2.2 Tennessee Dwelling Insurance

Why a Dwelling Policy Instead of a Homeowners Policy?

The ISO Homeowners program presumes an owner-occupied residence. When a property is non-owner-occupied (a rental), seasonally occupied (a vacation home), vacant, or under renovation, it falls outside HO eligibility, and the producer writes a Dwelling Property (DP) policy instead. The DP program is also used for older homes that an insurer will write only on actual cash value (ACV).

A key DP-vs-HO difference: the DP-1 does not include windstorm and hail in its base perils. Those are added through the Extended Coverage (EC) endorsement, which also brings in smoke, aircraft, vehicles, riot, and volcanic eruption. This matters in Tennessee, where wind/hail is the dominant loss driver.

DP-1 Basic Form Perils

With the Extended Coverage and VMM (vandalism and malicious mischief) options added, the DP-1 commonly insures:

1. Fire or lightning
2. Internal explosion
3. Windstorm or hail (EC option)
4. Smoke (EC)
5. Aircraft (EC)
6. Vehicles (EC)
7. Riot or civil commotion (EC)
8. Vandalism or malicious mischief (VMM option)
9. Volcanic eruption
10. Explosion (EC)

Note that theft is NOT a DP-1 peril and is generally unavailable or sharply limited on dwelling forms because the structures are often unoccupied. This is a frequent exam distractor: candidates assume theft is covered the way it is on a homeowners policy.

DP-2 Broad Form Additions

The DP-2 broadens the peril list and, importantly, upgrades dwelling settlement to replacement cost. It adds:

• Falling objects
• Weight of ice, snow, or sleet
• Accidental discharge or overflow of water or steam
• Freezing of plumbing, heating, or AC systems
• Sudden and accidental tearing apart, cracking, burning, or bulging
• Accidental damage from artificially generated electrical current
• Sudden and accidental damage from smoke

The DP-3 keeps that contents list but flips the dwelling to open perils, so the building is covered for any cause not excluded (excluding flood, earth movement, war, neglect, etc.).

Exam Tip: Move up the ladder for both breadth and valuation. DP-1 = fewest perils + ACV; DP-2 = more perils + replacement cost; DP-3 = open perils on the building + replacement cost.

Loss Settlement: ACV vs. Replacement Cost

The valuation difference drives real dollars. Actual cash value equals replacement cost minus depreciation, so a 20-year-old roof destroyed by a Tennessee hailstorm pays only its depreciated value under a DP-1. Replacement cost under DP-2/DP-3 pays to repair or replace with like kind and quality without a depreciation deduction, provided the insured carries at least the policy's required percentage of replacement value (commonly 80%) and actually repairs or rebuilds.

Matching the Form to the Tennessee Exposure

Producers are graded on selecting the correct form for a fact pattern. Use occupancy and the owner's risk tolerance to choose:

The Vacancy Trap

Most dwelling and homeowners policies suspend or reduce certain coverages once a building is vacant beyond 60 consecutive days (vandalism, glass breakage, water damage, and theft are commonly excluded after that point). For a knowingly vacant building, the producer adds a vacancy permit endorsement so coverage is not voided. Writing a standard DP on a vacant home without that permit is a classic errors-and-omissions exposure.

Liability Is NOT Included

Unlike a homeowners policy, no DP form contains Section II liability. A landlord who insures a rental on a DP-3 has zero personal-liability or medical-payments protection for a tenant or guest injury until the producer attaches:

• The Dwelling Property Personal Liability Supplement, or
• A DL (Dwelling/landlord liability) endorsement, or
• A separate Comprehensive Personal Liability (CPL) policy.

Scenario: A Knoxville investor buys a duplex and asks for "the same protection as my house." If the producer issues a DP-3 alone and a tenant later sues after a stairway fall, there is no liability coverage and the producer faces an E&O claim. The fix is to bind the liability supplement at the same time as the property form.

Tennessee Regulatory Overlay

Dwelling policies receive the same Title 56 cancellation and non-renewal protections as homeowners policies: a new policy may be canceled for any reason in its first 60 days, post-60-day cancellation is limited to enumerated reasons, non-renewal requires 60 days written notice, and unearned premium is refunded pro-rata. The single-weather-claim non-renewal protection also applies.

Exam Tip: If a question describes a rental, a vacant house, or a vacation home and then asks which policy fits, the answer is in the DP family, never an HO form. Then verify whether liability was separately added.