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Difficulty: EasyPerils and Hazards

A residential claims adjuster is reviewing the details of a recent property loss. The case file notes several factors that were present at the scene before and during the event. According to basic insurance principles, which of the following factors are classified as hazards? (Select all that apply)

  1. A stack of dry, combustible newspapers stored directly against the water heaterAnswer
  2. B
    The active fire that ultimately destroyed the kitchen and living room
  3. Frayed, exposed electrical wiring running through the home's atticAnswer
  4. D
    A lightning strike that initiated the flames on the roof

Answer

The stack of combustible newspapers and the frayed electrical wiring are classified as hazards.
In risk management, a hazard is a condition that increases the probability or severity of a loss. Both the combustible newspapers placed near a heat source and the frayed electrical wiring are physical conditions that heighten the risk of a fire, making them prime examples of physical hazards.

Step-by-Step Solution

1
Define the term 'hazard' in insurance terms.
A hazard is a condition or situation that increases the frequency or severity of a loss.
Establishing the correct definition is necessary to distinguish hazards from perils.
2
Define the term 'peril' in insurance terms.
A peril is the actual, active cause of a loss (e.g., fire, lightning, wind).
Understanding perils allows for the elimination of incorrect options.
3
Evaluate each option against the definitions.
Combustible newspapers and frayed wiring are underlying conditions (hazards). Fire and lightning are active causes of damage (perils).
Applying the definitions to the specific scenarios isolates the correct answers.

Key Concept

Distinguishing between hazards (conditions that increase loss potential) and perils (the actual causes of loss).
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Topics

Perils and Hazards

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