3.3 Dwelling Perils, Conditions, and Endorsements

Covered Perils by Form

The dwelling forms differ chiefly by which perils they insure and on what basis. The table below summarizes the most tested perils.

DP-3 reverses the analysis for the building: rather than listing covered perils, it covers everything except the policy's exclusions. Coverage C contents stay on the DP-2 broad named-perils list even on a DP-3.

Standard Exclusions

All dwelling forms exclude the classic catastrophe and maintenance causes of loss:

• Flood / surface water — insured through the NFIP, not the DP
• Earthquake / earth movement — added by endorsement DP 04 99 or a separate policy
• Ordinance or law (cost to rebuild to current code) — limited; can be increased by endorsement
• War, nuclear hazard, intentional loss, neglect, and government action
• Wear and tear, deterioration, mechanical breakdown, and pollution (general maintenance)

Standard Conditions

The conditions section governs how claims are handled. The exam targets these:

• Standard (union) mortgage clause: protects the mortgagee's interest even if the insured's act or neglect would void the named insured's coverage; the insurer pays the mortgagee and may pursue subrogation.
• Coinsurance (80%): building replacement-cost settlement on DP-2/DP-3 requires carrying at least 80% of replacement cost at the time of loss.
• Other Insurance: when more than one policy applies, each pays its pro rata share.
• Appraisal: if the insured and insurer disagree on the amount of loss, each selects an appraiser; the two select an umpire, and agreement by any two binds.
• Cancellation / Nonrenewal: typically 60 days' notice, with shorter notice for nonpayment; first 60 days the insurer may cancel for almost any reason.
• Vacancy: if the dwelling is vacant beyond the vacancy period (often 60 days), vandalism, glass breakage, and water-damage losses are suspended.

Key Endorsements

Because the DP is monoline property, producers attach endorsements to round out the account:

Open-Perils Burden of Proof

A subtle but tested point is who must prove what under each peril basis. On a named-perils form (DP-1, DP-2, and the contents on a DP-3), the insured must show the loss was caused by a listed peril. On an open-perils form (the DP-3 building), the burden flips: the loss is presumed covered, and the insurer must prove an exclusion applies to deny it. This is the practical reason DP-3 is worth its higher premium — gradual or hard-to-classify building losses are more likely to be paid because the company, not the policyholder, carries the burden of pointing to an exclusion.

Pair Exclusions With Their Solutions

Exclusions are most easily memorized alongside the product that fills the gap. Flood is excluded everywhere and is solved by an NFIP flood policy (or a private flood policy); earthquake is excluded and is solved by the earthquake endorsement (DP 04 99) or a separate earthquake policy; the ordinance or law exclusion limits the extra cost of rebuilding to current code and is solved by an Ordinance or Law endorsement that adds a percentage of Coverage A. Recognize these pairings and most exclusion questions answer themselves.

Note that the exclusions for war, nuclear hazard, and intentional loss are essentially uninsurable and have no endorsement cure. The maintenance exclusions (wear and tear, deterioration, mechanical breakdown) reflect that insurance covers fortuitous, sudden loss — not the predictable cost of upkeep.

Cancellation, Nonrenewal, and Vacancy in Practice

During the first 60 days a policy is new, the insurer may cancel for nearly any lawful reason with proper notice. After 60 days, cancellation is generally restricted to defined grounds such as nonpayment, fraud, or a substantial increase in hazard, usually with 10 days' notice for nonpayment and a longer notice (often 30 or more days, varying by state) for other reasons; nonrenewal typically requires advance written notice as well.

The vacancy condition is a frequent claim trap: leave a rental empty past the vacancy period and a vandalism or burst-pipe loss may be excluded or reduced, which is why producers counsel landlords to endorse vacancy coverage during turnover.

Exam tip: Liability is NEVER built into a DP form — it is always added by the Personal Liability endorsement (DP 04 24). Likewise, theft on a DP-1 requires a theft endorsement; EC and V&MM alone never bring theft. And remember the burden of proof flips to the insurer under DP-3 open perils.