3.3 Dwelling Perils, Conditions, and Endorsements
Key Takeaways
- Standard dwelling exclusions track the SFP: ordinance or law, earth movement, water damage (flood/surface/sewer backup), power failure, neglect, war, nuclear hazard, and intentional loss.
- The pro rata Loss to a Pair or Set, the Other Insurance pro rata clause, and the Subrogation condition are tested as numeric and procedural mechanics.
- Coinsurance on DP-2/DP-3 requires the insured to carry 80% of replacement cost to collect replacement cost; below that, the recovery is the greater of ACV or the coinsurance-formula amount.
- Key endorsements: Personal Liability Supplement (adds Coverage L and M), Broad Theft / Limited Theft, Dwelling Under Construction, and Automatic Increase in Insurance.
- The flood and earth-movement exclusions push insureds to separate NFIP/private flood and difference-in-conditions or earthquake endorsements.
Standard Dwelling Exclusions
All three forms share a common exclusion list inherited from the Standard Fire Policy. Whether the policy is named-perils (DP-1/DP-2) or open-perils (DP-3), these causes of loss are excluded:
- Ordinance or Law — added cost to rebuild to current code (add back by endorsement)
- Earth Movement — earthquake, landslide, sinkhole (earthquake endorsement available)
- Water Damage — flood, surface water, sewer/drain backup (NFIP or endorsement)
- Power Failure occurring off the premises
- Neglect to save property at and after a loss
- War and Nuclear Hazard
- Intentional Loss by an insured
These are absolute on the named-perils forms (they simply are not covered perils) and explicitly listed on DP-3.
Conditions Tested as Math
Coinsurance (DP-2/DP-3). To collect replacement cost the insured must carry at least 80% of replacement cost. Recovery = (Amount Carried / Amount Required) × Loss, not to exceed the limit, less deductible. Below 80%, the insured collects the greater of ACV or the coinsurance-formula result.
Other Insurance — Pro Rata. When two policies cover the same loss, each pays its share of the loss in proportion to its limit. If Policy X carries $100,000 and Policy Y $300,000 (total $400,000) on a $40,000 loss, X pays 100/400 × $40,000 = $10,000 and Y pays $30,000.
Loss to a Pair or Set. The insurer may repair/replace to restore the set or pay the difference between the ACV of the set before and after the loss — it need not pay as if the whole set were destroyed.
A DP-3 dwelling has a replacement cost of $400,000. The insured carries $280,000 and suffers a $50,000 partial loss with a $1,000 deductible. What does the insurer pay?
Subrogation, Concealment, and Duties After Loss
Subrogation lets the insurer recover from a negligent third party after paying the insured; the insured may waive it in writing only before a loss, never after. Concealment or Fraud voids coverage for any insured who intentionally conceals a material fact or commits fraud, either before or after a loss.
Duties After Loss require prompt notice, protection of property from further damage, an inventory of damaged property, and submission of a sworn proof of loss (commonly within 60 days of the insurer's request). Failure to comply can bar recovery. The insurer in turn must pay within a stated period (often 60 days) after reaching agreement, an appraisal award, or a court judgment.
Deductibles and the Appraisal Clause
The dwelling forms carry a flat property deductible applied per occurrence to each covered loss. In catastrophe-exposed territories the deductible may be expressed as a percentage of Coverage A for windstorm or hurricane perils (see 3.4). Earthquake and flood, when added, carry their own separate, usually larger, deductibles.
When the insurer and insured agree the loss is covered but disagree on the amount, either party may invoke the Appraisal condition. Each selects a competent appraiser; the two appraisers choose an umpire; an agreement by any two of the three sets the amount. Appraisal resolves valuation disputes only — it does not decide coverage questions, a distinction the exam tests.
Common Endorsements
| Endorsement | What It Adds |
|---|---|
| Personal Liability Supplement | Coverage L (Personal Liability) and Coverage M (Medical Payments) — fills the property-only gap |
| Broad Theft Coverage | On-premises and off-premises theft for owner-occupied dwellings |
| Limited Theft Coverage | On-premises only, for non-owner-occupied (rental) dwellings |
| Dwelling Under Construction | Adjusts the limit as the structure rises; settles loss at the value at time of loss |
| Automatic Increase in Insurance | Indexes Coverage A upward periodically to track inflation |
| Ordinance or Law | Adds the cost to rebuild to current building code |
Because the base dwelling form has no liability, the Personal Liability Supplement is the endorsement most often paired with an owner-occupied DP policy.
An owner-occupant buys a DP-3 and wants both bodily-injury liability protection and theft coverage for valuables kept in the home. Which combination of endorsements is required?
Ordinance or Law in Practice
The Ordinance or Law exclusion is one of the most consequential gaps on the dwelling forms. After a major loss, building codes often require upgrades — updated wiring, hurricane straps, or accessibility features — that did not exist when the home was built. The base form pays only to restore the pre-loss condition; the extra cost of code compliance, plus the cost to demolish and remove the undamaged portion of a partially destroyed structure, is excluded.
The Ordinance or Law endorsement restores this exposure, usually as a percentage of Coverage A (commonly 10%). For older dwellings in jurisdictions with strict codes, this endorsement can be the difference between a full rebuild and a coverage shortfall, and the exam frequently pairs it with a partial-loss demolition scenario.
Key Dwelling Perils, Conditions, and Endorsements
The dwelling forms exclude the same catastrophic and special-underwriting perils seen elsewhere: flood, earth movement, war, nuclear hazard, ordinance or law, neglect, and intentional loss. Flood requires a separate NFIP policy and earthquake requires an earthquake endorsement or separate policy, because both are correlated catastrophe perils the base form will not absorb. The forms also limit or exclude theft on DP-1 and DP-2 unless added, and Special form open-peril coverage still excludes wear and tear, mechanical breakdown, and gradual deterioration.
Standard conditions parallel commercial property. The pro-rata liability (other insurance) condition shares a loss when more than one policy applies. The mortgage clause protects the lienholder even if the owner's coverage is voided. The appraisal condition resolves loss-amount disputes, subrogation lets the insurer recover from at-fault third parties, and the loss settlement condition fixes ACV or replacement cost depending on form. The vacancy concept matters for rentals: a dwelling vacant beyond a stated period can lose coverage for certain perils, much like the commercial 60-day rule.
High-frequency endorsements expand the base. Automatic Increase in Insurance (inflation guard) raises Coverage A periodically to keep pace with rebuilding costs and avoid a coinsurance penalty. The Broad Theft Coverage and Personal Property Replacement Cost endorsements upgrade contents. Dwelling Under Construction adjusts coverage and value during a build, and the Earthquake endorsement adds that excluded peril with its own deductible expressed as a percentage of the limit.
Worked scenario: a partial fire destroys 40 percent of an older home, and the city orders the remaining 60 percent demolished because it no longer meets code. The base form pays only to repair the fire-damaged 40 percent; the Ordinance or Law endorsement is what pays to demolish and rebuild the undamaged 60 percent and to meet upgraded codes. Recognizing that ordinance-or-law fills the demolition-and-upgrade gap is the most tested dwelling-endorsement point.
Key Takeaways
Dwelling forms exclude flood (NFIP), earthquake (endorsement), war, nuclear, ordinance or law, neglect, and intentional loss, and limit theft on DP-1/DP-2 unless added. Standard conditions include pro-rata other insurance, the mortgage clause, appraisal, subrogation, and vacancy limits. Common endorsements (inflation guard, replacement cost on contents, ordinance or law, earthquake) close specific gaps, with ordinance or law covering demolition and code-upgrade costs the base form excludes.