Dwelling Perils, Exclusions & Key Endorsements
Key Takeaways
- Covered perils escalate from DP-1 (fire, lightning, internal explosion plus optional EC and V&MM) to the open-peril DP-3 dwelling coverage.
- All dwelling forms exclude flood, earth movement, ordinance or law, war, nuclear hazard, and intentional loss; flood and quake are insured separately.
- Key endorsements add theft, inflation guard, ordinance or law, and personal liability and medical payments to the base forms.
- DP-2 and DP-3 settle the dwelling at replacement cost if 80% is carried; the DP-1 settles at ACV.
Covered Perils by Form
The dwelling forms escalate the list of covered perils. The DP-1 base covers fire, lightning, and internal explosion, with extended coverage and vandalism added by election. The DP-2 adds the broad-form perils, and the DP-3 drops the list entirely for the structure and instead covers all direct physical loss except exclusions. Because exam questions often hinge on a single peril, keep a mental checklist of which form first picks up windstorm, water discharge, freezing, and collapse.
| Peril | DP-1 | DP-2 | DP-3 (dwelling) |
|---|---|---|---|
| Fire, lightning, internal explosion | Yes | Yes | Yes (open peril) |
| Windstorm, hail (EC) | Optional EC | Yes | Yes |
| Vandalism (V&MM) | Optional | Yes | Yes |
| Falling objects; ice/snow weight | No | Yes | Yes |
| Accidental water discharge; freezing | No | Yes | Yes |
| Theft | No (endorse) | No (endorse) | No (endorse) |
Standard Exclusions
All dwelling forms exclude the classic uninsurable or separately insured perils: ordinance or law (the added cost of rebuilding to current code, unless endorsed), earth movement (earthquake, landslide), flood and surface water, power failure off premises, neglect, war, nuclear hazard, and intentional loss. These exclusions reflect catastrophe, predictability, and moral-hazard concerns. Flood and earthquake are insured separately, flood through the National Flood Insurance Program and earthquake by endorsement or a separate policy.
Key Endorsements
The dwelling program is frequently tailored with endorsements that the exam expects you to recognize:
- Theft coverage (Broad or Limited) adds theft, which the base forms omit.
- Dwelling under construction adjusts coverage and reporting while a home is being built.
- Automatic increase in insurance (inflation guard) raises the dwelling limit periodically to track building costs and offset coinsurance.
- Ordinance or law coverage pays the extra cost to rebuild to current code after a covered loss.
- Personal liability and medical payments supplements add the liability protection the base dwelling forms lack.
Loss Settlement Nuances
The DP-2 and DP-3 settle the dwelling at replacement cost if the insured carries at least 80 percent of replacement value; below that, payment is the greater of ACV or the coinsurance-adjusted amount. The DP-1 always settles the dwelling at ACV. Personal property is settled at ACV unless replacement-cost contents coverage is endorsed. When a scenario gives a form, a limit, a property value, and a loss, work the settlement in the order: identify the form, confirm the peril is covered, apply the coinsurance or replacement-cost condition, then subtract the deductible.
Treating the dwelling forms as a settlement decision tree, rather than a list of facts, is what lets you answer the layered questions the exam favors in this section.
Which loss would NOT be covered by an unendorsed DP-3 Special Form dwelling policy?
An insured wants the dwelling policy to pay the extra cost of rebuilding to current building codes after a covered fire. Which endorsement is needed?
Working a Dwelling Settlement Step by Step
Layered dwelling questions reward a fixed sequence. First, identify the form (DP-1, DP-2, or DP-3) to fix the covered-peril approach and the settlement basis. Second, confirm the peril is covered, listed on a named-peril form or simply not excluded on the open-peril DP-3 dwelling coverage. Third, apply the settlement condition: DP-1 pays ACV, while DP-2 and DP-3 pay replacement cost on the dwelling if the insured carries at least 80 percent of replacement value. Fourth, subtract the deductible.
The exclusions are the same across forms and reflect catastrophe and predictability concerns. Flood and earth movement are excluded and insured separately (flood through the NFIP, earthquake by endorsement). Ordinance or law (code-upgrade cost), neglect, war, nuclear hazard, and intentional loss are also excluded. Theft is not automatically covered on any standard dwelling form.
| Step | Action |
|---|---|
| 1 | Identify the form |
| 2 | Confirm the peril is covered |
| 3 | Apply ACV (DP-1) or RC condition (DP-2/3) |
| 4 | Subtract the deductible |
The key endorsements fill predictable gaps: theft coverage, inflation guard to offset coinsurance as values rise, ordinance or law for code-upgrade costs, and personal liability and medical payments supplements for the liability the base forms lack. When a scenario describes a need, an uninsured theft, a code-driven rebuild cost, a rising replacement value, match it to the endorsement that fills that exact gap. Treating the dwelling program as a settlement decision tree rather than a list of facts is what lets you answer the multi-step questions the exam favors here.
Drill the form-by-peril chart until it is automatic: DP-1 picks up windstorm only with extended coverage, DP-2 adds weight of ice and snow and accidental water discharge, and DP-3 covers the structure open-peril. Flood and earthquake are excluded by every form and insured separately, and theft is never automatic.
Match each common endorsement to its gap, theft coverage, inflation guard (offsets coinsurance), ordinance or law (code-upgrade cost), and the personal liability and medical payments supplements, and work any settlement in the order form, peril, coinsurance or replacement-cost condition, deductible.