Dwelling Policy (DP)
The Dwelling Property program is the Personal Lines tool for residential buildings that do not fit a Homeowners policy: rental houses owned by individuals, vacation homes, second homes, owner-occupied duplexes where the other half is leased to a tenant, and older one-to-four-family dwellings that fail HO underwriting. Because Personal Lines is restricted by California Insurance Code §1625.5 to personal-residential and personal-auto exposures, a broker-agent uses the DP exclusively for individuals who own 1-to-4 unit residential property; anything larger or written for a business entity belongs on a commercial program and is outside the Personal Lines license. This chapter walks through the three ISO Dwelling forms (DP-1, DP-2, DP-3), eligibility, the lettered coverages with special attention to Coverage D Fair Rental Value, the perils insured, the 80% coinsurance condition, the 60-day vacancy rule, the most common endorsements, and the single most important point on the exam — the Dwelling Policy contains NO liability coverage in its base form, so a landlord needs a separately purchased Personal Liability Supplement. Master these eight sections and you have covered roughly eight percent of the Personal Lines exam.
Why a Personal Lines Broker Uses the Dwelling Policy
Although the Homeowners policy is the workhorse of Personal Lines, three real-world situations push an individual customer onto a Dwelling Policy instead. First, a non-owner-occupied rental: a client who buys a single-family house and rents it to a long-term tenant cannot be the named insured on an HO-3 (HO-3 requires owner-occupancy), so the property is written on a DP-3 with the owner as named insured and the tenant carrying their own HO-4 renters policy. Second, a seasonal or secondary residence such as a Tahoe cabin used four months a year: it is not the insured's primary residence, so it is typically written on a DP with seasonal occupancy noted. Third, an older or non-standard dwelling that fails homeowners underwriting (knob-and-tube wiring, a wood-shake roof in a brush zone, a recent string of claims) often qualifies for a DP-1 even when no HO carrier will offer terms. A broker-agent must remember the Personal Lines license restricts coverage to one-to-four-family residential dwellings owned by an individual; a 5-plex or a dwelling titled to an LLC is a commercial fire risk and requires a P&C broker-agent.
The Three ISO Dwelling Forms — DP-1, DP-2, DP-3
ISO publishes three Dwelling Property forms; each successive form is broader and more expensive than the one before it. DP-1, the Basic Form, is a named-perils policy covering a short list of perils led by fire, lightning, and internal explosion, with optional Extended Coverage (EC) perils available, and it settles dwelling losses at actual cash value (ACV). It is the oldest form still in use and is often the only option for older or lower-value rental cottages. DP-2, the Broad Form, is also named-perils but expands the covered perils to include falling objects; the weight of ice, snow, or sleet; accidental discharge or overflow of water; freezing of plumbing; and sudden electrical damage, and it settles dwelling losses on a replacement cost basis when the 80% coinsurance condition is met. DP-3, the Special Form, is the most widely sold today; it provides open-perils coverage on the dwelling and other structures (any cause of loss not specifically excluded is covered) while keeping personal property on a named-perils basis. For a landlord who wants broad property protection on a single-family rental house, DP-3 is the typical recommendation.
Eligibility — Who and What the DP Can Insure
The Dwelling Property forms insure residential buildings containing no more than four dwelling units, and that four-unit ceiling is the bright-line Personal Lines rule. The named insured may be an owner who lives in the home, an owner who rents it to others (the most common Personal Lines fact pattern), or in a few cases a tenant insuring their own personal property in a rented dwelling. Unlike a homeowners policy, the DP does not require owner-occupancy, which is precisely what makes it useful for landlords. Seasonal dwellings, secondary residences, and even vacant houses being prepared for sale or remodel are typically written on the DP. A property with five or more units, a property used primarily for business purposes (a true commercial occupancy rather than incidental in-home babysitting), and a condominium unit owner's interior coverage all fall outside the DP program — they go to the commercial fire program or to an HO-6, respectively, and may also fall outside the Personal Lines broker-agent's license.
The Lettered Coverages — A through E, Including Fair Rental Value
The Dwelling Property forms organize property protection into five lettered coverages, paralleling Section I of a homeowners policy. Coverage A insures the dwelling itself, including attached structures and built-in equipment. Coverage B, Other Structures, automatically provides 10% of the Coverage A limit (as additional insurance on DP-2 and DP-3) for detached garages, sheds, fences, and similar structures. Coverage C, Personal Property, must be added at a separately chosen limit — unlike a homeowners policy, it is not bundled automatically, because in a typical landlord fact pattern the owner has very little personal property on the premises (perhaps a few appliances) and the tenant's belongings are not the landlord's exposure at all. Coverage D, Fair Rental Value, is the coverage that matters most to a landlord: it reimburses the lost rental income when the dwelling is rendered unfit to live in by a covered loss, paying the fair rental value of the portion that cannot be rented for the time reasonably required to repair or replace. Coverage E, Additional Living Expense, reimburses the named insured for extra costs incurred while displaced from a dwelling they themselves occupy; it appears on DP-2 and DP-3 but is not part of DP-1 by default. Coverages D and E together typically share a percentage of Coverage A (about 20% on DP-2/DP-3 and 10% on DP-1).
