4.2 Dwelling Policy Program: DP-1, DP-2, and DP-3

Purpose and Eligibility of the Dwelling Program

The Dwelling Policy Program, developed by the Insurance Services Office (ISO), serves as a specialized property coverage mechanism designed for residential properties that do not qualify for or do not fit the underwriting requirements of standard Homeowners policies. While Homeowners policies require owner-occupancy as a primary residence, the Dwelling Program accommodates a diverse spectrum of residential ownership arrangements, investment holdings, and higher-risk occupancy profiles.

Primary Eligibility Criteria

To be eligible for coverage under the Dwelling Policy Program, a structure must meet distinct structural and occupancy benchmarks:

• Residential Dwellings: The building must be used primarily for residential dwelling purposes, containing no more than four family units (one-to-four family residential structures) and housing no more than five roomers or boarders in total.
• Occupancy Classifications: Eligible properties include tenant-occupied rental dwellings, non-owner occupied investment homes, seasonal or vacation cottages, and owner-occupied dwellings that fail to satisfy standard homeowners underwriting criteria due to physical age, lower market value, deferred maintenance, or adverse loss history.
• Structures Under Construction: Buildings in the process of construction intended for residential occupancy may be insured under dwelling forms using specialized construction endorsements.
• Incidental Business Occupancies: Limited incidental occupancies, such as a small office or studio, may be eligible under the insurer's underwriting rules; business property and business liability exposures still need separate coverage.

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Core Coverage Divisions (Coverages A through E)

The Dwelling Policy Program utilizes a standardized lettered coverage architecture. Understanding the exact scope, boundaries, and mathematical extensions of these coverages is fundamental to preparing an accurate insurance claim scope.

+-------------------------------------------------------------+
|                   ISO DWELLING PROGRAM                      |
+-------------------------------------------------------------+
| Coverage A: Dwelling (Primary Residence & Building Fixtures)|
| Coverage B: Other Structures (Detached / Appurtenant, 10%)  |
| Coverage C: Personal Property (Declared Limit / 10% Off-Prem)|
| Coverage D: Fair Rental Value (Loss of Rental Income)       |
| Coverage E: Additional Living Expense (DP-2 & DP-3 Only)    |
+-------------------------------------------------------------+

Coverage A — Dwelling

Coverage A insures the primary residential building and structures attached directly to it (such as attached garages, breezeways, sunrooms, and permanently installed exterior decks). It also covers materials and supplies located on or adjacent to the described premises utilized for building, altering, or repairing the dwelling. Furthermore, Coverage A incorporates building equipment and outdoor apparatus used to service the residence—such as central HVAC units, hot water heaters, and built-in appliances—if furnished by the landlord.

Coverage A expressly excludes the land on which the dwelling is situated, including the cost of clearing, excavating, grading, or filling earth.

Coverage B — Other Structures

Coverage B applies to detached, appurtenant structures located on the residence premises separated from the main dwelling by clear space, or connected solely by an unattached fence, utility line, or exterior walkway. Common examples include detached two-car garages, equipment storage sheds, gazebos, perimeter fences, retaining walls, and in-ground swimming pools.

• Standard Limit: The standard policy limit for Coverage B is 10% of Coverage A.
• Commercial and Rental Restrictions: Coverage B excludes any structure used in whole or in part for commercial, manufacturing, or farming purposes, as well as structures rented or held for rental to anyone other than a tenant of the main dwelling (unless rented solely as a private garage).

Coverage C — Personal Property

Coverage C protects household and personal property usual to the occupancy of a dwelling, owned or used by the named insured or resident family members. In rental dwellings, Coverage C typically covers landlord furnishings, window air conditioning units, lawnmowers, snow blowers, and appliances provided for tenant use.

• No Automatic Percentage: Personal property coverage is not automatically granted as a fixed percentage of Coverage A; the insured must select a specific dollar limit and pay an additional premium.
• Off-Premises Coverage Extension: The insured may apply up to 10% of the Coverage C limit to indemnify covered personal property anywhere in the world (e.g., luggage while traveling or personal tools stored temporarily off site). However, this worldwide extension does not provide additional insurance—it reduces the on-premises limit for that loss.
• Coverage C Exclusions: Excludes motor vehicles, aircraft, watercraft (other than rowboats and canoes), bills, currency, deeds, evidences of debt, securities, animals/birds/fish, and tenant property.

Coverage D — Fair Rental Value

Coverage D protects the policyholder against direct economic loss when a covered peril damages the dwelling or appurtenant structures, rendering the rented premises untenantable. It reimburses the owner for the fair rental value of that portion of the building rented or held for rental, less any ongoing operating expenses that cease during the period of untenantability (such as landlord-paid tenant utilities).

