4.1 Dwelling Eligibility, Policy Forms (DP-1, DP-2, DP-3) & Perils Insured Against

Dwelling Eligibility, Policy Forms (DP-1, DP-2, DP-3) & Perils Insured Against

Exam Priority: On the Michigan Claims Adjuster exams (Series 16-71 and 16-72), Dwelling Policy questions heavily test why a risk is placed in a Dwelling policy rather than a Homeowners policy, which perils belong to DP-1 vs. DP-2 vs. DP-3, the 60-day vacancy triggers for Vandalism and Accidental Water Discharge, and how loss settlement valuation shifts between Actual Cash Value (ACV) and Replacement Cost (RCV).

The ISO Dwelling Program is a flexible, modular personal lines property insurance program designed for residential properties that either do not meet Homeowners underwriting eligibility or do not need the bundled package coverages of a Homeowners policy. Unlike a Homeowners policy—which mandates owner-occupancy and automatically bundles Coverage C (Personal Property), Theft, Coverage L (Personal Liability), and Coverage M (Medical Payments to Others)—a Dwelling policy is strictly a monoline property contract in its base form. Coverages can be purchased menu-style: an insured landlord who owns a rental house and keeps no furniture inside can insure Coverage A (Dwelling) alone without paying for personal property or liability coverage.

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1. Dwelling Program Eligibility & Occupancy Rules

To qualify for an ISO Dwelling policy, a risk must satisfy strict structural, occupancy, and usage rules:

1. Unit & Family Limit (1- to 4-Family Structures): The building must be used principally for residential dwelling purposes and contain no more than 4 family units (single-family home, duplex, triplex, or fourplex). Apartment buildings with 5 or more units are commercial risks and must be insured under a Commercial Property or Businessowners Policy (BOP).
2. Roomers and Boarders Cap (Maximum 5): A dwelling may house no more than 5 roomers or boarders in total across the structure. Exceeding 5 roomers or boarders converts the occupancy into an ineligible commercial boarding house.
3. Flexible Occupancy Status: Unlike Homeowners policies, Dwelling policies do not require owner-occupancy. Eligible occupancies include:
   • Owner-occupied 1- to 4-family homes (for example, lower-value homes or older dwellings that do not meet Homeowners underwriting guidelines)
   • Tenant-occupied rental dwellings owned by a landlord or investor
   • Seasonal, secondary, or vacation dwellings (such as a northern Michigan cabin occupied intermittently)
   • Dwellings under construction or undergoing major renovation (before occupancy)
   • Mobile or manufactured homes (eligible only under the DP-1 Basic Form when permanently located at a described site)
4. Ineligible Farm Risks: Dwellings located on a farm or used in farming operations are strictly ineligible for the Dwelling program.
5. Property-Only Default: Base Dwelling forms (DP-1, DP-2, DP-3) never automatically cover Theft of personal property and never automatically include Personal Liability (Coverage L) or Medical Payments to Others (Coverage M). Each requires a separate endorsement (Broad Theft Endorsement DP 04 72 and Personal Liability Supplement DL 24 01).

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2. The Three ISO Dwelling Policy Forms

The ISO Dwelling Program offers three policy forms that progress from narrow named-peril Actual Cash Value protection to open-peril Replacement Cost building protection.

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3. DP-1 (Basic Form) Perils & Limitations

The DP-1 Basic Form is a strictly Named Perils contract. If a cause of loss is not explicitly listed in the policy (and purchased on the Declarations page), there is no coverage. All losses under a DP-1—whether to the building or to personal property—are settled at Actual Cash Value (ACV) (replacement cost minus depreciation).

A. The 3 Mandatory Internal Perils ("FLI")

Every DP-1 policy automatically insures against three foundational perils:

• Fire: Must be a hostile fire (one that escapes its intended container), not a friendly fire burning inside a fireplace or stove.
• Lightning: Naturally occurring electrical discharge.
• Internal Explosion: An explosion occurring inside the dwelling or other structure (or in a device serving the building), excluding explosion of steam boilers or steam pipes owned or operated by the insured.

B. The 7 Optional Extended Coverage (EC) Perils

For an additional premium shown on the Declarations page, the insured can activate the Extended Coverage (EC) perils:

1. Windstorm or Hail: Covers exterior and structural wind or hail damage. Interior Rain/Snow Rule: This peril does not cover loss to property inside a building caused by rain, snow, sleet, sand, or dust unless the direct force of wind or hail first damages the building causing an opening in a roof or wall and the rain, snow, sleet, sand, or dust enters through that opening. On the Dwelling forms it also excludes wind or hail damage to awnings, signs, radio or television antennas (including lead-in wiring, masts, or towers) and canoes and rowboats while outside a building.
2. Explosion (External): Covers external explosions (such as a neighboring gas main blast), still excluding steam boiler explosions owned/operated by the insured.
3. Riot or Civil Commotion: Includes direct physical damage caused by striking employees or pillaging during a riot.
4. Aircraft: Includes self-propelled missiles and spacecraft, as well as objects falling from aircraft.
5. Vehicles (DP-1 Restriction): Covers direct physical contact by a vehicle, EXCEPT DP-1 does not cover loss caused by any vehicle owned or operated by an insured or any resident (including a tenant) of the Described Location, nor does it cover vehicle damage to fences, driveways, or walks.
6. Smoke (DP-1 Restriction): Covers sudden and accidental damage from smoke, excluding smoke from agricultural smudging or industrial operations. On DP-1, smoke must originate from a heating or cooking unit connected to a chimney by a smoke pipe; smoke backing up from a fireplace is excluded on DP-1.
7. Volcanic Eruption: Covers direct loss caused by airborne volcanic blast, shock waves, ash, dust, particulate matter, or lava flow (excluding earthquake, land shock waves, or tremors).

