May 27, 2014
Evolution—Overview—Eligibility
Summary: Dwelling forms are used primarily for residential properties that do not qualify for homeowners policies. Some residential properties do not qualify for the homeowners program either because they are nonowner occupied one- to four- family dwellings, such as rental properties, or which, for one reason or another cannot be written under an insurer's homeowners eligibility rules (for example, a huge 150 year-old stone mansion in a deteriorating neighborhood). The dwellings program cannot be used for farm property.
Dwelling policies provide narrower coverage than homeowners forms. They do not provide theft coverage, nor liability or medical payments insurance, unless added by endorsement or coverage supplement. The forms are not "packaged" in the sense that the homeowners program is arranged in a one-stop shop format.
Insurance Services Office (ISO) has revised the dwelling forms and has, as of this writing, begun filing them. However, the earliest effective date is July 1, 2014, so consult your carrier as to when they may be used. The new program is known as Dwellings 2014; the forms edition date is December 2014.
Topics covered: Evolution of the dwelling program
Evolution of the Dwelling Program
The dwelling property program initiated by Insurance Services office in 1974 replaced and standardized the various regional dwelling building and contents forms that were written in accordance with territorial fire rule books. Out of this developed the simplified language dwelling 77 policy program comprising four dwelling property forms: DP-1, the basic form; DP-2, the broad form; DP-3, the special form; and DP-8, the coverage form based on the provisions of DP-1 but with a loss settlement provision for repair cost rather than actual cash value.
The dwelling forms were revised for the 1989 dwelling program, and included many provisions that were previously located in amendatory endorsement DP-330 and special provisions endorsement DP-300. Additionally, changes regarding additional coverages and loss settlement that were made to the 1984 homeowners forms were incorporated in the dwelling property forms.
The forms were revised again in 2002. These forms contained many of the coverages, such as ordinance and law, that were included by amendatory endorsement beginning in 1994.
Once again the forms have been revised; the forms have been filed for an effective date of July 1, 2014. Changes include language clarification and some coverage changes. However, before using the new forms be sure the particular insurer has adopted them.
The dwelling forms use the same type of numbering system as other ISO simplified language programs. Dwelling property form DP-1 (basic coverage) is DP 00 01 07 14; dwelling property form DP-2 (broad coverage) is DP 00 02 07 14; and dwelling property form DP-3 (special coverage) is DP 00 03 07 14.
Unlike the homeowners forms, the dwelling property forms do not contain an extensive list of definitions. The only ones are for you and your, referring to the named insured (and a resident spouse) shown in the declarations, and we, us, and our referring to the insurer.
All three dwelling property forms (DP 00 01, DP 00 02, and DP 00 03) include the following insuring agreements:
· Coverage A—Dwelling;
· Coverage B—Other Structures;
· Coverage C—Personal Property;
· Coverage D—Fair Rental Value.
An additional insuring agreement appears on the broad (DP 00 02) and special (DP 00 03) dwelling forms:
· Coverage E—Additional Living Expense.
However, coverage for personal property is not automatically extended as it is in the homeowners forms. The insured selects an amount of insurance and a separate premium is calculated.
All three dwelling forms contain other coverages; however, they differ substantially from those in the homeowners forms and, indeed, the other coverages provided in the DP 00 01 differ from those in the DP 00 02 and DP 00 03.
The dwelling forms differ as to covered causes of loss, with form DP 00 01 insuring against the perils of fire, lightning, and internal explosion with the option of adding the extended coverage perils (windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, and volcanic eruption) and vandalism or malicious mischief for additional premium. Form DP 00 02 includes the perils of form DP 00 01 plus the extended coverage perils, vandalism or malicious mischief, and the named perils of damage by burglars, falling objects, weight of ice, snow or sleet, accidental discharge, sudden cracking of a steam or hot water heating system, freezing, and sudden damage from artificial electric currents. Form DP 00 03 insures the dwelling and other structures on an open perils basis and insures personal property for the named perils of form DP 00 02.
The base deductible is $250, with optional deductibles available.
Under the dwelling program, theft coverage is available on a limited or broad basis by attaching an endorsement to a dwelling property form. The dwelling fire policy must provide either coverage A or coverage C (for example, a policy providing other structure coverage only is not eligible). For owner-occupied eligible buildings or units, on- and off-premises theft coverage is available (off-premises is only available when on-premises is purchased). On-premises theft coverage only is available for nonowner-occupied eligible buildings or units.
