3.3 Dwelling Perils, Conditions, and Endorsements

Arkansas Property & Casualty Insurance State

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1 Standalone Coverage Map

Standalone Coverage Map

2 Introduction: Arkansas Property & Casualty Insurance Exam Overview

Arkansas Property & Casualty Exam Overview

3 National Portion: Insurance Fundamentals

1.1 Risk, Hazards, Perils, and the Law of Large Numbers 1.2 Insurable Interest, Indemnity, and Other Insurance Principles 1.3 Insurance Contract Law and Elements 1.4 Policy Structure: Declarations, Insuring Agreement, Conditions, Exclusions 1.5 Parties, Agents vs. Brokers, and Authority

4 National Portion: Property Insurance Concepts

2.1 Causes of Loss / Named-Peril vs. Open-Peril 2.2 Valuation: ACV, Replacement Cost, and Functional Value 2.3 Coinsurance and the Coinsurance Formula 2.4 Deductibles, Limits, and Loss Settlement 2.5 Common Property Policy Conditions and Clauses

5 National Portion: Dwelling Policies (DP)

3.1 Dwelling Policy Forms DP-1, DP-2, DP-3 3.2 Dwelling Coverages A-E and Other Coverages 3.3 Dwelling Perils, Conditions, and Endorsements 3.4 Mobile Home and Specialized Dwelling Coverage

6 National Portion: Homeowners Policies - Forms & Section I

4.1 Homeowners Forms HO-2 through HO-8 and Eligibility 4.2 Section I Coverages A-D and Additional Coverages 4.3 Section I Perils Insured Against and Exclusions 4.4 Replacement Cost vs. ACV and Loss Settlement in Homeowners

7 National Portion: Homeowners Policies - Section II & Endorsements

5.1 Section II Coverages E (Liability) and F (Medical Payments) 5.2 Homeowners Conditions and Duties After Loss 5.3 Common Homeowners Endorsements (scheduled property, water backup, ordinance or law)

8 National Portion: Personal Auto Policy - Liability & Injury

6.1 Personal Auto Policy Structure and Eligibility 6.2 Part A Liability and Supplementary Payments 6.3 Part B Medical Payments 6.4 Part C Uninsured/Underinsured Motorists

9 National Portion: Personal Auto Policy - Physical Damage & Duties

7.1 Part D: Coverage for Damage to Your Auto 7.2 Exclusions and Part E: Duties After an Accident 7.3 Part F: General Provisions, Endorsements, and No-Fault Concepts

10 National Portion: Liability Insurance Concepts

8.1 Negligence, Torts, and Legal Liability 8.2 Defenses, Damages, and Vicarious Liability 8.3 Occurrence vs. Claims-Made Triggers 8.4 Bodily Injury, Property Damage, and Personal/Advertising Injury

11 National Portion: Commercial Property Insurance

9.1 Commercial Package Policy Structure and Common Policy Conditions 9.2 Building and Personal Property Coverage Form (BPP) 9.3 Causes of Loss Forms (Basic, Broad, Special) 9.4 Business Income and Extra Expense 9.5 Commercial Property Endorsements and the BOP

12 National Portion: Commercial General Liability - Coverages

10.1 CGL Coverage A: Bodily Injury and Property Damage Liability 10.2 CGL Coverage B: Personal and Advertising Injury, Coverage C: Medical Payments 10.3 Who Is an Insured and Supplementary Payments

13 National Portion: Commercial General Liability - Limits, Triggers & Exclusions

11.1 CGL Limits of Insurance and Aggregates 11.2 Occurrence vs. Claims-Made CGL and Retroactive Dates 11.3 Key CGL Exclusions and Endorsements

14 National Portion: Commercial Auto Insurance

12.1 Business Auto Coverage Form and Covered Auto Symbols 12.2 Commercial Auto Liability and Physical Damage 12.3 Motor Carrier / Trucking and MCS-90 12.4 Garage Coverage Form and Garagekeepers 12.5 Commercial Auto Endorsements

