3.3 Dwelling Perils, Conditions, and Endorsements

Perils and Standard Exclusions

DP-1 is named-perils (fire/lightning/internal explosion plus optional EC and V&MM); DP-2 is broad named-perils; DP-3 is open-perils on the dwelling and other structures. Because the DP-3 is open-perils, exclusions define coverage. The standard exclusions are similar across forms:

• Ordinance or law (extra cost to rebuild to current code) — add by endorsement.
• Earth movement (earthquake, landslide, sinkhole) and flood — both excluded; flood needs a separate NFIP/private policy.
• Water damage from sewer/drain backup, surface water, and below-ground seepage.
• Power failure off premises, neglect, war, nuclear hazard, and intentional loss.

Exam trap: Earthquake and flood are both excluded on every DP form. Add earthquake by the DP 04 26 endorsement; flood is handled outside the policy through the NFIP.

Policy Conditions

Conditions are the rules of engagement. The most-tested DP conditions:

Pro rata other-insurance worked example

Two policies cover the same $100,000 dwelling loss: Policy X carries $200,000 and Policy Y carries $300,000, total $500,000.

• Policy X share = (200,000 ÷ 500,000) × $100,000 = $40,000
• Policy Y share = (300,000 ÷ 500,000) × $100,000 = $60,000

Each insurer pays in proportion to its limit; the insured is not over-indemnified.

ACV worked example

A detached garage roof costs $12,000 to replace, has a 20-year life, and is 15 years old. Depreciation = 15/20 = 75%, so depreciation = $9,000. ACV = $12,000 − $9,000 = $3,000. A DP-1 pays $3,000 (less deductible); a DP-3 meeting coinsurance pays full replacement cost.

Key Endorsements

• Broad theft (DP 04 72) / Limited theft — theft is excluded on all base DP forms; add for an owner-occupant.
• Dwelling under construction — prorates premium to rising value during the build.
• Automatic increase in insurance — raises Coverage A periodically to track inflation.
• Personal liability supplement — adds Coverage L (liability) and Coverage M (medical payments) that the base DP omits.
• Ordinance or law — covers the increased rebuild cost imposed by current building codes.
• Earthquake (DP 04 26) — adds the otherwise-excluded earth movement peril, usually with a percentage deductible.

Open-Perils Burden of Proof

The DP-3's open-perils grant flips the burden of proof. On a named-perils form (DP-1, DP-2), the insured must show the loss was caused by a listed peril. On the open-perils DP-3, the insurer must show the loss falls under an exclusion to deny it. This is why the DP-3 is the broadest and most defensible form for the policyholder, and why exclusions are read so carefully — they are the insurer's only path to denial.

Deductibles and the Loss Process

A flat deductible (commonly $250, $500, or $1,000) applies per occurrence to property losses; wind/hail in catastrophe-prone areas may carry a separate percentage deductible (e.g., 2% of Coverage A). The standard claim sequence the exam tests:

1. The insured must give prompt notice of loss and protect the property from further damage.
2. The insured files a signed, sworn proof of loss, typically within 60 days of the insurer's request.
3. If value or amount is disputed, either party may invoke appraisal; each side picks an appraiser, the two select an umpire, and agreement of any two binds the amount.
4. The insurer pays within 60 days after proof of loss and agreement, appraisal award, or judgment.

Exam tip: Appraisal resolves disputes over amount or value, never coverage. A coverage dispute goes to the courts, not to appraisers.

Cancellation and Nonrenewal

Most states give the insurer broad cancellation rights in the first 60 days of a new policy, then restrict mid-term cancellation to nonpayment, fraud, or material change in risk, with advance written notice. The mortgage clause independently protects the lender: the insurer must give the mortgagee its own notice (commonly 10 days) and pays the mortgagee even if the named insured's act would void coverage.

DP Endorsement Cheat Sheet

A key DP trap: the dwelling program has no liability coverage built in — it is property only. Liability must be added by endorsement or written on a separate personal-liability/CPL policy. Candidates who assume the DP includes Coverage E/F miss this.

Theft Is Not Automatic on a DP

Unlike a homeowners policy, the standard DP forms exclude theft. An owner-occupant who wants theft coverage must add the Broad Theft Coverage endorsement; a non-owner/landlord typically cannot get on-premises theft of the tenant's property. Pairing "rental dwelling, owner wants theft coverage" with the Broad Theft endorsement is a common question.