3.1 Dwelling Policy Forms DP-1, DP-2, DP-3

What the Dwelling Program Covers

The ISO Dwelling Property (DP) program insures residential property that does not qualify for a Homeowners policy: rental dwellings, secondary or seasonal homes, dwellings under renovation, owners who want property-only coverage, and risks declined by HO underwriting. The DP forms cover property only — there is no built-in personal liability and no medical payments; those must be added by endorsement. A dwelling may have up to four families and still qualify.

ISO publishes three forms. Coverage breadth and premium both rise across the series.

DP-1 Basic Form (DP 00 01)

The DP-1 is the narrowest and cheapest form. In its base state it insures only fire, lightning, and internal explosion. The remaining standard perils are added by attaching the Extended Coverage (EC) group and Vandalism & Malicious Mischief (V&MM).

• EC perils: windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, volcanic eruption.
• V&MM is a separate add-on; it is suspended once the dwelling is vacant beyond 60 consecutive days.
• The DP-1 pays losses on Actual Cash Value (ACV) = replacement cost minus depreciation.
• There is no theft coverage in the DP-1, ever — even with EC and V&MM attached.

Exam trap: "DP-1 = ACV" and "DP-1 = no theft" are the two most-tested DP-1 facts. Windstorm covers interior damage only if wind first creates an opening in the roof or wall.

DP-2 Broad Form (DP 00 02)

The DP-2 is an expanded named-perils form covering the DP-1/EC perils PLUS broad perils such as burglar damage, falling objects, weight of ice/snow/sleet, accidental discharge of water or steam, freezing of plumbing, sudden tearing/cracking/bulging of a heating system, and damage from artificially generated electrical current. Critically, the DP-2 settles dwelling and other-structures losses on a Replacement Cost (RCV) basis when the coinsurance condition is met (typically insure to 80% of replacement cost).

DP-3 Special Form (DP 00 03)

The DP-3 is the broadest and most common dwelling form. It provides open-perils (all-risk) coverage on Coverage A (dwelling) and Coverage B (other structures) — everything is covered unless specifically excluded. Coverage C (personal property) remains broad named-perils even on a DP-3; that asymmetry is a favorite exam point. Settlement is Replacement Cost subject to coinsurance.

Coinsurance worked example

A dwelling has a replacement cost of $300,000. The DP-3 requires 80% coinsurance, so the insured must carry at least 0.80 × $300,000 = $240,000. The owner carries only $180,000 and suffers a $60,000 partial loss.

• Penalty factor = carried ÷ required = $180,000 ÷ $240,000 = 0.75
• Recovery = 0.75 × $60,000 = $45,000, then minus any deductible.

Underinsuring triggers the coinsurance penalty; the insured absorbs the $15,000 shortfall.

Eligibility and Form Selection

Producers must match the right form to the exposure. A landlord insuring a rental house with no contents of their own buys a DP-3 dwelling-only policy and lets the tenant insure their own belongings. A homeowner whose dwelling is too old or substandard for HO underwriting may be written on a DP-1 with EC and V&MM at ACV. A vacation-cabin owner who wants broad protection on a secondary home chooses a DP-2 or DP-3.

The DP forms also accept up to a four-family dwelling, incidental occupancies (a home office or small studio), and a limited amount of business personal property when scheduled. None of the three forms covers business liability, autos, or money, securities, and other excluded property — those exposures require separate policies or endorsements.

Replacement Cost vs. ACV Across the Forms

The single most important distinction among the forms is the loss-settlement basis. The DP-1 always pays ACV, meaning the insured shoulders depreciation. The DP-2 and DP-3 pay replacement cost on buildings only if the coinsurance requirement is met at the time of loss; if the insured falls below the required amount, the insurer pays the greater of ACV or the amount produced by the coinsurance formula. Personal property (Coverage C) is normally settled at ACV on all three forms unless a replacement-cost-on-contents endorsement is added.

Exam tip: Remember the ladder — DP-1 named/ACV, DP-2 broad/RCV, DP-3 open/RCV. The DP-3's open-perils grant applies to buildings only; contents stay broad named-perils.

Form-to-Peril Quick Reference

The exam contrasts DP-1 (ACV, fewest perils) with DP-3 (open-peril dwelling, RC) — the same Basic/Broad/Special ladder as homeowners. DP-3 shifts the burden of proof to the insurer for dwelling losses.

When Each Form Fits

A landlord insuring a rental for fire only chooses DP-1 (cheapest); an owner wanting full protection chooses DP-3. The DP program covers dwellings ineligible for an HO policy — rentals, seasonal/secondary homes, and dwellings with up to four units or boarders. Matching "rental property, broadest coverage" to DP-3 and "minimum fire coverage" to DP-1 is the standard form-selection question.