15 National Portion: Workers Compensation

13.1 Workers Compensation Statutory Background and Benefits 13.2 Part One (Workers Comp) and Part Two (Employers Liability) 13.3 Premium Basis, Experience Modification, and Classification 13.4 Other States, USL&H, and Federal Acts 13.5 Workers Comp Exclusions and Endorsements

16 National Portion: Other Commercial Lines - BOP, Crime & Marine

14.1 Businessowners Policy (BOP) in Depth 14.2 Crime and Fidelity Coverage 14.3 Inland Marine and Nationwide Marine Definition 14.4 Ocean Marine Coverages (Hull, Cargo, Freight, P&I)

17 National Portion: Other Commercial Lines - Specialty & Professional

15.1 Farm and Agricultural Coverage 15.2 Commercial Umbrella and Excess Liability 15.3 Professional Liability and Errors & Omissions 15.4 Directors & Officers and Employment Practices Liability

18 National Portion: Other Commercial Lines - Surety, Flood & Specialty

16.1 Surety and Fidelity Bonds 16.2 National Flood Insurance Program (NFIP) 16.3 Cyber, Aviation, and Other Specialty Lines

19 National Portion: Insurance Regulation & Market Conduct

17.1 State Regulation, Licensing, and the McCarran-Ferguson Act 17.2 Rates, Forms, Solvency, and Guaranty Associations 17.3 Producer Authority, Fiduciary Duty, and Company Operations

20 National Portion: Ethics & Unfair Trade Practices

18.1 Unfair Trade Practices and Unfair Claims Settlement 18.2 Producer Ethics, Errors & Omissions Exposure, and Fiduciary Conduct 18.3 Privacy, Fraud, and Consumer Protection

21 Chapter 1: Arkansas P&C Insurance Regulation & Licensing

1.1 Arkansas Insurance Department 1.2 Arkansas P&C Producer Licensing Requirements 1.3 Arkansas Producer Responsibilities

22 Chapter 2: Arkansas Property Insurance

2.1 Arkansas Homeowners Insurance 2.2 Arkansas Commercial Property Insurance

23 Chapter 3: Arkansas Casualty & Auto Insurance

3.1 Arkansas Auto Insurance Requirements 3.2 Arkansas Liability Insurance 3.3 Arkansas Workers' Compensation Insurance

24 Chapter 4: Arkansas Ethics & Professional Conduct

4.1 Ethical Practices and Consumer Protection

3.3 Dwelling Perils, Conditions, and Endorsements

Key Takeaways Explain This Topic AI

DP-2 adds broad named perils over DP-1's basic perils; DP-3 is open-peril on the building, so the insurer bears the burden of proving an exclusion to deny a claim.

The DP coinsurance/loss-settlement provision requires insuring to at least 80% of replacement cost to collect replacement cost on partial losses; underinsurance triggers a penalty paid at ACV.

Common exclusions mirror HO forms: ordinance or law, earth movement, water damage (flood/sewer backup), war, nuclear hazard, neglect, and intentional loss.

Key endorsements include the Personal Liability Supplement (adds Coverage L and M), Automatic Increase in Insurance, Broad Theft/Limited Theft, and Dwelling Under Construction.

Vandalism coverage is suspended after 60 consecutive days of vacancy, and the vacancy condition can reduce or void recovery on certain perils.

Last updated: June 2026

Perils Across the Forms

Form Peril Basis Burden of Proof

DP-1 Basic named: fire, lightning, internal explosion (EC and V&MM optional) Insured proves a covered peril caused the loss

DP-2 Broad named: adds falling objects, weight of ice/snow/sleet, accidental water discharge, freezing, artificially generated electrical current, building collapse Insured proves a covered peril

DP-3 Open peril on Coverage A and B; broad named on Coverage C Insurer must prove an exclusion to deny

The burden-of-proof shift on DP-3 is the single most important practical advantage of the open-peril form.

