2.1 Dwelling Policy Forms & Coverage Provisions

Dwelling Policy Forms

Dwelling policies are primarily used for residential properties that do not qualify for standard homeowners insurance. This often includes tenant-occupied properties, older homes, properties with lower values, or homes under construction. For the claims adjuster, understanding the differences between the three main dwelling forms (DP-1, DP-2, and DP-3) is fundamental to properly adjusting property losses.

The Core Coverage Parts

Dwelling policies are structured around several core coverage parts. It is critical to memorize these, as they form the foundation of property claim limits:

• Coverage A (Dwelling): Covers the main residential structure and attached structures. It also includes materials and supplies located on or next to the premises used to construct, alter, or repair the dwelling.
• Coverage B (Other Structures): Covers structures on the premises separated from the dwelling by a clear space, or connected only by a fence, utility line, or similar connection. This is typically limited to 10% of Coverage A.
• Coverage C (Personal Property): Covers the insured's personal property while on the described location. In a dwelling policy, this is generally optional and must be explicitly selected.
• Coverage D (Fair Rental Value): Reimburses the insured for lost rental income if the property is rendered uninhabitable by a covered peril. It is often limited to 20% of Coverage A.
• Coverage E (Additional Living Expense): Covers the increase in living expenses to maintain the insured's normal standard of living if the property becomes uninhabitable. This is automatically included in DP-2 and DP-3, but must be added by endorsement to DP-1.

Dwelling Policy Form Variations

DP-1 (Basic Form)

The DP-1 is the most restrictive dwelling form. It is a Named Peril policy, meaning it only covers losses specifically listed in the policy.

• Perils Covered: Fire, Lightning, and Internal Explosion. An insured can add "Extended Coverage" (EC) which includes Windstorm, Hail, Aircraft, Riot, Vehicles, Volcanic Eruption, Explosion, and Smoke (WHARVES). Vandalism and Malicious Mischief (V&MM) can also be added for an additional premium.
• Loss Settlement: Under DP-1, losses to the dwelling, other structures, and personal property are typically settled on an Actual Cash Value (ACV) basis.

DP-2 (Broad Form)

The DP-2 is also a Named Peril policy, but it broadens coverage significantly compared to the DP-1.

• Perils Covered: Includes all DP-1 perils (including EC and V&MM), plus the "Broad Form" perils: Damage by Burglars, Falling Objects, Weight of Ice/Snow/Sleet, Accidental Discharge of Water/Steam, Sudden Tearing Apart (HVAC/Water heaters), Freezing, and Sudden Damage from Artificial Electrical Currents (B.B. BICE-GOLF is a common mnemonic for broad perils).
• Loss Settlement: Dwelling and Other Structures (Coverages A & B) are settled on a Replacement Cost basis, provided the insured carries coverage equal to at least 80% of the replacement cost of the property at the time of loss. Personal Property (Coverage C) remains ACV.

DP-3 (Special Form)

The DP-3 provides the most comprehensive coverage of the dwelling forms.

• Perils Covered (Coverage A & B): It provides Open Peril (all-risk) coverage for the dwelling and other structures. This means any peril is covered unless it is specifically excluded in the policy.
• Perils Covered (Coverage C): Personal property is still covered on a Named Peril basis, covering the same broad perils as the DP-2.
• Loss Settlement: Like DP-2, Coverages A & B are settled at Replacement Cost (subject to the 80% rule), and Coverage C is ACV.

Comparison Table

*Requires 80% insurance-to-value for full replacement cost.

Important Endorsements

Because dwelling policies are essentially "bare bones" compared to homeowners policies, several endorsements are frequently added:

• Broad Theft Coverage: Dwelling policies do not inherently cover theft of personal property. This endorsement adds coverage for theft, attempted theft, and vandalism resulting from theft.
• Personal Liability Supplement: Unlike a standard Homeowners policy, Dwelling policies do not include liability coverage. The Personal Liability Supplement must be purchased separately to cover bodily injury and property damage for which the insured is legally liable.
• Dwelling Under Construction: Modifies the policy to account for the changing value of a home being built, adjusting limits as the construction progresses.

Exam Trap: Exams frequently test the difference between DP-2 and DP-3. Remember that DP-3 provides Open Peril coverage for the dwelling but still restricts personal property to Named Perils. Only an HO-5 policy (which you will learn about next) provides Open Peril coverage for both dwelling and personal property.