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

Why a Dwelling Policy Exists

The Dwelling Property (DP) program of the Insurance Services Office (ISO) insures residential buildings that do not qualify for a homeowners (HO) policy. Typical uses: a landlord's rental house, a seasonal or secondary home, a dwelling under renovation, or a one-to-four-family structure where the owner does not live on site.

Unlike an HO policy, a DP form is monoline property only — it does not bundle liability, medical payments, or theft into the base package. Those are optional add-ons, which keeps the DP flexible for investor and tenant exposures.

The Three Forms at a Glance

ISO publishes three dwelling forms. Coverage breadth and premium both increase across the series; none includes built-in liability.

ACV is Actual Cash Value (replacement cost minus depreciation). RC is Replacement Cost (no depreciation deducted when conditions are met).

DP-1 Basic Form (DP 00 01)

The DP-1 is the narrowest and cheapest form. In its core state it insures only fire, lightning, and internal explosion. The remaining common perils are added by attaching two optional groups:

• Extended Coverage (EC): windstorm and hail, civil commotion and riot, smoke, aircraft, vehicles, explosion, and volcanic eruption.
• Vandalism and Malicious Mischief (V&MM): added separately, and only if EC is already in place.

DP-1 still excludes theft even with EC and V&MM attached. Its dwelling loss settlement is ACV, so a 20-year-old roof is paid at depreciated value.

DP-2 Broad Form (DP 00 02)

The DP-2 expands to a longer broad named-perils list that adds the burglar-damage portion of theft (damage to the building from a break-in), falling objects, weight of ice/snow/sleet, accidental water discharge, freezing, and sudden electrical injury. Crucially, the DP-2 settles the dwelling and other structures on Replacement Cost, subject to the coinsurance condition.

DP-3 Special Form (DP 00 03)

The DP-3 is the most popular form and the closest dwelling parallel to the HO-3. It provides open perils (all-risk) on Coverage A and Coverage B — meaning any direct physical loss is covered unless specifically excluded — while contents (Coverage C) remain on the broad named-perils list. The burden of proof flips on the building: the insurer must show an exclusion applies.

Named Perils vs Open Perils — Burden of Proof

The single most tested concept across the dwelling and homeowners material is the difference in burden of proof.

• On a named-perils form (DP-1, DP-2, all contents), the insured must prove the loss was caused by a peril listed in the policy. If the cause is not on the list, there is no coverage.
• On an open-perils form (DP-3 dwelling and other structures), coverage is presumed; the insurer must prove an exclusion applies to deny the claim.

This is why the DP-3 commands a higher premium: ambiguous or unusual losses (a meteorite, a deer crashing through a wall) are covered on the dwelling because no exclusion names them.

Eligibility and the One-to-Four-Family Rule

Dwelling forms insure residential occupancies of one to four families. A small amount of incidental business or office occupancy is permitted, and a few roomers or boarders may be present. Once occupancy exceeds these limits the risk moves to a commercial program.

Loss Settlement Recap

The loss-settlement basis is the practical reason an insured pays more for a higher form:

• DP-1: dwelling losses paid at ACV, so depreciation is subtracted from every building claim.
• DP-2 and DP-3: dwelling losses paid at Replacement Cost when the insured carries at least 80% of replacement value (the coinsurance threshold).

Common exam trap: candidates assume any "all-risk" sounding form pays replacement cost, or that the DP-1 covers theft once EC is added. Neither is true — settlement basis and peril breadth are decided separately, and DP-1 never covers theft.

Comparing the DP Series to Homeowners

Each DP form has a rough homeowners counterpart, which helps fix the peril structure in memory:

The key difference is that the DP is monoline property for non-owner-occupants, while HO forms bundle liability, theft, and medical payments for owner-occupants. A landlord uses a DP plus endorsements; a homeowner uses an HO.

Premium Drivers Across the Series

Moving up the series raises premium for three compounding reasons:

• Broader perils: DP-3 open perils insure causes of loss that DP-1 never names.
• Replacement-cost settlement: DP-2 and DP-3 pay without depreciation, a larger expected claim.
• Shifted burden of proof: the insurer, not the insured, must prove an exclusion on a DP-3 building loss.

For the exam, anchor each form to its settlement basis (ACV vs RC) and its peril basis (named vs open) — almost every dwelling-forms question turns on one of those two axes.