Coinsurance and Loss Settlement

The dwelling replacement-cost loss settlement condition (on DP-2 and DP-3) requires the insured to carry at least 80% of replacement cost at the time of loss to collect full replacement cost on a partial loss. If they carry less, the recovery is the greater of ACV or the amount produced by the coinsurance formula:

• Payment = (Amount of insurance carried / Amount required) x Loss, less deductible
• Worked Numeric: Coinsurance Penalty

A dwelling has a replacement cost of $400,000 . The 80% requirement = $320,000 . The owner carries only $240,000 . A partial fire loss costs $100,000 ; the deductible is $1,000 .

• Coinsurance ratio = $240,000 / $320,000 = 0.75
• 0.75 x $100,000 = $75,000
• Less the $1,000 deductible = $74,000 paid

The owner absorbs the remaining $26,000 of the loss as a penalty for underinsuring. Had they carried $320,000 or more, the policy would pay the full $100,000 minus the deductible ($99,000).

Exam trap: Coinsurance is tested on replacement cost , not market value or the limit purchased. Land value is never included in the replacement-cost calculation.

Standard Exclusions

The DP exclusions track the homeowners forms closely:

• Ordinance or law — cost to rebuild to current code (add the Ordinance or Law endorsement)
• Earth movement — earthquake, landslide, sinkhole collapse, mudflow
• Water damage — flood, surface water, sewer/drain backup, underground water
• Power failure off-premises, neglect , war , nuclear hazard
• Intentional loss by an insured

Exam trap: Flood is NEVER covered by a dwelling policy. Direct an exam scenario involving rising water to the National Flood Insurance Program (NFIP), not to a DP endorsement.

Key Conditions

Vacancy — Vandalism and glass breakage are suspended after the dwelling is vacant more than 60 consecutive days .

Pro rata liability / Other Insurance — the policy pays its share when other coverage applies.

Subrogation, appraisal, and the suit-against-us clause all mirror standard property conditions.

Common Endorsements

Endorsement Effect

Personal Liability Supplement Adds Coverage L (personal liability) and M (medical payments) the base form lacks

• Automatic Increase in Insurance Raises Coverage A by a stated percentage each year for inflation
• Broad Theft / Limited Theft Adds theft (Broad for owner-occupants; Limited for non-owner-occupied)
• Dwelling Under Construction Insures a home being built, with limits keyed to completed value
• Ordinance or Law Pays the extra cost to rebuild to current building code
• Replacement Cost Versus Actual Cash Value

The valuation method drives the dollars an exam question expects. Actual cash value (ACV) is replacement cost less depreciation , reflecting age and wear. Replacement cost pays to repair or replace with like kind and quality without deducting depreciation, subject to the 80% coinsurance requirement. DP-1 settles building losses at ACV; DP-2 and DP-3 settle at replacement cost when the 80% test is met. On contents, even DP-3 typically settles at ACV unless a replacement-cost-on-contents endorsement is added — a distinction candidates routinely miss.

How Coinsurance Penalties Actually Bite

Coinsurance penalizes only partial losses. On a total loss, the policy simply pays the limit (or the replacement cost up to the limit) regardless of the 80% test, because the insured cannot recover more than the limit anyway. The penalty therefore matters most on moderate fires and storm claims where the insured carried, say, 60% of replacement cost. Always identify whether the exam scenario is partial or total before applying the formula — a total-loss question that tempts you into a coinsurance calculation is a classic trap.

The Mortgagee (Loss Payee) Clause

Nearly every insured dwelling carries a mortgage, so the standard mortgage clause is a tested condition. It protects the lender's interest even if the insured's own claim is denied for an act the insured committed (such as arson or misrepresentation). The mortgagee receives separate notice of cancellation (commonly 10 days for nonpayment), may pay a premium the insured failed to pay, and is paid to the extent of its interest before the owner. This independent protection is why lenders require evidence of insurance before closing.

Other Insurance and Pro Rata Liability

When more than one policy covers the same loss, the dwelling form's pro rata clause shares the loss in proportion to each policy's limit. If a $100,000 loss is covered by a $300,000 policy and a $100,000 policy ($400,000 total), the first pays 75% ($75,000) and the second pays 25% ($25,000). This prevents the insured from collecting more than the loss and is the property-side analog to contribution by equal shares in liability coverage. Recognizing pro rata sharing is essential for multi-policy exam scenarios.