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

The Three ISO Dwelling Forms

The Insurance Services Office (ISO) publishes three dwelling forms used to insure one- to four-family residential buildings that are not eligible for, or not written under, a homeowners policy. They are commonly called dwelling fire policies. Candidates must memorize both the marketing name and the ISO form number.

Exam trap: The form number does not match the marketing number. DP-2 is form DP 00 02 and DP-3 is form DP 00 03, but DP-1 is form DP 00 01 — line them up carefully before answering a matching question.

Ranking the Forms by Peril Breadth

Think of the three forms as a staircase. DP-1 insures the fewest perils, DP-3 the most.

• DP-1 (Basic): Insures fire, lightning, and internal explosion in its core grant. Extended Coverage (EC) perils — windstorm, hail, explosion, riot, aircraft, vehicles, smoke, volcanic eruption — and Vandalism & Malicious Mischief (V&MM) are added by selection, usually at no extra named-peril cost if EC is chosen.
• DP-2 (Broad): Adds named perils such as burglar damage, falling objects, weight of ice/snow/sleet, accidental discharge of water, freezing, and electrical surge. It is a true broad named-peril form.
• DP-3 (Special): Provides open-peril ("all-risk") coverage on the dwelling and other structures — any cause of loss is covered unless specifically excluded. Personal property under DP-3 remains named-peril (using the DP-2 broad list).

Loss Valuation: ACV vs. Replacement Cost

The second tested split is how losses are paid.

• DP-1 settles building losses on an Actual Cash Value (ACV) basis — replacement cost minus depreciation.
• DP-2 and DP-3 settle the dwelling on a Replacement Cost (RC) basis, but only if the insured carries at least 80% of the dwelling's replacement cost at the time of loss. Fall below 80% and the larger of ACV or the coinsurance-formula amount applies.

Worked Coinsurance Example

A home has a replacement cost of $300,000. The 80% requirement is $240,000. The owner insures it for only $180,000 and suffers a $60,000 partial loss.

Recovery = (Carried / Required) x Loss = (180,000 / 240,000) x 60,000 = $45,000 (before deductible).

The owner absorbs the $15,000 shortfall as a penalty for underinsuring. Had they carried $240,000 or more, the full $60,000 (less deductible) would be paid on a replacement-cost basis.

Named Peril vs. Open Peril - The Burden of Proof

The difference between named-peril and open-peril coverage is not just a list - it changes who must prove what.

• Under a named-peril form (DP-1, DP-2, and personal property on all forms), the insured must prove the loss was caused by a peril listed in the policy. If the cause is unknown or unlisted, there is no recovery.
• Under an open-peril form (the DP-3 dwelling and other structures), the insurer must prove the loss falls under an exclusion to deny it. Everything not excluded is covered.

This shift is why DP-3 commands a higher premium: it covers unusual and hard-to-classify losses - a pipe-rupture stain, a falling tree limb, accidental paint spillage - that a named-peril form would force the insured to fit into a specific listed cause.

How the Forms Are Used in Practice

Form selection follows the insured's budget and risk tolerance:

Because the program is keyed to a described location rather than the family unit, a landlord with several rentals schedules each address separately. The dwelling forms also require an insurable interest - a financial stake that would be harmed if the property were damaged - just like every other property policy.

Exam trap: A higher-numbered form is not automatically "better" for every insured. A bare lot building with no contents and a tight budget is a textbook DP-1; paying DP-3 premium for it wastes money the exam expects you to recognize.

Choosing a Dwelling Form

Dwelling forms are selected when a residence does not fit the homeowners (HO) program: rentals, seasonal homes, dwellings under renovation, or older homes that fail HO underwriting. The program permits up to four families per building. A landlord seeking the broadest protection at a fixed location would write DP-3 on the structure; a budget rental of an older home might be written DP-1 at ACV.

Exam trap: Theft is never included on DP-1. On DP-2 and DP-3, limited theft applies only when Coverage C (personal property) is insured and the property is at the described location — a vacant rental with no contents coverage has no theft protection regardless of form.

Theft, Editions, and Eligibility Details

Three finer points round out form selection on the exam.

• Theft: DP-1 carries no theft in any configuration. On DP-2 and DP-3, a limited theft peril applies only when Coverage C is in force and the property is at the described location. Broad on- and off-premises theft requires the Broad Theft endorsement and is generally available only to owner-occupants.
• Editions: ISO periodically revises the forms; the form number you cite (DP 00 01, DP 00 02, DP 00 03) stays constant while the edition date changes. The exam tests the form family, not a specific edition date.
• Eligibility: The program allows up to four families and up to five roomers or boarders per family, and permits limited incidental business use such as a home office.

Exam trap: A vacant rental with building-only coverage (no Coverage C) has no theft protection on any dwelling form, because the limited theft peril attaches to insured personal property at the location.