The Dwelling Policy
Gregorio's new dwelling policy has an automatic increase in insurance endorsement, which gives him 4 percent more coverage at the end of the one-year policy term. The policy limit is $300,000. How much pro-rated coverage will Gregorio have after the policy has been in force for three months?
$303,000 - Three months is one quarter of a year, and one quarter through the one-year policy term, Gregorio's limit will be increased by one-quarter of the 4 percent annual increase of $1,200. That is 1 percent of the $300,000 policy limit, or $3,000
Carl owns a house which he insures under a dwelling policy with all coverages and rents it to Susan for $1000 per month. A fire damages the house, forcing Susan to move into a hotel at a cost of $1,800 for the one month it takes to repair the house. What amount, if any, will Carl's policy pay Susan for the hotel cost?
$800 - Coverage E—additional living expenses covers any increase in living expenses needed to maintain a tenant's normal standard of living while a damaged house is repaired. Carl's policy will reimburse Susan for the additional $800 she had to pay to live in the hotel ($1,800 hotel charge minus $1,000 rent)
Water Damage Exclusion
1. Loss from flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these 2. Loss from water or waterborne material that backs up through sewers or drains or that overflows from a sump 3. Loss from water or waterborne material below the ground (such as an underground spring), including water that seeps through a building, sidewalk, driveway, foundation, swimming pool, or other structure
What exclusions apply to ALL property in the DP 3?
1. Ordinance or Law 2. Earth Movement 3. Water Damage 4. Power Failure 5. Neglect 6. War 7. Nuclear Hazard 8. Intentional Loss 9. Governmental Action
Dwelling defined
A dwelling or a home is a personal residence
When is a dwelling policy used?
A dwelling policy is used when a homeowners policy is too expensive or unsuitable for the need, such as single-family homes rented to tenants, when a house is ineligible for an HO policy because it is below the insurer's minimum insurable value and/or a house under construction that is ineligible for homeowners insurance
Purpose of a dwelling policy
A dwelling property policy is purchased to insure a residence that does not qualify for a homeowners policy. However, some whose residences are eligible for homeowners insurance buy dwelling policies to cover their homes. Dwelling policies provide less coverage than homeowners policies so they cost less. A homeowners policy is a comprehensive insurance package, therefore insureds cannot tailor the policy for their particular needs. In contrast, dwelling policies cover only basic property insurance. The insured can choose additional coverages from a number of endorsements
How do a HO Policy and Dwelling Policy differ?
A homeowners policy covers property and liability risks, a dwelling policy only covers property risks
What part of the Nuclear Hazard Exclusion actually provides coverage under the DP 3?
A loss by fire that is arises from a nuclear hazard is covered
Intentional Loss Exclusion
A loss that results from the insured's intentional act to cause it is excluded
Inflation Guard Provision Defined
A provision that gradually and continuously increases the limit of insurance by a specified percentage over a specified time period (such as 3% every 3 months)
What basis does the DP 1 cover losses to all property?
ACV basis
What basis does the DP 2 cover losses of personal property?
ACV basis (Personal Property Includes: awnings, carpeting, household appliances, outdoor equipment and antennas, and nonbuilding structures)
What does DP 2 cover (for the dwelling, other structures, and personal property losses)?
All 3 groups of named perils in the DP 1 form, burglary damage, falling objects, weight of ice, snow, or sleet, accidental discharge or overflow of water or steam from a plumbing, heating, air-conditioning or sprinkler system, or a household appliance, sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air-conditioning or sprinkler system, or an appliance for heating water, freezing of a plumbing, heating, air-conditioning, or sprinkler system, or a household appliance, sudden and accidental damage from artificially generated electrical current
Nuclear Hazard Exclusion
Any type of loss arising from a nuclear hazard, including nuclear reaction, radiation, or radioactive contamination, is excluded
Why can't tenants who are renting the dwelling include Coverages A, B, or D in their policy?
Because they have no insurable interest in the building
Which form(s) value dwelling buildings on the basis of actual cash value?
