3.3 Dwelling Perils, Conditions, and Endorsements

Perils Across the Series

The DP forms layer perils. DP-1 base is fire, lightning, internal explosion; add EC and V&MM optionally. DP-2 is a fixed broad named-peril list. DP-3 is open peril on the building.

Standard Exclusions

All three DP forms share core exclusions. On DP-3 these exclusions are what define the open-peril boundary:

• Ordinance or Law (cost to comply with building codes after a loss)
• Earth Movement (earthquake, landslide, sinkhole) — buyable back via endorsement
• Water Damage / Flood — surface water, overflow, sewer backup (NFIP or endorsement needed)
• Power Failure (off-premises), Neglect, War, Nuclear Hazard
• Intentional Loss by an insured
• Wear and tear, deterioration, mechanical breakdown, smog, settling, vermin, and (open peril forms) similar maintenance items

Key Policy Conditions

• Insurable Interest and Limit of Liability: insurer pays no more than the insured's interest, never more than the policy limit.
• Duties After Loss: prompt notice, protect property, file proof of loss (typically within 60 days when requested).
• Loss Settlement: ACV on DP-1; replacement cost on DP-2/DP-3 subject to 80% coinsurance.
• Appraisal: if insured and insurer disagree on amount of loss, each names an appraiser; the two pick an umpire; agreement of any two binds.
• Pro Rata Liability / Other Insurance: when multiple policies cover the same loss, each pays its proportional share.
• Subrogation, Mortgage Clause (protects lender even if insured violates policy), and Cancellation/Nonrenewal notice rules.

Common Endorsements

• Automatic Increase in Insurance — inflation guard that raises Cov A periodically.
• Broad Theft Coverage (DP 04 72) — adds theft, normally excluded on dwelling forms, for owner-occupants.
• Dwelling Under Construction (DP 11 43) — premium based on average amount of insurance during the build.
• Personal Liability / Medical Payments (CPL or DP 04 79-style) — adds the liability the base DP form omits.
• Special Provisions, Earthquake (DP 04 77-style), and Water Back-Up and Sump Overflow.

Theft Trap

Theft is NOT covered on an unendorsed DP form. A landlord asking about contents theft at a rental must add Broad Theft Coverage, and even then theft from a dwelling under construction is excluded until occupied.

Anti-Concurrent Causation and the Open-Peril Boundary

The DP forms contain an anti-concurrent causation clause: if an excluded peril (such as flood or earth movement) combines with a covered peril to produce a loss, the policy excludes the entire loss "regardless of any other cause or event contributing concurrently or in any sequence." This is why a hurricane claim splits cleanly: wind damage (covered) is adjusted under the DP form, while storm-surge flooding (excluded) goes to the NFIP.

On the open-peril DP-3 building, the analysis is a two-step funnel:

1. Was there direct physical loss? If not, no coverage.
2. Is the cause specifically excluded? If yes, deny; if no, the loss is covered even if the peril is exotic or unnamed.

Named-peril forms add a third gate — the peril must also appear on the covered-perils list — which is why DP-1 and DP-2 deny far more readily than DP-3.

Ensuing Loss Carve-Backs

Several exclusions contain an ensuing loss exception. For example, faulty workmanship is excluded, but if defective wiring (excluded cause) starts a fire, the resulting fire damage (a covered ensuing loss) is paid. Likewise, water damage is excluded, but a covered peril that produces water as a byproduct may be paid. Watch for questions that hinge on whether the initial cause or the ensuing covered peril controls the payment.

Conditions That Decide Disputed Claims

Beyond appraisal, several conditions surface repeatedly on the exam:

• Pro Rata Liability / Other Insurance: with two policies of $100,000 and $300,000 on the same $40,000 loss, the first pays 100/400 x $40,000 = $10,000 and the second pays 300/400 x $40,000 = $30,000.
• Mortgage Clause: the lender (mortgagee) is paid even if the insured's own act (arson, misrepresentation) would void coverage for the owner; the insurer then has subrogation rights against the borrower.
• Abandonment: the insured may not dump damaged property on the insurer and demand a total-loss payment.
• Cancellation: during the first 60 days the insurer may cancel for almost any reason with notice; after 60 days only for nonpayment, fraud, or a substantial increase in hazard (state rules vary).

The Theft Gap and Why It Matters

The single most tested feature of the Dwelling program is that theft is not a built-in peril. A DP-1 or DP-2 owner who wants theft protection must add the Theft Coverage endorsement (DP 04 72), and an unendorsed dwelling policy simply will not pay a burglary claim. This is the deliberate distinction from the Homeowners program, which includes theft on personal property.

The vacancy rule is a second favorite: most property forms suspend or limit vandalism and water-damage coverage once a building has been vacant beyond 60 consecutive days, and a total loss may be reduced. A landlord between tenants must watch that clock.