3-B DWELLING Flashcards
Who can get a Dwelling Policy?
● Persons not eligible for homeowners insurance
● Corporations not eligible for homeowners insurance
● Persons or corporations who do not need HO options
● Property only, not liability (unless an endorsement is added)
Eligible Structures
What types of property can it cover?
● Single-family homes
● 1-4 unit dwellings (duplexes, four-plexes, etc.)
● Dwellings with no more than 5 occupants
● Mobile homes, if permanently installed
● Incidental business risks, if insurer allows
examples: ● A duplex rented to others ● A low-value home ● A home with a low-balance mortgage ● A hunting cabin
Example
A company that wants to insure a dwelling for use by its out-of-town visitors would not be eligible for a homeowner’s policy, and would instead require a Dwelling policy.
Dwelling Forms
Dwelling coverage varies depending on the form
Three forms:
- DP-1 “Basic Form”
- DP-2 “Broad Form”
- DP-3 “Special Form”
DP-1 Basic Form
● Named-peril coverage
● Covers only fire, lightning, internal explosion
DP-1 Basic Form
Popular endorsements:
● Vandalism and Malicious Mischief (VMM):
○ Intentional injury or destruction of covered property
○ Does not include: pilferage, theft, burglary, larceny
● Extended Coverage:
- Windstorm
- Civil Commotion
- Smoke
- Hail
- Aircraft
- Vehicles
- Volcanic eruption
- External explosion
- Riot
DP-2 “Broad Form”
Similar to the DP-1, the DP-2 is a named peril policy, but instead of covering just the 9 Extended Form perils, it includes all of the Broad Form perils.
Vandalism and Malicious Mischief
Damage by burglars Glass breakage in occupied dwellings Falling objects that damage the exterior Weight of precipitation Sudden tearing apart, cracking, burning, bulging Accidental discharge Collapse
Freezing
DP-3 “Special Form” Coverage
Open-peril coverage to structures:
● If a peril is not excluded, it is covered
Named-peril coverage to personal property
● Includes all the perils that the DP-2 “Broad Form” covers
Exclusions to DP-3 coverage:
● General Exclusions listed in the policy
● Settling, cracking, shrinking, bulging of patios, foundations, etc.
● Damage from birds, insects, vermin, domestic animals
● Wind or hail damage to antennas, lawns, trees.
● Ice or snow damage to awnings, fences, outdoor structures, foundations
● Theft of anything not part of structure
● Pollutant damage
● Gradual or expected loss from wear & tear, marring, or deterioration
● Mechanical breakdown
● Inherent vice: a characteristic of an item that causes it to damage or destroy
itself
○ different than “wear & tear,” which is deterioration caused by an external source
● Smoke from agricultural or industrial operations
10 Dwelling Policy Sections
● Coverage A ● Coverage B ● Coverage C ● Coverage D ● Coverage E ● Additional Coverages ● Exclusions ● Conditions ● Endorsements, if any
Coverage A - Dwelling:
● Principal dwelling
● Attached structures: garages, apartments, etc.
● Service machinery: furnace, A/C compressor, etc.
● Building materials on or next to the dwelling (if they will become part of the
dwelling eventually)
Not Included under Coverage A:
● Construction tools
● Damage to the land itself
Coverage A - Dwelling Example
Say Tim uses his detached garage to store some reclaimed baseboard that he intends to install in his family room someday. The baseboard is Coverage A property. But, if he intends to use the baseboard at his lake house in the next county, it would not fall under this coverage.
Coverage B
Coverage B - Other Structures:
● Appurtenant Physical Structures (APS): structures that are not attached to dwelling
○ Detached garage, guest house, shed, gazebo, fence, mailbox, lamp post
Limit: 10% of Coverage A limit (per claim)
● Under DP-1, the 10% is included as part of Coverage A limit ● In DP-2 and DP-3, the 10% is added to the Coverage A limit
Coverage B Exclusions
● Buildings used for business or farming (unless used only for storing equipment)
● Buildings rented to someone who is not a tenant of principal dwelling (unless
rented as private garage only)
● Gravestones, plots, mausoleums
Coverage C - Personal Property:
Any personal property located on the insured premises
Coverage for property off-premises:
● Limit: 10% of Coverage C limit
● Not additional insurance
Typical Coverage C exclusions:
● Animals ● Vehicles ● Aircraft, hovercraft ● Boats ● Paper and electronic data ● Credit and debit cards ● Money ● Grave markers ● Water or steam
Direct vs. Indirect Loss
Coverage A, B, & C cover direct losses.
● Direct loss: loss to tangible property, such as to building or personal property
Coverage D, E cover indirect losses.
● Indirect loss: economic loss that results from a direct loss
Coverage D - Fair Rental Value (FRV):
● Pays for rental income lost due to damage by an insured peril, such as fire.
● Accounts for net loss, not for discontinued utilities
● Applies for the shortest time it takes repairs to be completed
Coverage D - Fair Rental Value (FRV) Example
Bill has to move out because Jill’s building has been damaged by fire. It takes Jill three months to repair the apartment, but Bill has meanwhile found another place to live. Another tenant does not move in for an additional two months.
Although Jill lost five months’ income, her insurer will only pay for three months’ rental because this is how long it took for repairs to be completed.