Perils Insured Against and Loss Settlement
DP-1 covers a short basic list of perils led by fire, lightning, and internal explosion; the Extended Coverage (EC) perils — windstorm, hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, and volcanic eruption — are typically added by option or endorsement. DP-2 includes everything in DP-1 plus the broad perils such as falling objects; the weight of ice, snow, or sleet; accidental discharge or overflow of water or steam from plumbing or appliances; freezing of plumbing; and sudden and accidental damage from artificially generated electrical current. DP-3 converts the dwelling and other structures to open-perils (sometimes called all-risk or special form), meaning a loss is covered unless the policy specifically excludes the cause; personal property on DP-3, however, remains on a named-perils list. Settlement on the dwelling is ACV under DP-1 and replacement cost under DP-2 and DP-3 (subject to the coinsurance condition discussed in the next section). Personal property under every DP form is settled at ACV unless the Personal Property Replacement Cost Endorsement is added.
Coinsurance and the 80% Replacement Cost Condition
To collect full replacement cost on a partial loss to the dwelling under DP-2 or DP-3, the insured must carry insurance equal to at least 80% of the dwelling's full replacement value at the time of loss. If the insured carries less than 80%, the insurer pays the larger of (a) the actual cash value of the damaged part, or (b) a proportionate share calculated as (amount of insurance carried divided by amount required) multiplied by the loss, minus the deductible. Total losses are paid up to the policy limit regardless of coinsurance; the coinsurance penalty only bites on partial losses. The 80% coinsurance condition encourages owners to insure to value rather than buy partial coverage to save premium, and a broker-agent should periodically rerun the replacement cost estimator as California construction costs rise so the landlord does not drift below the 80% threshold without noticing. Worked example: a $400,000 replacement cost dwelling requires at least $320,000 of insurance. If the owner carries only $240,000 and suffers a $40,000 kitchen fire with a $1,000 deductible, the proportionate share is ($240,000 / $320,000) × $40,000 = $30,000, minus the $1,000 deductible, for a $29,000 payout — the missing $11,000 is the coinsurance penalty.
No Liability in the Dwelling Policy — The Landlord's E&O Trap
The single most important fact about the Dwelling Policy on the Personal Lines exam is that it is a property-only contract. There is NO Section II coverage — no personal liability and no medical payments — in any DP base form, no matter how broad. A landlord who owns a rental house written on DP-3 has zero liability protection for a tenant's slip-and-fall on a broken porch step, for a child injured at the rental swimming pool, or for a dog bite by the prior owner's dog left on the premises. The landlord must either add the Personal Liability Supplement endorsement (which adds Coverage L, liability, and Coverage M, medical payments, comparable to HO Section II) or schedule the rental location on a separate liability policy or a personal umbrella. Forgetting this gap is one of the most common exam errors and a real-world errors-and-omissions exposure for the broker-agent who places the property coverage and assumes liability comes with it. By contrast, every homeowners policy includes personal liability and medical payments automatically, which is why DP and HO are not interchangeable for an owner-occupant.
Vacancy, Conditions, and Common Endorsements
The DP includes a vacancy condition that suspends certain coverages if the dwelling has been vacant more than 60 consecutive days immediately before a loss. Specifically, once the 60-day threshold is crossed the insurer will not pay for losses caused by vandalism or malicious mischief, glass breakage, sprinkler leakage, water damage, or theft (where theft was added by endorsement). Other perils such as fire continue to be covered subject to the rest of the policy. Vacancy means both no occupants AND no contents needed for occupancy; a fully furnished but temporarily empty home is treated differently from a stripped-out vacant one. Standard conditions also include duties after loss (prompt notice, protect the property from further damage, inventory, sworn proof of loss, examination under oath), the appraisal procedure for disputes over the amount of loss, and the subrogation clause that transfers the insured's recovery rights against responsible third parties to the insurer. Because the base DP is narrow, brokers commonly add endorsements: the Personal Liability Supplement (Section II); the Theft Coverage Endorsement, either Broad Theft for owner-occupied risks or Limited Theft for non-owner-occupied rentals, which adds theft as a covered peril with sublimits on high-theft items; the Personal Property Replacement Cost Endorsement, which upgrades Coverage C from ACV to RC; the Scheduled Personal Property Endorsement, which lists specific high-value items at open perils with no sublimit; the Ordinance or Law Endorsement, which buys back the increased construction costs needed to comply with current California building codes after a covered loss; and separately purchased Earthquake (typically through the California Earthquake Authority) and Flood (through the NFIP), since both perils are excluded from the DP.
Last updated: May 2026