Personal liability coverage may be added by attaching personal liability supplement DL 24 01 07 14 and personal liability schedule endorsement DL 24 03 07 14. (Under ISO rules, a personal liability policy may also be written separately from a dwelling policy.)
Eligibility for Dwelling Property Forms
Insurance under the dwellings program is written in accordance with the general rules and state exception pages in the dwelling manual. The ISO general rules include minimum limits of coverage: coverage A, $12,000 (DP 00 02), $15,000 (DP 00 03); coverage C, $4,000 without coverage A (forms DP 00 02 and DP 00 03). There are no minimum limits for form DP 00 01. However, individual insurers may have their own acceptability and minimum limits requirements, so the exceptions for a given state should be checked.
The form may be used for a one to four family building used for residential purposes. (Incidental business operations do not restrict use of the forms; see below.) The dwelling may be completed or in the course of construction; owner or tenant occupied; free standing or contained in a townhouse or row house structure. Up to five roomers or boarders are permitted.
Although manual rules do not address the eligibility of farm dwellings, the dwelling program is not intended to be used for insuring farm property. In fact, coverage B specifically will not apply to buildings used for farming, although an exception in the 2002 form states the insurer will cover a structure containing farming property owned by the named insured or a tenant. (Rules for insuring farm property are found in the commercial lines manual [CLM]).
Dwelling coverage may be written on mobile or trailer homes, subject to several conditions: the insurance must be written on form DP 00 01; the policy period may not exceed one year; and the mobile or trailer home must remain at the permanent location described in the policy. Additionally, the mobile or trailer home must be used for residence purposes, though like other dwellings, incidental occupancies and roomers or boarders are permitted, and no more than one apartment may be contained in the mobile or trailer home.
Coverage B may be written for other structures at the same location as the eligible dwelling. These buildings can contain permitted incidental occupancies or be rented as private garages. Coverage for other structures located away from the dwelling may be written so long as they are not used for business purposes.
A dwelling, mobile home or trailer home eligible for coverage A protection is also eligible for personal property coverage C. It is also possible to write a dwelling policy to provide personal property coverage in furnished rental apartments or in apartments or condominiums occupied by the insured or rented to others. The coverage A restriction as to the number of units permitted within the structure does not apply here.
The final two dwelling policy coverages are coverage D, fair rental value and coverage E, additional living expense. Both can be scheduled in any form; however, coverage E applies to additional living expense incurred to maintain the insured's household, so it would not be logical to add the coverage to nonowner-occupied property. In the case of fair rental value, coverage may be written for any building eligible under coverage A or B or for any private living quarters eligible under coverage C. There is no restriction on the number of families within the building.
A comparison of these rules to homeowners eligibility rules explains in part the continued demand for dwelling insurance despite the preferred, multi-line approach of homeowners insurance. Homeowners insurers require that the dwelling be owner occupied. Furthermore, homeowners rules generally require higher minimum limits of liability than those for the dwelling property forms. Dwelling forms, on the other hand, may be written on one to four family dwellings and mobile or trailer homes, owner occupied or not. In some cases, dwelling insurance may offer the only means of insuring a low-valued dwelling or mobile home. Conversely, the dwelling property forms may offer the only means of insuring a home that because of age, unique construction, and high replacement value are unable to be insured on homeowners forms.
Dwelling forms are also used to provide insurance on dwellings that, because of their physical condition, do not meet underwriting requirements for homeowners insurance. Accordingly, the rules for some territories contain a rule that permit insurers to assess additional premium for hazardous conditions on the premises, such as unsafe arrangement of chimneys or gas vents, overloaded electrical circuits, deteriorating physical condition, or poor housekeeping.
Permitted Incidental Occupancies
Coverage for an incidental business occupancy may be added to a dwelling policy by endorsement (DP 04 20 12 02) provided the occupancy meets certain criteria. A permitted incidental occupancy must be operated by an owner-insured or a resident insured. A two family dwelling, for example, one half of which is rented to a nonresident for operation as a beauty parlor, would be ineligible. The same structure with the same occupancy would be eligible, however, if the operator of the beauty parlor were to live in the other half.
Permissible incidental occupancies are small service operations such as barber shops, beauty parlors, tailors, dressmakers, shoe repair shops, telephone answering services or occupancies such as offices, music or photographic studios, and private schools. However, no more than two persons may be at work in the operation at any one time.
Contents pertaining to a permitted incidental occupancy may be insured under the dwelling program on the same policy with the dwelling or household contents, but such property must be separately scheduled and the premium computed in accordance with rules set out in the premium section of the manual. Storage of merchandise is also allowed if the value of the merchandise does not exceed $10,000.