Buildings are valued on an actual cash value basis under the DP 1
Claude buys a DP 2 policy to cover the unfurnished single-family home he rents to a tenant. The policy includes only Coverage A-Dwelling. What does the dwelling policy NOT cover?
Canoe stored in the attic as a canoe is personal property and does not qualify as a building component, so it is not covered under Coverage A
Acts or Decisions Exclusions
Coverage is excluded when the loss arises from the failure of a person, organization, or governmental entity to act or decide in the face of an impending loss
Which dwelling policy form(s) value personal property on an actual cash value basis?
DP 1, 2 and 3 - The loss settlement provisions of all DP forms value personal property on an actual cash value basis
How many exclusions does the DP 3 have and what do they apply to?
DP 3 is the most popular dwelling form and has 12 property exclusions, 9 apply to all property and 3 apply only to the dwelling and other structures
Kathleen's Victorian house is not eligible for coverage under a homeowners insurance policy. Which policy might provide comparable property coverage?
Dwelling policy
The tenant who rents a house may obtain coverages A, B, C, D, and E under a dwelling policy
False
Although the DP 3 excludes water damage caused by a flood, the exclusion does NOT apply when the damage arises from a flood caused by:
Fire
What part of the Governmental Action Exclusion actually provides coverage under the DP 3?
However, the policy covers losses resulting from governmental orders during a fire to restrict or prevent its spread, if the policy covers loss due to fire
Coverage E - Additional Living Expense
If a covered loss makes the premises unfit to live in, Coverage E covers any increase in living expenses for the household to maintain its normal standard of living, such as hotel charges and restaurant bills
DP 1 - First Group Perils
Includes fire, lightning, and internal explosion, all mandatory coverages
DP 1 - Third Group Perils
Includes vandalism and malicious mischief. The policy covers them if the declarations list a premium for them. This coverage is provided only with the second group of perils
DP 04 11 - Automatic Increase in Insurance Endorsement (AKA an Inflation Guard Provision)
Increases the policy limit on the dwelling and other structures by a stated annual percentage, which is prorated throughout the year. So, the available dollar limit increases every day by 1/365th of the annual increase. It is especially beneficial to the homeowner when home values are increasing
What is internal explosion (as part of DP 1 - First Group Perils)?
Internal explosion is an explosion on the insured premises or in a structure containing covered personal property
Coverage C - Personal Property
It insures property like furniture, computers, and clothing. As in the homeowners policy, some of this property is subject to sublimits on coverage. Certain property is not covered at all
Every dwelling policy must cover which peril?
Lightning
Ordinance or Law Exclusion
Like the HO 3, the DP 3 provides limited coverage for this peril
War Exclusion
Losses from war (declared or undeclared), civil war, insurrection, rebellion, revolution, warlike acts by military force, destruction, seizure, or use for any military purpose, or any of their and any consequences are not covered
What does a dwelling policy cover?
Only covers property risks which include dwellings, other structures, personal property, fair rental value, and additional living expenses
When is coverage for theft and liability available in a dwelling policy?
Only through endorsement
What does DP 3 cover for the dwelling, other structures?
Open perils coverage instead of named perils coverage (like the DP 1 and 2) for the dwelling and other structures
Because his home does not qualify for the homeowners coverage he wants, Olin buys a DP 3 special form for its comprehensive coverage. What kind of coverage and valuation basis does Olin have under this policy?
Open perils coverage on a replacement cost basis - In the DP 3 form, dwelling property-with a few exceptions, such as awnings-is covered on an open perils basis and is valued on a replacement cost basis
Coverage D - Fair Rental Value
Protects an insured when a loss makes part of the covered premises that is rented to others (or held for rental) unfit to live in. Covers the fair rental value of the property, less any expenses (such as utilities) that are suspended while the premises remain uninhabitable
How does the DP 1 Basic Form divide named perils?
Since the DP 1 form covers a limited number of named perils for the dwelling, other structures, and personal property, it divides the perils into 3 groups and the insured can select 1, 2 or all of these groups depending on the desired scope of coverage
What coverages does DP 1 form have?
