Introduction to Dwelling Policies
For anyone preparing for the complete Claims Adjuster exam guide, understanding the Dwelling Policy (DP) series is essential. While Homeowners (HO) policies are designed for owner-occupied residences, Dwelling Fire policies are primarily used for residential properties that do not qualify for a standard homeowners policy. This includes rental properties, seasonal dwellings, or properties with unique risks.
The Dwelling Policy forms—DP-1, DP-2, and DP-3—offer escalating levels of protection. As an adjuster, you must distinguish between these forms to determine whether a specific peril is covered and how the claim should be valued (Actual Cash Value vs. Replacement Cost). You can test your knowledge of these distinctions by reviewing practice Claims Adjuster questions.
DP-1: The Basic Form
The DP-1 Basic Form is a named-peril policy, meaning it only covers losses specifically listed in the contract. It is the most restrictive form and is typically used for vacant properties or low-value rentals. By default, the DP-1 covers only three perils:
- Fire
- Lightning
- Internal Explosion (e.g., a water heater exploding inside the home)
Policyholders can add Extended Coverage (EC) perils for an additional premium. These are often remembered by the acronym W.H.A.R.V.E.S.: Windstorm, Hail, Aircraft, Riot/Civil Commotion, Vehicles, Explosion (external), and Smoke. Vandalism and Malicious Mischief (VMM) can also be added. Crucially, DP-1 losses are settled on an Actual Cash Value (ACV) basis, which accounts for depreciation.
DP-2: The Broad Form
The DP-2 Broad Form is also a named-peril policy, but it significantly expands the list of covered events. It includes everything in the DP-1 (with EC and VMM automatically included) plus several "broad" perils. These additional perils include:
- Falling Objects: Damage from a falling tree or debris.
- Weight of Ice, Snow, or Sleet: Coverage for structural collapse due to heavy winter accumulation.
- Accidental Discharge or Overflow of Water: Coverage for plumbing or HVAC leaks (but not the repair of the appliance itself).
- Freezing of Pipes: Provided the insured maintained heat in the building.
- Electrical Damage: Artificially generated current (excluding tubes or transistors).
Unlike the DP-1, the DP-2 settles losses to the dwelling and other structures on a Replacement Cost basis, provided the insured maintains coverage equal to at least 80% of the building's value.
Comparison Matrix: DP-1, DP-2, and DP-3
| Feature | DP-1 (Basic) | DP-2 (Broad) | DP-3 (Special) |
|---|---|---|---|
| Peril Type | Named Peril | Named Peril | Open Peril (A & B) |
| Valuation (Dwelling) | Actual Cash Value | Replacement Cost | Replacement Cost |
| Valuation (Contents) | Actual Cash Value | Actual Cash Value | Actual Cash Value |
| VMM Coverage | Optional Add-on | Included | Included |
DP-3: The Special Form
The DP-3 Special Form is the most comprehensive dwelling policy. It utilizes an "Open Peril" approach for Coverage A (Dwelling) and Coverage B (Other Structures). This means that any cause of loss is covered unless it is specifically excluded in the policy language.
Common exclusions in a DP-3 include wear and tear, rust, mold, mechanical breakdown, and damage caused by domestic animals. However, it is important for adjusters to note that Coverage C (Personal Property) in a DP-3 is still settled on a Named Peril basis, identical to the perils listed in the DP-2 Broad form. Like the DP-2, the DP-3 provides Replacement Cost for the structure but Actual Cash Value for personal property.
Adjuster Tip: The Burden of Proof
In a Named Peril policy (DP-1 and DP-2), the burden of proof is on the insured to show that a covered peril caused the damage. In an Open Peril policy (DP-3), the burden of proof shifts to the insurer (the adjuster) to prove that the cause of loss is specifically excluded by the policy.
Standard Dwelling Policy Coverages
Frequently Asked Questions
Standard Dwelling Policies do not automatically include Personal Liability or Medical Payments to Others. This is a major difference from Homeowners policies. Liability must be added via a separate endorsement (Personal Liability Supplement).
Coverage D provides protection for the landlord if a covered loss renders the dwelling uninhabitable. The insurer pays the lost rental income that would have been collected during the time required to repair or replace the property.
A DP-1 is typically used for properties that don't meet the underwriting criteria for broader forms, such as vacant buildings, properties in poor condition, or properties where the owner only wants the most basic, inexpensive catastrophic coverage.
Under a DP-2 or DP-3, damage to the building caused by burglars is covered. However, the theft of personal property is generally excluded unless a specific theft endorsement is added to the policy.