3.4 Dwelling Exclusions and Conditions

Property & Casualty Insurance Exam

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1 Introduction

0.1 About the Property & Casualty Exam 0.2 How to Use This Course

2 Chapter 1: Insurance Fundamentals

1.1 Risk and Risk Management 1.2 Types of Risk 1.3 Principles of Insurance 1.4 The Insurance Contract 1.5 Policy Structure and Components

3 Chapter 2: Property Insurance Concepts

2.1 Property Coverage Basics 2.2 Perils, Hazards, and Exclusions 2.3 Valuation Methods 2.4 Coinsurance and Insurance to Value 2.5 Deductibles and Policy Limits

4 Chapter 3: Dwelling Policies

3.1 Dwelling Policy Overview 3.2 Dwelling Policy Forms (DP-1, DP-2, DP-3) 3.3 Dwelling Property Coverages 3.4 Dwelling Exclusions and Conditions

5 Chapter 4: Homeowners Policies

4.1 Homeowners Policy Overview 4.2 Homeowners Policy Forms (HO-2 through HO-8) 4.3 Section I: Property Coverages 4.4 Section II: Liability Coverages 4.5 Homeowners Exclusions 4.6 Homeowners Conditions 4.7 Common Homeowners Endorsements

6 Chapter 5: Personal Auto Policy

5.1 Personal Auto Policy Overview 5.2 Part A: Liability Coverage 5.3 Part B: Medical Payments Coverage 5.4 Part C: Uninsured/Underinsured Motorists 5.5 Part D: Physical Damage Coverage 5.6 PAP Exclusions 5.7 No-Fault Insurance and PIP

7 Chapter 6: Liability Insurance Concepts

6.1 Liability Insurance Basics 6.2 Negligence and Tort Law 6.3 Types of Legal Liability 6.4 Personal Umbrella Policies

8 Chapter 7: Commercial Property Insurance

7.1 Commercial Package Policy (CPP) 7.2 Building and Personal Property Coverage Form 7.3 Causes of Loss Forms 7.4 Business Income Coverage 7.5 Businessowners Policy (BOP)

9 Chapter 8: Commercial General Liability

8.1 CGL Policy Overview 8.2 Coverage A: Bodily Injury and Property Damage 8.3 Coverage B: Personal and Advertising Injury 8.4 Coverage C: Medical Payments 8.5 CGL Exclusions 8.6 CGL Limits and Conditions

10 Chapter 9: Commercial Auto Insurance

9.1 Business Auto Policy Overview 9.2 Covered Auto Designation Symbols 9.3 BAP Liability Coverage 9.4 BAP Physical Damage Coverage 9.5 Garage and Truckers Coverage Forms

11 Chapter 10: Workers Compensation

10.1 Workers Compensation Overview 10.2 Part One: Workers Compensation Insurance 10.3 Part Two: Employers Liability 10.4 Workers Compensation Exclusions 10.5 Other States and USL&H Coverage

12 Chapter 11: Other Commercial Lines

11.1 Inland Marine Insurance 11.2 Ocean Marine Insurance 11.3 Commercial Crime Insurance 11.4 Surety Bonds 11.5 National Flood Insurance Program 11.6 Professional Liability Insurance 11.7 Commercial Umbrella and Excess Liability 11.8 Boatowners and Personal Watercraft Insurance 11.9 Farm and Ranch Insurance 11.10 Mobile Home and Manufactured Housing Insurance 11.11 Title Insurance

13 Chapter 12: Insurance Regulations and Ethics

12.1 Producer Licensing 12.2 Producer Authority and Responsibilities 12.3 Unfair Trade Practices 12.4 Claims Settlement Practices 12.5 State Insurance Department 12.6 Penalties and Disciplinary Actions

3.4 Dwelling Exclusions and Conditions

Key Takeaways Explain This Topic AI

Excluded causes on all DP forms include flood, earthquake, war, nuclear hazard, ordinance or law, government action, intentional loss, neglect, and power failure off premises

Duties after loss require protecting the property, prompt notice, notifying police for theft/vandalism, and a signed proof of loss within 60 days of the insurer's request

The Vacancy Provision applies after MORE than 60 consecutive days vacant: vandalism is excluded entirely and other covered losses are reduced by 15%

The Standard Mortgage Clause protects the mortgagee's interest even when the insured's own coverage is voided by acts or neglect

The Appraisal condition resolves disputes over the amount of loss using two appraisers and an umpire — it does not decide whether coverage applies

Last updated: June 2026

Standard Exclusions

The dwelling forms exclude catastrophic, non-fortuitous, and maintenance losses. These apply to all three forms (the DP-3's open-perils promise is limited by exactly this list).

• Exclusion Why Excluded Alternative
• Flood / surface water Catastrophic, correlated NFIP flood policy
• Earthquake / earth movement Regional catastrophe Earthquake endorsement
• War / nuclear hazard Uninsurable None
• Ordinance or law Code-upgrade cost, not the peril Ordinance/Law endorsement
• Governmental action Seizure/destruction by authority None
• Intentional loss Moral hazard / fraud None
• Neglect Insured must protect property None
• Power failure (off premises) Utility's responsibility None
• Wear, tear, mold, vermin, settling Maintenance, not fortuitous None

Water-damage trap: A sudden burst pipe is covered on DP-2/DP-3; flood, surface water, sewer/drain backup, and continuous seepage are excluded. Sewer backup can be bought back by endorsement.

