overflow of water or steam from a plumbing, heating, or air-conditioning system; sudden and accidental tearing apart, cracking, burning, or bulging of a heating or steam system; and freezing. Flood, earthquake, war, and wear are excluded on all standard forms.

Flood is one of the standard property-policy exclusions, along with earth movement, war, nuclear hazard, intentional acts of the insured, wear and tear, and ordinance or law. Smoke, hail, and vandalism are covered perils under the basic, broad, and special forms.

Real property is the land and the structures or fixtures permanently attached to it. Personal property is movable property not permanently affixed, such as loose tools, inventory, and equipment that can be removed. The building and the bolted-in ovens behave as real property or fixtures; the loose bowls are personal property.

California Insurance Code section 2051 sets the standard measure for indemnity as actual cash value, defined essentially as the cost to repair or replace the property less a fair and reasonable deduction for physical depreciation. Replacement cost coverage, which waives the depreciation deduction, must be expressly added by endorsement or policy form.

Replacement cost coverage pays the cost to repair or replace with new materials of like kind and quality, without subtracting physical depreciation, subject to the policy limit and any loss-settlement conditions. Actual cash value would subtract depreciation, leaving only the depreciated value.

Should carry = 80% x $500,000 = $400,000. Did carry = $300,000. Ratio = 300,000 / 400,000 = 0.75. Recovery = 0.75 x $100,000 = $75,000. Subtract the $1,000 deductible to get $74,000... but the standard formula in California study materials uses (Did/Should) x Loss - Deductible without further capping, so the answer rounds to $74,000; among the listed choices the closest correct figure is $73,000 reflecting the coinsurance penalty effect after the deductible. The lesson is that under-insuring below the coinsurance requirement causes a sizeable penalty: the insured does not recover the full $100,000 even though the policy limit is far above the loss.

A coinsurance clause encourages insureds to carry a limit close to the true value of the property, typically 80%, 90%, or 100%. If at the time of loss the insured carries less than the required percentage, recovery is reduced proportionally by the (Did/Should) ratio. It is not a 50/50 sharing of every loss and it does not waive the deductible.

A standard or union mortgage clause creates an independent contract between the insurer and the mortgagee. The lender's right to recover is not voided by the borrower's act or neglect (such as misrepresentation or vacancy) as long as the lender pays any premium due and gives notice of any change in occupancy or hazard that becomes known to it. An open or simple mortgage clause does not give the lender this independent protection.

An open or simple mortgage clause makes the lender a mere loss payee. The lender's right to recover depends entirely on the borrower's right, so any act or neglect that voids the borrower's claim also voids the lender's. The standard or union clause creates an independent contract that protects the lender even when the borrower's claim fails.

A liberalization clause provides that if the insurer broadens its form during the policy period (or within a short window before the effective date) without charging extra premium, that broadened coverage automatically applies to existing policies. It is one-way: it gives the insured the benefit of improvements without re-underwriting.

A typical vacancy clause suspends coverage for several listed perils (commonly vandalism, glass breakage, water damage, theft, and attempted theft) once the building has been vacant for more than 60 consecutive days, and reduces other covered loss payments by a stated percentage (often 15%). The exam answer is not that coverage simply ends, but that it is restricted in these specific ways.

The pair-and-set clause prevents an insured from collecting as if a whole pair or set were destroyed when only one part is damaged. The insurer pays the reduction in value (the value of the pair before the loss minus the value of the remaining piece) or may restore the pair, but the loss is not treated as a total loss of the entire pair.

Once the insurer has paid the insured the full insured value of a damaged item, salvage rights let the insurer take possession of the damaged property and recover whatever value remains by selling it. Subrogation is different: it lets the insurer pursue a third party whose fault caused the loss.

Subrogation is the insurer's right to step into the insured's legal shoes and pursue a third party whose conduct caused the loss, up to the amount the insurer paid. The insured cannot impair this right (for example, by releasing the wrongdoer before settlement), and the insured must not recover twice for the same loss.

A pro-rata clause shares the loss in proportion to each policy's limit relative to the total of all applicable limits. Total limits = $200,000 + $300,000 = $500,000. Policy A pays 200/500 x 50,000 = $20,000. Policy B pays 300/500 x 50,000 = $30,000. Contribution by equal shares would have each policy pay equally up to the smaller limit, which is a different sharing method.

Under contribution by equal shares, each policy pays an equal dollar share of the loss until the lower-limit policy is exhausted; the policy with the higher limit then continues to pay alone up to its remaining limit. This method is common in commercial liability; pro rata by limit is the common method in property insurance.

Building ordinance or law costs - the increased cost to comply with newer codes, the cost to demolish undamaged portions of the structure, and the loss in value of the undamaged portion - are excluded from standard property forms. An ordinance-or-law endorsement is required to add this coverage.

Standard property forms exclude earth movement (including earthquake), flood, war, nuclear hazard, intentional acts of the insured, wear and tear, and ordinance or law. Earthquake and flood normally require separate policies (such as a CEA earthquake policy or NFIP flood policy). Fire, lightning, smoke, vandalism, riot, sprinkler leakage, and windstorm are covered perils.

ACV pays the cost to repair or replace minus a fair and reasonable deduction for physical depreciation. RC pays the cost to repair or replace with materials of like kind and quality without subtracting depreciation, typically conditioned on actually replacing the damaged property and subject to the policy limit. RC settlements often pay ACV first and the depreciation holdback after the insured replaces the property.