Dwelling Policy (DP)
The Dwelling Property program exists to insure residential buildings that do not fit the homeowners program: rental houses, seasonal homes, older homes that cannot meet homeowners underwriting, and small one-to-four-family properties whose owners want only property coverage. This chapter walks through the three ISO Dwelling forms (DP-1, DP-2, DP-3), who is eligible, the lettered coverages, the perils insured against, the conditions that govern claims (including coinsurance and the 60-day vacancy rule), the most common endorsements, and the central fact that the Dwelling Policy contains NO liability coverage in its base form. Master these eight sections and you have covered roughly seven percent of the exam.
The Three ISO Dwelling Forms — DP-1, DP-2, DP-3
ISO publishes three Dwelling Property forms, each broader and more expensive than the last. DP-1, the Basic Form, is a named-perils policy that covers a short list of perils led by fire and lightning and settles dwelling losses at actual cash value. DP-2, the Broad Form, is also named-perils but adds the broad perils (falling objects; weight of ice, snow, or sleet; accidental discharge of water; freezing of plumbing; sudden electrical damage) and settles dwelling losses on a replacement cost basis subject to the 80% coinsurance condition. DP-3, the Special Form, covers the dwelling and other structures on an open-perils (all-risk) basis — meaning any cause of loss not specifically excluded is covered — while personal property remains named perils. DP-3 is the most popular form when broad protection is desired on a non-owner-occupied or otherwise non-HO-eligible risk.
Eligibility — Who and What the DP Can Insure
The Dwelling Property forms are written on residential buildings that contain no more than four dwelling units. The named insured may be the owner-occupant, an owner who rents the dwelling to others (landlord), or in certain cases a tenant covering personal property in a rented dwelling. Risks ineligible for a homeowners policy because of age, condition, occupancy, or location often qualify for DP coverage. Seasonal dwellings, secondary residences, and vacant houses are typically written on the DP. Properties with more than four units, properties used primarily for business other than incidental, and condominium unit owners' interior coverage do not qualify for the DP program.
The Lettered Coverages — A, B, C, D, and E
The Dwelling Property forms use five lettered coverages, paralleling Section I of a homeowners policy. Coverage A insures the dwelling itself, including attached structures and built-in appliances. 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, and fences. Coverage C, Personal Property, must be added at a chosen limit; it is not automatically included as it is in a homeowners policy. Coverage D, Fair Rental Value, reimburses the insured for rental income lost while the dwelling is unfit to live in because of a covered loss. Coverage E, Additional Living Expense, reimburses extra costs the named insured incurs while displaced from a dwelling they themselves occupy. Coverages D and E together typically share a percentage of Coverage A (often 20% on DP-2/DP-3, 10% on DP-1).
Perils Insured Against and Their Settlement Bases
DP-1 covers a basic list led by fire, lightning, and internal explosion; the standard Extended Coverage perils (windstorm, hail, explosion, riot, aircraft, vehicles, smoke, volcanic eruption) are typically added by endorsement or option. DP-2 includes everything in DP-1 plus the broad perils such as falling objects; weight of ice, snow, or sleet; accidental discharge or overflow of water or steam; freezing of plumbing; and sudden damage from artificially generated electrical current. DP-3 turns the dwelling and other structures into open-perils coverage, meaning a loss is covered unless the policy specifically excludes the cause. Settlement on the dwelling is ACV under DP-1 and replacement cost under DP-2/DP-3 (subject to coinsurance). 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 the actual cash value of the damaged part or a proportionate share calculated as (amount of insurance carried / amount required) times the loss minus the deductible. Total losses are paid up to the policy limit regardless of coinsurance. Coinsurance encourages owners to insure to value rather than buy partial coverage, and agents should recompute the replacement cost periodically as construction costs rise.
DP vs. HO — No Liability in the Dwelling Policy
The single most important distinction between a Dwelling Policy and a Homeowners Policy is that the DP is a property-only contract. There is NO Section II (liability or medical payments) coverage in the base DP form, no matter how broad. A landlord, a seasonal-home owner, or any DP insured who wants premises liability for slip-and-fall or other tort claims must add a Personal Liability Supplement endorsement or schedule the location on a separate liability or umbrella policy. By contrast, a homeowners policy includes personal liability (Coverage L) and medical payments (Coverage M) automatically. Forgetting this gap is one of the most common errors on the exam and a real-world E&O exposure.
The 60-Day Vacancy Rule and Other Key Conditions
The Dwelling Property forms include a vacancy condition that suspends certain coverages if the dwelling has been vacant more than 60 consecutive days immediately before a loss. Specifically, the insurer will not pay for losses caused by vandalism or malicious mischief, glass breakage, sprinkler leakage, water damage, or theft (when endorsed on) once the 60-day vacancy threshold is crossed. Other perils such as fire continue to be covered subject to all other policy conditions. Vacancy means no occupants AND no contents needed for use; a temporarily unoccupied home is treated differently from a fully vacant one. Additional standard conditions include the duties after loss (prompt notice, protect property, inventory, examination under oath, proof of loss), 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.
Common DP Endorsements
Because the base DP is narrow, endorsements are commonly used to tailor coverage. The Personal Liability Supplement adds Section II liability and medical payments. The Theft Coverage Endorsement (Broad Theft for owner-occupied risks, Limited Theft for non-owner-occupied) adds theft as a covered peril, often with sublimits on jewelry, firearms, silverware, and similar high-theft property. The Personal Property Replacement Cost Endorsement changes Coverage C settlement from ACV to replacement cost. The Scheduled Personal Property Endorsement lists specific high-value items (jewelry, fine art, collectibles) with open-perils coverage and no sublimits. The Ordinance or Law Endorsement adds back coverage for increased construction costs to comply with current building codes after a covered loss. Earthquake and flood are excluded under the DP and must be obtained through a separate endorsement, the California Earthquake Authority, or the National Flood Insurance Program (NFIP), respectively.
Last updated: May 2026