• Under DP-1, Coverage D is limited to up to 20% of Coverage A, payable at a rate of no more than 1/12th of this 20% limit for each month the premises remain unlivable, and it acts as an extension that reduces the total Coverage A limit.
• Under DP-2 and DP-3, Coverage D provides up to 20% of Coverage A as an additional amount of insurance, payable for the reasonable time required to repair or rebuild the damaged portions without a monthly 1/12th cap.

Coverage E — Additional Living Expense

Coverage E reimburses the insured household for the necessary increase in living costs incurred to maintain their normal standard of living when a covered loss renders the premises uninhabitable (such as temporary apartment rentals, hotel lodging, restaurant meals exceeding normal grocery budgets, and emergency pet boarding).

• DP-1 Availability: Coverage E is not included in the base DP-1 Basic Form. It can only be added by attaching a specific endorsement (DP 04 14).
• DP-2 and DP-3 Availability: Included automatically within a combined 20% of Coverage A limit shared between Coverage D and Coverage E as an additional amount of insurance.

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Form Differences: DP-1 vs. DP-2 vs. DP-3

Public adjusters must immediately identify the specific form code on the policy declarations page, as the peril structure and loss settlement provisions dictate the entire adjusting and recovery strategy.

DP-1 Basic Form (DP 00 01)

The DP-1 is a bare-bones, named-peril contract. The base policy insures exclusively against three direct perils:

1. Fire (hostile fire ignited outside its normal container)
2. Lightning (atmospheric electrical discharge)
3. Internal Explosion (explosion occurring inside the dwelling or appurtenant structure, such as a water heater burst or furnace explosion; excludes steam boiler explosions)

Extended Coverage (EC) Perils

For an additional premium, the policyholder can purchase Extended Coverage, captured by the standard acronym WCSHAVVER:

• Windstorm
• Civil Commotion
• Smoke (sudden and accidental; excludes smoke from agricultural smudging or industrial operations)
• Hail
• Aircraft (physical contact with aircraft or falling debris)
• Vehicles (physical contact by vehicles; excludes damage caused by vehicles owned or operated by the insured or resident)
• Volcanic Eruption (excludes earthquake shocks and tremors)
• Explosion (external explosion hazards)
• Riot (riot or civil commotion is listed as a single peril in the form)

Vandalism and Malicious Mischief (VMM)

VMM may be added only if Extended Coverage is purchased. Under DP-1, VMM coverage is completely suspended if the dwelling has been vacant for more than 60 consecutive days immediately preceding the loss.

DP-2 Broad Form (DP 00 02)

The DP-2 is an intermediate named-peril contract covering all basic perils, all Extended Coverage perils, VMM, and seven additional broad named perils:

1. Falling Objects (exterior roof or wall must first sustain physical breach before interior contents damage is covered)
2. Weight of Ice, Snow, or Sleet (causing structural collapse; excludes damage to outdoor awnings, fences, pavements, or retaining walls)
3. Accidental Discharge or Overflow of Water or Steam (from within a plumbing, heating, AC, or sprinkler system or household appliance)
4. Sudden and Accidental Tearing Apart, Cracking, Burning, or Bulging (of steam or hot water heating systems, AC, or water heaters)
5. Freezing of Plumbing, Heating, AC, or Sprinkler Systems (requires the insured to exercise reasonable care to maintain building heat or drain all water systems)
6. Sudden and Accidental Damage from Artificially Generated Electrical Current (power surge damaging wiring; excludes electronic tubes, transistors, or circuit boards)
7. Damage by Burglars (damage to covered property caused by burglars; it does not cover theft of property, and it does not apply if the dwelling was vacant for more than 60 consecutive days before the damage)

DP-3 Special Form (DP 00 03)

The DP-3 represents the most comprehensive dwelling contract. It operates on an open-perils basis for structural coverages (Coverage A and Coverage B) and a broad named-perils basis for personal property (Coverage C).

Under DP-3 Coverages A and B, all direct physical loss is covered unless expressly excluded in the policy exclusions section. Common open-peril exclusions include:

• Wear and tear, marring, deterioration
• Rust, corrosion, wet or dry rot
• Industrial smoke, agricultural smudging
• Settling, cracking, shrinking, bulging, or expansion of foundations, walls, or roofs
• Birds, vermin, rodents, insects, or domestic animals
• Mold, fungus, or wet spores (unless resulting directly from an accidental discharge of water from a plumbing system)
• Constant or repeated seepage of water over a period of weeks, months, or years
• Weather conditions that contribute to excluded perils (anti-concurrent causation)
• Faulty, inadequate, or defective design, workmanship, construction, or materials