The DP 1 form has Coverages A, B, C, and D. Coverage E can be added by endorsement
What coverages does DP 2 form have?
The DP 2 and DP 3 forms have Coverages A, B, C, D, and E
Earth Movement Exclusion
The DP 3 excludes losses from earth movement: earthquake, land shock waves or tremors occurring before, during, or after a volcano; landslide; mudslide; mudflow; subsidence; sinkhole; and earth sinking, rising, or shifting
Who is the insured in a dwelling policy?
The named insured is commonly the policy's owner - the insured is the person or entity that has an insurable interest in the property being insured
Regarding the DP 04 11, what basis does the policy limit increase on?
The policy limit increases on the basis of a fixed percentage selected by the policyholder, and is not tied to the consumer price index or other measure of inflation
DP 00 01 Basic Form: Limited property insurance coverage - Dwelling Property 1
This ISO form covers the standard perils of fire, lightning, and internal explosion. Extended coverage for windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, volcanic eruption, and vandalism and malicious mischief coverage is available for an additional premium. This is the least comprehensive form
DP 00 02 Broad Form: Broad property coverage - Dwelling Property 2
This named perils form covers the DP 1 perils and seven more perils. If a peril is not listed in a basic or broad form, the insurer does not cover it
Who is the insured in a dwelling policy if the policy form includes Coverages C or E?
Those coverages deal with the loss of personal property within the dwelling and the need to temporarily find alternative living arrangements, therefore the tenant may be the insured and policy owner (AKA renters insurance)
Which peril covered by the DP 2 broad form is NOT also covered by the DP 1 basic form?
Weight of ice, snow, or sleet
Weather Conditions Exclusion
When weather conditions contribute to a loss from an excluded peril, coverage is denied
What are the 4 most popular selected endorsements for dwelling policies?
1. Personal Liability Supplement (DL 24 01) 2. Broad Theft Coverage (DP 04 83) 3. Automatic Increase in Insurance (DP 04 11) 4. Dwelling Under Construction (DP 11 43)
What Other Coverages does DP 1 include?
1. Reasonable Repairs 2. Property removed, lasting 5 days 3. Fire department service charge up to $500
What do Other Coverages include?
1. Reasonable repairs 2. Property removed 3. Fire department service charge up to $500 4. Trees, shrubs, and other plants 5. Collapse 6. Glass or safety glazing material 7. Ordinance or law
What Other Coverages does DP 2 include?
1. Reasonable repairs 2. Property removed, lasting 30 days 3. Fire department service charge up to $500 4. Trees, shrubs, and other plants 5. Collapse, 6. Glass or safety glazing material 7. Ordinance or law
What Other Coverages does DP 3 include?
1. Reasonable repairs 2. Property removed, lasting 30 days 3. Fire department service charge up to $500 4. Trees, shrubs, and other plants 5. Collapse, 6. Glass or safety glazing material 7. Ordinance or law
What exclusions apply only to the dwelling and other structures in the DP 3?
1. Weather conditions 2. Acts or decisions 3. Faulty, Inadequate, or Defective Processes, Procedures, Materials, or Maintenance
DP 11 43 - Dwelling Under Construction Endorsement
A home under construction is eligible for a dwelling policy and the value of a home under construction increases as it is completed. The DP 11 43 endorsement adjusts the policy to accommodate this increasing value. The Coverage A limit in the declarations is a provisional amount of insurance. While the building is under construction, the available amount of insurance on any given date is based on the proportion that the current value of the property bears to the value of the completed property. For example, if a house is destroyed when it is half completed, half the Coverage A limit covers the loss
After buying a DP 1 basic policy, Clement realizes that he has no personal liability coverage. How can he get this coverage?
