Understanding Dwelling Property Policies
In the world of property insurance, Dwelling Property (DP) policies are distinct from standard Homeowners (HO) policies. While HO policies are designed for owner-occupied residences, Dwelling policies are primarily used for rental properties, seasonal dwellings, or properties that do not meet the eligibility requirements of a standard homeowners form. For a professional pursuing a career as an adjuster, understanding the nuances between DP-1, DP-2, and DP-3 is a fundamental requirement for the complete Independent Adjuster exam guide.
Dwelling policies provide a flexible framework for insuring residential property. They are categorized by the scope of perils they cover and the method used to value losses. As you prepare for the exam, you must be able to distinguish which form is a 'named peril' policy versus an 'open peril' policy, and how those distinctions affect claim settlements.
DP-1: The Basic Form
The DP-1 (Basic Form) is the most restrictive and affordable of the three dwelling forms. It is a Named Peril policy, meaning it only covers losses specifically listed in the policy document. If a peril is not listed, there is no coverage.
The standard DP-1 covers three primary perils:
- Fire
- Lightning
- Internal Explosion
However, many policyholders add the Extended Coverage (EC) endorsement, which adds perils often remembered by the acronym W.C. SHAVER (Windstorm, Civil Commotion, Smoke, Hail, Aircraft, Vehicles, Explosion, and Riot). Vandalism and Malicious Mischief (VMM) can also be added for an additional premium. One of the most critical things to remember for the exam is that DP-1 losses are typically settled on an Actual Cash Value (ACV) basis for both the structure and personal property.
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 compared to the DP-1. It automatically includes all DP-1 perils, the Extended Coverage perils, and VMM, plus several additional "Broad" perils.
Commonly tested DP-2 perils include:
- Burglary Damage (to the structure, not the theft of property itself)
- Falling Objects
- Weight of Ice, Snow, or Sleet
- Accidental Discharge or Overflow of Water or Steam
- Sudden and Accidental Tearing Apart, Cracking, Burning, or Bulging
- Freezing of Plumbing
- Sudden and Accidental Damage from Artificially Generated Electrical Current
Unlike the DP-1, the DP-2 settles dwelling and other structure losses on a Replacement Cost basis, provided the insured maintains adequate insurance to value (typically 80%). Personal property remains settled at Actual Cash Value.
Peril and Valuation Comparison
| Feature | DP-1 (Basic) | DP-2 (Broad) | DP-3 (Special) |
|---|---|---|---|
| Peril Type (Dwelling) | Named Perils | Named Perils | Open Perils |
| Valuation (Dwelling) | Actual Cash Value | Replacement Cost | Replacement Cost |
| Peril Type (Contents) | Named Perils | Named Perils (Broad) | Named Perils (Broad) |
| W.C. SHAVER Perils | Endorsement Only | Included | Included |
DP-3: The Special Form
The DP-3 (Special Form) is the most comprehensive dwelling policy. It utilizes an Open Peril (or All-Risk) approach for the dwelling and other structures (Coverage A and B). This means the policy covers all causes of loss to the structure unless they are specifically excluded (such as flood, earthquake, or wear and tear).
However, it is vital to note that personal property (Coverage C) is still covered on a Named Peril basis, specifically the same broad perils found in the DP-2. Like the DP-2, the DP-3 provides Replacement Cost coverage for the dwelling and other structures, while personal property is settled at Actual Cash Value.
Standard Dwelling Coverages
Exam Tip: Theft Coverage
On the practice Independent Adjuster questions, look out for questions regarding theft. Standard Dwelling policies do not include coverage for the theft of personal property. To cover theft, an insured must add a Broad Theft Coverage endorsement (for owner-occupied) or a Limited Theft Coverage endorsement (for non-owner occupied).
Frequently Asked Questions
No, VMM is not a standard peril in the DP-1 Basic form. It must be added by endorsement and requires the Extended Coverage perils to be added first.
The DP-2 is a Named Peril policy, meaning the burden of proof is on the insured to show the damage was caused by a listed peril. The DP-3 is an Open Peril policy for the structure, meaning the burden of proof is on the insurer to show that a loss is excluded.
No. Unlike Homeowners policies, Liability coverage (Coverage L) and Medical Payments to Others (Coverage M) are not included in the standard DP-1, DP-2, or DP-3 forms. They must be added via a Personal Liability Supplement.
Fair Rental Value (Coverage D) provides coverage for the loss of rental income if a covered peril makes the portion of the dwelling rented to others unfit for habitation. It is an indirect loss coverage.