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

Why the Dwelling Program Exists

The ISO Dwelling Property (DP) program fills the gap between commercial property policies and the Homeowners (HO) package. It insures residential buildings — typically one-to-four family dwellings — where the owner needs property coverage only or where the risk does not qualify for an HO policy. Common accounts include rental houses (a landlord insuring the structure while tenants buy their own renters policy), seasonal or secondary homes occupied only part of the year, dwellings under renovation, and older homes that fail HO underwriting because of roof age, prior losses, or vacancy.

Unlike Homeowners forms, no DP form includes personal liability (Coverage L) or medical payments to others (Coverage M). Those protections must be added by the Personal Liability Supplement endorsement or written on a separate policy. The DP program also accepts dwellings with incidental occupancies — a home office, a boarder, or up to four rental families — that might be declined on a standard HO-3. For Nevada producers, rental dwellings in the Las Vegas and Reno metro areas and seasonal cabins near Lake Tahoe are everyday DP placements.

The Three Forms at a Glance

ISO publishes three editions you should recognize by number:

Coverage broadens and premium rises from DP-1 to DP-3. Think of the progression as the same Basic → Broad → Special ladder used in Homeowners: DP-1 parallels HO-1, DP-2 parallels HO-2, and DP-3 parallels HO-3 on the building side.

DP-1 Basic Form — Narrowest and Cheapest

In its base state, the DP-1 insures only three perils: fire, lightning, and internal explosion. The remaining perils familiar from property exams are added by attaching two optional groups:

• Extended Coverage (EC): windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, volcanic eruption.
• Vandalism and Malicious Mischief (V&MM): must be added separately; it is suspended once the dwelling is vacant beyond 60 consecutive days.

Settlement is always on an Actual Cash Value basis: replacement cost minus depreciation. There is no theft coverage on DP-1, even after EC and V&MM are attached — a fact exam writers love.

Exam trap: Windstorm or hail covers interior damage only when wind or hail first creates an opening in the roof or wall. Rain entering through an already-open window is not a windstorm loss.

A Nevada landlord who wants minimum fire coverage on a rental duplex at the lowest premium might accept a DP-1 with EC and V&MM, understanding that theft of the tenant's belongings is the tenant's problem and that any building loss will be settled at ACV.

DP-2 Broad Form — Expanded Named Perils

The DP-2 (DP 00 02) automatically includes EC and V&MM and adds theft plus broad perils such as:

• Burglary damage and theft
• Falling objects
• Weight of ice, snow, or sleet
• Accidental discharge or overflow of water from a plumbing, heating, or air-conditioning system
• Freezing of plumbing, heating, or air-conditioning systems
• Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot-water heating system
• Sudden and accidental damage from artificially generated electrical current

The DP-2 settles the dwelling and other structures on replacement cost subject to the 80% coinsurance requirement. It fits an owner who wants meaningful theft and water-damage protection but does not need the full open-perils breadth of DP-3.

DP-3 Special Form — Open Perils on the Building

The DP-3 (DP 00 03) is the workhorse for rental and investor-owned dwellings. Coverage A (dwelling) and Coverage B (other structures) are insured on an open-perils basis: any direct physical loss is covered unless the policy specifically excludes it. That shifts the burden of proof to the insurer to show an exclusion applies.

Critical exam distinction: Personal property under Coverage C remains on the broad named-perils list even on a DP-3. The building is open-perils; the contents are not. Candidates who assume "DP-3 = all-risk on everything" lose points.

Replacement Cost and the 80% Coinsurance Rule

DP-2 and DP-3 pay replacement cost on the dwelling only if the insured carries at least 80% of the dwelling's full replacement value at the time of loss. If coverage falls short, the insurer pays the greater of ACV or the amount produced by the coinsurance formula:

Recovery = (Amount Carried ÷ Amount Required) × Loss, then subtract the deductible.

Worked example

A rental dwelling in Henderson has a $400,000 replacement cost. The 80% requirement is 0.80 × $400,000 = $320,000. The owner insures the dwelling for only $240,000 to save premium. A kitchen fire causes a $80,000 partial loss with a $1,000 deductible.

• Penalty factor = $240,000 ÷ $320,000 = 0.75
• Coinsurance payment = 0.75 × $80,000 = $60,000
• After deductible: $59,000 paid; the owner absorbs $21,000 of the loss.

Underinsuring to cut premium backfires on partial losses. Total losses may still pay up to the policy limit, but partial losses trigger the penalty.

ACV Versus Replacement Cost — Side-by-Side

Personal property on all three forms settles at ACV unless a replacement-cost-on-contents endorsement is added.

Eligibility and Form Selection

The DP program accepts:

• One-to-four family dwellings
• Owner-occupied or non-owner-occupied (rental) risks
• Seasonal dwellings occupied part of the year
• Dwellings with incidental business occupancies
• Risks ineligible for HO underwriting (may go to a FAIR Plan on a dwelling form in high-risk urban areas)

Form-selection scenarios the exam tests:

Exam trap: A DP policy never automatically includes liability. If a guest is injured on the rental property and sues the landlord, the base DP pays nothing for the liability claim unless a Personal Liability Supplement was added.

Reading the Progression for the Exam

Memorize the ladder: DP-1 = named perils + ACV + no theft; DP-2 = broad named perils + replacement cost; DP-3 = open perils on dwelling/other structures + replacement cost + named perils on contents. The DP-3's open-perils grant on buildings is the same conceptual shift as HO-3: exclusions, not inclusions, define coverage. When a question describes "all direct physical loss to the dwelling unless excluded," the answer is DP-3, not DP-2.