Add the personal liability supplement as None of the dwelling policies includes personal liability coverage. This coverage can be added through an endorsement or written as a separate policy
Reasonable Repairs defined
Additional coverage provided by the homeowners policy. The insurer will pay for any reasonable costs incurred by the named insured to protect their insured property from further damage, if the cause of loss is a covered peril. This is additional coverage and doesn't affect the limit of insurance applicable to the covered property - this concept is referred to as "sue and labor clause" in most commercial property and marine forms
Who is the insured in a dwelling policy if the policy form includes Coverages A, B, or D?
All of those coverages deal with losses of the dwelling and related structures, so the building's owner is the insured
What part of the Earth Movement Exclusion actually provides coverage under the DP 3?
Any fire or explosion that is caused by earth movement
Coverage B - Other Structures
Applies to structures on the residence premises that are physically separated from the dwelling, or only connected to the dwelling by a fence, wall, wire, or other minimal connection
Coverage A - Dwelling
Covers the value of the dwelling listed in the declarations but not the land on which it is located, protects structures attached to the dwelling (attached garage or toolshed), and items permanently attached to the dwelling (wall-to-wall carpeting or heating/ventilation system)
DP 04 83 - Broad Theft Coverage Endorsement
Covers theft, attempted theft, and vandalism and malicious mischief that result from a theft. It covers damage caused to windows or doors by burglars attempting to enter the home
What is NOT an internal explosion (as part of DP 1 - First Group Perils)?
Electric arcing, breakage of water pipes, or breakage of operation or pressure relief devices, the explosion of steam boilers or steam pipes that the insured owns, leases, or operates, are all not considered internal explosions
DP 1 - Second Group Perils
Extended coverage perils include windstorm or hail, explosion (replaces the internal explosion peril of the first group), riot or civil commotion, aircraft, vehicles, smoke, volcanic eruption
Valerie buys a DP 1 policy to cover her small house. If she buys extended coverage, her policy will cover?
Fire; lightning; internal explosion; vandalism and malicious mischief - A person cannot buy vandalism or malicious mischief coverage without also purchasing coverage against the group of perils commonly known as "extended coverage."
What does DP 3 cover for personal property?
It covers personal property on a named perils basis, with the same perils that the DP 2 covers
DL 24 01 - Personal Liability Supplement Endorsement
Provides coverage comparable to that of Coverage E (Personal Liability) and Coverage F (Medical Payments to Others) in the liability section of a homeowners policy. It may also be written as a separate stand-alone policy
What basis does the DP 2 cover losses of the dwelling and other structures?
RC basis
What coverages does DP 3 form have?
The DP 2 and DP 3 forms have Coverages A, B, C, D, and E
Neglect Exclusion
The DP 3 can exclude a loss that arises from the insured's failure to use all reasonable means to save and preserve property during and after a loss
What part of the Water Damage Exclusion actually provides coverage under the DP 3?
The DP 3 covers loss by fire or explosion that results from water damage. It also covers loss from theft that results from water damage. (However, the unendorsed DP 3 does not cover theft)
Power Failure Exclusion
The DP 3 does not cover a utility service failure that occurs off the premises. However, it may cover a loss that occurs on the premises as a result of this failure
Governmental Action Exclusion
The DP 3 does not cover the destruction or confiscation of the dwelling, other structures, or personal property coverages under governmental authority
Faulty, Inadequate, or Defective Processes, Procedures, Materials, or Maintenance Exclusion
The DP 3 excludes losses arising from faulty or defective processes, procedures, and materials involving planning, zoning, development, surveying, siting, design, specifications, workmanship, repair, construction, or renovation
Olive's personal property is insured by a DP 3 policy. An earthquake breaks some dishes in her kitchen. Sparks from an overturned lamp start a fire that damages her apartment. Which loss does Olive's dwelling policy cover?
The fire damage but not the broken dishes - The earth movement exclusion excludes coverage for Olive's dishes that were broken by the quake but does not exclude coverage for direct loss by the fire that ensued from the earthquake
DP 00 03 Special Form: Open perils property coverage - Dwelling Property 3
This comprehensive form also provides named perils overage on personal property for fire, lightning, internal explosion, electrical current, vandalism, and malicious mischief. This is the most comprehensive form and covers all perils unless it is excluded
