3.1 Dwelling Policy Forms DP-1, DP-2, DP-3

The ISO Dwelling Program

The Dwelling Policy (DP) is the foundation product for one-to-four-family residential property that does not qualify for, or is not desired in, a Homeowners (HO) policy. It is the workhorse for rental dwellings, tenant-occupied homes, secondary or seasonal homes, and dwellings that fail HO eligibility (vacant, under renovation, or owner-occupancy below the HO threshold). The current ISO program publishes three forms, and the exam expects you to know each form's ISO number, peril structure, and loss-settlement basis cold.

The single most common trap on the exam: under DP-3, the dwelling and other structures are open-perils, but personal property is still NAMED perils (broad named). Do not let "special form" trick you into answering "open perils on contents."

DP-1 Basic Form (DP 00 01)

DP-1 is the narrowest and cheapest form. In its core state it insures only fire, lightning, and internal explosion. The familiar broader coverage comes from two optional packages that must be added by endorsement or election:

• Extended Coverage (EC) — windstorm, hail, explosion (external), riot/civil commotion, aircraft, vehicles, smoke, and volcanic eruption. Memory aid: WCSHAVVER / the classic "WHARVES" perils.
• Vandalism & Malicious Mischief (V&MM) — added only after EC is in place.

DP-1 settles building losses on Actual Cash Value (ACV) — replacement cost minus depreciation — and pays no theft in any form. There is no built-in liability.

DP-2 Broad Form (DP 00 02)

DP-2 is a broad named-perils form: it lists more covered causes of loss (adding the burglar-damage, falling objects, weight of ice/snow/sleet, accidental discharge of water, freezing, sudden tearing/cracking of a heating system, and artificially generated electrical current perils). It upgrades loss settlement on the dwelling to replacement cost (subject to the 80% coinsurance condition) and adds several Other Coverages such as Collapse.

DP-3 Special Form (DP 00 03)

DP-3 is the most popular dwelling form and the closest DP parallel to the HO-3. It insures Coverage A (dwelling) and Coverage B (other structures) on an open-perils (all-risk) basis — covered unless the cause of loss is specifically excluded. Coverage C (personal property) remains broad-named-perils, exactly like the DP-2.

Because open perils shifts the burden of proof to the insurer (the insurer must show an exclusion applies, rather than the insured proving a listed peril), DP-3 carries the highest premium of the three. Like all DP forms, DP-3 contains no built-in theft and no built-in liability — both are optional add-ons.

Eligibility and Structure Rules

• 1-to-4 family dwellings; no more than 5 roomers/boarders per family.
• Permitted incidental occupancies (e.g., a small office or studio) are allowed.
• A dwelling under construction may be written; mobile homes need a special endorsement (covered in 3.4).
• Coverage A minimum limits apply by form; DP-1 may be written for less than full value, while DP-2/DP-3 anticipate insurance to value via coinsurance.

Worked Example: Why Form Choice Drives the Payout

A detached rental dwelling has a replacement cost of $300,000 and 30% accumulated depreciation. A covered fire causes a $100,000 loss. The owner carries Coverage A of $300,000 on each candidate form. Compare the recovery:

The DP-1 insured absorbs the $30,000 depreciation out of pocket. This is the practical reason DP-1 is reserved for older, lower-value, or hard-to-place risks. On the exam, anytime a question mentions "older home," "investor wants lowest premium," or "no theft needed," the intended answer is usually DP-1.

Comparing the Three Dwelling Forms

The Dwelling Property program insures residences not eligible for, or not wanting, a homeowners policy - rental dwellings, seasonal homes, or dwellings with up to four units. The three forms escalate in breadth:

The DP-1 "Extended Coverage (EC)" perils are the classic set often abbreviated WCSHHAVVRR (Windstorm/hail, Civil commotion/riot, Smoke, Hail, Aircraft, Vehicles, Volcanic, Riot, etc.). Vandalism and Malicious Mischief (V&MM) is added separately, and is suspended if the dwelling is vacant beyond 60 days.

Eligibility and Tenant Use

A dwelling form may insure a building of no more than four families and with no more than five roomers or boarders. Incidental business and seasonal occupancy are acceptable, which is why landlords favor the DP series for rental houses. Unlike homeowners, the dwelling program has no liability coverage built in - liability must be added by endorsement.

Worked example: a landlord insures a rental house on a DP-3. A windstorm tears off shingles (open peril, not excluded) - the dwelling is settled at replacement cost. The tenant's own belongings are not covered; the tenant needs a separate renters/HO-4 policy. This separation of landlord structure vs. tenant contents is a frequently tested scenario.