3.2 Dwelling Coverages A-E and Other Coverages
Key Takeaways
- Coverage B is 10% of A (additional in DP-2/DP-3; carved out in DP-1); Coverage C is optional in the DP program.
- Coverage D (Fair Rental Value, for landlords) and E (ALE, for owner-occupants) share 20% of A in DP-2/DP-3 (10% in DP-1).
- Replacement cost on the building requires carrying >= 80% of RC; otherwise the coinsurance penalty formula applies.
- Coinsurance: (carried / required) x loss - deductible = payment.
- Other Coverages like Fire Department Service Charge ($500, no deductible) and Trees/Shrubs (5% of A, $500/item) are additional amounts.
Dwelling Coverages A-E
The DP forms organize Section I property coverage into five lettered coverages. Coverages A through C are the core property limits; D and E provide loss-of-use protection. Knowing the automatic percentage relationships among them is essential, because the exam tests how a single Coverage A limit drives the others.
| Coverage | What it insures | Typical automatic limit |
|---|---|---|
| A – Dwelling | The house and attached structures | Stated limit on the Dec page |
| B – Other Structures | Detached garages, sheds, fences | 10% of Coverage A (additional) |
| C – Personal Property | Insured's household contents | Stated limit (often 50% of A) |
| D – Fair Rental Value | Lost rent if a rented portion is untenantable | 20% of A (DP-2/DP-3) |
| E – Additional Living Expense | Extra costs for the insured to live elsewhere | Shares the 20% of A with D |
How the limits interlock
- Coverage B is provided as an additional 10% of Coverage A in the DP-2 and DP-3 (in DP-1, B is carved out of the Coverage A limit, not added on top). Using B does not reduce A in the broad/special forms.
- Coverage C is optional in the DP program — a dwelling rented to others may carry no Coverage C at all. When the insured occupies the home, contents are usually written at roughly 50% of A.
- Coverages D and E in DP-2/DP-3 share a combined 20% of Coverage A additional limit (DP-1 limits D/E to 10% of A and pays ALE only for the listed perils). Coverage D pays the landlord's lost rent; Coverage E pays the owner-occupant's added living costs.
Worked example: A DP-3 carries Coverage A = $300,000. Then Coverage B = $30,000 (10%), and Coverages D + E share $60,000 (20%). If a covered fire makes the home unfit and the owner-occupant incurs $4,500/month in temporary housing for 4 months ($18,000), Coverage E pays the full $18,000 — well within the $60,000 D/E pool.
Coinsurance and loss settlement
DP-2 and DP-3 building losses settle at replacement cost only if the insured carries at least 80% of replacement cost at the time of loss; otherwise the larger of ACV or the coinsurance formula applies.
Coinsurance formula: (Amount carried / Amount required) × Loss − Deductible = Payment
Worked example: A dwelling has a replacement cost of $400,000. The 80% requirement is $320,000, but the owner insured for only $240,000. A partial fire loss of $100,000 occurs with a $1,000 deductible.
- Did-carry / should-carry = $240,000 / $320,000 = 0.75
- 0.75 × $100,000 = $75,000, minus $1,000 deductible = $74,000 paid (the insured is penalized for underinsurance).
Note the formula applies only to partial losses; a total loss is paid at the policy limit (or ACV on the DP-1), and most states' valued-policy laws pay the face amount on a total fire loss regardless of the coinsurance result.
ACV vs. replacement cost
Actual cash value (ACV) is replacement cost minus depreciation. A roof with a 20-year life that is 10 years old at the time of a covered loss has roughly 50% depreciation: if replacement cost is $16,000, the ACV settlement is about $8,000. Replacement cost (RC) pays to repair or rebuild with like kind and quality without a depreciation deduction.
DP-1 settles the building at ACV by default; DP-2/DP-3 settle at RC if the 80% condition is met. On a replacement-cost claim, insurers commonly pay the ACV first (the "actual cash value holdback") and release the depreciation "recoverable" amount only after the insured actually completes the repairs and submits proof — a real-world sequence the exam likes to test.
Other Coverages (additional coverages)
The DP forms grant several Other Coverages, many of which are additional amounts that do not erode Coverage A or C limits:
- Other Structures / Personal Property at other locations (limited)
- Debris Removal (within the applicable limit; an extra 5% if the limit is exhausted)
- Improvements & Alterations — a tenant's betterments, up to 10% of Coverage C
- Reasonable Repairs, Property Removed (no-charge for 30 days while removed from a covered peril)
- Trees, Shrubs, and Plants — typically 5% of Coverage A, max $500 per item, listed perils only (fire, lightning, explosion, riot, aircraft, vehicles not owned by occupant, vandalism, theft)
- Fire Department Service Charge — up to $500, no deductible
- Collapse (DP-2/DP-3 only), Glass or Safety Glazing, and Lawns/Plants Other Coverages
A DP-3 has Coverage A of $250,000. With no endorsement changing the automatic limits, what is the Coverage B (Other Structures) limit?
A dwelling's replacement cost is $500,000; the owner insured it for $300,000. The 80% coinsurance clause applies. A covered $80,000 partial loss occurs with a $1,000 deductible. What does the insurer pay?
Other Coverages and the Coverage E Boundary
Beyond Coverages A–E, the DP forms add Other Coverages that do not increase the policy limit unless stated: other structures (Coverage B, often 10% of A), debris removal, improvements/alterations for tenants, reasonable repairs, property removed from a peril (typically 5 days), trees/shrubs/plants (subject to a percentage and per-item caps, and a restricted peril list), and fire department service charge.
Coverage D (Fair Rental Value) and Coverage E (Additional Living Expense) are time-element coverages: D pays the landlord's lost rent, E pays the resident's extra living costs, both limited to the time reasonably required to repair or replace.