3.3 Dwelling Perils, Conditions, and Endorsements

Standard Exclusions

All three dwelling forms exclude catastrophic, non-fortuitous, and maintenance losses. On the DP-3 these exclusions are what carve coverage out of the otherwise open-perils building grant. The core list:

• Ordinance or law (extra cost to rebuild to current code) — buy back with the Ordinance or Law endorsement
• Earth movement (earthquake, landslide, sinkhole) and flood/surface water — covered only by separate policies/endorsements
• Water damage from sewer/drain backup and seepage below grade
• Power failure off premises, neglect, war, nuclear hazard
• Intentional loss by an insured

Two exclusion concepts the exam stresses are anti-concurrent causation and ensuing loss. Under anti-concurrent causation language, if an excluded peril (such as flood or earth movement) combines with a covered peril to cause one loss, the entire loss is excluded — the insured cannot recover by pointing to the covered contributor.

The ensuing-loss exception runs the other way: if an excluded cause leads to a separate covered peril, that resulting loss is paid. Classic example: faulty workmanship (excluded) causes a pipe to leak, which sparks a fire (covered) — the fire damage is paid even though the workmanship is not.

Loss Settlement and Coinsurance (Worked)

DP-2 and DP-3 settle the building at replacement cost provided the insured carries at least 80% of replacement cost. Fall below the 80% requirement and the loss is paid by the coinsurance/replacement-cost penalty formula:

Recovery = (Carried ÷ Required) × Loss − Deductible

Worked example. A home costs $400,000 to replace. The 80% requirement is $320,000. The owner insures only $240,000 Coverage A. A partial loss of $50,000 occurs with a $1,000 deductible.

• Ratio = 240,000 ÷ 320,000 = 0.75
• Recovery = 0.75 × $50,000 = $37,500 − $1,000 = $36,500 (the insured eats the rest)

If the insured had carried the full $320,000, the same $50,000 loss would pay $49,000 after the deductible. Trap: the comparison is carried vs. required (80% of RC), not carried vs. total replacement cost.

Key Conditions and Endorsements

Tested conditions:

• Vacancy: vandalism, glass breakage, and water damage are suspended after 60 consecutive days of vacancy.
• Duties After Loss: the insured must give prompt notice, protect from further damage, and submit a signed, sworn proof of loss within 60 days of the insurer's request.
• Appraisal: when both sides agree the loss is covered but disagree on amount, either party may demand appraisal — each names an appraiser, the two pick an umpire, and agreement of any two binds the amount.
• Standard (Union) Mortgage Clause: protects the mortgagee's interest even if the insured's own act (e.g., arson, misrepresentation) voids the insured's recovery.

Common endorsements: Automatic Increase in Insurance (inflation guard), Broad Theft / Limited Theft (theft is not in the base DP), Dwelling Under Construction, and a Personal Liability Supplement to bolt on the missing liability/med-pay.

Theft Endorsements — Broad vs. Limited

Because theft is excluded from every base dwelling form, an owner-occupant who wants it must add a theft endorsement, and the choice depends on occupancy:

• Broad Theft Coverage — for an owner-occupied dwelling; covers theft on and away from the premises plus related damage from break-in.
• Limited Theft Coverage — for a tenant-occupied (rental) dwelling; covers on-premises theft only, recognizing the landlord cannot control off-premises exposure.

Trap: offering Broad Theft on a pure rental is an error — the landlord does not have an off-premises personal-property exposure to insure. Match the endorsement to who lives in the dwelling.

Pro-Rata Other Insurance and Subrogation

Two conditions round out the exam coverage of the dwelling forms:

• Other Insurance: if two policies cover the same loss, the dwelling form pays its pro-rata share — its limit divided by the total of all applicable limits.
• Subrogation: after paying, the insurer steps into the insured's rights to recover from the at-fault party; the insured must not impair that right (e.g., by signing a waiver after the loss).

Pro-rata worked example. A $100,000 loss is covered by Policy A ($150,000 limit) and Policy B ($50,000 limit), total $200,000. Policy A pays 150,000 ÷ 200,000 × $100,000 = $75,000; Policy B pays the remaining $25,000.

Cancellation, Nonrenewal, and the Inflation-Guard Endorsement

The dwelling forms set baseline cancellation notice rules that state law often lengthens:

• Nonpayment of premium: the insurer may cancel with as little as 10 days' written notice.
• Other reasons, policy in force 60 days or less: typically 10 days' notice (the carrier is still underwriting).
• Other reasons, policy in force more than 60 days: generally 30 days' notice, and only for permitted reasons.
• A named mortgagee receives its own notice and may pay the premium to keep coverage in force.

The Automatic Increase in Insurance (Inflation Guard) endorsement raises Coverage A by a stated percentage over the policy term to keep pace with rising rebuilding costs — important because falling behind the 80% replacement-cost requirement triggers the coinsurance penalty on a later loss. Trap: inflation guard increases the limit and the premium; it does not retroactively cure an under-insured loss that has already occurred.