Dwelling Exclusions and Conditions

Every insurance policy has exclusions (what's not covered) and conditions (rules both parties must follow). Understanding these provisions is essential for proper claims handling.

Standard Exclusions

Catastrophic Exclusions

These perils are excluded from ALL dwelling forms:

Behavioral Exclusions

Property/Maintenance Exclusions

Water-Related Exclusions

Exam Note: Water damage is heavily tested. Know the difference between covered water damage (sudden pipe burst) and excluded water damage (flood, seepage, sewer backup).

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Policy Conditions

Conditions are requirements that must be met for coverage to apply.

Duties After Loss

When a loss occurs, the insured must:

What Proof of Loss Must Include

• Time and cause of loss
• Interest of insured and others (mortgage company)
• Other insurance covering the loss
• Changes in title or occupancy
• Specifications of damaged property
• Receipts, records, inventories
• Amount of loss claimed

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The Vacancy Provision

Critical provision for dwelling policies:

What It Says

If the dwelling is vacant for more than 60 consecutive days before the loss:

• Vandalism and malicious mischief — NOT covered at all
• Other covered losses — Payment reduced by 15%

Vacant vs. Unoccupied

Example:

• House for sale, empty = Vacant (provision applies)
• Owner in hospital for 3 months, furnished house = Unoccupied (provision may not apply)

Why This Matters

Vacant properties have higher risk of:

• Vandalism (no one to deter)
• Unnoticed damage (no one to report)
• Deterioration (no maintenance)

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Mortgage Clause

Protects the lender's interest in the property.

Key Provisions

1. Loss payable to mortgagee — Checks typically made to both insured and lender

2. Mortgagee's rights preserved — Even if insured:

   • Commits fraud
   • Violates policy conditions
   • Fails to pay premium

3. Mortgagee duties:

   • Pay premium if insured doesn't
   • Notify insurer of ownership changes
   • Submit proof of loss if insured doesn't

4. Cancellation notice — Mortgagee must receive notice (typically 10-30 days) before cancellation

Why It Exists

The lender has a financial interest in the property (the mortgage). This clause ensures they can recover their investment even if the borrower does something to void coverage.

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Loss Settlement Provisions

How claims are calculated and paid:

Actual Cash Value (ACV)

ACV = Replacement Cost - Depreciation

• Default for DP-1
• Available for DP-2, DP-3

Replacement Cost

Full cost to repair/replace without depreciation

• Available on DP-2, DP-3 with endorsement
• Typically requires:
  1. Insurer pays ACV initially
  2. Insured completes repairs
  3. Insurer pays depreciation "holdback"

Pair and Set Clause

If part of a pair or set is damaged:

• Insurer pays loss on damaged part
• NOT required to replace entire set
• May negotiate reasonable settlement

Appraisal Clause

If parties disagree on loss value:

1. Each selects an appraiser
2. Appraisers select an umpire
3. Agreement of any two binds both parties
4. Each party pays their appraiser; umpire cost split

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Other Important Conditions