3.3 Dwelling Perils, Conditions, and Endorsements

Covered Perils by Form

The perils increase across the three forms. DP-1 starts with three named perils and adds groups optionally; DP-2 and DP-3 build them in. Knowing which peril belongs to which form lets you answer the most common DP claim questions on the exam, where a candidate must decide whether a given loss is covered under the form on the policy.

Remember: DP-3 insures the dwelling on open perils, so the table above describes only the named-peril contents coverage for DP-3.

Standard Exclusions

All dwelling forms share a core list of exclusions. Memorize these for the exam:

• Earth movement (earthquake, landslide, sinkhole collapse)
• Water damage (flood, surface water, sewer backup, underground water)
• Ordinance or law (extra cost to rebuild to current code)
• Power failure occurring off the premises
• Neglect to preserve property at and after a loss
• War, nuclear hazard, and intentional loss

Many of these can be bought back. Earthquake is added by endorsement; flood is written separately under the National Flood Insurance Program. Ordinance or Law can be added with a percentage-of-Coverage-A limit.

Policy Conditions

Conditions are the rules that govern how a claim is adjusted:

• Insurable Interest and Limit of Liability: the insurer pays no more than the insured's financial interest, capped at the policy limit
• Other Insurance: if more than one policy covers the loss, each pays its pro-rata share
• Loss Settlement: ACV on DP-1; replacement cost on DP-2/DP-3 subject to the 80% requirement
• Subrogation: after paying, the insurer assumes the insured's right to recover from a responsible third party
• Liberalization: if the insurer broadens coverage without additional premium during the term, the broader coverage applies automatically
• Mortgage Clause: protects the lender's interest even if the insured's own claim is denied for an act the lender did not commit

Worked Pro-Rata Example

Property insurance is a contract of indemnity, so an insured can never profit from a loss. When two policies cover the same loss, the Other Insurance condition splits the payment in proportion to each policy's limit.

Two policies cover the same $90,000 dwelling loss. Policy A carries a $200,000 limit; Policy B carries a $100,000 limit. Total available is $300,000.

• Policy A share = 200,000 / 300,000 = 2/3 x $90,000 = $60,000
• Policy B share = 100,000 / 300,000 = 1/3 x $90,000 = $30,000

The insured collects the full $90,000 but never more than the actual loss. Note that the deductibles on each policy would still apply to that policy's share before payment.

Common Endorsements

Endorsements tailor the base form:

• Automatic Increase in Insurance: raises Coverage A by a stated percentage each year to keep pace with inflation
• Broad Theft Coverage Endorsement (DP 04 72): adds or broadens theft, especially useful on DP-1 which has none
• Dwelling Under Construction: adjusts limits and premium during the build, recognizing rising value
• Earthquake Endorsement: buys back the earth-movement exclusion with its own deductible (often a percentage of the limit)
• Personal Liability Supplement: adds Coverage L (personal liability) and Coverage M (medical payments to others), since no DP form includes liability

Exam tip: Liability never appears in a dwelling form by default. If a question puts a liability claim on a DP policy, look for the Personal Liability Supplement endorsement.

DP Perils by Form — Side by Side

The dwelling forms differ chiefly in the perils they cover, and the exam expects the progression:

DP-1 settles at ACV by default; DP-2 and DP-3 provide replacement cost on the dwelling. Trap: the DP-3 open-peril basis applies to the structure, but personal property remains on a broad named-peril basis.

Key Dwelling Conditions and Endorsements

Dwelling conditions tested on the exam include the pro-rata liability (other-insurance) clause, subrogation, the duty to give prompt notice, and the right to abandon property to the insurer (not permitted). The loss-settlement condition controls ACV vs. replacement cost.

Common endorsements:

• Automatic Increase in Insurance — periodically raises Coverage A to keep pace with inflation.
• Broad Theft / Limited Theft — adds theft coverage, which the basic dwelling form omits.
• Dwelling under Construction and Special Provisions (state amendatory).
• Ordinance or Law — pays the added cost of rebuilding to current code, which the base form excludes.

Quick Answer: The dwelling program omits theft and liability by default — both are added by endorsement or by writing a Homeowners policy instead.