3.3 Dwelling Perils, Conditions, and Endorsements

Covered Perils by Form

Dwelling exam questions often describe a loss and ask whether the form on the policy covers it. The answer depends on whether the form is named-perils (the insured must prove the loss came from a listed peril) or open-perils (the insurer must prove an exclusion applies). The peril menu expands across the three forms:

Remember: on DP-3, the open-perils column applies to Coverage A and B only. Coverage C on DP-3 still follows the broad named-perils list — a stolen laptop is covered if theft is a listed peril for contents, but mysterious disappearance of contents is not automatically covered just because the dwelling has open perils.

Exam trap: DP-1 never covers theft, even with every optional endorsement attached. Theft on DP-1 requires switching forms or adding the Broad Theft Coverage endorsement — and even that endorsement has eligibility limits.

Standard Exclusions — All Forms

Because the DP-3 is open-perils on the dwelling, exclusions define coverage. These exclusions appear (with minor variations) across DP-1, DP-2, and DP-3:

• Ordinance or law — increased cost to rebuild to current building codes (buy back by endorsement)
• Earth movement — earthquake, landslide, mudslide, sinkhole collapse (earthquake added by DP 04 26 endorsement)
• Water damage — flood, surface water, waves, tidal water, overflow of bodies of water, water below the surface that exerts pressure on a structure
• Sewer, drain, or sump backup — excluded unless endorsed
• Power failure occurring off the described premises
• Neglect — failure to protect property at and after a loss
• War, nuclear hazard, governmental action
• Intentional loss caused by the insured
• Wear and tear, gradual deterioration, insects, rodents, birds, domestic animals

Flood is excluded on every DP form and must be written through the National Flood Insurance Program (NFIP) or a private flood policy. Earthquake is excluded but can be added by endorsement with a separate percentage deductible (commonly 10% or 15% of Coverage A).

Nevada producers should note: while earthquake risk is lower than in California, the national exam still tests earthquake and flood exclusions uniformly. Windstorm and hail are covered perils (via EC or open perils), but interior rain damage without wind-created opening may be denied.

Burden of Proof — Named Versus Open Perils

A DP-3 claim for unexplained structural damage starts with coverage presumed; the insurer investigates exclusions. A DP-1 claim for the same damage starts with denial until the insured identifies fire, lightning, internal explosion, or an endorsed peril as the cause.

Policy Conditions — Rules of the Contract

Conditions tell both parties how to perform after a loss. The most-tested dwelling conditions:

Pro-rata other insurance — worked example

Two dwelling policies cover the same $120,000 loss to a rental property. Policy X carries a $300,000 limit; Policy Y carries a $100,000 limit. Total available insurance: $400,000.

• Policy X share: ($300,000 ÷ $400,000) × $120,000 = $90,000
• Policy Y share: ($100,000 ÷ $400,000) × $120,000 = $30,000

The insured collects the full $120,000 but cannot profit — property insurance is a contract of indemnity. Each policy's deductible applies to its own share before payment.

ACV loss settlement — worked example

A DP-1 insured suffers damage to a roof with $15,000 replacement cost. The roof has a 25-year useful life and is 20 years old at the time of loss.

• Depreciation ratio: 20 ÷ 25 = 80%
• Depreciation dollar amount: 80% × $15,000 = $12,000
• ACV = $15,000 − $12,000 = $3,000 (less deductible)

The same loss on a DP-3 meeting coinsurance would pay replacement cost (minus deductible), illustrating why landlords on DP-1 accept lower premiums but absorb depreciation on every claim.

The Claim Process — Duties After Loss

The standard sequence tested on the national P&C exam:

1. Prompt notice to the insurer (and police if a crime is involved)
2. Protect property from further damage; reasonable repairs are reimbursable
3. Submit proof of loss — signed, sworn statement — typically within 60 days of the insurer's request
4. Cooperate in the investigation; insurer may examine the insured under oath
5. If amount is disputed, either party invokes appraisal (each selects an appraiser; the two select an umpire; agreement of any two binds the amount)
6. Insurer pays within 60 days after proof of loss and agreement, appraisal, or judgment

Exam trap: Appraisal resolves value disputes, not coverage disputes. If the insurer denies coverage entirely because it claims flood caused the loss, appraisal is not the remedy — that is a coverage question for the courts.

Key Endorsements

Endorsements modify the base form. Know these for the exam:

Theft — the dwelling program gap

Unlike Homeowners policies, base DP forms do not include theft coverage on personal property in the same package manner as HO. DP-2 and DP-3 include theft as a named peril for contents. DP-1 does not. A landlord cannot use theft coverage to insure a tenant's belongings — the tenant needs a renters policy.

Liability — always missing from the base form

Every DP form is property-only. If a guest trips on the rental property steps and sues, the base DP pays zero unless a Personal Liability Supplement was endorsed. The supplement adds:

• Coverage L — bodily injury and property damage liability the insured becomes legally obligated to pay, plus defense costs
• Coverage M — medical payments to others regardless of fault (small per-person limit)

Vacancy and the 60-Day Suspension

Although detailed further in the mobile-home section, the vacancy provision appears in perils/conditions testing: once a dwelling is vacant beyond 60 consecutive days, coverage for vandalism, malicious mischief, glass breakage, and certain water losses is suspended. Fire and lightning generally continue. Distinguish vacant (no people, essentially no contents) from unoccupied (furnished but temporarily empty) — the strict vacancy trigger applies to the vacant condition.

Cancellation and Nonrenewal — Producer Awareness

While state law governs notice periods, the national exam tests general principles:

• Insurers have broader cancellation rights in the first 60 days of a new policy
• After that, mid-term cancellation is typically limited to nonpayment of premium, fraud, or material misrepresentation or change in risk
• The mortgage clause requires separate notice to the mortgagee (commonly 10 days for cancellation, 10 days for nonpayment)

Nevada-licensed producers should know their state-specific notice rules for the state portion of the exam; the national portion focuses on mortgagee protection and the principle that a lender's interest can survive the insured's forfeiture of coverage.

Endorsement Selection — Exam Scenarios

Understanding which gaps are filled by switching forms versus endorsing the current form separates passing candidates from those who memorize definitions without applying them.