Comparing Dwelling Property Forms: DP-1, DP-2, and DP-3

While Homeowners policies are the standard for owner-occupied primary residences, the Dwelling Property (DP) program provides essential coverage for properties that do not qualify for a standard HO policy. This often includes rental properties, seasonal dwellings, or older homes that may not meet the strict underwriting requirements of a modern Homeowners form.

For the practice Personal Lines questions, candidates must distinguish between the three primary forms: the DP-1 (Basic), DP-2 (Broad), and DP-3 (Special). Understanding the transition from named perils to open perils and from Actual Cash Value (ACV) to Replacement Cost is critical for success on the exam. This guide serves as a supplement to our complete Personal Lines exam guide.

The DP-1 (Basic Form) is the most restrictive of the three. It is a named peril policy, meaning only the perils specifically listed in the contract are covered. If a cause of loss is not listed, there is no coverage.

Standard coverage includes:

• Fire
• Lightning
• Internal Explosion

Most policyholders choose to add the Extended Coverage (EC) perils by paying an additional premium. These are often remembered by the acronym W.C. SHAVVER: Windstorm, Civil Commotion, Smoke, Hail, Aircraft, Vehicles, Volcanic Eruption, Explosion, and Riot. Vandalism and Malicious Mischief (VMM) can also be added as an endorsement to the DP-1.

A key characteristic of the DP-1 is that losses to the dwelling and other structures are settled on an Actual Cash Value (ACV) basis, which accounts for depreciation.

The DP-2 (Broad Form) is also a named peril policy, but it significantly expands the list of covered causes of loss. It automatically includes the DP-1 perils, the Extended Coverage perils, and VMM.

The DP-2 adds several "Broad" perils, often remembered by the acronym B.I.G. A.F.F.E.C.T.:

• Burglary Damage (damage to the building, not the theft of property)
• Ice, Sleet, and Snow (weight of)
• Glass Breakage
• Accidental Discharge of Water or Steam
• Falling Objects
• Freezing of Pipes
• Electrical Damage (artificially generated)
• Collapse
• Tearing Asunder (bulging/cracking of systems)

Importantly, the DP-2 upgrades the loss settlement for Coverages A and B to Replacement Cost, provided the insured maintains insurance equal to at least 80% of the full replacement value of the building.

The DP-3 (Special Form) provides the highest level of protection. It utilizes an Open Peril approach for Coverage A (Dwelling) and Coverage B (Other Structures). This means all risks of direct physical loss are covered unless they are specifically excluded in the policy language (e.g., wear and tear, flood, earthquake, war).

However, Coverage C (Personal Property) remains on a Named Peril basis, typically covering the same broad perils found in the DP-2. Like the DP-2, the DP-3 provides Replacement Cost settlement for the building structures, while personal property remains at ACV.

In addition to direct damage to property, Dwelling forms provide coverage for indirect losses resulting from a covered peril:

• Coverage D (Fair Rental Value): If a rental property becomes uninhabitable due to a covered loss, this pays the owner for the lost rental income.
• Coverage E (Additional Living Expense): Available in DP-2 and DP-3 (and can be added to DP-1 by endorsement), this covers the extra costs incurred by an owner-occupant to maintain their standard of living while the home is being repaired.

Note that in the DP-1, Coverage D is applied as 20% of the Coverage A limit, but it is not an additional amount of insurance; it reduces the total limit available for the dwelling. In the DP-2 and DP-3, Coverage D and E are provided as an additional 20% of the Coverage A limit.