3.3 Dwelling Perils, Conditions, and Endorsements

Covered Perils by Form

The DP-1 base covers fire, lightning, and internal explosion, with Extended Coverage and V&MM optional. The DP-2 broadens to a long named list; the DP-3 makes the building open-perils. Common exclusions that apply across all three forms include:

• Ordinance or law (cost to rebuild to current code) — added back by endorsement
• Earth movement (earthquake, landslide, sinkhole) and flood — never covered; flood requires the NFIP/private flood
• Water damage from surface water, sewer/drain backup, and seepage
• Power failure off premises, neglect, war, nuclear hazard, and intentional loss

Key Policy Conditions

• Vacancy/unoccupancy: V&MM and glass breakage are suspended once the dwelling is vacant beyond 60 consecutive days; windstorm to interior also tightens.
• Other insurance: the policy pays its pro-rata share when other collectible insurance covers the same loss.
• Loss settlement: replacement cost on the dwelling requires repair/replacement and the 80% coinsurance threshold; otherwise the insurer pays the larger of ACV or the coinsurance result.
• Subrogation, appraisal, and the duties-after-loss clause (notice, protect property, proof of loss within 60 days) all appear.
• Mortgagee (loss payable): a named mortgagee is paid even if the insured's own act voids coverage, and gets 10 days' notice of cancellation.

The Pro-Rata 'Other Insurance' Worked Example

When two policies cover the same dwelling, each pays in proportion to its limit. Suppose Insurer A wrote $150,000 and Insurer B wrote $50,000 on the same structure, a $40,000 loss occurs, and total coverage is $200,000:

This prevents the insured from collecting more than the actual loss (the principle of indemnity) while each carrier contributes its fair share.

Common Endorsements

• Broad Theft Coverage (DP 04 72) and Limited Theft — adds theft to forms or for tenants/landlords; on-premises vs off-premises sublimits differ
• Dwelling Under Construction (DP 11 43) — limit adjusts with construction value/percentage complete
• Automatic Increase in Insurance / inflation guard — raises Coverage A periodically
• Personal Liability Supplement — adds Coverage L (liability) and M (medical payments) the forms otherwise lack
• Ordinance or Law and Water Back-up / Sump Overflow — add back excluded code-upgrade and sewer-backup losses

Trap: candidates assume theft is automatic on a DP-3 because the building is open perils. Theft on Coverage C is still named, and the DP-1 needs the theft endorsement entirely.

Reading the Standard Exclusions

The dwelling forms group their exclusions, and the exam tests the categories more than the wording:

• Earth movement — earthquake, landslide, mudflow, sinkhole, and earth sinking or rising; added back only by an Earthquake endorsement
• Water damage — flood, surface water, waves, sewer or drain backup, and underground seepage; flood needs the NFIP and backup needs a Water Back-up endorsement
• Ordinance or law — the increased cost of rebuilding to a current code that did not apply when the dwelling was built
• Power failure that occurs off the premises, neglect to save property at and after a loss, war, nuclear hazard, and intentional loss by an insured

Many of these are anti-concurrent-causation exclusions: if an excluded cause (flood) and a covered cause (wind) combine to produce one loss, the policy still excludes the entire loss attributable to the excluded peril.

Duties After a Loss and the Cancellation Rules

When a loss occurs the insured must perform specific duties after loss or risk denial: give prompt notice, protect the property from further damage (and keep records of repair costs), prepare an inventory of damaged personal property, cooperate, and submit a signed, sworn proof of loss within 60 days of the insurer's request.

Cancellation and nonrenewal follow standard rules the exam expects you to know:

• New policies (in force fewer than 60 days): the insurer may cancel for almost any reason with proper notice.
• Policies in force 60+ days: cancellation is limited to nonpayment, material misrepresentation, or a substantial increase in hazard.
• Notice periods are commonly 10 days for nonpayment and a longer period (often 30 days) for other reasons, with the mortgagee entitled to its own notice.

How the Endorsements Fit Together in Practice

A producer rarely sells a dwelling form alone; the endorsements close the gaps the base form leaves open. A realistic landlord placement might stack:

• DP-3 base for open-perils building coverage
• Personal Liability Supplement for premises liability (Coverage L and M)
• Broad Theft / Limited Theft if any contents or appliances are at risk
• Ordinance or Law to cover code-upgrade costs on an older structure
• Water Back-up / Sump Overflow for the excluded sewer-backup peril
• Automatic Increase (inflation guard) to keep Coverage A above the 80% coinsurance line

The takeaway for the exam is sequencing: identify the base form's covered perils and settlement basis first, then layer endorsements for each excluded or under-limited exposure. A question that lists a sewer-backup loss on a bare DP-3 is testing whether you recognize the missing Water Back-up endorsement, not whether the building peril was open.