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

The Dwelling Policy Program

The ISO Dwelling Policy program insures residential property that does not qualify for, or is not written on, a Homeowners (HO) policy. Typical insureds include rental (tenant-occupied) dwellings, secondary or seasonal homes, dwellings under construction, and owner-occupied homes that fail Homeowners eligibility because of condition, value, or owner-occupancy rules.

A dwelling form covers buildings designed for no more than four families and permits incidental occupancies such as a home office or small studio. Because the program targets non-standard risks, underwriters use it where the broader, more automatic Homeowners package is unavailable or inappropriate.

The current editions most exams reference are the ISO DP 00 01 (Basic Form), DP 00 02 (Broad Form), and DP 00 03 (Special Form), commonly the 07 14 or 07 17 editions. The single most important structural fact tested is that dwelling forms are monoline property contracts.

Unlike a Homeowners policy, liability is NOT automatically included. To add personal liability and medical payments, the producer must attach the Personal Liability Supplement (DL 24 01). Forgetting this gap is a frequent real-world errors-and-omissions exposure and a favorite exam distractor.

Comparing the Three Forms

The forms differ on two axes: which perils they cover and how losses are valued. Memorize the progression — each form adds protection over the one below it.

The DP-1 Peril Trap

DP-1 in its base form covers only fire, lightning, and internal explosion. The Extended Coverage (EC) perils — windstorm, hail, explosion, riot, civil commotion, aircraft, vehicles, smoke, and volcanic eruption — and Vandalism & Malicious Mischief (V&MM) are added only when the insured pays additional premium.

A recurring exam trap reads: "A DP-1 dwelling is damaged by windstorm — is it covered?" The answer is no, unless the EC perils were specifically added. Candidates who assume wind is always a basic peril miss the point of the named-peril Basic Form.

Valuation Differences

DP-1 settles dwelling losses on an actual cash value (ACV) basis — replacement cost minus depreciation. DP-2 and DP-3 settle the dwelling at replacement cost when the insured carries at least 80% of replacement cost, the coinsurance threshold.

Worked example: a roof costs $20,000 to replace and is 50% depreciated. Under DP-1 the insured recovers $10,000 ACV (less deductible). Under DP-3, if insured to value, the insured recovers the full $20,000 replacement cost (less deductible), collecting withheld depreciation after repairs are completed.

DP-3 is "open peril" (also called all-risk or special) on the dwelling and other structures, meaning ANY cause of loss is covered unless specifically excluded. This shifts the burden of proof: the insured need only show a loss occurred, while the insurer must prove an exclusion applies to deny the claim. On DP-1 and DP-2, by contrast, the insured must prove the loss arose from a listed peril. This difference in proof burden is exactly why open-peril forms command higher premium and are considered the broadest dwelling protection available.

Eligibility and What the Dwelling Program Is For

The dwelling program exists for risks a homeowners policy will not take: non-owner-occupied (rental) dwellings, secondary or seasonal homes, dwellings with incidental occupancies (a small office), homes that fail homeowners eligibility because of condition or value, and properties in coverage-of-last-resort markets such as a FAIR Plan. A dwelling form covers up to a stated number of families (commonly four) and a limited number of boarders.

Because it is monoline property, it carries no automatic liability and no theft coverage on the base form — both must be added by endorsement (a Personal Liability Supplement for liability; a theft endorsement for DP-2/DP-3).

Editions, Other Coverages, and the No-Theft Rule

Across DP-1, DP-2, and DP-3 the structure is the same: Coverage A (Dwelling), B (Other Structures), C (Personal Property), D (Fair Rental Value), and E (Additional Living Expense), with the broader forms adding more "Other Coverages." The single most-tested gap is that theft is not a base dwelling peril — a tenant-occupied DP-3 still needs a theft endorsement to insure the owner's contents, and even then theft of property away from the premises is excluded. Glass breakage, debris removal, and reasonable repairs appear as Other Coverages, broadening as you move from DP-1 to DP-3.

DP-1 Anti-Concurrent and Pro-Rata Recovery Quirks

Two DP-1 quirks generate questions. First, the DP-1 base form covers only fire, lightning, and internal explosion; the extended coverage (EC) and vandalism perils are added by endorsement and premium, so a DP-1 windstorm loss is not covered unless EC was purchased. Second, DP-1 often settles losses on an actual-cash-value, pro-rata basis without a replacement-cost option, making it the least generous and cheapest form. When a stem describes a low-value rental in a coverage-of-last-resort situation, DP-1 with EC is frequently the intended answer, while an owner who wants open-peril and replacement cost belongs on DP-3.