Coverage E: Additional Living Expense (ALE):
● For the increase in the insured’s living expenses when a covered peril makes
the dwelling uninhabitable
● Maintains insured’s normal standard of living
● Does NOT include any normal, ongoing expenses the insured would be paying
anyway (mortgage, etc.)
● Automatically included in DP-2 and DP-3
● Not included in DP-1 unless added by endorsement
Coverage E: Additional Living Expense (ALE) Example
Say Beth normally pays $100 per week for groceries. When her house is burned in a fire, she has to go stay in a hotel for a few weeks, and she ends up spending $175 per week on her meals. ALE coverage would only pay her $75 per week, since she would be spending the other $100 even if the loss had not occurred.
Limits to Coverages D & E
Time-based Limits
● Apply to Coverage D (FRV) and Coverage E (ALE)
● Policy covers these expenses for the shortest time required for the insured to:
○ repair or replace the property, or
○ settle elsewhere
Note: limit may be different for ALE in the DP-1
Civil Authority Coverage
● Applies when a civil authority prohibits access to dwelling because of damages at a nearby property
● Damages must have been caused by a covered peril
● Provides FRV and ALE for up to 2 weeks
Coverage A - Dwelling
Covers main dwelling, attached structures, and service machinery.
Coverage B - Appurtenant Physical Structures
Covers detached structures up to 10% of Coverage A limit.
Coverage C - Personal Property
Covers personal property at the Described Location.
Coverage D - Fair Rental Value
Pays lost rental income after a covered loss.
Coverage E - Additional Living Expenses
Pays added living expenses after a covered loss.
Limits for Coverages D and E:
shortest time required to repair or replace the property or settle elsewhere.
Additional Coverages
Some are included as part of the policy limit:
● Debris Removal
● Reasonable Repairs
Others are paid on top of any policy limit:
● Ordinance or Law
● Fire Department Service Charge
● Trees, Shrubs, Plants
Debris Removal
Pays to clean up debris that is:
● Made up of covered property
● Damaged by a covered peril
Limit: the limit for the type of property involved
● Debris from dwelling: Coverage A limit
● Debris from other structures: Coverage B limit
● Debris from personal property: Coverage C limit
Additional insurance:
Debris Removal can pay an additional 5% of its applicable limit over and above the policy limit, when needed
Reasonable Repairs
● Pays for materials and labor to prevent further damage to covered property after a loss
● Insured is required to protect damaged property
● Coverage is included within Coverage A limit
Ordinance or Law
● Pays for increased repair costs due to laws or building codes
● Available only on DP-2 and DP-3
● Provides additional 10% on top of Coverage A
Ordinance or Law; Excluded:
● Any change that decreases value of property
● Any change that requires monitoring or testing
● Remediation of pollutants
● Confiscation, seizure, demolition, condemnation of property by government
Ordinance or Law Example
If your roof was destroyed and new codes require shingles of higher quality than the old ones, this coverage pays the difference, up to its limit, of course.
Fire Department Service Charge
● Applies when the fire department charges to respond to covered peril
● Limit: $500
● Pays in addition to Coverage A limit
Trees, Shrubs, Other Plants
● Covers plant damage caused by covered perils, except wind and hail
● Limit: 5% of Coverage A
● Individual limit: $500 for any one tree, shrub, or plant
● Pays in addition to Coverage A limit
Property Removal
● Provides coverage for items that the insured removes from danger if a covered peril is imminent
● Property remains covered under the original peril for:
○ up to 5 days under DP-1
○ up to 30 days under DP-2 and DP-3
● No matter what damages the property during this time, it will still be covered under the peril that the insured was trying to protect it from
Dwelling Policy Conditions
● Insurable Interest ● Duties of Insured Party ● Other Insurance ● Mortgagee Clause ● Liberalization Clause ● Recoverable Depreciation and Claims Settlement basis ● Suit against the Insurer ● Abandonment ● Intentional Acts
Liberalization
Applies to changes made during or up to 60 days before the policy period.
Valuation
● DP-1 policies settle Coverages A and B at ACV.
● DP-2 and DP-3: settle coverages A and B at replacement cost if property is
insured to at least 80% of value (Loss Settlement provision is just like HO policy)
Personal Liability Endorsement
● Almost identical to Section II - Liability in a HO policy
● Coverage L - Personal Liability
○ Covers bodily injury and property damage to 3rd party
○ Pays for legal defense
○ Minimum limit = $100,000
● Coverage M - Medical Payment to Others
○ No-fault coverage ○ Pays for necessary, reasonable medical expenses for 3rd party injured on insured’s premises ○ Minimum limit = $1,000 ● No coverage for loss assessment
Other Popular DP Endorsements:
Theft
Automatic Increase
Dwelling Under Construction
Theft:
● Limited covers theft from premises
● Broad covers property anywhere
Automatic Increase:
raises coverage annually 4, 6, or 8%
Dwelling Under Construction:
covers structure while being built
Perils excluded from coverage:
● Water back-up from sewers or drains
● Water and water-borne materials or pollutants
● Off-premises power failure (but power failure on the property is covered)
● War and Nuclear Hazard
● Flood
● Earthquake, landslide, sinkhole, or any earth movement
● Neglect and intentional acts