Duties After Loss

For coverage to apply, the insured must satisfy the policy conditions:

• Duty Detail Timing
• Protect the property Make reasonable temporary repairs Immediately
• Give notice Notify the insurer/agent Promptly
• Notify police If theft or vandalism Promptly
• Prepare inventory List damaged property with values As soon as practical
• Signed proof of loss Cause, interest, amount, other insurance Within 60 days of the insurer's request
• Cooperate / submit to EUO Records, exhibits, examination under oath As requested
• The Vacancy Provision

This is one of the most tested dwelling rules. If the dwelling has been vacant for MORE than 60 consecutive days immediately before the loss:

• Vandalism and malicious mischief — no coverage at all
• All other covered perils (fire, wind, etc.) — payment reduced by 15%

Status Meaning Provision Applies?

• Vacant Empty of contents and not in use Yes after 60 days
• Unoccupied Furnished but nobody currently living there Generally no

Example: A house standing empty and for sale for 75 days is vacant ; vandals cause damage → the loss is not covered . By contrast, a furnished home whose owner is hospitalized for three months is unoccupied , and the vacancy provision does not strip coverage.

Mortgage Clause

The Standard Mortgage Clause protects the lender ( mortgagee ) named in the policy:

Loss payment is made to the insured and mortgagee as their interests appear.

The mortgagee's right to recover survives even if the insured's acts (fraud, increased hazard, neglect) would otherwise void coverage.

The mortgagee must, on request, pay the premium if the insured fails to, file its own proof of loss , and notify the insurer of ownership/occupancy changes it knows of.

The insurer must give the mortgagee separate cancellation/nonrenewal notice (commonly 10 days for nonpayment, longer for other reasons).

• Loss Settlement and Dispute Provisions
• ACV vs. Replacement Cost

ACV = replacement cost − depreciation (DP-1).

Replacement cost on DP-2/DP-3 applies if the insured carries at least 80% of the building's replacement cost (the coinsurance requirement); otherwise the insurer pays the greater of ACV or a proportional amount.

Coinsurance formula: (Carried ÷ Required) × Loss − Deductible = Payment. If a $200,000 home (80% required = $160,000) is insured for only $120,000 and suffers a $40,000 loss: ($120,000 ÷ $160,000) × $40,000 = $30,000 before deductible.

Appraisal

If the parties agree coverage applies but dispute the amount : each picks a competent appraiser, the two select an umpire , and an agreement of any two of the three sets the amount. Each side pays its own appraiser; umpire costs are shared . Appraisal settles amount , never whether a loss is covered.

Other Conditions

• Condition Effect
• Other insurance Pro-rata sharing among policies covering the same loss
• Subrogation Insurer steps into the insured's rights against a negligent third party
• Assignment Policy may not be transferred without insurer consent
• Suit against us Suit must be brought within 2 years of the loss (varies by state)

Liberalization If the insurer broadens a form at no charge during the period, the broader terms apply automatically

• Concealment or fraud Material misrepresentation voids coverage for the offending insured
• How Exclusions Interact With the DP-3 Open-Perils Promise

A frequent exam misconception is that the DP-3 "covers everything." It does not. The open-perils language means covered unless excluded , so the exclusion list is what actually defines the contract. Two exclusion groups deserve special attention:

Anti-concurrent-causation language: flood, earthquake, and certain water losses are excluded even if another covered peril contributes to the same loss. A landslide triggered by heavy rain is still excluded earth movement.

Maintenance-related losses (wear and tear, mold, vermin, settling) are excluded because insurance covers fortuitous (sudden, accidental) events, not the predictable consequences of deferred upkeep — a recurring landlord dispute.

Worked Coinsurance Scenario

A landlord insures a building with a replacement cost of $250,000 . The policy requires 80% coverage = $200,000 , but the landlord carries only $150,000 . A covered fire causes $50,000 of damage; the deductible is $1,000 .

Step 1 — coinsurance factor: $150,000 ÷ $200,000 = 0.75 .

Step 2 — apply to loss: 0.75 × $50,000 = $37,500 .

Step 3 — subtract deductible: $37,500 − $1,000 = $36,500 paid.

The landlord absorbs the remaining $13,500 as a coinsurance penalty for underinsuring — a result the exam tests to ensure candidates apply the penalty before the deductible.

Vacancy vs. Increase-in-Hazard — Don't Confuse Them

The vacancy provision is a specific 60-day rule with two defined consequences. Separately, the policy can suspend coverage for a general increase in hazard that the insured controls (for example, storing flammable inventory in a residence). Both can reduce or eliminate a recovery, but the vacancy provision is the one with the exact 60-day / no-vandalism / 15%-reduction numbers candidates must memorize verbatim.

Cancellation and Nonrenewal Notice

State law layers notice requirements onto the policy conditions. As a rule of thumb tested generically: the insurer must give roughly 10 days' notice for nonpayment and a longer period (commonly 30 days or more ) for other reasons, with separate notice to the named mortgagee . Exact day counts vary by state, so on a state-specific question, follow the state's table rather than the federal-style default.