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

Why the Dwelling Program Exists

The ISO Dwelling Property (DP) program insures one-to-four-family residential buildings that do not qualify for, or do not need, a homeowners policy. Typical risks are rental houses, seasonal/secondary dwellings, tenant-occupied duplexes, and homes that fail homeowners underwriting (older roofs, poor condition, prior losses). The program also fits owners who want property protection only, with liability written elsewhere.

Unlike a homeowners policy, a dwelling policy is a monoline property form: it contains no built-in personal liability or medical payments. In the DP program, the lettered coverages stop at property, and Coverage E means Additional Living Expense, not liability. Liability must be added by endorsement or written on a separate policy. Eligibility is limited to dwellings of one to four families, with a small permitted incidental occupancy (such as a home office) before the risk is pushed to a commercial form.

Where the DP Program Fits the Exam

Examiners test the dwelling program because it isolates the pure property concepts — perils, valuation, coinsurance — without the liability layer that complicates homeowners questions. Master the DP forms and the HO Section I forms become easy, because the perils and loss-settlement logic are shared.

Three facts recur on nearly every dwelling question:

• No liability is built in. Any answer choice claiming built-in Coverage E liability on a DP form is wrong.
• Form number signals breadth. DP-1 is narrowest (ACV, three base perils), DP-3 is broadest (open perils on structures, RC).
• Contents lag the structure. Even on the open-perils DP-3, personal property stays on the broad named-perils list.

The Three Forms at a Glance

All three forms share the same coverage letters but differ on which perils are covered and how losses are valued.

Memory hook: the form number tracks breadth of coverage — 1 = narrowest/ACV, 2 = broad/RC, 3 = open perils/RC.

DP-1 Basic Form (DP 00 01)

The base DP-1 covers only fire, lightning, and internal explosion. Adding the Extended Coverage (EC) endorsement brings in windstorm, hail, explosion, riot/civil commotion, aircraft, vehicles, smoke, and volcanic eruption. Adding Vandalism & Malicious Mischief (V&MM) is separate again. The classic exam trap: even after EC and V&MM, the DP-1 still has no theft coverage.

DP-1 settles dwelling and other-structures losses on Actual Cash Value (ACV) — replacement cost minus depreciation. There is no coinsurance clause requirement on the base DP-1 the way there is on DP-2/DP-3, so an under-insured DP-1 simply pays the depreciated value up to the limit. The DP-1 is the cheapest form and is common on low-value rentals and seasonal cabins where the owner accepts a depreciation haircut at claim time.

Numeric illustration: A DP-1 insures a rental house for $90,000. A kitchen fire causes $20,000 of replacement-cost damage; the damaged components are 40% depreciated. ACV recovery = $20,000 × (1 − 0.40) = $12,000, less the deductible. The owner absorbs the $8,000 depreciation gap — the core reason investors trade up to a DP-2/DP-3 for replacement cost.

DP-2 Broad and DP-3 Special

The DP-2 Broad Form insures a longer named-perils list that adds (among others) burglar damage to the building, falling objects, weight of ice/snow/sleet, accidental discharge of water or steam, freezing of plumbing, and sudden tearing apart of a heating or air-conditioning system. Theft can be added by endorsement. The DP-2 settles the dwelling and other structures on Replacement Cost subject to the 80% coinsurance condition — the insured must carry at least 80% of replacement cost to collect RC in full on a partial loss.

The DP-3 Special Form insures the dwelling and other structures on an open-perils ('all-risk') basis — covered unless specifically excluded. This shifts the burden of proof: on a DP-1/DP-2 the insured must show the loss was caused by a listed peril, while on a DP-3 the insurer must prove an exclusion applies. Critically, Coverage C personal property on a DP-3 remains on the broad named-perils list (the DP-2 perils). Only the structures get open-perils treatment — the same split logic found in the HO-3 homeowners form.

Choosing a Form for the Risk

Form selection follows the owner's tolerance for the depreciation gap and the breadth of perils desired:

• A budget landlord on a low-value rental may accept the DP-1 with EC and V&MM.
• An investor who wants replacement cost and broad water/ice perils selects the DP-2.
• An owner who wants the widest protection — covered unless excluded — buys the DP-3, paying the highest premium for open-perils building coverage.

Because the DP forms carry no liability, a prudent landlord pairs the dwelling policy with a separate personal liability or commercial general liability policy, or adds the personal liability supplement endorsement. The exam frequently pairs a 'landlord wants any-cause coverage on the building' stem with DP-3 as the right answer and DP-1/DP-2 as named-perils distractors.