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

The ISO Dwelling Property Program

The Dwelling Property (DP) program from the Insurance Services Office (ISO) insures residential structures that do not qualify for, or do not need, a Homeowners (HO) policy. The standard current editions are the DP 00 01 (Basic Form), DP 00 02 (Broad Form), and DP 00 03 (Special Form).

Unlike a Homeowners policy, a dwelling form is a monoline property policy: it contains no liability (Coverage L) or medical payments (Coverage M) section unless those are endorsed. This makes DP forms ideal for rental dwellings, seasonal homes, and homes that fail HO underwriting.

Eligibility

DP forms cover one- to four-family dwellings. The insured need not occupy the home, so landlords commonly use DP forms for rental property. Eligible risks include:

• Owner-occupied or tenant-occupied 1-4 family homes
• Seasonal or secondary residences
• Dwellings under construction
• Homes with incidental business occupancies (up to one boarder/roomer family under standard rules)

Mobile homes and condominium units use separate programs, covered later in this chapter.

Comparing the Three Forms

The forms grow broader from DP-1 to DP-3 in two ways: the list of covered perils and the loss-settlement basis on the dwelling.

DP-1 Basic Form

The DP-1 insures only the perils specifically listed: fire, lightning, and internal explosion, with the Extended Coverage (EC) group — windstorm, hail, explosion, riot/civil commotion, aircraft, vehicles, smoke, and volcanic eruption — available for an added premium, plus optional Vandalism and Malicious Mischief (VMM). DP-1 settles dwelling losses at Actual Cash Value (ACV), defined as replacement cost minus depreciation. It is the cheapest, narrowest form.

DP-2 Broad and DP-3 Special

The DP-2 Broad Form adds perils such as falling objects; weight of ice, snow, sleet; accidental discharge of water; freezing; and sudden tearing/cracking of heating systems, and it pays Replacement Cost (RC) on the dwelling when the 80% coinsurance condition is met.

The DP-3 Special Form is the key exam form: it covers the dwelling and other structures on an open-peril (all-risk) basis — everything is covered unless excluded — while personal property stays named-peril (the DP-2 list). DP-3 also pays Replacement Cost on the structure when the 80% coinsurance condition is satisfied.

The Open-Peril Burden-of-Proof Shift

The single most-tested distinction between DP-1/DP-2 (named-peril) and DP-3 (open-peril on Coverages A and B) is who must prove what. Under a named-peril form, the insured must prove the loss was caused by a listed peril; if the cause is unknown, the claim fails. Under the open-peril DP-3, coverage is presumed and the insurer must prove an exclusion applies to deny the claim. So if a pipe bursts and the investigator cannot pin down the exact cause of resulting structural damage, the DP-3 insured wins because the insurer cannot meet its burden of proving an exclusion.

Remember: open-peril does not mean "covers everything" — it means "covers everything not excluded," and the exclusion list (flood, earth movement, ordinance or law, war, nuclear, neglect, wear and tear) still applies.

Extended Coverage (EC) and VMM Layering

On the DP-1 you must understand the optional peril layers. The base DP-1 covers only fire, lightning, and internal explosion. Adding Extended Coverage (EC) brings the windstorm/hail, riot and civil commotion, smoke, civil aircraft, vehicles, volcanic eruption, and external explosion group of perils. Vandalism and Malicious Mischief (VMM) is a separate option layered on top. A pure DP-1 with no EC therefore does not cover a hailstorm; that is a classic distractor.

DP-1 ACV Loss-Settlement Trap

DP-1 settles even the dwelling at Actual Cash Value (RC minus depreciation) with no coinsurance replacement-cost option, so an older roof pays out heavily depreciated. DP-2 and DP-3 pay Replacement Cost on the dwelling but personal property (Coverage C) on both still settles at ACV unless a replacement-cost endorsement is added.

Quick Form-Selection Scenario

A client owns a 40-year-old rental duplex and wants the broadest affordable structure protection. The correct recommendation is a DP-3: it is eligible (1-4 family, non-owner-occupied), gives open-peril/RC on the building, and only carries named-peril ACV on the limited landlord contents — a fit the HO program (which generally requires owner-occupancy) cannot provide.

DP vs. HO at a Glance

Knowing when each program applies is a recurring item:

The trap: a candidate who picks an HO form for a non-owner-occupied rental is wrong — that is squarely DP territory.

Incidental Occupancy and Other-Insurance Notes

DP forms tolerate limited incidental business or boarder exposure, but a structure rented to a non-tenant of the dwelling or used principally for business falls out of Coverage B. When more than one policy applies to the same loss, the dwelling form's Other Insurance condition makes the company pay only its pro-rata share (its limit divided by total applicable limits), preventing the insured from profiting — a direct application of the principle of indemnity that underpins the whole property program.