C. Optional Vandalism and Malicious Mischief (V&MM)

For another separate premium on DP-1 (and included automatically on DP-2 and DP-3), Vandalism and Malicious Mischief (V&MM) covers willful and malicious physical damage to property, subject to three heavily tested exclusions:

• 60-Day Vacancy Suspension: V&MM coverage is completely suspended if the dwelling has been vacant for more than 60 consecutive days immediately before the loss. (Note: Vacancy means the absence of both people and personal property/furnishings; mere unoccupancy—where furniture remains inside while the owner winters in Florida—does not trigger the vacancy exclusion.)
• Glass Exclusion: V&MM does not cover breakage of glass or safety glazing material constituting part of a building (other than glass building blocks).
• Theft Exclusion vs. Burglary Building Damage: V&MM does not cover loss by pilferage, theft, burglary, or larceny; however, it does cover willful damage to the insured building caused by burglars breaking into or out of the structure.

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4. DP-2 (Broad Form) Expanded & Additional Perils

The DP-2 Broad Form automatically bundles the Basic perils, Extended Coverage perils, and V&MM, upgrades Coverages A and B to Replacement Cost (RCV) settlement, broadens the Vehicles and Smoke perils, and adds 7 Broad Form perils (items 2 through 8 below):

1. Expanded Smoke, Vehicles & Explosion: On DP-2, Smoke is broadened to include sudden and accidental smoke from a fireplace (still excluding agricultural smudging and industrial smoke). Vehicles is broadened to cover vehicle damage to the building even if caused by an insured or resident/tenant, though damage to fences, driveways, and walks caused by a vehicle owned or operated by an insured or resident remains excluded. The DP-2 and DP-3 Explosion peril also drops the DP-1 exclusion for steam boilers and steam pipes owned or controlled by the insured.
2. Burglary Damage: Covers damage to covered buildings caused by burglars (not the stolen contents themselves), suspended if the dwelling has been vacant for more than 60 consecutive days.
3. Falling Objects: Covers damage from falling objects (such as a tree limb or meteor). Key Rule: Loss to property inside a building is covered only if the falling object first damages the roof or an outside wall of the building. Damage to the falling object itself (such as paying to haul away the undamaged tree trunk that did not hit a covered building or the value of the tree itself) is excluded.
4. Weight of Ice, Snow, or Sleet: Covers physical damage to a building or property inside a building caused by the weight of ice, snow, or sleet. Outdoor Structure Exclusion: It specifically excludes damage to awnings, fences, patios, paved surfaces, swimming pools, foundations, retaining walls, bulkheads, piers, wharves, or docks.
5. Accidental Discharge or Overflow of Water or Steam: Covers sudden and accidental water or steam escaping from a plumbing, heating, air conditioning, or automatic fire protective sprinkler system, or from a household appliance (such as a washing machine or dishwasher).
   • Tear-Out Included, Pipe Excluded: The policy pays to tear out and replace any part of the building necessary to access and repair the leaking system or appliance, but it NEVER pays for the cost to repair or replace the broken pipe, tank, or appliance itself.
   • Exclusions: Does not cover loss if the dwelling has been vacant for more than 60 consecutive days, loss caused by freezing (governed by the Freezing peril), loss from a sump, sump pump, or backed-up sewer or drain, or continuous/repeated seepage over weeks, months, or years.
6. Sudden and Accidental Tearing Apart, Cracking, Burning, or Bulging: Applies to a steam or hot water heating system, air conditioning or automatic fire protective sprinkler system, or an appliance for heating water (excluding loss caused by freezing).
7. Freezing of Plumbing, Heating, A/C, Sprinklers, or Household Appliances: This peril is covered ONLY IF the insured has used reasonable care to:
   • Maintain heat in the building; OR
   • Shut off the water supply and drain all systems and appliances of water.
8. Sudden and Accidental Damage from Artificially Generated Electrical Current: Covers power surges from artificial sources (as opposed to natural lightning), excluding loss to a tube, transistor, electronic component, or circuitry that is part of appliances, fixtures, computers, or other electronic apparatus.
9. Volcanic Eruption: Listed on DP-2 as well (on DP-1 it applies only when the optional Extended Coverage premium is shown).

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5. DP-3 (Special Form): Open Perils on Buildings, Broad Perils on Contents

The DP-3 Special Form provides the broadest protection in the Dwelling Program by splitting the insuring agreement between real property and personal property:

• Coverages A & B (Dwelling and Other Structures) — Open Perils / RCV: Insured against risk of direct physical loss (Open Perils / "All-Risk"). Any sudden, accidental physical damage to the dwelling or detached structures is covered unless the policy specifically excludes the cause of loss or the property. For example, if a homeowner spills a five-gallon bucket of paint down a hardwood staircase or a deer crashes through a living room wall, the building damage is covered under a DP-3 even though neither is a named peril on a DP-2. (Note: DP-3 excludes theft of property not part of a covered building or structure and theft in or to a dwelling or structure under construction, and it excludes vandalism, theft, and attempted theft once the dwelling has been vacant for more than 60 consecutive days.)
• Coverage C (Personal Property) — Broad Named Perils / ACV: Even under a DP-3 policy, if the insured purchases Coverage C, personal property is still insured on a Broad Form Named Perils basis (identical to the DP-2 named perils list) and settled at Actual Cash Value (ACV).